Since being acquired in 2005 within the A$9.2b takeover of WMC, sentiment regarding BHP’s Nickel West operations have fluctuated significantly. At multiple points in the last 15 years, Nickel West was slated for sale and considered an unattractive liability in the BHP portfolio. However, due to an unanticipated market shift and the adoption of a decentralised operating model, it is now flourishing.
BHP’s investment pillars centre around continuous production commodities which offer systemic growth over generations. In 2015, BHP spun the assets out which didn’t quite fit under this mandate into South32. This included the assets in less attractive, more volatile commodities which required a more flexible and technical way of mining such as manganese, alumina and silver.
Nickel West was set to be included in this spin-out of assets, however at the time, its rehabilitation liability made it highly unattractive to South32. As a result, it didn’t make the slate and instead BHP chose to put it on the market separately.
In preparation for its sale, BHP separated Nickel West from its core business in every way they could – separate leadership, governance, operating and process structures. Despite being on the market for three or four years, BHP never found the right buyer. In this time however, the battery market began to boom, and nickel prices responded.
Nickel, a key component in stainless steel, is generally considered a commodity which struggles to make money. However, every cycle, prices increase to approximately six times the ‘long-term price average’, allowing these assets to reap the rewards. As a result, it is often considered the ultimate option play commodity, a sentiment undergoing a collective re-evaluation due to the emerging battery market.
With the trends of decarbonization and electrification creating greater demand for energy storage minerals, the size of the market nickel can service has become larger and more diversified. Whilst this has driven prices up, and potentially resulted in more stability, the volatility of the nickel market remains an important characteristic of the industry.
BHP’s recent ability to ramp-up and down operations has been crucial in maximizing value from the volatile price shifts – an ability underpinned by Nickel West’s decentralised operating model, which leaves the asset relatively unrestrained in responding to shifts in the market.
In the last 18 months, Nickel West has invested heavily in the further expansion of their nickel operations, securing a greenfield exploration campaign in southern WA, increasing brownfield exploration efforts and investing in a number of key facilities, including a significant downstream processing plant. These investment decisions were not encumbered by the same governance procedures that traditional BHP assets would be, allowing for a rapid response time.
Despite the asset not quite fitting into the traditional BHP asset portfolio, being supported by strong commodity prices, a growing demand profile and operating agility, we may soon see Nickel West as a core driver of value within the company – a proposition that 18 months ago, may have been considered outrageous.
Feature image: BHP