20-Feb-2023: I've just come back last night from the West and family members have been giving me similar stories of work being postponed or cancelled, mostly nickel (Mt Keith) and lithium (Greenbushes), but even Lynas have slowed right down on the new REO plant near Kal since their Malaysian plant got an extension granted. In the case of Lynas that seems like shortsightedness on their part to me - like, get that sh!t ready before you need it, don't wait until you have no other option. Anyway, with smaller Australian nickel mines closing or going on C&M everywhere thanks to the flood of nickel out of Indonesia now, I can understand why some of the bigger players like Nickel West (BHP) are thinking about doing the same or at least idling their plants or reducing supply - certainly they are reviewing their maintenance budgets and their shutdown schedules.

See here: https://www.forbes.com/sites/timtreadgold/2024/02/19/bhp-profit-falls-by-86-as-the-nickel-crash-bites/?sh=3c77811870f7

"After-tax profit of Australia-based BHP plunged by 86% from $6.5 billion to $927 million in the six months to December 31 with the bulk of the fall blamed on a $5.6 billion write-down of the value of the company’s nickel business"

Also: https://financialpost.com/pmn/business-pmn/mining-giant-bhp-sees-nickel-pain-lingering-as-net-income-slumps

And: BHP suffers $5.4b nickel wipeout, WA business under review (afr.com)

BHP hit in $5.4b nickel wipeout, WA plans royalty relief

by Brad Thompson, Peter Ker and Tom Rabe, Feb 15, 2024 – 10.04am

Western Australia has challenged the federal government to save close to 3000 jobs and billions of dollars worth of growth projects in the nickel industry, after BHP wrote down the value of its nickel business by $5.4 billion pre-tax and warned full suspension was possible.

Premier Roger Cook, whose government is expected to provide royalty relief to nickel miners, although several have already shut, said, “governments of all levels” needed to examine what can be done.

Nickel West’s Jessica Farrell during the first nickel emergency meeting with federal Resources Minister Madeleine King in Perth last month. Trevor Collens

“This is not a cyclical issue, this is a significant structural disruption to the industry, so it not only needs the state government, [but] governments at all levels to do the heavy lifting to make sure that we can assist the industry deal with these global trends,” Mr Cook said.

BHP chief Mike Henry put nickel alongside copper at the vanguard of BHP’s pivot into “future facing” commodities when he assumed the top job in January 2020, but BHP’s future in nickel is now at risk as a supply surge from Indonesia crushes prices for the metal.

The miner’s nickel business lost $US200 million ($308 million) over the past six months and the company said it was considering an option to mothball the division, which employs about 3000 people.

“BHP is also reviewing development plans for Western Australian nickel with a focus on preserving cash which includes the potential to place Nickel West into a period of care and maintenance,” the miner said on Thursday.

BHP’s threat to shut the entire nickel division could undermine billions of dollars of investment that the company was expected to put into growing its WA nickel division in coming years.

Construction of the new $1.7 billion West Musgrave nickel mine is only 21 per cent complete, but BHP said it was considering slowing work, which could mean deferral of more than $1 billion of remaining spend on the project.

BHP was also scheduled to commit $750 million to $1 billion to refurbish its Kalgoorlie nickel smelter this year, but there was no mention of that project in Thursday’s update.

The smelter upgrade could also be deferred if BHP suspends the entire nickel division and slows construction of West Musgrave.

The Kalgoorlie smelter is the backbone of the WA nickel industry, with rival miners such a IGO Limited and Andrew Forrest’s Wyloo selling their nickel into BHP’s smelter supply chain.

The Albanese government has set aside close to $17 billion for strategically important manufacturing hubs in rural locations through two funds: the National Reconstruction Fund and the Powering the Regions Fund.

The Kalgoorlie nickel smelter has long loomed as a likely candidate for support from those funds.

BHP’s nickel division includes a refinery at Kwinana, south of Perth, in the heart of federal Resources Minister Madeleine King’s electorate.

Challenges ‘cannot be addressed overnight’

Ms King spoke to BHP’s Minerals Australia boss, Geraldine Slattery, on Thursday and said the nickel industry’s challenges “cannot be addressed overnight”.

“I will continue to engage with BHP and others as market conditions evolve,” she said.

The WA government is expected to provide royalty relief to nickel miners, but there soon may not be many left. Closures have already been announced for the Savannah mine in the Kimberley, Wyloo’s Kambalda mines and IGO’s Cosmos project.

Glencore is expected to update the market on the future of WA’s Murrin Murrin nickel mine next week, after the Swiss miner shut its New Caledonian nickel business last week.

“I think we should all be worried about the future for our nickel industry off the back of BHP’s announcements today,” Mr Cook said.

BHP said it would record an impairment of $US2.5 billion after tax next week, which makes the division worthless from an accounting perspective; the carrying value of its assets will be negative $US300 million, including closure and rehabilitation provisions of about $US900 million.

Nickel prices have halved over the past year in response to slower-than-expected electric vehicle sales and surging Indonesian supply, and BHP had warned in January that the sector was beset by “structural” challenges, rather than temporary “cyclical” challenges.

Benchmark Mineral Intelligence has predicted an oversupply of nickel until 2028 and BHP also sees little chance of an immediate recovery.

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

RBC analyst Kaan Peker said the nickel update demonstrated “prudence in capital spend, and an attempt to preserve value in an uncertain environment”.

WA’s nickel and lithium mining industries’ rise to prominence over the past five years had prompted state and federal Labor politicians to spruik the prospect of adding more value to Australian minerals at home, potentially by making battery precursor materials, or full batteries, at home.

WA opposition spokesman for state development David Honey said the dire outlook for BHP’s nickel business signalled “the end of any possibility of establishing lithium-ion battery manufacturing” in WA.

Moral damages for Samarco

Separately on Thursday, BHP caved in to union demands to avoid a strike that would have shut down rail operations across its WA iron ore mines. Train drivers earning up to $400,000 a year and other rail workers called off the strike after reaching a deal that includes a guaranteed 20 per cent pay rise over four years, no requirement to work overtime, new allowances and two $20,000 retention payments.

BHP will report half-year financial results on February 20 and those accounts will also carry further scars from the 2015 Samarco dam disaster.

At least 19 people were killed at Samarco when a dam that was 50 per cent owned by BHP collapsed and triggered a mud rush through nearby towns.

BHP said it would recognise a charge of $US3.2 billion after tax relating to Samarco in next week’s accounts.

BHP said the charge partly related to a January development, in which the Federal Court of Brazil found Samarco’s owners – BHP and Brazilian miner Vale – were jointly liable for $US9.75 billion of moral damages.

The moral damages claim is separate and additional to the “framework agreement” BHP and Vale struck with Brazilian governments in March 2016, which was supposed to result in the miners paying about $US32 billion to rebuild communities and compensate those affected by the disaster.

Despite the court ruling potentially dealing BHP a multibillion-dollar hit in late January, the company had – before Thursday – only acknowledged media reports of a Federal Court verdict.

In a January filing to the ASX, BHP highlighted the fact it had not received formal notification of such a verdict.

But on Thursday BHP signalled that media reports of the verdict had been correct.

It said it had filed a clarification motion against the Federal Court decision on February 1.

BHP plans to appeal against the moral damages finding and expects the process to take between two and five years.

--- ends ---

Further Reading: ASX BHP: why the Kalgoorlie nickel smelter upgrade is the perfect project for Anthony Albanese and BHP to unite over (afr.com) [01-Jan-2024]

In the case of Lycopodium (LYL) however, they don't have much exposure to nickel or lithium, and they mostly work in West Africa, and mostly in either Gold or Copper/Gold, so I would think that having more engineers and other people from the industry available to employ will be positive for them, not a net negative.

But in terms of WA, some of the dream run in resources seems like it might be coming to end, or at least a pause. In some metals anyway.

GR Engineering Services (GRES, GNG.asx) DO have exposure to BHP's West Musgrave Nickel/Copper project and that may get mothballed also - that AFR article (link here) (15 Feb 2024) says: "Construction of the new $1.7 billion West Musgrave nickel mine is only 21 per cent complete, but BHP said it was considering slowing work, which could mean deferral of more than $1 billion of remaining spend on the project."

GRES wins contract to build the West Musgrave Mineral Processing Plant (felix.net) [22-Apr-2023]

https://www.mipac.com.au/insights/mipac-to-provide-main-automation-contracting-for-bhps-west-musgrave-project/

BHP acquired OZ Minerals, so West Musgrave is 100% owned by BHP who have all of their nickel assets under review.

Mipac were acquired by GRES (GNG) in 2021: GR Engineering Acquires Leading Process Controls Business (gres.com.au) [27-Apr-2021]

I believe West Musgrave is currently GNG's largest single EPC/EPCM contract in their order book, so this could certainly affect them.

Actually, on reflection, and after reading their record-results announcement this morning - Lycopodium-Half-Year-Results-Announcement.PDF - LYL actually DO have quite a bit of exposure to lithium now. Not much exposure to nickel, but they are nearing the commissioning phase on a number of lithium projects, including Kathleen Valley in WA, and Goulamina in Mali, plus the Chemical Grade Processing Plant #3 Project for Talison Lithium in WA is well into construction. Interesting that their results summary table indicates that the figures are Thousands of dollars, when they are in fact Millions of dollars. Typo.

From Mono's results announcement on Tuesday (Monadelphous-Reports-2024-Half-Year-Results-[20-Aug-2024].PDF): "During the period, the Company also secured more than $530 million of new construction work in the lithium sector, including major contracts with Albemarle on the Kemerton Expansion Project, at Talison Lithium’s Greenbushes site and Liontown Resources’ Kathleen Valley Lithium Project, all in WA."

That's not all MND do of course, but it IS significant exposure (over half a billion) that MND have to the Australian lithium sector at a time during which companies are responding to a circa 90% reduction in lithium prices by halting /deferring construction of new projects, as we have been discussing here. You can argue that these contracts have been signed and are binding, but I would point people to what happened with WICET (Wiggins Island Coal Export Terminal Pty Ltd) back in 2014 through 2023. The export terminal was completed in 2015 but the company had signed contracts at a high point in coal prices and then as coal prices fell sharply during the construction period and after it, WICET tried to worm out of paying their various construction contractors (of which MND was the biggest and was owed the most) what they owed them, making various claims that were almost all false and did not stand up in court, so there were a number of law firms making hay while that sun was shining for them during that period. Even when WICET lost cases and were ordered to pay the various construction companies' costs as well as money owed plus interest, they exhausted all possible avenues of appeal to drag it out as long as possible, so there were settlements agreed to in some cases just to get the thing off the books. All I'm saying is, legally binding contracts don't mean you're always going to get paid within a reasonable timeframe when the underlying commodity price crashes.

Monadelphous and WICET settle $330m port-building dispute - Australian Bulk Handling Review [03-Aug-2016]

Landmark WICET construction dispute settled - Infrastructure, Construction, Dispute Resolution, Human Resources, Tax and Project Services - MinterEllison [24-10-2017, MinterEllison represented WICET in the disputes].

PDF - Civil Mining & Constructions Pty Ltd v Wiggins Island Coal Export Terminal Pty Ltd [2023] QSC 92 | SUPREME COURT OF QUEENSLAND - TRIAL DIVISION (queenslandjudgments.com.au) [05-May-2023, not related to MND; this one is about claims and counter-claims and arguments about costs between WICET and Civil Mining & Construction Pty Ltd, another smaller contractor].

Not a thesis-breaker, but @Rudyboy is 100% correct that the downturn in commodities like Nickel and Lithium in particular are going to have flow-on effects on these engineering and construction companies (like MND, LYL, GNG, etc.) (I hold all three of those).

There's a lot of them!

De Grey Mining (DEG) could be interesting @Metis - they are a gold explorer and project developer that are not in production yet, but they have found a LOT of gold, hence their market cap is already over $2 Billion!!

Perenti Drilling (PRN) could also be interesting - they're a "Picks and Shovels" play on mining - used to be called Ausdrill.

IGO are in a world of pain with their main two commodities - Nickel and Lithium being in a major slump - so I'd love to be there to hear how they put a positive spin on their situation.

Gold Road Resources (GOR) are interesting, because they are the passive partners in a WA gold mine (Gruyere) that is operated by another company (Gold Fields Limited - formerly known as "The Gold Fields of South Africa" - headquartered in South Africa) and that company has so far shown little interest in taking over GOR, so where does GOR see their own future heading from here?

Kin Mining (KIN) is also interesting - coz they just sold their best assets to Genesis Minerals (GMD) so they are now cashed up and own some GMD shares, but what are they going to be spending their cash on in the near to mid term?

Red 5 (RED) are a gold producer with a m/cap of over $1 Billion, who have just announced a merger with Silver Lake Resources (SLR) who have a similar market cap, so not sure why RED 5 are spruiking themselves at a conference like this, unless they're trying to get someone like Genesis Minerals (GMD) to come over the top and make a better offer.

Any nickel miners could be interesting, in the same way it's interesting to watch a slow motion train derailment on TV, or Airplane Crash investigation shows. They either need to mothball their mines and wait out the slump or get taken over by someone with plenty of cash and patience. Those with bugger all cash and no income coming in are at high risk of going broke soon.

Plenty more that I'd be interested in, mostly smaller gold project developers, but I won't go on, as I don't think too many others share my interest in these companies.

Thanks @Bear77, that gives me something to do. Most of those have 10 min presentation slots that I’ll try to get too in the next couple of days.

If you have any specific questions for a small gold developer, I can always ask them by proxy. They are literally all sitting at their booths ready to pounce and spruik… wearing a big lanyard with my name and capitals INVESTOR plastered on it probably does make me a bit of a target.

With my background. Being around a conference like this literally makes me feel like a first year medical student again at an anaesthetic conference… absolutely no idea but free coffee and booze. But it has made me realise I’d really enjoy a medtech equivalent.

Good stuff @Metis - let me know if you hear anything interesting from any of those I mentioned. I've just corrected my earlier post - AngloGold Ashanti doesn't own the majority of Gruyere, they own 70% of Tropicana, a different mine, and the other 30% of Tropicana is owned by Regis (RRL), who bought it from IGO who probably wish they hadn't sold it now, although they did get a good price at the time. Gruyere is a 50:50 JV between Gold Road (GOR), who are presenting at the RIU conference, and South African gold miner Gold Fields Ltd., however Gold Fields are the mine operators, and Gold Road are the silent partners, or non-operating partners. Gold Road (GOR) have used some of their cash to buy 19.99% of De Grey Mining (DEG) who are that $2.2 Billion gold explorer/developer I mentioned, so it looked for a while like Gold Road might try to take DEG over, but DEG are now bigger than GOR (Gold Road) whose m/cap is around $1.6 Billion, so it would be some sort of merger I guess rather than an acquisition of DEG by GOR, if it was to ever happen. As far as specific questions go, I can't think of any right now, but interested in the vibe, as in who sounds genuinely excited by their own prospects rather than just going through the motions. My main interest (in relation to mining) is in the gold sector personally. I have to agree with @Shapeshifter - there are a LOT of names on that list, including a dozen or so that I'd never heard of before.

I know Euroz (now Euroz Hartleys) used to run an annual mining conference over on Rottnest Island there around this time every year - I wonder if this one has replaced that - they would certainly get a lot more participating companies by holding it in Fremantle rather than over on Rottnest. Incidentally, I'll be driving past Fremantle on Thursday arvo on my way South to visit family (in the SW of WA). Flying back to Adelaide next Monday - so I won't be posting anything here over the weekend. Enjoy the conference @Metis ! I'll have to get along to one of those one day. I've always wanted to go to "Diggers & Dealers" in Kalgoorlie, but have never gotten around to it.

@Metis for a different swing on things, I am looking forward to hearing Talga's presentation. They have spent years building a graphite extraction and more importantly anode supply in Europe -- which will make them the only EU-based anode option ex China. They are starting to reach the pointy end of things and I think the risk reward proposition is very appealing. I would argue they aren't so much a mining company (not saying their graphite supply isn't important, it definitely is) but their anode IP is their secret sauce. It takes a VERY long time to establish anode facilities and all that is involved with it, so there is also a time moat at play here -- provided there continues to be ongoing appetite to acquire anode outside China.

Well this was way out of my comfort zone and it took a bit to go up to people and talk about things that I essentially know nothing about, Thanks @Bear77 for giving me an in with discussion material and I hope some of this may be useful. Was just interesting to put my thoughts down really. I really liked how once I got chatting, you got a bit of a feel for the people working and running the company. I did develop a little bit of stoke for some companies though and made me realise how easy it is to jump on the bandwagon of something I essentially know nothing about. Really was a reminder to stay in my own lane, and over this coming year to cull my investments quite dramatically so this is the case.

De Grey Mining: 

• They are planning on building their own mine, so dare say capital raises/debt is in the future. Gold road resources seemed very close to them with their geo employers almost being back and forth from each others booth and very friendly.
• They are planning on spending 60million of their cash on gold exploration around the main Hemi deposit. I got the feeling this was to hopefully pump the share price more if they need to capital raise. Construction of their mine is from 2024-2026. However there are still processes involved with environmental clearance etc. So this has a long time to play out. Walked away feeling like I didn’t want to touch it.

Gold road resources: 

• Had a chat to a bloke called Kyle Prentice,one of their geologists with greater than 10 years experience.  He bristled slightly when I said they were silent partners with South African mining company (don’t know what that means). 
• When it came to De Grey he was pretty clear that company wanted to stay less than 20% invested. 
• Felt that they were uniquely poised in a cash strapped environment to explore in their QLD and northern WA fields and this is going to be where their value comes from. 

Kin Mining: (talked with Rowan Johnston the executive chairman, also on the board of PNX as well) Interesting as there was an unsolicited offer from Kin mining in regards to a partnership a couple of hours prior to our chat.  He said he couldn’t talk about it other than PNX has some attractive assets that could be leveraged.

• Kept talking about how the value is quite attractive, Have close to 70 million cash + 22 million (approx) shares in Genesis minerals ($1.52) from the sale of 610koz in a similar place to their current 0.9Moz of gold. He then used MC or EV/ ounces for in ground cost of gold and compared it to the sale they just made to emphasise that he thinks they are worth more. I got a bit lost here I’ll admit. Seems like crudely their gold is valued at 80 dollars per ounce. They sold the 610koz to Genesis for about 60 dollars per ounce. So I think he was trying to say that with the cash + gold deposits they should be valued at greater than the current 68 million market cap. But I could be wrong here. 
• So the recurring theme was that there is no money around for investment so cash is king and having that cash right now puts them in a pretty good position. He thinks the companies experience allows for more assets to be found and sold. 
• I asked him if he ever wanted to build a mine. Said he had no interest, wants Kin to be more of a brokering company that buys and sells assets. With a 3 pronged approach: 
• M+A 
• Exploring their Volcanogenic massive sullied ore deposit VHMS. My knowledge of this is a quick wiki, lots of different types of metals that is the basis for the deep sea mining. However most companies search on land. (Mainly copper-zinc, with quite the list of others). 
• Gold exploration. 
• Forgot to ask him which they will focus on the most. 
• Of everyone I liked talking to him the most.

AX8: The reason i was there was an investor in this company (accelerate) was the owner of the airbnb i was staying at and got me into the conference free so felt the need to have a chat with them. Portfolio in Pilbara of lithium, gold and manganese. 

• Talked with Kevin Joyce geologist who they have in charge of the drilling. It was just refreshing talking to him. He basically said if we drill and don’t find anything we are done, if we do well then the Market cap of 15 million will look small. 

The whole thing just gave me a bit of a sense of what WA is about and the hit and miss of it all and that having the right people in charge is huge. Lot of snake oil for sale

Some excellent insights there thanks @Metis - especially in relation to KIN and AX8 - I concur with your gut reaction to DEG - they own a lot of gold that is all in the ground but that is already in their share price and then some. And there will be no cashflow for some years yet. Having the right people is definitely the key - and large cash balances; When you have a few billion dollars - like PLS (Pilbara Minerals) do - of net cash - AND you are already a producer - as PLS are (of Lithium unfortunately - spodumene and tantalite concentrates) - then you ain't going broke any time soon unless you make some really bad capital allocation decisions - and that gets right back to having "the right people", as you said.

Smaller companies - like KIN (Kin Mining) - don't need billions - 70 or 80 million and some shares in one or more other companies will do just fine, in terms of giving them plenty of time to find more gold, or copper, or something else. KIN have a decent track record of executing on that 3-pronged approach too - however KIN's 10-year chart reminds me that a company like that (a succesful explorer with no intention to become a producer) is better traded - than held as a longer term investment - because overall they seem to have burned through more cash than they've generated through asset sales, over time; So they're more one to buy at or near their lows and sell whenever their share price doubles, which it seems to do every two or three years:

But not really a buy and hold...

Thanks again for sharing that @Metis - Much appreciated.

I often find these presentations of more value at such conferences than working out which junior mining shitco may one day may become a senior mining shitco.

https://www.youtube.com/watch?v=aEkpI1p8zL4&ab_channel=VerticalEvents%26RIUConferences