BHP May Shut Australia Nickel Mine

BHP Billiton may be about to close a big nickel mine in Australia and probably has already trimmed output of most other commodities, with the exception of oil and iron ore, according to media reports and analysts.

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An unsourced report in The Australian paper on Monday said BHP's Ravensthorpe nickel mine in west Australia was on the brink of closing due to falling metals prices amid a global economic slowdown.

Ahead of BHP's second-quarter production report due on Wednesday, UBS analyst Glyn Lawcock said the company had provided little guidance on production figures as demand from its customers waned.

But he said BHP has taken the view it will try to keep its operations running at capacity unless they are in the red.

Oil output likely rose 50 percent and iron ore 4.7 percent in the quarter versus a year ago, despite gloomy prospects for both commodities, according to Lawcock.

Analysts expect steel mills to push for a 40 percent reduction in next year's benchmark iron ore prices, while oil has dropped more than $100 since a record peak in July.

Rival Rio Tinto saw its iron ore output fall 18 percent in the quarter ended Dec. 31 as industrial activity worldwide slumped. Rio produces no oil.

BHP spokeswoman Samantha Evans declined to comment on the newspaper report, saying only that "material changes" to any operations would be disclosed to the market.

The report cited "indications that an announcement could be made in the next few days."

Prices for nickel, chiefly used in making stainless steel, have been in freefall since peaking at more than $51,000 a ton in May 2007. The metal now sells for around $10,775 a ton on the London Metal Exchange.

Ravensthorpe, which started production in 2007 about nine months behind schedule, cost about $2.2 billion to build and has the potential to become one of the largest nickel-making facilities in the world.   

Output would be around 7,000 tons in the January-June half year against 2,000 tons in the six months ended Dec. 31, 2008, BHP said in late October, predicting it would be at least two years before the mine hit full capacity of 50,000 tons a year. 

Lawcock forecasts an overall 3.8 percent rise in second quarter nickel production from BHP's Nickel West division, which includes Ravensthorpe.

Output from Ravensthorpe would help offset less production at the company's Kwinana nickel refinery , which was idled between June and October because of a gas shortage, he said.

Lawcock forecast BHP's total copper output during the quarter dropped 2.7 percent, while aluminum declined 6.9 percent and manganese ore 24.7 percent versus a year ago.

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In the Gulf of Mexico, BHP's Atlantis oil project continues to ramp up to full capacity but its Mad Dog field is likely to see the lingering effects of a lost drill rig following Hurricane Ike, though the rest of the Gulf operations should show higher output figures, Lawcock said.

Thermal coal production is forecast to drop 2.7 percent over the period, Lawcock forecasts.

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