BHP's potash venture counts on price rises
"We are continuing on this investment because we strongly believe, and we've talked a lot about it with the board, this is going to offer very high returns for shareholders in the decades to come," chief executive Andrew Mackenzie said in an interview on the ABC's Inside Business. "We have the best undeveloped greenfield mine on offer to the world and what we are doing, we will be prepared to respond very quickly to the market when it's needed."
Russia's OAO Uralkali, the largest potash producer, in July quit a marketing venture with Belarus' state producer that controlled about 43 per cent of global exports and kept limits on production. It signalled prices might fall by as much as a quarter. BHP said its projections for the project assumed a shift away from the present market dynamic.
BHP is seeking partners for the Jansen project after approving spending of $US2.6 billion ($2.9 billion). The company had been approached, and had approached, possible buyers of a stake in the project, Mr Mackenzie said. Jansen might cost $US16 billion to build, Citigroup said last month.
"I'm looking for a partner that will add value," Mr Mackenzie said in an interview with The Australian Financial Review aired on Channel Nine on Sunday. The potential partners were in "a wider range than just some of our mining peers that would be interested in a project like this".
BHP shares have slipped 3.9 per cent this year, compared with a 10.2 per cent gain in the benchmark S&P/ASX 200 index.
Blackrock's Evy Hambro, who manages the $US7 billion World Mining Fund, said on August 7 that BHP's plan for its Jansen potash project did not make sense after Uralkali's decision, given the expectation of lower prices.
Mr Hambro "said what he has always said to me, which is that he can see the value of that in the long term, as long as we don't spend too much on it right now", Mr Mackenzie said.
"We will take our time about pushing the button of the development of a major mine that will absolutely reflect our ability to afford it but, more importantly, the ability to earn strong returns for our shareholders."
Potash is a fertiliser ingredient that strengthens plant roots and improves their resistance to drought. Bloomberg
Frequently Asked Questions about this Article…
The Jansen project is BHP Billiton’s undeveloped Canadian potash mine that the company says could deliver very high returns for shareholders over decades. For everyday investors, it matters because it represents a major long‑term growth opportunity for BHP and could affect the company’s capital spending, future earnings and share performance.
BHP chief executive Andrew Mackenzie said the company believes Jansen is the best undeveloped greenfield mine available and expects it to offer strong long‑term returns. BHP has discussed the plan with its board and is prepared to respond quickly to market needs, but will take its time before committing to full development.
In July, Russia’s Uralkali quit a marketing venture with Belarus’s state producer that historically controlled about 43% of global potash exports, signalling that potash prices could fall by as much as 25%. BHP says its project projections assume a shift away from the old market dynamic, so lower prices are a known risk factored into its planning.
BHP approved initial spending of US$2.6 billion (about A$2.9 billion) and is seeking partners. Citi has estimated the full build cost of Jansen could be around US$16 billion, though BHP has not committed to that total upfront.
Yes. BHP is seeking partners after approving the initial US$2.6 billion spend. CEO Andrew Mackenzie said he’s looking for partners that add value and that the pool of potential partners is wider than just traditional mining peers.
Some investors, including Evy Hambro of BlackRock who manages the US$7 billion World Mining Fund, questioned the sense of committing to the Jansen project immediately after Uralkali’s decision, given expectations of lower potash prices. BHP acknowledges the long‑term value but says it will be careful about timing and spending.
The article notes BHP shares had slipped about 3.9% year‑to‑date, compared with a 10.2% gain in the benchmark S&P/ASX 200 index. The Jansen debate and commodity outlook are among factors investors are watching that could influence BHP’s stock.
Potash is a fertiliser ingredient that strengthens plant roots and improves drought resistance. Potash prices matter because they determine the revenue potential of a large potash mine like Jansen — lower global prices would reduce project returns, while higher prices would boost profitability for producers like BHP.
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