Analysts at CreditSights have identified BHP's decision to suspend its Western Australian Nickel operations, including Nickel West and the West Musgrave project starting in October, as a beneficial move for the mining giant.

According to Wen Li and Michael O’Brien, the suspension is expected to positively impact BHP amid current market conditions. "Nickel prices are likely to remain depressed due to oversupply, leading to negative free cash flow from the asset," they remarked in a note released on Friday.

During the suspension period, which is slated to extend until at least 2027, BHP will continue to burn about $300-million a year to support a potential restart. However, Li and O’Brien highlight that this expenditure is lower compared with ongoing capital requirements and operational losses associated with the business.

The suspension, announced on Thursday, follows production shutdowns by First Quantum, Glencore and Wyloo earlier this year. The suspension is driven by a global oversupply of nickel and falling forward consensus nickel prices, which are expected to persist over the next half of the decade owing to strong growth in alternative low-cost nickel supply from Indonesia.

Since the 2022 financial year, BHP has invested about $2.9-billion in Western Australia Nickel, with a focus on the battery and electric vehicle market. However, despite the investment, the business continued to record a negative cash flow.

During the suspension, BHP will support its workforce and local communities. Western Australia Nickel’s frontline employees will be offered another role within BHP or the choice of a redundancy.

The company will set up a A$20-million Community Fund to support local communities during the temporary suspension.

Commenting on BHP’s announcement, Western Australian Premier Roger Cook said that it was a “disappointing decision” and that his thoughts were with the thousands of workers and their families affected by the suspension.

He noted that the state government had measures in place to assist workers who needed support in finding alternative employment, including upskilling or reskilling.

“This announcement again shows the volatility of global commodity markets and reinforces the importance of my government's work to diversify our economy and build more resilience into our resources sector.

"We're investing billions to set up our economy for the long term, helping to smooth the volatility in our mining sector and create long-term local jobs for WA.

"I welcome BHP's commitments today to supporting that work, through investing in our Critical Minerals Advanced Processing Facility and kickstarting work on a green steel industry in Kwinana.

"These are important projects that will help to push WA to the forefront of the global green steel and critical minerals processing industries,” said Cook.