BHP's potash venture counts on prices rising

BHP Billiton will proceed with its plans for a Canadian potash project, which has been called "misguided" by its biggest shareholder, driven by the prospect of strong investor returns.

BHP Billiton will proceed with its plans for a Canadian potash project, which has been called "misguided" by its biggest shareholder, driven by the prospect of strong investor returns.

"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.