BHP Group Ltd. said it has accelerated the feasibility study for Stage 2 of its Jansen potash mine in Saskatchewan, Canada, 140 kilometers east of Saskatoon, with the study now to be completed during the 2024 financial year, a year earlier than previously expected (GM Oct. 21; Sept. 9, 2022).
The group early last summer brought forward the target for first production at Jansen (Stage 1) to the end of the 2026 calendar year (GM July 22, 2022).
BHP CEO Mike Henry confirmed at a company first-half FY2023 earnings presentation on Feb. 21 that the Jansen Stage 1 project was “on track” for first potash production in late calendar year 2026. The group last month reported Stage 1 was 16% complete (GM Jan. 20, p. 29).
BHP said its expected Jansen Stage 1 capital expenditure for the 2023 financial year (which runs July 1, 2022-June 30, 2023) has increased to approximately US$860 million from approximately US$740 million, citing the increase is partly due to an accelerated production schedule. However, the group emphasized that there is no change to the project’s total capex budget of US$5.7 billion.
Stage 1, when fully ramped-up, is expected to produce 4.35 million mt/y of potassium chloride, and Stage 2 could add another 4 million mt/y of capacity.
Responding to an analyst’s question at a company earnings call about BHP’s requirements of getting Stage 1 up and operating before the group commits to Stage 2, and whether that limited how quickly BHP could accelerate into starting Stage 2 or if those processes are running on a standalone basis, Henry explained what BHP is doing right now is “building the option to be able to go earlier on Stage 2.”
“In making that ultimate determination, of course we are going to have to look at how the market is playing out. We will also look at how we are tracking on Jansen Stage 1,” said Henry.
“So far things are tracking pretty well on Stage 1, and that has allowed us to bring forward expected first production from [calendar] 2027 to [calendar] 2026. As we bring the Stage 2 studies to a close in financial year 2024, we will have to refresh both our outlook for the market and our assessment of how Stage 1 is tracking to decide whether we want to pull the trigger there then, or leave it a little bit later, ” he said.
Asked whether the decision to pull the Stage 2 feasibility study forward by a year should be interpreted as optimism around Jansen Stage 2 or simply efficiency, Henry said it was due to the group’s pursuit of options, and “it should not be seen at this point that we will definitively proceed with Jansen Stage 2 – we just want to have options available to us as soon as possible.
“If we get to FY24 and we’ve completed the studies, [if] it looks like the project is high returning, it looks like the market can accommodate those volumes or needs those volumes sooner rather than later and we’re executing well on Jansen Stage 1, then there’s the option available to us to pull the trigger on Jansen Stage 2 then, but for now it’s all about progressing the studies and building or giving ourselves the option,” said Henry.
BHP’s view of the potash market for the time being continues to be positive. While acknowledging potash prices have declined steadily throughout the first half of the group’s 2023 financial year as affordability deteriorated, “unwinding the steep price spike that developed in the wake of Belarusian sanctions and the [Russian] invasion of Ukraine,” the group in this week’s earnings presentation said the “compelling” demand picture, geopolitical uncertainty, and the maturity of the existing asset base offer “an attractive entry opportunity in a lower-risk supply jurisdiction such as Saskatchewan, Canada.”
For its first-half FY2023, BHP reported underlying attributable profit after tax from continuing operations of US$6.5 billion, a year-over-year slump of 32%. The group attributed the downturn as mainly due to lower iron ore and copper prices as well as inflated costs, particularly diesel, somewhat offset by higher nickel and thermal coal prices.
The figure for the most recent reporting period included an exceptional loss of $0.1 billion, which is the current half-year impact of the Samarco dam failure.
Revenues for the first half of fiscal 2023 totaled US$25.7 billion, down 16% year-over-year from US30.6 billion.