In mid-February, Belarusian state-owned potash miner Belaruskali sounded the alarm by declaring force majeure on its contracts. This rattled a market that was already dealing with soaring prices.
The sanctions against Russia after the invasion of Ukraine have aggravated the situation.
BHP last year approved a $5.7 billion investment in the Jansen potash mine in northern Saskatchewan to bring it into production. The company had been mulling a final decision on the asset for at least eight years, during which time it spent about $4.5 billion to lay the groundwork for the crop nutrient production project.
“[Supply-side disruption linked to the war in Ukraine] positively reinforced the decision we made to go into potash,” Henry told the Bank of America Metals and Mining conference this week. “We are making good progress and are examining the potential to accelerate Jansen Stage 1 first production through 2026.”
BHP originally planned to start production at Jansen in 2027. The company, Henry noted, has also begun studies for a second phase of development.
Of the $5.7 billion investment, BHP has awarded about $1.4 billion in contracts so far and an additional $200 million since the company released its half-year results in February, which cover infrastructure. ports, underground mining systems and other shaft and surface construction activities.
Jansen is expected to produce about 4.2 million tons per year of potash during a first phase. Stage 2 would add an additional 4 million tonnes per year, at a capital intensity of between $800 and $900 per tonne, almost 30% less than what we expect for Stage 1.
The cost reduction would be possible because phase two will be able to take advantage of the infrastructure built with stage 1, including the wells, Henry said.
Quarter of the world supply
Potash is seen by farmers as an attractive resource due to its use as a fertilizer, which also boosts drought tolerance and improves crop quality.
BHP expects potash demand to grow by 15 million tonnes to around 105 million tonnes by 2040 or 1.5% to 3% per year, in line with global population and pressure to improve agricultural yields given the limited supply of land.
Jansen had the potential to produce 17 million tonnes per year under a four-phase development. This would represent approximately 25% of current global potash demand.
“If we decide to introduce all four stages, and at prices just half of what they are today, we would generate approximately $4-5 billion in EBITDA. [earnings before interest, depreciation, tax and amortisation] per year,” Henry said. That compares to a five-year average of $3 billion a year from the miner’s oil business.
BHP had been trying to exploit the fertilizer market for some time. In 2010, she unsuccessfully offered $38.6 billion for Potash Corp. of Saskatchewan, which merged in 2018 with Agrium Inc. to form Nutrien (TSE, NYSE: NTR).
Given the current political climate, as well as the lingering effects of the COVID-19 pandemic around the world, BHP expects the current mining supply chain issues to take up to three years to resolve. be resolved.