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Mosaic (NYSE:MOS), the world’s largest producer of finished phosphate products, became the latest potash sector actor to cast a doubt on BHP’s recently announced plans to speed up the development of a giant potash mine in Canada.
The US miner said Monday that for BHP to spend another $4.7 billion, prices for the fertilizer ingredient would have to at least double from currents levels or the investment would simply not make any sense, The Australian reports.
“I think it is a less than high probability at this stage (but) you can never say what people will do,” Mosaic chief executive Joc O’Rourke said according to the paper.
His view is in line with BHP’s activist investor Elliott, which last week attacked the company’s decision to grow its potash business to the size of its iron ore division, mainly by moving Jansen into production.
BHP has committed so far a total of $3.8 billion for Jansen, but board needs to approve another $4.7 billion investment to move mine into production.
Sydney-based Deutsche Bank AG analyst Paul Young also questioned BHP’s bet on potash, telling Bloomberg earlier this month that Jansen was “highly contentious topic and project.” He noted the market has continued to be severely challenged, adding it may not improve for at least five years, as there is plenty of spare capacity in the industry.
While BHP board will decide whether to build the mine only next month, the world’s largest miner has been paving the way for it. So far, BHP has committed a total investment of $3.8 billion for the potash project. From that total, $2.6 billion have been set aside for ongoing surface construction and the sinking of shafts.
Chief executive Andrew Mackenzie said in May the company was looking at a phased expansion of Jansen, which is projected to produce 8 million tonnes of potash a year or nearly 15% of the world’s total.
Mackenzie added the company could seek approval from the board for such expansion as early as June 2018, with production beginning in 2023.
BHP claims investing in potash is thinking ahead, and it has repeatedly stated it believes rising demand for fertilizer in growing nations, particularly China and India, will lead to a long-term price increase for the commodity.
“The basic rationale for rising potash consumption is quite simple,” wrote last week BHP’s potash specialist Paul Burnside. “Not only is the total population continuing to grow, but at least three billion people are expected to join the global middle class by 2030.”
Prices for the crop fertilizer ingredient, however, are not favourable — they are still hovering around $230 a tonne, less than half what they were only five years ago.
BHP believes demand for potash could double by the late 2040s, by which point it could be a $50 billion market. (Image courtesy of BHP.)
4 Comments
Mark
Bizarre. BHP could buy half of POT, or probably the entire MOS company for less than their Jansen mine would cost, and not collapse the price of the commodity for generations in the process.
RDC1378
There is a rush on within BHP to show massive future gains through a recognition of value opportunities now. This plan has failed for them before with write-offs reaching more than $10B on projects that failed mostly during construction. For anyone around in the 90’s it’s deja vu all over again.
John
They have been talking about walking away from the project for 2 years now. 2 things went against the project! 1: the price of potash tanked. 2: incompetence. By that I mean they are a hard rock miner. They had lots of set backs sinking the shafts.
K+s started a mine construction from bare ground after jansen and they are produsing today. I worked on both projects and could see the difference between the two.
Enoch Pax
BHP is getting too big and ambitious; perhaps another South 32 in the making.