BHP takes $2.3B hit on Jansen as cost of potash mine swells again

BHP Group (ASX: BHP) plans to book a $2.3 billion impairment on its giant Jansen potash mine in Saskatchewan, Canada, citing cost and timing overruns for its planned expansion.

In an announcement Thursday, the world’s biggest miner said it decided to take the write-down after a “comprehensive review” of the mine’s Stage 2 expansion, which is now expected to cost $6.9 billion — about $2 billion more than its previous estimate.

Jansen, currently in the construction phase, represents a key pillar in BHP’s decades-long strategy to diversify from copper and iron ore.

After years of debate surrounding the project’s huge price tag, the Melbourne-based group approved the Stage 1 mine build, with an original cost of $5.7 billion. Since then, the cost estimate has swelled, but first production has also been pushed forward to 2027.

Before that cost surge, BHP had already greenlit the Stage 2 expansion in October 2023, as rising fertilizer prices after Russia’s invasion of Ukraine provided a favourable market environment for the company to accelerate its potash plans.

First production of Stage 2 was initially set for 2029. However, due to the cost overruns for Stage 1, management has since decided to delay the project by two years.

Cost increase ‘exceeded expecations’

The majority of the cost increase for Jansen Stage 2, says BHP, is from “additional construction hours and quantities of materials.” Given the increased costs, the company is now targeting first production late in the 2031 fiscal year.

Analysts at Jeffries, in a note to Reuters, said the cost increase of nearly 30% “exceeded expectations” and called the update “unhelpful” due to a poor foreseeable outlook for potash.

“We reiterate our hold rating on BHP as we see better value elsewhere in mining for now,” they added.

This represents the third time that BHP has blown past its cost and time estimates for both stages of the project. The cost of Stage 1, according to the company, is now estimated to be $8.4 billion, almost 50% higher than what was approved in 2021. Combined with Stage 2, the mine’s expected cost would reach $15.3 billion.

10% of global output

In its update on Thursday, BHP said the construction of Stage 2 is approximately 16% complete. Once ramped up, it is expected to deliver approximately 4.36 million tonnes per annum of production, similar to that of the first stage, which the company said is on track for production in the middle of fiscal 2027.

At full capacity, the operation is expected to deliver approximately 10% of total global potash production, it added.

“Once Jansen Stage 2 ramps up, we continue to expect that the combined Jansen mine will be the lowest unit cost Canadian potash mine at $114-130/t, in line with unit cost estimates at sanction, reinforcing Jansen’s durable competitive advantage in the potash market,” BHP said in a statement.

After taking the $2.3 billion charge, the company has maintained its capital expenditure guidance at approximately $11 billion.