Australia's BHP Billiton Ltd. is strengthening its commitment to a multibillion-dollar potash investment in Saskatchewan even as an industry shakeup has increased competition in the market for the key crop nutrient.
BHP announced Tuesday that it will pour another $2.6-billion (U.S.) into its Jansen project over the next three years, earmarking funds to build, with other investors, what might become the world's largest potash mining operation.
Melbourne-based BHP has already spent $1.2-billion so far on the Jansen mine, about 140 kilometres southeast of Saskatoon. But speculation about the company's commitment to the Saskatchewan project arose three weeks ago, when one of the potash industry's two main marketing groups abruptly disbanded, raising the prospect of a prolonged period of low prices for the resource.
Despite today's gloomy market conditions, BHP chief executive officer Andrew Mackenzie said his company envisages demand growth for potash will average 2 to 3 per cent a year until 2030, bolstered by population growth and the consequent need to bolster food production.
BHP is budgeting $800-million for the Saskatchewan mine for the fiscal year ended June 30, 2014, and more spending through 2016.
"I think it is a vote of confidence in the project," Mr. Mackenzie said during a conference call.
While BHP had hoped to develop Jansen faster, the world's largest mining company said it is prudent to proceed at a "measured pace," given weakness in the potash market. Prices for potash soared to nearly $1,000 a tonne in 2007, but have plummeted since then to roughly $440 a tonne. After the recession that began in 2008, weaker-than-expected demand in China and India have combined with increased potash inventories to depress prices for the fertilizer.
Although BHP has yet to approve the production phase, excavation details, including two 6.5-metre shafts descending nearly one kilometre, have been sketched out. The miner is considering adding one or more partners to help complete the mining operation. "We've actively been approached and have approached people to see what might be possible," Mr. Mackenzie said.
Analysts estimate that after $3.8-billion in spending by the end of 2016, another $10-billion or $11-billion will be required for constructing processing plants and other facilities at the site located near Jansen.
Saskatchewan Premier Brad Wall described BHP's latest investment as a boost for the province's potash industry, sustaining the 380 jobs already at the mine site and another 250 staff in Saskatoon. "It's a good day for Saskatchewan," Mr. Wall said over the phone from his home riding of Swift Current. "BHP is taking the long view."
Fai Lee, a Vancouver-based analyst at Odlum Brown Ltd., said BHP is now on pace to begin production around 2020. "BHP is looking for some confirmation that demand will grow, and if the outlook for growth proves to be correct, this Jansen output would help fill the potential supply gap," he said.
After worldwide potash demand in 2007 reached 55-million tonnes, it plunged during the recession to less than 30-million tonnes in 2009. The potash market has been slowly on the mend, said Mr. Lee, who estimates that demand will hit about 56-million tonnes this year.
Graham Kerr, BHP's chief financial officer, said the Saskatchewan mine will be capable of producing up to 10-million tonnes a year after output gets ramped up. The world's largest potash mine currently operating is Mosaic Co.'s Esterhazy project in Saskatchewan, with an annual capacity of 5.3-million tonnes.
"There is less arable land, more people and changing dietary habits," Mr. Kerr said in an interview. "You will need new potash mines to be developed to meet the need."
BHP has been on a long journey in its quest to enter the potash business. In the fall of 2010, the Canadian government rejected BHP's $38.6-billion hostile bid for Saskatoon-based Potash Corp. of Saskatchewan, which was deemed too strategic to Canada's resource sector and therefore not approved for sale to the foreign firm.
Potash, Mosaic, and Agrium Inc. form the Canpotex marketing group that sells Canadian potash exports outside of North America. On July 30, Russia's OAO Uralkali said it is dropping out of Belarus Potash Co., a joint venture with rival Belaruskali of Belarus. Uralkali will instead go it alone in selling potash to markets with big appetites for the commodity, notably China and India. Canpotex and Belarus Potash together controlled almost 70 per cent of supply.