BHP Faces Decision on African Nickel Project That Could Revive Australian Operations

BHP will confront a pivotal moment next month when a feasibility study determines whether the mining giant doubles down on an African nickel project that could unlock the door to restarting its shuttered Australian nickel business. The Kabanga project in Tanzania, quietly developed over four years with junior partner Lifezone Metals, represents more than just another mining investment for BHP—it's a potential lifeline for the company's struggling nickel operations and a test of its commitment to battery metals.

The July feasibility study will trigger BHP's option to boost its Kabanga ownership from 17% to 51%, a decision that could reshape the company's approach to nickel at a time when the metal remains critical to the global energy transition. BHP currently holds a modest 1.5% stake in Lifezone Metals alongside its direct project interest, having invested $100 million to date in what many view as a strategic bet on next-generation processing technology.

Ambitious Economics Face Market Reality

Kabanga's proponents paint an optimistic financial picture that, if achieved, would position the project among the world's most competitive nickel operations. The two-stage development calls for $991 million in pre-production capital, expanding to $1.55 billion when including operational and growth capital requirements. The payoff would be annual production of 50,000 tonnes of nickel sulphate hexahydrate over a 22-year initial mine life, specifically targeting the lithium-ion battery market.

The economics hinge on achieving an all-in sustaining cost of $2.71 per pound after crediting revenues from copper and cobalt byproducts—a significant advantage over the current nickel price of $6.77 per pound. Even excluding byproduct credits, the standalone nickel cost of $4.47 per pound would remain competitive, though the margin for error narrows considerably. These projections would make Kabanga a rare example of a non-Indonesian nickel operation capable of competing with the ultra-low-cost Indonesian mines that have dominated global supply and pressured prices.

However, the ambitious cost targets face the harsh reality of African mining, where infrastructure challenges, regulatory uncertainty, and operational complexities have derailed many promising projects. Tanzania's mining sector, while improving, still carries risks that could inflate costs beyond current projections.

Unproven Technology Holds Key to BHP's Future

The real prize for BHP lies not in Kabanga's conventional mining operations but in the experimental hydro-metallurgical processing technology that could revolutionize how the company approaches nickel refining globally. Lifezone Metals chairman Keith Liddell has spent decades promoting his Kell process, a liquid-based treatment method that promises superior efficiency compared to traditional heat-based pyrometallurgical systems used for most sulfur-rich ores.

The proposed Kabanga refinery would employ pressure oxidation, neutralization, solvent extraction, electrowinning, and crystallization to produce not only nickel but also 7,000 tonnes annually of high-grade copper cathode and 4,000 tonnes of cobalt. While the technology has been tested in Lifezone Metal's Perth laboratory, the leap from laboratory to commercial-scale operation represents a significant technical and financial risk.

The processing system's success could unlock far greater value than the Kabanga project itself suggests. If the technology proves viable, BHP could retrofit its existing Australian infrastructure—specifically the Kambalda nickel concentrator near Kalgoorlie or the Kwinana refinery—potentially breathing new life into the NickelWest operations that were mothballed last year when nickel prices collapsed to around $8 per pound.

High-Profile Backers Signal Confidence Despite Skepticism

Despite the inherent risks, Kabanga has attracted an impressive roster of investors and advisors that lends credibility to the venture. Beyond BHP's backing, institutional shareholders include BlackRock, Cinctive, and Grantham Mayo van Otterloo, while mining industry veterans Harry Lundin and Rick Rule hold convertible debentures. This institutional support provides both financial backing and industry expertise, though it doesn't guarantee commercial success.

Control of Lifezone remains concentrated, with Liddell holding 30% of the company and early-stage investors owning another 29%. This ownership structure ensures management alignment but also concentrates decision-making power in relatively few hands. BHP's modest 1.5% stake in Lifezone itself reflects a cautious approach that allows the company to maintain influence while limiting exposure.

The project's credibility received a boost from recent presentations at the Payne Institute London Critical Minerals Symposium and the invitation-only JP Morgan Energy Power and Renewables Conference, where Kabanga's technical team outlined their development strategy to potential investors and partners.

Market Volatility Creates Urgency & Opportunity

The timing of BHP's decision comes amid significant turbulence in global nickel markets, where Chinese and Indonesian producers have flooded supply channels and pressured prices across the sector. Lifezone's share price trajectory tells the story of this volatility—falling from around $7 in mid-2024 to $3.16 late last month before recovering above $4 as anticipation builds around the feasibility study.

This market disruption forced BHP's hand last year when it placed NickelWest into care and maintenance, joining a growing list of Western nickel operations unable to compete with Asian producers. The Indonesian nickel surge, driven by massive investments in processing capacity, has fundamentally altered the competitive landscape and raised questions about the viability of traditional nickel mining regions.

Yet this same market disruption creates opportunity for low-cost producers capable of weathering the current downturn. If Kabanga can deliver on its cost projections, the project could emerge as supply tightens and electric vehicle demand continues growing, potentially capturing market share from higher-cost competitors.

The July feasibility study represents more than a technical milestone—it's a referendum on BHP's willingness to re-enter the nickel market and bet on unproven technology in an challenging jurisdiction. For a company that has emphasized "future-facing metals" including copper and potash, the Kabanga decision will signal whether nickel deserves a place in that portfolio or remains consigned to the corporate dustbin alongside other abandoned commodities.

Key Investment Takeaways

• Cost competitiveness claims: Kabanga projects $2.71/lb all-in sustaining costs that would rank among global leaders, though these targets remain unproven in African operating conditions and depend heavily on byproduct revenue streams.
• Technology risk and reward: The hydro-metallurgical process could transform BHP's Australian nickel operations if successful, but represents a significant technical leap from laboratory testing to commercial-scale production.
• Quality institutional support: Backing from BlackRock, mining veterans, and BHP's $100 million investment demonstrates serious institutional interest, though past performance doesn't guarantee future success in challenging markets.
• Critical decision point: July's feasibility study will determine whether BHP exercises its option to increase ownership from 17% to 51%, representing a potential $500+ million additional commitment to African nickel production.
• Market timing uncertainty: While diversified revenue from copper and cobalt provides some protection, the project's success depends on nickel price recovery and the ability to compete with dominant Indonesian producers.