BHP mulls nickel sale as price hits 9-month high

Indonesia’s proposed ban on ore exports has pushed nickel prices to a nine-month high, as Glencore Xstrata thinks about buying BHP’s Nickel West operation.

Buoyant future? Workers at BHP’s Nickel West operations.

Ivan Glasenberg, Glencore’s biggest shareholder and chief executive, told analysts overnight that the world’s fourth-biggest miner would “kick the tyres” on Nickel West, BHP’s nickel operations in Western Australia.

“It’s something that would make sense,” Glasenberg said, “but it is an asset that’s had its problems.”

BHP has long downplayed its nickel operations, instead choosing to push for a ‘four pillar’ business, consisting of iron ore, coal, oil and gas, and copper operations; nickel is seen as a more peripheral industry.

The world’s biggest miner has booked impairment charges on the Nickel West operations of over $1.6bn in the last two financial years.

Glencore, however, seems to have a bit more time for nickel, and its Murrin Murrin mining and refining project (which falls under its Minara unit) is situated nearby much of the Nickel West operation.

Murrin Murrin, though, has also had a tough time of late. Earlier this week Glencore took an almost $500m impairment charge on it.

But the prospect of buying Nickel West – which would cost less than $1bn, according to reports – may be a more attractive one given the nickel price, which closed yesterday at a nine month high of US$14,505/tonne – and at one point was as high as US$15,165/tonne.

Nickel has been on the up since it dropped as low as US$13,800/tonne in July 2013, and has been especially buoyant lately after Indonesia announced plans to ban ore exports.

The 8% price growth for nickel so far this year makes it the best performing base metal on the London Metal Exchange in the period.

Indonesia, the world’s biggest supplier of nickel ore, is looking to enforce a ban on metal ore exports, in an effort to encourage miners to build and operate refineries on Indonesian soil, so that the country can have more jobs and export a more expensive product.

The market, which has been plagued by oversupply in recent times, is responding to the prospect of a ban from Indonesia, which would severely cut down on supply of nickel, primarily used to make stainless steel.

Chinese stainless steel producer Tsingshan says nickel prices are “going crazy” with the news, according to analysts at Macquarie.

“Tsingshan thinks any change in Indonesian government policy is unlikely before end-2014, and even if there was a change export taxes would be very high,” the analysts said.

Glencore Xstrata, too, weighed in on the issue in its annual results presentation on Tuesday, saying: “Indonesia’s ore export ban and the likelihood of enforcement have potentially transformed nickel’s outlook.”

The London Stock Exchange-listed miner announced a pro forma adjusted net income in 2013 of US$4.6bn.