BHP Group Ltd., Melbourne, is looking at options to bring forward first production for its US$5.7 billion Jansen Stage 1 potash project in Saskatchewan from calendar 2027 into 2026, according to a May 17 presentation by CEO Mike Henry. The group also has begun studies of the feasibility and economics of Jansen Stage 2, which would add another 4 million mt/y.
“Jansen Stage 1 is compelling in its own right, but now the overall Jansen proposition is even more attractive,” Henry told participants at a Bank of America-organized “Global Metals, Mining, and Steel Conference” in Miami.
Early this month, BHP was reported to be considering ways it could speed up development of the Jansen project as prices surged amid supply shortfalls (GM May 6, p. 36).
The events of recent months playing out in Ukraine have highlighted the higher-than-usual potential for supply side disruption in the potash market, with Western sanctioned Belarus and Russia accounting for around 40% of global product. Many believe the Western sanctions on the two countries will remain in place for at least the medium term – and perhaps long term.
“For BHP, all of this has positively reinforced the decision that we took to enter potash,” said Henry.
He told conference participants that the group is looking at options to accelerate first production from Jansen’s Stage 1 to start as soon as 2026. But he conceded “the Saskatchewan winter build conditions make it hard to consider an acceleration beyond that.”
He said the Stage 1 project is “tracking to plan,” with US$1.4 billion of contracts awarded so far, which is some $200 million more since BHP reported its half-year results in February (GM Feb.18, p. 35).
Stage 2 could be brought to market more quickly than expected “if the market suits,” the CEO said.
BHP’s Board only gave the final go-ahead for Jansen Stage 1 last August, after nearly a decade of evaluations and deliberations (GM Aug. 20, 2021).
Henry told participants that he wished the project had been approved five or even 10 years ago. If it had, it would be generating an extra US$2-$3 billion of EBITDA a year, he said.
“Even without the events in Ukraine, potash’s fundamentals are good. We have been positive on potash dynamics now for many, many years. Strong potash demand growth will be driven by ongoing global population growth, changing diets, and stronger expectations globally in terms environmental stewardship,” said the CEO.
Before Russia’s invasion of Ukraine, BHP was forecasting new potash supply would be needed by the end of the decade.
Jansen’s Stage 1 is expected to produce 4.35 million mt/y of potash once fully ramped up.
“Stage 2, if it proceeds, would add another 4 million mt/y, at a lower capital intensity than Stage 1. At US$800-$900/mt, it would be almost 30% lower because Stage 2 will be able to leverage the infrastructure being put in place with Stage 1, and this includes the shafts,” Henry told conference participants.
BHP estimates that Stage 2 would have an Internal Rate of Return (IRR) of around 18-20% and a payback period of around four years at long-term consensus prices that are well below current spot prices.
BHP’s Jansen project has potentially four stages with an envisioned eventual production capacity of between 16-17 million mt of potash a year – equivalent to about 25% of the current market, albeit by the time the new production was brought on stream, the market would have grown further, the CEO noted.
Each stage would have lower operating costs, lower capital intensity, faster payback, and with higher incremental returns than Stage 1.
“If we decide to bring on all four stages, and even if potash prices were at just half of where they are today, we would be generating about US$4-US$5 billion of annual EBITDA,” said Henry.
BHP sees a path to a Jansen potash business that is at least equivalent in size and scale as its current petroleum business, which it is currently divesting/demerging via the merger of BHP Petroleum with Woodside Petroleum. BHP’s shareholders will emerge with a little less than half of the enlarged business.
BHP’s petroleum business has delivered around US$3 billion per annum in EBITDA on average over the past five years. The CEO pointed out that the free cash flow is even more favorable than petroleum for potash.
Henry told conference participants the other appeal of potash is that its market and pricing are uncorrelated and even “negatively correlated” with other commodities that BHP produces, while the Canadian location brings geographical diversity in operating jurisdiction and markets.
“Potash within BHP’s portfolio will bring a greater cash flow stability and returns stability, with the fundamentals for potash remaining strong,” said Henry.
He said at the time of the final investment decision, BHP had over 50% of the engineering for Stage 1 completed, which has given the group greater confidence in the project schedule and capital cost ranges.