BHP to grow potash business to size of iron ore — report

BHP (ASX, NYSE:BHP) (LON:BLT), the world's largest mining company by market capitalization, is considering to grow its potash business to the size of its iron ore division, but only under “certain circumstances.”

Speaking to Japanese newspaper The Nikkei, chief executive Andrew Mackenzie said that as part of the company’s recently announced restructuring, BHP expects to reinvest what it gets for its US shale gas assets into potash.

BHP is currently developing its Jansen potash mine in Canada, which would be the company's biggest single investment ever.

The results of this strategy, however, won’t be immediate, he warned: "It's taken us 50 years to create today's iron ore business. It will be another 50 years to create a potash equivalent. So you have to start somewhere," Mackenzie said.

And that starting place seems to be Canada’s Saskatchewan province, where the world’s third largest iron miner is currently building its massive Jansen potash mine.

To date, BHP has committed a total investment of $3.8 billion to move Jansen into production. From that total, $2.6 billion have been set aside for surface construction and the sinking of shafts, though analysts predict the total cost will be close to $14 billion.

Mackenzie said last month it was looking at a phased expansion of Jansen, which is projected to produce 8 million tonnes of potash a year or nearly 15% of the world's total.

He added the company could seek approval from the board for such expansion as early as June 2018, with production beginning in 2023.

Prices for the crop fertilizer ingredient, however, are not favourable — they are still hovering around $230 a tonne, less than half what they were only five years ago.

Besides, BHP’s iron ore business brings in about $9 billion a year, which doesn’t look like an easy target to match by any other division, particularly by potash, given current prices.

But the company is looking long-term and has repeatedly stated it believes rising demand for fertilizer in growing nations, particularly China and India, will lead to a long-term price increase for the commodity.