BHP to inject $4.9B in Jansen to double potash output

BHP (ASX: BHP) will invest US$4.9 billion in stage two of its giant Jansen potash project in Canada, as it aims to double capacity by the end of the decade.

The investment adds to the US$5.7 billion the world’s largest miner is pouring into stage one of the potash project in Saskatchewan, and an investment of US$4.5 billion the company sunk into Jansen before its first phase was even approved.

BHP considers potash, used in crops fertilizers, as one of its pillars of future growth. It expects potash demand to increase by 15 million tonnes to roughly 105 million tonnes by 2040, or 1.5% to 3% a year, along with the global population and pressure to improve farming yields given limited land supply. 

With the additional investment announced on Tuesday, BHP expects Jansen to become one of the world’s largest potash mines, doubling production capacity to roughly 8.5 million tonnes per year in late fiscal 2029.

“This is an important milestone that underscores our confidence in potash and marks the next phase of the company’s growth in Canada,” chief executive officer, Mike Henry, said in a statement.

Source: BHP’s presentation at BMO Farm to Market Conference 2022

The first stage of the project is 32% complete and progressing as per schedule, BHP said. The second stage is expected to take six years and produce about 4.36 million tonnes per year at a capital intensity of about US$1,050 per tonne, which is in line with BHP’s strategy to invest in large deposits that have high barriers to entry and offer strong margins.

The company’s move shouldn’t come “as too much of a surprise”, BMO analyst Alexander Pearce wrote in a note to investors.

“A final investment decision in FY2024 [has been] well flagged and there has been increased focus on the project in recent presentations (…)  However, nearer term, the higher combined cash costs ($105-120/t, +5-20%), and a slightly lower run rate for Stage 1 is likely a slight negative,” Pearce said.

BHP had tried to tap into the fertilizer market for some time. In 2010, it unsuccessfully bid $38.6 billion for Potash Corp. of Saskatchewan, which in 2018 merged with Agrium Inc. to form Nutrien (TSE: NTR; NYSE: NTR). 

Jansen had the potential to produce 16-17 million tonnes of potash a year under a four-phased development. This would account for about 25% of current global demand.

BHP had originally planned to kick off production at Jansen in 2027. Market conditions, including Russia’s invasion of Ukraine and sanctions on Belarusian potash, prompted it to bring forward Stage 1 first production into 2026.