in this issue
BHP commits $2.6 billion to Canada potash project
12:38 PM MDT | August 23, 2013 | —Francinia Protti-Alvarez
BHP Billiton (Melbourne) says it is going ahead with a $2.6-billion investment to finish the excavation and lining of production and service shafts at the company’s previously announced Jansen potash project, in Canada, and to continue installing essential surface infrastructure and utilities. The approval raises the company’s total commitment to the Jansen project to approximately $3.8 billion. The investment will be spread over a number of years, with the completion of both shafts expected during 2016 and the associated works program extending into 2017, BHP says. The Jansen project is 100% owned by BHP and located 140 kilometers from Saskatoon, SK.
BHP’s investment announcement comes despite an expected decline in international potash prices following the recent breakup of the Belarusian Potash Co. (Minsk) potash export cartel. The anticipated fall in prices has led analysts to question the economics of greenfield potash projects, such as BHP’s Jansen investment.
BHP has not announced an estimated start-up date for the Jansen potash mine, however. The mine had originally been scheduled to start operating in 2015, but BHP delayed this plan last year. The excavation and lining of both shafts will substantially reduce development risk and allow BHP to time first production to meet growth in market demand, the company says. Press reports in Australia say that the Jansen mine will start producing in 2020 at the earliest. Reports also say that BHP is seeking a minority investor in the Jansen project and has held initial talks with potential partners.
“Annual investment at Jansen of approximately $800 million will form an important part of the group’s capital and exploration budget, which will decline to approximately $16 billion this year,” says Andrew Mackenzie, CEO of BHP. “Continued development of the shafts reflects our confidence in the quality of our 5.3-billion m.t. measured resource and the compelling long-term fundamentals of the potash industry.”
BHP says that Jansen’s potash resources can support a mine with an annual capacity of 10 million m.t. for more than 50 years. The project will benefit from economies of scale and modern mining techniques.
The long-term outlook for potash is strong, BHP adds. As the world’s population grows and incomes in emerging economies improve, agricultural demand is expected to rise. BHP’s projections assume that the potash price will ultimately reflect the cost of adding new supply, the company adds.