Potash prices, oversupply scaring potential Jansen partners: BHP

Potash prices, oversupply scaring potential Jansen partners: BHP

“We are not in a hurry," BHP's CEO Andrew Mackenzie.

BHP Billiton (ASX, NYSE: BHP) (LON: BLT), the mining giant in the midst of a major demerger, said Tuesday that current potash market conditions may be scaring potential partners for its $12 billion Canadian Jansen project away.

The company has hinted it would likely need a fellow miner to develop its proposed mine in south-central Saskatchewan, which has the potential to become one of the world’s largest mines for the fertilizer ingredient. However, Chief Executive Officer Andrew Mackenzie restated today the firm is not in a rush.

“We are not in a hurry and we have to take account of how current market conditions have perhaps made some of the potential partners less interested than they might have been,” he told reporters in London according to Bloomberg.

Potash prices, oversupply scaring potential Jansen partners: BHP

Jansen potash project.

Jansen is not the miner's only potash bet in the area. Four years ago, BHP bought nearby Athabasca Potash for $320 million and Diamet Minerals for $426 million.

The world’s No.1 mining company, which has already committed $3.8 billion to the project, plans to spin off its nickel, manganese and aluminum operations to form a new company that would have an estimated value of $8 billion.

Analysts agree it is too early to tell how the Canadian operations will be affected, but the company's appears to be leaning towards continuing to invest in its potash operations, a potential “fifth pillar” or major business line.

Slowly, but surely

Potash prices, oversupply scaring potential Jansen partners: BHPBHP recently committed to spending an additional $2.6 billion on Jansen over the next few years, just to gain access to the deposit, but it hasn’t made a decision on when to start building the mine, which has 5.3bn tonnes of measured resources and 1.3bn tonnes of inferred potash.

The reason, say experts, is that potash producers need prices as close as $500 per tonne as possible, so they can cover construction costs.

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.

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.

But BHP spent less than expected on Jansen during the 2014 financial year, and also allowed an associated port lease to lapse.

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.

Image: BHP's CEO Andrew Mackenzie speaks at the annual IHS CERAWeek conference in Houston Texas on March 4, 2014, via YouTube.