BHP Ltd.,
Melbourne, in a Potash Outlook investor and analyst presentation and briefing
on June 17, suggested a final investment decision (FID) on whether to proceed
with its Jansen Stage 1 project as it considers port options for the project.
However, the mining group has given its strongest
indication to date that it intends to go ahead with Jansen. In its 56-page
presentation, BHP laid out the pro-case for the potash project, and for the
mining group to a become a major new global supplier of the nutrient.
Australia’s Financial Review citedeminentShaw & Partners analyst Peter
O’Connor as saying BHP was clearly set to go ahead with the potash project.
BHP said on June
17 potash demand is catching up to excess supply, and it believes demand is
growing at a rate sufficient to justify the Jansen project.
CEO Mike Henry said last month the long-term demand and supply fundamentals for potash as a commodity were attractive (GM May 21, p. 1).
In terms of the
BHP portfolio, the group sees Jansen as providing attractive diversification by
product, by customer, and operational location, BHP’s Mineral Americas
President Ragnar Udd told investors and analysts this week.
“We are
looking to take Jansen Stage 1 to the Board, but before we do that, we do have
to lock in a port solution,” he said.
BHP is considering
two options regarding a port. Udd said one option is a commercial option in the
Port of Vancouver at an existing facility, and the other is a greenfield at the
Port of Vancouver.
“We would like to
have those locked in before we take the [FID] decision forward for approval,”
he said. However, he said the group was advanced on its rail plans to move
potash from Jansen to Vancouver.
BHP previously had
said it would present its Stage 1 Jansen potash project to the group’s Board of
Directors for an FID in the middle of this calendar year (GM April 23, p. 1). Indeed, BHP’s Potash Outlook presentation on
June 17 indicated the decision was on track for mid-calendar 2021.
BHP’s CEO at a
Bank of America Metals, Mining, and Steel Virtual Conference on May 18 both
confirmed a decision would be taken in the middle of the current calendar year,
but also said the group still had to secure the port and route to market for
Jansen.
He had told Bank
of America conference participants “we will be bringing all of that together
with a decision to be made by the middle of this calendar year, so in the
coming month, as to whether or not we will want to proceed on Jansen Stage 1.”
BHP already has sunk
US$4.5 billion into the potash project, including US$2.972 billion to finish
the current investment program to complete the shafts at Jansen; that program
was 91 percent complete as of April.
Stage 1, should it
go ahead, would provide 4.3-4.5 million mt/y of potassium chloride production
capacity.
The mining group
at the June 17 briefing confirmed Jansen Stage 1 will require another
US$5.3-$5.7 billion to be completed, and it reiterated that the project
“must compete for capital” against alternative projects with similar
risk and time horizons, and will be assessed through the group’s Capital
Allocation Framework (CAF) at both project and portfolio level.
Development of the
project is expected to have a five-to-six year construction timeframe, and take
about two years from first production to ramp-up.
BHP said the capex
spend on Stage 1 would be over seven years, with the peak spend in FY2025 and
FY2026.
Responding to an
analyst’s question around BHP’s potential marketing and distribution strategy
for Jansen potash, Udd said the mining group respects Canpotex’s capability as
an established logistics and joint marketer of potash, but it is important to
reflect that this isn’t “the norm,” he said.
“That is not
a model that we probably will pursue at this point in terms of moving
forward,” said Udd. “Most producers typically sell directly to
customers via conventional regional representative offices and in regions where
they do not have representation, they do it by agent.
“We believe based on our experience in terms of bulks and recognizing the norm across the industry, we believe the best way to maximize long-term value of the Jansen asset is to control our own production and logistics supply chain and sales,” he said.
Udd said BHP
therefore intends to replicate the marketing model it uses on a whole range of
other commodities, and make use of its existing global network and sales
offices.
In response to a
subsequent analyst’s question on potential partnership for Jansen, Udd reiterated
earlier comments by Henry that “BHP has always been open to partnering,
but Jansen doesn’t need a partner to proceed.
“I think we
need to be deeply respectful of the fact today that we haven’t sold a tonne of
potash, and I want to emphasize we are not adverse to bringing in a partner to
Jansen,” he said, noting that the majority of BHP’s assets do have some
sort of partner.
“That said,
we don’t need a partner to make Jansen work. For the moment, we are focused on
getting Jansen to a position where we can take it to the Board,” Udd said.
Media reports were
circulating last month that BHP is in talks with Nutrien Ltd., Saskatoon, about
a potential partnership in the Jansen potash project (GM May 28, p. 1).The parties were reported to be discussing
multiple options, including Nutrien becoming the operator and selling the
potash through its existing channels, or the Canadian company taking a stake in
the Jansen mine, according to sources familiar with the matter.
Regarding BHP’s
plans to add further production capacity at Jansen after the initial stage is
completed, Udd told investors and analysts “there is no set date on that,”
and each stage of the project “will need to wash its face at that
time” and the mining group would make an assessment based on the
supply/demand fundamentals for stages two, three, and four in the future,
“if and when the market is ready for it.” The four stages, if fully
implemented, would take production capacity at Jansen to 16 million mt/y.
