BHP Ltd., Melbourne, now expects to present its Jansen Stage 1 potash project to its board for a final investment decision in the middle of calendar year 2021, the group said in its full-year earnings report released on Aug. 18.
The group previously planned to make the presentation in February of next year. It said the decision follows delays to the completion of the shafts. These delays are a result of initial challenges with placement of the shaft lining, since rectified. The group’s COVID-19 response plan also impacted on the work. It had said in April it was reviewing the timeline for the completion of the two Jansen shafts (GM April 24, p. 31).
The forecast capital cost for the execution of Jansen Stage 1 – which currently is designed to provide between 4.3 million and 4.5 million mt/y of potassium chloride production capacity on completion – remains unchanged at between US$5.3 to US$5.7 billion. But BHP said “some additional costs” are now expected to be incurred on the US$2.7 billion shaft project currently in execution as a result of the delays. It said these additional costs are currently under review. This project stage in now 86 percent, just 1 percent up from 85 percent in April.
The group’s potash capital expenditure for the year to June 30, 2020 totaled US$201 million, up from US$174 million in FY2019. It expects potash capex of approximately US$285 million for FY2021.
BHP CEO Mike Henry said the final investment decision on Jansen Stage 1, like all of BHP’s projects, must satisfy the group’s Capital Allocation Framework. Earlier this year, the CEO had insisted that Jansen would not be pushed ahead for the sake of diversification. The group is particularly keen to get out of thermal coal mining as investors are increasingly uncomfortable with big name companies mining the dirtiest fuel, and is looking to what it has termed “future-facing commodities”, namely copper and nickel, as well as potash.
The group’s medium-to-long term view on potash remains unchanged; that the nutrient stands to benefit from population growth and rising living standards. It anticipates trend demand growth of 1.5 to 2.0 million mt/y, equating to between two and three per cent growth per annum, through the 2020s.
However, while BHP believes this rate of demand growth “would progressively absorb the excess capacity currently present in the industry”, it now expects “the window for new supply to be open by the late 2020s or early 2030s”, which is later than the mid-2020s it had been anticipating last year for the absorption of latent capacity (GM May 24, 2019).
The group also now appears to be looking at a five-year construction period for Jansen Stage 1 – if it goes ahead with the project – with a two-year ramp-up. Previously, it had indicated the first stage would take less than five years to complete (GM May 24, 2019).
BMO Capital Markets chemicals and fertilizers/ag analyst Joel Jackson said their view is that it does not take five years to build a potash plant, so they would assume this decision is “at least partially market based.”
“This implies that instead of us assuming 1 million mt from Jansen in 2025 (ramping up to 4 million mt in 2027), we would need to delay first tons by up to 18 months into 2026,” said Jackson.
BHP has estimated that it can produce potash at Jansen for ~$100/mt FOB Vancouver, excluding royalties (GM May 17, 2019).
“This is below the current market prices, and in line with its Canadian peers,” said Green Markets Research Director Alexis Maxwell.
The mining group reported a 0.7 percent decline to US$9.06 billion in underlying attributable profit for the year to June 30, down from the year-ago US$9.12 billion, and will pay out a final share dividend of US$0.55 per share, or a total of US$2.8 billion to shareholders, which includes an additional amount of US$0.17 per share (equivalent to US$0.9 billion) above the 50 percent minimum payout policy.
The group said the total impact from COVID-19 on its operations was US$348 million (pre-tax), including an exceptional charge of US$183 million, in the 2020 financial year.