Is BHP looking to escape the nickel market?


BHP Billiton’s (ASX: BHP) rivals are once again suspecting that the miner could be on the move to offload its largest nickel assets as part of its strategy to heavily reduce costs and increase its focus on core operations.

As reported by The Australian Financial Review, it is believed that the miner had placed its Nickel West and Cerro Matoso mines up for sale earlier in the year. This belief was bolstered when the company’s new CEO, Andrew Mackenzie, notably excluded nickel from his “four pillar” strategy in May, which outlined the company’s core operations and focus areas moving forward.

Speculation has once again heightened that the sale of the assets could be a very real possibility – particularly after the company was forced to impair its Nickel West asset by US$1.2 billion, according to BHP’s annual report.

Meanwhile, many believe that right now could be the bottom of the nickel market which would increase the interest in BHP’s assets. Whilst now may not prove to be the most profitable time to part ways with the mines, it would allow the miner to focus more heavily on reducing operating costs and increasing productivity in other key areas.

BHP isn’t the only miner following this strategy. Given the volatility of commodity prices and the uncertainty over how they will perform in the medium to long-term, other miners — including Rio Tinto (ASX: RIO), Fortescue Metals Group (ASX: FMG) or Arrium (ASX: ARI) — have also been forced to increase productivity and efficiency.

Foolish takeaway

A number of companies around the globe are anticipating that nickel prices may not recover for at least another year, which has led to Glencore Xstrata looking to merge its Canadian-based nickel operations with Vale. Selling its nickel operations could be a good move for BHP, and would free up a significant amount of capital to better ensure long-term sustainability and would allow it to increase shareholder returns.

As previously stated however, the mining industry remains heavily volatile and investors may be better served looking elsewhere for companies to add to their portfolios. Discover The Motley Fool’s favourite income idea for 2013-2014 in our brand-new, FREE research report, including a full investment analysis! Simply click here for your FREE copy of “The Motley Fool’s Top Dividend Stock for 2013-2014.”

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Motley Fool contributor Ryan Newman does not own shares in any of the companies mentioned.