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The WA premier has hinted at royalty relief for the embattled nickel industry, as mining giant BHP revealed it is considering mothballing its Nickel West division in a move that could affect thousands of workers.
It would be the biggest blow yet to the state's once-booming nickel industry, which has seen mine closures and hundreds of job losses this year amid a sharp fall in metal prices.
In a statement to the stock exchange on Thursday, BHP flagged a $US3.5 billion ($5.4 billion) pre-tax impairment against the value of Nickel West ahead of its half-year results announcement on February 20.
Nickel West employs about 3,300 workers in WA, including mines at Leinster and Mt Keith in the northern Goldfields, the Kalgoorlie nickel smelter, Kambalda nickel concentrator and its Kwinana refinery.
The company said it expected to report a circa $US200 million loss for the first half from its Nickel West operations, and estimated it would cost about $US900 million for closure and rehabilitation costs.
BHP, which supplies nickel to electric vehicle manufacturers Toyota and Tesla, acquired the Nickel West business in its $9.2 billion takeover of WMC Resources in 2005.
It said it was focused on preserving cash during the current downturn and placing Nickel West into a "period of care and maintenance" was under consideration.
"This is an uncertain time for the WA nickel industry and we are taking action to address the current market conditions," chief executive Mike Henry said in a statement.
"We are reducing operating costs at WA nickel and reviewing our capital plans for Nickel West and West Musgrave."
Premier concerned for workers
Premier Roger Cook said the announcement was not a good sign for the future of the state's nickel industry.
"I think all the workers will be concerned by today's announcement and we'll do everything we can to support them," Mr Cook said.
"It will not only need the state government, it will need government at all levels to do the heavy lifting to make sure we can assist the industry to deal with these global trends."
He hinted that royalty relief was among the options being considered to help the sector.
"I've been speaking with [federal resources] minister Madeline King almost daily over the past week and meeting with industry representatives as recently as last night," Mr Cook said.
"Obviously we have some levers around royalty relief and rebates and we are looking at all options in terms of how we can support the industry."
Nickel, a key ingredient in stainless steel and lithium-ion batteries used in electric vehicles, is a historically volatile commodity prone to periods of boom and bust.
In the past five years, nickel has traded as high as $US21.98 per pound and as low as $US5/lb, according to Kitco data.
The price on Thursday morning was trading about $US7.28/lb — 41 per cent lower than the price 12 months ago.
BHP blamed the fall in prices on the increase of nickel supply from Indonesia through the London Metals Exchange.
"These unfavourable operating conditions are expected to endure for a considerable time," BHP said in its statement.
"Due to the deterioration in the short-term and medium-term outlook for nickel, BHP has lowered its nickel price assumptions."
'We all knew it was coming'
Mining analyst Tim Treadgold said the announcement reflected the state of the industry.
"We all knew it was coming, but the surprise is the amount of money involved," he said.
"They're talking about writing off billions of assets. Writing off simply means that asset is no longer worth anything.
"For a big company to say its entire nickel division has been written down to zero, so you've got 3,000 jobs, goodness knows how many mines and processing plants operating, but it now has a value of nothing.
"That is a very, very powerful statement about the health of the nickel industry in Western Australia or lack of health."
Industry hit by mine closures
While the potential closure is considered, BHP is also weighing up whether to continue construction at the $1.7 billion West Musgrave nickel-copper mine, which it inherited in last year's $9.6 billion takeover of Oz Minerals.
Work at West Musgrave, near the WA, Northern Territory and South Australian border, was 21 per cent complete, BHP said.
BHP's Kambalda nickel concentrator will be placed into care and maintenance from June following the decision by Andrew Forrest's Wyloo Metals to suspend mining at its Kambalda mines from May 31.
Wyloo's Cassini and Long mines provide the majority of ore that feed into the Kambalda concentrator, which BHP said made it "no longer viable".
The review of BHP's operations also throws into doubt a proposed furnace rebuild at the Kalgoorlie nickel smelter, which would require up to 2,000 construction workers during peak periods.
Thursday's announcement follows January's mothballing of the Savannah nickel mine in the Kimberley, and the decision by First Quantum Minerals to cease mining at the Ravensthorpe nickel mine on WA's south coast and cut 30 per cent of its workforce.
By May, the Cosmos nickel mine in the northern Goldfields will also shut, resulting in another impairment hit of between $150 million and $175 million for its Perth-based owner IGO.
IGO has said its Nova and Forrestania nickel mines in WA were cash positive in the current market.