BHP Ltd., Melbourne, is due to present its Stage 1 Jansen potash project in Saskatchewan to the group’s Board of Directors for a Final Investment Decision (FID) in the middle of this calendar year (GM April 23, p. 1). But some investors believe the group may secure better returns by ploughing funds elsewhere.

According to a report by Canada’s National Post last week, the unnamed investors believe potash will be in oversupply over much of the next decade, “crimping returns,” and BHP may be better off investing more in commodities like copper and nickel which are seeing booming demand.

The mining major is “up weighting” in “future facing commodities;” copper and nickel are considered to be two of them, but also potentially is potash. About a quarter of BHP’s portfolio is currently in “future facing commodities,” and the group expects to grow this over the coming years, CEO Mike Henry told participants at the Bank of America Metals, Mining, and Steel Virtual Conference on May 18.

Henry, who is a fan of potash, earlier this year said investing in potash and investing in Canada would give the group a bit more diversification in terms of its geographic and market footprints, including the drivers of product demand.

The CEO told conference participants this week the group’s thinking has not changed about Jansen.

“If I talk about the commodity, how we see it, the project, and then the decision, we continue to like potash,” he said. “We think that the long-term demand and supply fundamentals for potash as a commodity are attractive. Potash demand will be driven by ongoing population growth, and increasing living standards.

“Even the stronger push to decarbonize and green the global economy, we believe is going to be positive for potash,” said Henry.

On the supply side, notwithstanding the near-term market dynamics, the CEO reiterated BHP’s belief that new greenfield capacity is going to be required in the market towards the end of this decade, early next decade.

But Henry reiterated his frustration over the decade-long road to develop Jansen, as well as its cost. He told conference participants “we don’t like the amount of capital that we’ve invested in the project today, without having a project end for production. But we are where we are, and we are making sure that we have learned the lessons from that.”

BHP already has got US$4.5 billion sunk into Jansen, including US$2.972 billion to finish the current investment program to complete the shafts at Jansen; that program is now 91 percent complete.

Jansen Stage 1, should it go ahead, will require another US$5.3-$5.7 billion to be completed, according to BHP estimates, and is expected to take five years. Stage 1 would provide 4.3-4.5 million mt/y of potassium chloride production capacity.

At a BMO 30th Global Metals and Mining Virtual Conference in early March, Henry told participants that neither the external consultants BHP had brought in to look at some of the underlying assumptions for Jansen (GM Feb. 26, p. 1), nor the group’s own assessments over the past 12 months, had given rise to “any major red flags” around the project. But he did concede the group had continued to assess whether it should be a little more conservative on some assumptions around Jansen

BHP currently is finalizing some of the project study parameters. It still has to secure the port and route to market, but Henry told the 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”.

Henry reiterated the FID will be made against “the very disciplined approach BHP has to capital allocation. And “if the project is to proceed, it needs to demonstrate that it’s got the right value and returns relative to risk.”

At the group’s 1H FY2021 results release in February, BHP put its planned capital and exploration for the full-fiscal year at US$7.3 billion, and capital and exploration guidance for FY2022 was put at US$8.5-$8.8 billion, depending on exchange rates. The Jansen stage 1 capex, while likely to be spread over a number of years, would nonetheless constitute a big chunk of BHP’s total annual budgeted capex spend.

BHP would ease investor concerns if it firms up a plan to sell a stake in the Jansen project, according to one unnamed investor, cited in a Saskatoon StarPhoenix report last week.

Henry reiterated that the group has always been open to partnering, but he said, “Jansen doesn’t need a partner to proceed”.

BHP recently lost one of its loudest critics, former Nutrien President and CEO Charles “Chuck” Magro, who abruptly vacated the chief executive position in April.

Magro had been fiercely critical of BHP’s plans for Jansen in recent years, arguing the economics of Jansen did not make sense and warning the mine would flood the market with too much potash.

In a report last week, The Australian Financial Review cited Magro describing BHP’s Jansen project to the newspaper in March 2020 as “A sure-fire way to destroy shareholder value.”

According to the report, some analysts speculate Magro’s departure a couple of months before BHP is scheduled to make the FID for Jansen Stage 1 “could open the door for an 11th hour deal between the two companies.”

The report cited Toronto-based Scotiabank agriculture and fertilizers analyst Ben Isaacson’s view that a cooperation deal with BHP would likely help both Nutrien’s EBITDA and its valuation multiples.

Responding to a question while presenting at the BMO Capital Markets Virtual 16th Annual Farm to Market Conference on how Nutrien might have to change on strategy and potash down the road if the Jansen project comes on stream in five, six, or seven years time, new Nutrien President, CEO, and Director Mayo Schmidt said the company will consider “the competitive nature of how they come on, and how we react to that.”

He added that Nutrien has “a really nice platform and thinks it will be very competitive and be very respectful of our competitors.

“They’re [BHP] a disciplined organization that operates around the world as we are, and we approach these markets in a thoughtful way, and I think we’ll continue to do that,” said Schmidt. “But we really think that the growth in demand is going to take up any potential disciplined approach to the market.”

The Australian Financial Review termed Schmidt’s “disciplined” comment as a “potash peace pipe.”

In the meantime, another Canadian producer, K+S Group, has said it is “quite relaxed” about BHP’s upcoming FID for Jansen. K+S’s Bethune mine in Saskatchewan produced almost 2 million mt of potash last year, and produces a mix of standard and granular product (GM March 12, p. 28).

Responding to an analyst’s question at a company first-quarter earnings call on May 11, K+S CFO Thorsten Boeckers said “Even if BHP decides to continue with the project, [we believe] it would not lead to significant additional volumes before, let’s say, 2027. And that’s assuming no significant delays to the project.

“There’s been a big step-up in potash demand from last year to this year, so the world will likely look different to today in 2027,” he said.