Mining giant BHP Group’s (AU:BHP) half-year profits could be under pressure due to an impairment charge related to the company’s nickel business and a rise in provision associated with the Samarco dam fiasco. BHP is scheduled to announce its results for the half-year ending December 31, 2023, on February 20. BHP shares have declined 5% in the past year.
BHP’s Profits Hit by One-Time Items
BHP said that it will record a post-tax impairment charge of $2.5 billion to write down the carrying value of its Western Australia Nickel business. An underlying EBITDA of about negative $0.2 billion for the Western Australia Nickel business will be recorded in the half-yearly results.
The significant impairment charge reflects the ongoing challenges in the nickel industry, with prices declining sharply due to macro challenges and excess supply of Nickel from Indonesia.
Additionally, BHP will record a $3.2 billion post-tax provision related to the Samarco dam failure in Brazil. The recognition of this charge will increase BHP Brasil’s provision for Samarco dam fiasco to $6.5 billion as of December 31, 2023. Last month, BHP, Vale (NYSE:VALE), and their Samarco joint venture were slapped with a $9.7 billion fine by the Brazilian federal court for the dam collapse that occurred in Brazil in 2015.
While these two one-item items are expected to weigh on BHP’s bottom line, higher iron ore prices are expected to favourably impact the half-yearly profits.
Is BHP a Good Stock to Buy?
With five Buys, nine Holds, and one Sell, BHP stock scores a Moderate Buy consensus rating on TipRanks. The BHP Group share price target of AU$49.16 implies nearly 8% upside potential.
