Saskatchewan has proven irresistible for BHP, which has been looking for a way into the potash industry for about a decade. Jansen marks its second attempt after a first try failed miserably.
Two years ago, BHP became a household name in Canada when it tried to acquire Potash Corp. But the $39-billion hostile bid was rejected by the federal government, which viewed Potash Corp. as too strategic to Canada’s resource industry.
BHP’s Jansen plan is not a done deal either.
BHP, a major producer of iron ore, coal, copper and other resources, put some of its massive spending plans on hold in August after a slowdown in global demand for commodities. Some industry players are skeptical that the company will approve the full budget that is needed to build Jansen at a time when there is little clarity about where the market is going.
Potash prices, at about $500 a tonne, are down sharply from close to $1,000 when BHP was getting involved in Saskatchewan potash several years ago.
BHP insists its view of potash looks decades into the future, and bets that the need for the industry to manage supply as it does today will dissipate as demand rises with the world’s growing population. After all, potash proponents say demand from developing nations could grow rapidly as more and more people enter the middle class and put a strain on farmers whose yields can be but a fraction of those in the United States, for example.
Bigger and better
BHP knows it has to be bigger and cheaper than its competitors to make it worth the billions it will need to spend to get Jansen into production. The mine is an exercise in innovation, starting with the Herrenknecht, which is being used for the first time to dig a potash mine, and is faster, cheaper and safer than conventional methods.
It will be several years before Jansen begins production, but it’s not clear exactly when. The mine will start production at four million to five million tonnes a year, eventually reaching as much as nine million tonnes.
Using 2-D and 3-D seismic imaging, followed by drilling, the company has mapped the entire ore body, allowing it to design the entire 70-year mine life up front. Using a method called retreat mining, BHP will first dig out to the edges of the ore body and then work backward systematically, avoiding the cost of maintaining mined-out areas.
Even as it digs out from the production shaft, BHP will be stockpiling potash ore via conveyor belts that unfold behind custom-designed horizontal borers assembled underground. The continuous miners will be built to the full height of the 4.5-metre-tall ore body, allowing them to excavate tunnels with fewer passes than regular machines.
Once at surface, potash will be loaded onto trains via doors on top of rail cars. Upon reaching port in Vancouver, Washington state, it will be unloaded onto ships through trap doors underneath cars.
BHP figures it will be able to load and offload its trains in 12 hours, compared to an industry average of three days.
“We’re not in a position to give the numbers yet, but you have to understand that it has to be enough to where you have some sort of competitive advantage,” says Mr. Cutt, who spent 25 years with Exxon Mobil before coming to BHP.
“On a unit basis, we just have to produce and transport at a number that is substantially lower than current producers,” he says. “It’s all about the efficiency. We believe in doing as much automation as possible,” Mr. Cutt says.
The company will have to bring all its expertise to bear as a 150-year old producer of bulk commodities if it is to challenge the status quo developed over decades.
A warning of oversupply
Jansen will take direct aim at a market currently controlled by Potash Corp., Mosaic Co. and Agrium Inc., the triumvirate of the Canpotex marketing organization, which sells Canadian potash exports outside of North America, as well as Russia’s BPC.
Canpotex exported some 10 million tonnes of potash to markets in Australia, Brazil, China, India, Indonesia, Japan, Malaysia and South Korea last year. The nutrient is especially important to vulnerable economies because it acts like an insurance policy for farmers, strengthening plant stalks and roots as well as improving yield, flavour, texture and even the colour of a plant.
BHP is confident of its ability to operate outside of Canpotex because its global marketing arm and deep connections into Asia will help it sell potash profitably on a spot basis. And by being an independent, it may create new markets as it makes the nutrient more available.Report Typo/Error
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