Tax breaks may not be enough to save Australia’s nickel industry, according to major regional employer BHP.

The mining heavyweight on Tuesday reported a sharply lower net profit of $US927 million for the six months to December 31, down 86 per cent. 

Shares in BHP eased 0.5 per cent to $45.81 in morning trade after it wrote off the value of Western Australian nickel operations and booked a charge for a past dam disaster in Brazil, as signalled last week.

But the underlying profit was $US6.6 billion, in line with a year earlier, as ongoing strength in iron ore and copper production dwarfed nickel woes.

While other nickel producers have already mothballed mines amid a glut of cheap Indonesian metal, CEO Mike Henry told a conference call that BHP would be considering alternatives “in the months ahead”.

Nickel may be a small part of BHP’s global business, but the division employs more than 3000 people in Western Australia.

“We, as BHP, are not asking the government to save BHP’s nickel operations … There’s been a broader industry call, starting with others, for a production tax credit,” Mr Henry said.

He said BHP’s business was different from the other nickel players that have already moved their assets into care and maintenance.

“We have a smelter and refinery, it’s a much more complex decision … but given this is a loss-making business, of course it’s something we’re moving on as practically and quickly as we can,” he said.

A decision on the costly refurbishment of the ageing Kalgoorlie nickel refinery also needs to be made this year.

Mr Henry warned a proposed production tax credit of 10 per cent “may not be enough” to alter the course of the market given the significant challenges.

Indonesian nickel backed by capital from China has flooded a market that’s not yet willing to pay a premium for battery minerals sourced from countries that have higher labour and environmental standards.

“As much as half of the global nickel production is estimated to be loss-making currently,” chief financial officer David Lamont said.

BHP’s underlying earnings before interest, taxes, depreciation, and amortisation, a key measure of profitability, rose five per cent to $US13.875 billion in the first half of 2023/24.

Mr Lamont welcomed higher iron ore and copper prices but warned the lag effect of inflationary pressures would continue to flow through the business, especially across labour costs and parts.

Revenue rose six per cent to $US27.23 billion but profit from operations fell 56 per cent to $US4.8 billion.

Mr Henry said the mining industry was facing “near-term headwinds” in developing resources in Australia, with the labour market the core inflationary concern.

“The single biggest thing that the government needs to do, the call to arms for government, is to ensure the policy settings in Australia ensure high levels of competitiveness globally,” he said.

“The opportunity ahead for the nation isn’t just nickel, it’s in critical minerals more broadly, be it lithium, be it copper, ongoing iron ore in a world where competition is really going to heat up in the years ahead.”

Mr Henry said Australia needed to be supporting “new and exciting” export industries and that only happens if underlying tax settings and workplace laws support high levels of productivity.

Costs going up without a commensurate increase in productivity is not a winning model for Australia, he said.

BHP declared a fully franked interim dividend of US 72 cents, down from US 90 cents a year earlier.

This post was originally published on Michael West.