Analysts neutral on BHP after 'unsurprising' nickel operations suspension
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The news: Analysts were unmoved on BHP after the mining company announced that it would temporarily suspended its nickel operations in Western Australia.
The numbers: Morgan Stanley retained its 'equal-weight' rating on BHP, with a price target of $46.65. Macquarie kept its 'neutral' rating on the stock, and maintained its target price of $43.
On Thursday BHP said it expected to post an underlying EBITDA loss of USD300 million ($450 million) in FY24 in relation to its WA Nickel business, as well as a non-cash impairment charge of USD0.3 billion.
BHP's Nickel West operations and West Musgrave project will be suspended from October 2024 and BHP will review the suspension by February 2027.
BHP shares were down 0.94% to $43.15 in early trading on the ASX and over the last 12 months has fallen 2.16%.
The context: Morgan Stanley analysts said they viewed BHP's announcement as "somewhat unsurprising" given the review process the company had already been undertaking in relation to its nickel business.
They saw the decision as "prudent", having forecast BHP's Nickel West operation to be loss-making in the coming years, and as the operation currently generated a negative discounted cash flow valuation.
Morgan Stanley's commodity strategists also saw risks from a loosening market balance ahead, forecasting a market surplus to persist into the end of the decade.
Macquarie analysts said BHP had "no option but to suspend" the operations given their capital burden and "unattractive returns". They noted the decision allowed the company to "keep the resource in the ground" where it may benefit from a price recovery or through divestment.
What they said: BHP's WA Nickel "detracted from BHP's portfolio and focus, in what is a non-core asset in a challenged commodity," Macquarie analysts said.
"A concentrated focus on copper growth is now paramount to transform the portfolio ahead of iron ore's structural decline."
The sources: Morgan Stanley research, Macquarie research
