BHP flags $5.7 billion impairments on Samarco dam failure, nickel operations

By Melanie Burton

MELBOURNE (Reuters) -BHP Group will record another $3.2 billion impairment in relation to its Brazilian Samarco dam failure, and a $2.5 billion impairment charge for its Western Australia Nickel business, the world's biggest listed miner said on Thursday.

BHP flagged the two-non cash impairments ahead of its half year results next week where its earnings are expected to have broadly held up against the same time last year, underpinned by strong iron ore prices.

Last month a federal judge in Brazil ruled that BHP and Vale and their joint venture, Samarco, must pay up to 47.6 billion reais ($9.67 billion) in damages for the 2015 dam collapse, in a decision still subject to appeal.

The collapse in the southeastern city of Mariana caused a giant mudslide that killed 19 people and severely polluted the Rio Doce river, compromising the waterway to its outlet in the Atlantic Ocean.

The additional $3.2 billion income statement charge will raise BHP Brasil's provision for the Samarco dam failure to $6.5 billion as at Dec. 31, 2023, BHP said.

"The first thing to note is they are book writedowns not cash writedowns.. Nickel West wasn't contributing anything to their profits," said head of research Hayden Bairstow at Argonaut Securities in Perth. The writedowns are unlikely to impact dividend payments which stem from its iron ore unit.

The miner last month flagged a potential writedown at its Western Australian nickel operations as a jump in nickel supply from Indonesia has led to a swathe of writedowns and restructures across the sector. It has an arrangement to supply nickel to Tesla from the operations.

"Due to the deterioration in the short-term and medium-term outlook for nickel, BHP has lowered its nickel price assumptions," the miner said. "These unfavourable operating conditions are expected to endure for a considerable time."

BHP produced 80,000 tonnes of nickel in the financial year ending June but the division contributed -1% to its underlying earnings.

BHP said it would record a $2.5 billion non-cash impairment, including closure and rehabilitation provisions of approximately $900 million, which would reduce the carrying value of its Nickel West assets to minus $300 million.

The operations are now under review with the potential to be placed on care and maintenance.

BHP's Kambalda concentrator will be placed into care and maintenance in June after its supplier, mining company Wyloo, decided to suspend its Cassini and Northern Operations mines, which feed the plant, from late May.

It is also assessing development plans for its West Musgrave nickel project which is 21% complete.

BHP will report first-half results on Tuesday, Feb. 20.

(Reporting by Melanie Burton in Melbourne and Sameer Manekar in Bengaluru;Editing by Shinjini Ganguli, Aurora Ellis and Michael Perry)