There has been speculation by some analysts that the new incoming CEO of BHP Ltd., Mike Henry, may not be as committed to the mining group’s Jansen potash project in Saskatchewan as current CEO Andrew Mackenzie.
Henry, 53, takes over the helm from Mackenzie, 62, who is retiring, on Jan. 1, 2020 (GM Nov. 15, p. 25).
Scotiabank analyst Ben Isaacson believes that Henry is unlikely to be as committed to Jansen as Mackenzie, and pointed to the investment bank’s belief that there are issues regarding execution, costs, and returns relating to the project, which was initiated during “a very different time” in the potash market, Canada’s Financial Review reported last month.
However, the analyst noted that Henry, a Canadian, and currently BHP’s President Operations Minerals Australia, has experience with marketing bulk products, such as potash.
The U.K.’s Financial Times’ Lex Column, which provides a daily round-up of analyses and opinions covering global economics and finance, sees things differently. While conceding that new bosses are rarely as committed to projects as their originators, Lex pointed out chief executives’ love of growth projects.
BHP revealed in October that the Jansen Stage 1 potash project would be presented to its Board of Directors for a final investment decision by February 2021 (GM Oct. 18, p. 1). The company previously has said it would take less than five years to build and start production. The board would need to sanction a further US$5.3-$5.7 billion to complete the envisioned Stage 1 project, providing potential initial capacity of 4.3-4.5 million mt/y of potash.
That is on top of an approximate US$2.7 billion already committed to sinking and completing the production and service shafts at the project, as well as the installation of essential surface infrastructure and utilities at the site, plus an additional US$345 million approved in October to de-risk Jansen ahead of making the final investment decision.
Mackenzie this past May conceded that the mining group has “over-invested” in Jansen (GM May 17, p. 1), but has long seen potash and Jansen as “an attractive option” for BHP.
However, Nutrien Ltd., at this week’s Citi 2019 Basic Materials Conference held on Dec. 4 in New York, reiterated its position on BHP’s Jansen project, believing the economics do not exist for additional greenfield capacity in the business right now (GM Oct. 25, p. 1; May 17, p. 33).
“We will need a sustained level for quite a number of years of much higher prices to sustain, and to provide a return on that investment,” said Nutrien Executive Vice President and CFO Pedro Farah.
“Jansen Phase I, which based on our own reports will come into the market in eight-to-nine years time, is likely going to be non-profitable. So we’re talking about nine to 12 years until you see profitability in potash of a new entrant, “he said. “So in 10 years’ time at a growth of 2.5 percent, you are basically talking about 15 million mt of additional demand in the market. So there will be greater demand in the market at that point in time to absorb that.”