Mining Giant BHP Takes Massive Impairment Charges for Nickel Arm and Samarco Dam Failure

Mining conglomerate BHP has disclosed today that it will incur a non-cash impairment charge of approximately $3.5bn against the carrying value of its Western Australia Nickel division. Additionally, a further $3.1bn charge will be registered as a provision for the Samarco dam disaster, as revealed in its financial results for the six months ending December.

In relation to the Samarco catastrophe, BHP stated that it opted to increase its provision following a review of additional data stemming from settlement negotiations and the recent judicial ruling on collective moral damages.

At the conclusion of January, the Federal Court of Brazil decreed that BHP, along with its partners Vale and BHP Brasil, were collectively and individually liable to disburse collective moral damages amounting to $9.75bn, subject to adjustment for interest and inflation. There exists a dispute over this sum, with an appeal and clarification motion filed to rectify certain factual inaccuracies in the decision, including the damage calculation.

A verdict on the motion is pending, and BHP’s local subsidiary in Brazil, BHP Brasil, intends to contest the ruling, questioning both the rationale and quantum of the damages, although the company forewarned that the legal process could endure between two to five years.

BHP has also announced it will recognize an impairment charge on its Western Australia Nickel segment. The firm obtained the West Musgrave project from OZ Minerals during its acquisition of the latter entity in early 2023 for $6.4bn, subsequently integrating it into its Western Australia Nickel operations.

Nonetheless, amid deteriorating conditions in the nickel market, BHP has decided to devalue the acquisition. The company cited a downgrade in its nickel price assumptions and increased capital expenses for Western Australia Nickel due to inflation as key reasons for the impairment decision taken as of December 31, 2023.

These developments come on the heels of Glencore’s choice to halt operations at the Koniambo Nickel project and processing facility in New Caledonia. As the largest commodity trader globally, Glencore owns a 49% stake in the Koniambo Nickel enterprise and suspended operations owing to escalating costs and depressed nickel prices, with write-offs of about $4bn tied to the undertaking.