BHP Billiton has announced its exit from the mothballed Ravensthorpe nickel mine on the south coast, agreeing to sell the project ot Canada’s First Quantum Minerals for $US340 million.The mining giant had remained tight-lipped about its intentions, with a spokeswoman on Tuesday confirming only that the company intended to make a decision on Ravensthorpe “by the end of the year”.
Sources close to the process had told WA Business News that a decision would be announced this week.Prior to the sale, BHP had stuck to the message that it was considering a range of options for Ravensthorpe, including a potential sale, demolition or restart.As first revealed by WA Business News in June, BHP engaged corporate adviser Gresham Partners to prepare a detailed information memorandum to whet the appetite of potential buyers.
Investment bank Merrill Lynch was subsequently engaged to oversee the sale process, for which final bids were due late last month.Beijing-controlled China Metallurgical Group and Murrin Murrin mine operator Minara Resources submitted a joint offer, while Andrew Forrest-backed Poseidon Nickel and Canadian base metals miner First Quantum Resources are also understood to have lodged bids.
While Merrill Lynch is understood to have indicated a preferred price of around $500 million, all bids are understood to have come in well below that.Based on the nature of the challenge ahead, China Metallurgical had been considered the front-runner, with Minara as its intended mine operator.
First Quantum has over $US800 million in cash, but appeared to have changed tack by agreeing to buy African miner Kiwara Plc for $US260 milion on the eve of submitting its bid. Poseidon also appeared an unlikely winner, given its limited resources and focus on on redeveloping its historic Windarra mine.
Though Ravensthorpe cost more than $3 billion to construct, only to be shut down after just eight months of operation in January, BHP has written off its entire investment and faced over $100 million in demolition and rehabilitation costs if it could not find a buyer.
Consequently, BHP would book an accounting profit even if it gave the asset away.The incoming operator also faces significant costs of up to $500 million to rectify the technical problems which contributed to the project’s closure.
It will also face the task of rehiring an entire workforce already sceptical about the operation’s actual prospects.More than 1800 workers and contractors, most of whom believed the mine would operate for at least thirty years, were thrown out of work when the project was suspended.
But working in any buyer’s favour, nickel prices have rebounded strongly since the closure, jumping more than 50 per cent to current levels around $US16,000 per tonne.First Quantum chairman Philip Pascal said the company’s project development experience and the “realistic capital cost base” of its Ravensthorpe acquisition gave it confidence in making the mine a success in a “realistic timeframe”.
First Quantum plans to operate the mine at a reduced production rate of around 39,000 tonnes of nickel metal annually for the first five years, compared to BHP’s target of over 50,000 tonnes.The company did not indicate when production may resume.