Page 110 - Annual Report 2020

1.11.5 Other assets 1.12 Other information

Nickel West Application of critical accounting policies, judgements
Key drivers of Nickel West’s financial results and estimates
Price overview The preparation of the Financial Statements requires management
Our average realised sales price for FY2020 was US$13,860 per to make judgements and estimates and form assumptions that
tonne (FY2019: US$12,462 per tonne). The average nickel price in affect the amounts of assets, liabilities, contingent liabilities,
FY2020 was 13 per cent higher than FY2019, mainly due to higher revenues and expenses reported in the Financial Statements.
prices in the first half of FY2020 (+25 per cent year-on-year). Prices All judgements, estimates and assumptions are based on most
started moving up in July 2019 as rumours of Indonesia’s ore export current facts and circumstances and are reassessed on an ongoing
ban being brought forward circulated and, following confirmation basis, the results of which form the basis of the reported amounts
of the ban, moved to their highest monthly average since FY2015 that are not readily apparent from other sources. Actual results may
in September 2019. Prices dropped at the beginning of the second differ from these estimates under different assumptions and
half of FY2020 due to the impact of the COVID-19 pandemic, but conditions. This may materially affect financial results and the
recovered from April onwards, supported by macro and market financial position to be reported in future periods.
sentiment factors. In the near term, we expect Indonesian supply The Group’s critical accounting policies where significant
of nickel pig iron (NPI) to continue to grow, offsetting lost judgements, estimates and assumptions applied are as follows:
production in China. Longer term, we believe that nickel will
be a substantial beneficiary of the global electrification mega-trend • significant events – Samarco dam failure
and that nickel sulphides will be particularly attractive given the • taxation
relatively lower cost of production of battery-suitable class-1 nickel • inventories
than for laterites, which will set the long-run nickel price. This view • exploration and evaluation
is supported by our assessment of the likely rate of growth in • development expenditure
electric vehicles and of the likely battery chemistry that will • overburden removal costs
underpin this. • depreciation of property, plant and equipment
Production • impairments of non-current assets – recoverable amount
Nickel West production in FY2020 decreased by 8 per cent to • closure and rehabilitation provisions
80 kt due to the major quadrennial maintenance shutdowns at the • leases
Kwinana refinery and the Kalgoorlie smelter, as well as planned • impairment of investments accounted for using the
routine maintenance at the concentrators. equity method
For more information on individual asset production In accordance with IFRS, we are required to include information
in FY2020, FY2019 and FY2018, refer to section 6.3. regarding the nature of the judgements and estimates, and
potential impacts on our financial results or financial position in the
Financial results Financial Statements. This information can be found in section 5.1.
Lower production partially offset by higher realised sales prices Quantitative and qualitative disclosures about market risk
resulted in revenue decreasing by US$4 million to US$1.2 billion
in FY2020. We identified our principal market risks in section 1.5.4.
A description of how we manage our market risks, including
Underlying EBITDA for Nickel West decreased by US$139 million quantitative and qualitative information about our market risk
to a loss of US$37 million in FY2020 reflecting lower volumes sensitive instruments outstanding at 30 June 2020, is contained
as a result of the major quadrennial maintenance shutdowns in note 22 ‘Financial risk management’ in section 5.1.
at the refinery and the smelter, as well as costs associated with
the transition and ramp-up of new mines. This decrease was Off-balance sheet arrangements and contractual
partially offset by higher prices and favourable inventory and commitments
exchange rate movements. Information in relation to our material off-balance sheet
Potash arrangements, principally contingent liabilities, commitments for
capital expenditure and commitments under leases at 30 June 2020
Potash recorded an Underlying EBITDA loss of US$127 million is provided in note 11 ‘Property, plant and equipment’, note 20
in FY2020, and a loss of US$127 million in FY2019. ‘Leases’ and note 33 ‘Contingent liabilities’ in section 5.1.
Subsidiary information
Information about our significant subsidiaries is included in note 29
‘Subsidiaries’ in section 5.1 and in note 13 ‘Related undertakings
of the Group’ in section 5.2.
Related party transactions
Related party transactions are outlined in note 32 ‘Related party
transactions’ in section 5.1.
Significant changes since the end of the year
Significant changes since the end of the year are outlined in note
34 ‘Subsequent events’ in section 5.1.
The Strategic Report is made in accordance with a resolution
of the Board.

Ken MacKenzie
Chair
Dated: 3 September 2020

108 BHP Annual Report 2020