The world’s biggest mining company says it is still keen to build the world’s biggest potash mine, despite a serious bear market within the crop nutrient.
But it sure doesn’t seem to be in a rush.
Andrew Mackenzie, BHP Billiton Ltd.’s leader, told investors on Tuesday that he doesn’t expect the potash market to make a serious recovery before the early 2020s.
“It’s a long way off,” he said on the business call to go over half-year earnings.
Melbourne, Australia-based BHP is in the midst of the US$2.6-billion investment to construct production shafts at its Jansen project in Saskatchewan. Jansen will be a game-changer in the industry, as BHP is aiming to produce eight million tonnes of potash annually, which would add up to nearly 15 per cent of worldwide supply.
However, it may need many more vast amounts of dollars to actually bring the work to production. Analysts and investors are skeptical that BHP’s board will approve Jansen anytime soon, or indeed if it ever will. At current potash prices, nobody thinks the mine is sensible.
Mackenzie said BHP is moving at a “relatively slow rate” at Jansen, and can not be ready for any push to production until the potash market recovers. Considering that BHP doesn’t observe that happening until the 2020s, production remains a long way away.
The shaft sinking, that was approved in August 2013, was 54 per cent complete after December.
“Shaft sinking in the project continues, though BHP seems to continue the go-slow track at Jansen it’s been on for a long time,” said Joel Jackson, analyst at BMO Capital Markets.
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Jansen is clearly not really a priority for the company. Mackenzie noted that Dean Dalla Valle, the BHP executive responsible for Jansen, has relocated to Brazil to be able to lead the business’s response to the disaster at its Samarco mine. Samarco’s tailings dam burst last November, killing at least 17 people and causing massive environmental damage.
“(Valle’s) keeping a weather eye on our potash project because he’s in the same time zone, however i think that’s about one percent of his time,” Mackenzie said.
Nonetheless, BHP said it is committed to the project. The organization told analysts that it still likes the long-term outlook for potash, it likes the resource at Jansen also it sees a lot of options to grow production with time.
The potash market is suffering due to oversupply and growing competition between producers. Prices, which peaked at more than US$900 in 2008, are now mired below US$270. Demand has not grown as fast because the producers expected over the last decade.
The bear market has forced potash companies to respond. Last month, Potash Corp. of Saskatchewan Inc. shuttered its New Brunswick operation and cut 430 jobs.
The economics of Jansen remain a mysterious. BHP hasn’t released any estimates of what the project would cost, or what potash price could be necessary to generate a decent return. Analysts have estimated that the company would need to spend US$14 billion or more to produce eight million tonnes a year, though it could begin with a smaller operation and gradually expand.
Financial Post
pkoven@nationalpost.com
Twitter.com/peterkoven
