BHP expected to stay true to potash venture

BHP Billiton's appetite for potash is expected to hold firm, despite corporate positioning in Europe that could deflate prices for the commodity in the immediate future.

BHP has been expected to clarify its commitment to a multibillion-dollar potash project in Canada in coming weeks, but those expectations were rocked on Wednesday by revelations that two large producers of the commodity would no longer co-operate in an influential sales joint venture.

The split between Russia's OAO Uralkali and Belaruskali of Belarus is expected to see more potash produced, thereby forcing down the price of the commodity.

BHP has been mulling whether to spend $500 million to $600 million to sink new shafts at Canada's Jansen mine, in the first step of a bigger plan that could turn Jansen into the world's biggest potash mine.

Competition for capital within BHP is fierce, and some observers have suggested that Wednesday's developments in Europe could be enough to deter BHP from committing scarce cash to the project. BHP declined to comment but the Melbourne-based company has long indicated that the construction of the project could take several years, and a decade could pass before the expanded mine reached its full potential.

Those time frames could insulate BHP from any immediate fluctuations in the price of potash.

Deutsche analyst Paul Young said Wednesday's ructions could affect the pace at which BHP develops the project, but was unlikely to deter the company entirely. "Overall this shouldn't change their long-term view on potash, and the fundamentals should not have changed on the back of this announcement," he said.

Mr Young and another analyst who declined to be named both noted that BHP prefers to work in commodities that have transparent market pricing systems. They said Wednesday's ructions had helped move potash closer to spot pricing.

Meanwhile BHP could soon enjoy increased production from its oil interests in the Gulf of Mexico, which were responsible for the company's only missed production target in the 2012-13 financial year.

Its partner in the gulf, BP, told investors the joint venture "Mad Dog" rig would improve its performance over the next 12 months.

BHP has been seeking to divest many of its non-core assets but revealed on Wednesday that one Australian mine earmarked for divestment would now be retained.

It confirmed the Gregory coalmine in Queensland, which is jointly owned with Mitsubishi, would be retained after several months of looking for a buyer.