Jansen potash mine is still being considered

August 8, 2013

The break up of the Belarusian Potash Co., in July has threatened to drive prices down for potash, but it has not scared BHP Billiton away from the sector, which is still considering building its $14 billion Jansen potash mine in Canada.

BHP Billiton chief executive Andrew Mackenzie told the Wall Street Journal that the company continues to weigh its options for the mine and that it would fulfill the company’s ambition to add potash as a fifth pillar to its diverse mining operations alongside coal, copper, iron ore, and oil and gas.

The price of potash was until recently heavily influenced by a marketing alliance, Belarusian Potash Co., which ended late last month with the withdrawal by Russian producer Uralkali. Uralkali said at the time that the termination of the partnership may slash prices for the agricultural commodity by as much as 25 percent to $300/t ($270/st) by the end of this year (ME, July 31 ).

Marius Kloppers, BHP’s CEO until Mackenzie took over in May, was thwarted in his attempt to vault into the potash industry in 2010 when Canadian authorities opposed a $39 billion hostile bid for Potash Corp. of Saskatchewan Inc.

For years, much of the world’s potash has been sold through either Belarusian Potash or Canpotex, which set identical prices in major markets such as China and India and together commanded two-thirds of a nearly $22 billion market. BHP had planned to sell potash independently of North America’s Canpotex, which markets the material for Potash Corp., Mosaic Co. and Agrium Inc.

Analysts estimate the Australian mining company has already spent more than $1 billion on preparatory work at the site, which includes building mine shafts for ferrying miners and materials.

BHP has made bold bets on commodities before, most recently with the nearly $17 billion purchase of oil-and-gas-rich shale deposits in Texas, Louisiana and Arkansas in 2011. That foray stumbled early when BHP was forced to take a $2.8 billion impairment charge against some of the earliest shale acreage bought that year after U.S. natural-gas prices slumped. It has since refocused its drilling on oil prospects.

Mackenzie said he was more optimistic about future demand for commodities than many others in the industry in the light of China's wobbly economy. He said he expected consumption-driven growth there to offset a slowdown in investment-fueled growth, maintaining strong demand for commodities such as gas, copper and potash used in energy and food production.

Jansen is the only massive project still on BHP’s books after Kloppers, about a year ago, said no major new investments would be approved before at least mid-2013, after prices for iron ore and coal fell sharply. Plans for a roughly $20 billion expansion of BHP’s Olympic Dam copper mine in southern Australia and a new harbor for iron-ore exports in Western Australia state were among the projects shelved.

 

 

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