BHP Billiton Ltd., the world’s largest mining company, has sold the Yabulu nickel refinery in Australia after writing down its value by $675 million, in a retreat from production of the metal.
Clive Palmer, Australia’s fifth-richest man, bought the refinery for an undisclosed amount, Melbourne-based BHP said today in a statement. The refinery has a replacement value of A$2 billion ($1.6 billion), Palmer said in an e-mailed statement.
BHP closed the Ravensthorpe nickel mine in Western Australia in January, removing a main source of ore for Yabulu after nickel prices plunged. Global production of nickel, used to make stainless steel, may decline 12 percent from last year, Morgan Stanley said yesterday.
“BHP’s strategy is moving away from nickel,” said Michael McCormick, a fund manager at Belvedere Share Managers, which owns BHP stock. “BHP is getting so big that everything has to be of such a scale that they are probably thinking ‘We can’t move it and we’d rather concentrate on oil and iron ore’.”
BHP wrote down the carrying value of Yabulu by $500 million and also wrote off $175 million in unrecoverable tax benefits. Both writedowns will be recorded in the fiscal year ended June 30, 2009. The company said in November it would take a $2.1 billion one-time charge to write down the value of Ravensthorpe and Yabulu.
Palmer may have paid $100 million for the refinery, Citigroup Inc. said in a report today.
“This could flag BHP Billiton’s intention to eventually exit the nickel business,” Citigroup analyst Clarke Wilkins said. “We expect further scrutiny on whether the division remains a core business.”
Nickel, traded in London, plunged 56 percent last year as the global recession curbed demand.
“Despite nickel prices being down Yabulu is still profitable,” Palmer said in the e-mail. “This world-class plant is efficient and still has the opportunity to be expanded.”
BHP’s Australian nickel assets are “challenging” and the Yabulu refinery ranks in the third quartile on the cost curve, Goldman Sachs JBWere Pty said in February. BHP is scheduled to complete a review of Ravensthorpe’s future by the end of the year. It wrote down the value of the mine to zero in January.
Palmer said today in an interview that he may be interested in buying Ravensthorpe if it was offered for sale. It may cost $250 million to restart the mine, he said.
“We would certainly want to study it and if it was, we would go ahead and put an offer in,” he said.
BHP is the world’s third-biggest nickel producer and has operations in Australia and Colombia. Its Nickel West unit, comprised of mines, concentrators, refineries and smelters in Western Australia, exports about 100,000 metric tons of nickel each year, according to BHP’s Web site.
Yabulu produces 35,000 tons of nickel and 2,500 tons of cobalt a year, worth A$600 million in export value, Palmer said. It sources ore from New Caledonia, Indonesia and the Philippines and has further production capacity of 40,000 tons of nickel and 700 tons of cobalt, Palmer said.
Palmer, chairman of coal and iron ore company Mineralogy Pty., was the only person in the top-10 of the BRW Magazine’s annual rich 200 list whose wealth increased last year. Palmer’s fortune more than doubled to A$3.4 billion ($2.7 billion) according to the list that was published in May.
Palmer, the second-largest shareholder in Gladstone Pacific Nickel Ltd., is buying Yabulu through three closely held companies: Nickel House Pty, Nickel Process Pty and Nickel Consolidated Pty.
Source: Bloomberg
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