BHP on Tuesday admitted to institutional investors it “overinvested” in its Jansen potash project in Saskatchewan where the Anglo-Australian giant has already spent $2.7B over nearly six years.
At a BofA Merrill Lynch mining and metals conference held in Barcelona, CEO Andrew Mackenzie said the company’s “thinking around the project’s initial scope has evolved”:
“However, Jansen remains an attractive option for BHP given its strategic fit, risk-return metrics and the longer-term optionality the initial investment would create.”
Two shafts have been sunk at Jansen, but BHP will have to invest another $5.3–$5.7B to finish phase one construction of the mine which the company said would take fewer than 5 years to complete. BHP has in the past said it would consider selling a stake in Jansen to share capital and risk.
BHP says it can produce potash for around $100 a tonne at the mine. Prices for the crop nutrient at the Vancouver port have improved to $265 a tonne from $215 a year ago. That compares to around $400 a tonne when Jansen was first conceived and record highs more than a decade ago of $870 per tonne.
The deposit can accommodate another three phases – at $4B per phase – that would lift annual capacity to more than 16m tonnes per year, vastly improving the economics of the project.
BHP has long been eager to enter the potash market in Saskatchewan, diversifying its asset base now concentrated around iron ore and copper since disposing of its US oil assets a year ago.
In 2010, Canada blocked BHP’s $40 billion hostile takeover bid for Potash Corp (now Nutrien after merger with Agrium) arguing the company’s mines are strategic national assets.