BHP abandons planned Canada’s Jansen potash export facility

BHP abandons planned Canada’s Jansen potash export facility

The two shaft sinking headframes at BHP’s Jansen potash project. (Image reproduced with the permission of BHP Billiton)

BHP Billiton (ASX, NYSE: BHP) (LON: BLT) has let go an opportunity to have a potash export facility close to its $12 billion Canadian Jansen project, which has the potential to become one of the world’s largest mines for the fertilizer ingredient.

The world’s No.1 mining company, WSJ.com reports, said it let the exclusivity agreement with the Port of Vancouver's authority expire because it is evaluating alternative rail and port options in Canada and the US.

At the company’s annual general meeting last year, CEO Andrew Mackenzie said BHP would increase its focus on its four core pillars — iron ore, copper, coal and petroleum, restating he sees potash as a fifth pillar.

“The growth will be driven by a rising population and greater economic prosperity, which will change the patterns of food consumption, requiring higher yields from increasingly constrained arable land.

"Our continued investment in potash, at an average annual spend of $800-million, will make sure we are ready to take advantage of this opportunity to add to shareholder returns,” he said then.

Mackenzie has regularly reiterated the firm’s commitment to the Jansen project in Canada's Saskatchewan province, as they search for a potential partner to help with the cost of moving the project forward.

Potash prices fell last year about  30%, to near $300 a ton by December 2013 – hitting a six-year low. Prices have since rebounded to about $350 a ton. But building Jansen, which could cost as much $15 billion to construct, is probably a no-go for BHP even with the slightly higher current prices.

BHP abandons planned Canada’s Jansen potash export facilityIn 2010 the government of Saskatchewan opposed BHP’s attempted takeover of Potash Corp. (TSX, NYSE:POT), and the federal government eventually blocked the deal.  But BHP vowed to keep its 100% Jansen, committing recently to spend an additional $2.6 billion over the next few years, just to gain access to the deposit.

Since then, the Melbourne-based firm has been working on mine projects in Potash Corp's backyard, as it has Germany's K+S AG, which expanded into Canada in 2011 with the acquisition of Potash One Inc.

Called by Mackenzie “the world’s best undeveloped potash resource,” the mine is expected to produce ten million tonnes of potash a year during a 70-year mine life.

The mine would be a game-changer in the industry, as the BHP expects to generate eight million tonnes of potash a year, which would amount to nearly 15% of global supply.

By comparison, the Mosaic Company’s (NYSE:MOS) Esterhazy mine will produce about 6.3 million tonnes per year once its latest expansion is complete, while most Saskatchewan operations churn out between three and four million tonnes per year.

Global demand for potash was expected to rise this year. Key importers in China and India have for the past couple of years demonstrated an ability to drive deeper discounts on contracted volumes due to plentiful supplies.