BHP Group Ltd. is forging ahead with a planned expansion of the Jansen potash mine in Saskatchewan (pictured).The Globe and Mail
Australia’s BHP Group Ltd. BHPLF is forging ahead with a $6.4-billion expansion of the Jansen potash mine in Saskatchewan, even before the first phase of the mine is in production, as it makes a giant bet on the future of the global fertilizer market.
After more than a decade of development, and an initial investment of $4.9-billion, BHP in 2021 commissioned the first phase of the mine and committed an additional $7.5-billion into Jansen. On Tuesday, Melbourne-based BHP announced that it will start building a second phase of the fertilizer mine, which will bring its total investment in Jansen to $18.8-billion. It is by far the largest investment ever undertaken by BHP, whose history goes back to 1885.
BHP’s Canadian-born chief executive Mike Henry in a statement called the new investment in Jansen an important milestone that “underscores our confidence in potash.”
Jansen Stage 1 is expected to be completed by the end of 2026, while the second phase should be finished in 2029. At that point, Jansen will be producing roughly 8.5 million tons of potash a year.
The world’s biggest mining company by market value is in the process of restructuring its business to reduce or eliminate its exposure to environmental, social and governance-unfriendly commodities such as oil and gas, and coal, as it pivots more toward ESG-friendly critical minerals such as copper and potash. BHP believes that potash demand will grind inexorably higher over time, owing to global population growth, the increased adoption of higher-calorie diets and growing pressure on arable land.
In a statement, federal Industry Minister François-Philippe Champagne said that the fresh investment from BHP was a “strong vote of confidence” in Canada’s mining and agricultural sectors. The federal government last year provided $100-million in financial aid to the Australia miner for Jansen.
BHP is moving ahead on the expansion during a time of extreme volatility in the potash market.
When Jansen’s first phase was commissioned, the commodity was trading at roughly US$695 a ton. Last year, the commodity breached US$1,200 a ton after major producer Russia invaded Ukraine. But potash has fallen sharply in the interim to about US$350 a ton, owing to a projected global supply shortfall in the aftermath of the Ukraine war not panning out, and farmers cutting back on their usage.
Nutrien Ltd., NTR-T the world’s biggest potash producer and a close competitor to BHP in Saskatchewan, recently pulled back on its potash expansion plans because of weakness in the market.
In 2010, BHP attempted to buy Potash Corp. of Saskatchewan, Nutrien ‘s predecessor company, but the deal was blocked by the federal Conservative government as not being of net benefit to Canadians. BHP held talks with Nutrien in 2021 around a possible joint venture on Jansen. However, discussions between the two companies eventually fizzled.
Mr. Henry, BHP’s CEO, told The Globe and Mail in October that the “ship had sailed” on a potential tie-up with Nutrien considering its significant investment in Jansen.
Electing to pull the trigger on an expansion of a mine before the first phase is finished is an ambitious strategy in an industry where ramp-ups of mines can be bumpy, and capital cost budgets for large projects can go awry.
Just last week, Canadian miner Teck Resources Ltd. announced that the capital cost estimate at QB2, its flagship copper mine in Chile, had spiralled to roughly US$8.7-billion, or 85-per-cent higher than a US$4.7-billion estimate in 2019. The Globe reported that the debacle caused the company to part ways with its chief operating officer.
BHP says that by building the second phase during construction of the first phase, it can take advantage of about US$300-million in cost savings that would not be available otherwise, including the availability of contractors.
Jansen Stage 2 is expected to create up to 2,000 construction jobs. Once the second phase of the mine is in production, 300 full-time jobs will be created bringing the total headcount at the mine to 900.
BHP started studying the economics around building the Jansen potash mine, which is located 140 kilometres east of Saskatoon, as early as 2008 and had initially hoped to get the mine into production in 2015. But amid widespread weakness in the commodity markets, the company didn’t make a final construction decision on the mine until about two years ago.