AUS
NZ
UK
CA
USA
FRA
GER
ESP
ITA
NLD
PRT
SWE
GRC
IND
POL
BRA
ZAF
RUS
CHN
UAE
On Thursday morning, BHP Group Ltd (ASX: BHP) witnessed a decline in its shares, down by 1.5% to $45.25. This drop follows the company's revelation of several exceptional items set to impact its upcoming half-year results.
What's Behind the Decline?
Impairments concern the carrying value of the Nickel West operations and the West Musgrave project (Western Australia Nickel), while the provision relates to the Samarco dam failure. ASX mining stocks, including those involved in nickel and other minerals, have been impacted by such impairment assessments and provisions. These factors contribute to the volatility and risk considerations within the mining sector, prompting investors to closely monitor companies' financial disclosures and strategic responses.
Nickel Impairment
BHP's management highlights the challenges faced by the nickel industry, notably a sharp fall in nickel prices. Factors contributing to this decline include increased nickel supply from Indonesia and the London Metals Exchange's acceptance of Indonesian-origin nickel products.
As a consequence of these unfavorable conditions, BHP has taken the decision to impair the assets of Western Australia Nickel by US$2.5 billion, resulting in a negative carrying value of US$0.3 billion. Additionally, the company expects to report underlying EBITDA of approximately negative US$0.2 billion for Western Australia Nickel in its half-year results.
Efforts are underway to optimize operations at Nickel West, with a focus on cost reduction and exploration of strategies to mitigate the impact of low prices.
BHP CEO Mike Henry remarked, "This is an uncertain time for the Western Australia nickel industry, and we are taking action to address the current market conditions. We are reducing operating costs at Western Australia Nickel and reviewing our capital plans for Nickel West and West Musgrave."
Samarco Provision
Adding to the downward pressure on BHP shares is the announcement of a US$3.2 billion post-tax charge related to the Samarco dam failure. This charge encompasses the estimated costs associated with resolving all aspects of the Federal Public Prosecution Office Claim and the Framework Agreement obligations.
Henry commented, "BHP Brasil along with Samarco and Vale continue to progress negotiations towards a settlement of the Federal Public Prosecutor Office Claim and Framework Agreement obligations in Brazil. The Renova Foundation has made good progress on reparation and compensation programs, and over 84% of the community resettlement cases have been completed."
Conclusion
The disclosure of these exceptional items has prompted investors to sell off BHP shares. While these developments present challenges, BHP remains committed to addressing market conditions and fulfilling its obligations in relation to the Samarco dam failure. As the situation unfolds, investors will be closely monitoring BHP's actions and strategies to navigate through these challenging times.
