BHP's potash venture counts on prices rising
"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 by, 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.
Frequently Asked Questions about this Article…
The Jansen project is BHP’s planned Canadian potash mine. BHP’s CEO Andrew Mackenzie says the company will continue because they believe it can deliver very high returns for shareholders over decades and that they have “the best undeveloped greenfield mine on offer.”
BHP has approved US$2.6 billion of spending so far. Citigroup has estimated the full build could cost about US$16 billion, which is why BHP is looking for partners to share the investment and risk.
In July Russia’s Uralkali quit a marketing venture that controlled a large share of global potash exports, signalling potash prices might fall by as much as 25%. That move prompted skepticism—BlackRock’s Evy Hambro said BHP’s plan “did not make sense” given the expectation of lower prices.
BHP says its project projections already assume a shift away from the prior market dynamic. Management has stressed it will be cautious about further spending, seek value-adding partners, and time the development so it can respond quickly when market conditions are right.
Yes. BHP is actively seeking partners and has both approached and been approached by potential buyers of a stake. CEO Andrew Mackenzie said he’s looking for partners that add value and isn’t limiting interest to just mining peers.
According to the article, BHP shares have slipped 3.9% year to date, while the benchmark S&P/ASX 200 index gained 10.2% over the same period, reflecting investor concerns about the project and broader market factors.
Potash is a fertiliser ingredient that strengthens plant roots and improves resistance to drought. Because it’s a key agricultural input, potash supply and price moves can affect commodity markets and the long‑term prospects of companies that produce it—information investors may want to watch.
Investors should keep an eye on announcements about partner deals or stake sales, any changes to capital spending on Jansen, market signals for potash prices following producers’ moves, and updates from BHP on timing for development—since management says they’ll take their time to push the development button.
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