BHP GOES ALL IN ON POTASH
AFTER DITCHING PETROLEUM BUSINESS, COMPANY MOVES AHEAD WITH SASKATCHEWAN PROJECT
BHP Group Ltd. is moving ahead with its massive Jansen potash project east of Saskatoon after years of development work and ditching its entire petroleum business as it seeks to reshape its asset portfolio for a future low-carbon economy.
The company said the Us$5.7-billion project, which is expected to produce 4.35 million tonnes of potash per year when it become operational, will position it to take advantage of the growing global population and rising living standards that are expected to keep potash demand growing steadily into the 2030s.
But, chief executive officer Mike Henry acknowledged in an interview, if it were looking at Jansen today, it probably would have approached the project differently.
BHP has already sunk US$4.5 billion into the megaproject over 15 years, including construction on two shafts and associated infrastructure, even as it delayed its approval, and took a Us$1.3-billion impairment charge on the project.
“We would’ve probably not supersized the project first stop,” he told the Financial Post. “The original intent around Jansen was much larger in one go, and that’s the reason we built these very large shafts. We would’ve been more balanced in how we approached that, and ... we wouldn’t have left it so long, where we were spending money before we made a final investment decision.
“The reality is, we are where we are and this is the best use of the next shareholder dollar.”
Lessons learned, but the approach created an opportunity, Henry said: the supersized shafts “opens up a lot of optionality” going forward.
“We’ve got a very healthy project in Jansen stage 1, and very quickly you’ve got Jansen stages 2, 3, 4, which generate even higher returns if and when the market opportunity arises.”
Demand for potash has been climbing rapidly this year in line with rising crop prices, amplified by EU sanctions on certain grades of Belarusian potash exports, even in the face of excess production capacity.
In a research note, Scotiabank analyst Ben Isaacson wrote that while the market has fretted about Jansen for more than a decade, its production tonnes “will almost certainly be needed” by the time the project commissions in 2027 and ramps up through to 2029. Roughly two million tonnes of new operational capability annually will be needed if the currently 70-million-tonne potash market continues to grow at 2.5 to three per cent per year, he wrote.
“Jansen is not the threat it once was when the scope of the project was bigger and the potash market was smaller.”
The company is off-loading its oil and gas assets at a time when fossil fuel producers have faced increasing pressure from investors and governments over climate action, but Henry said that didn’t factor in the decision. However, he acknowledged, an oil and gas merger with Australia’s Woodside Petroleum Ltd. gives shareholders more choice to remain exposed to oil and gas or to opt out.
“This decision is all about creating shareholder returns in the near-term but also recognizing what’s required for an oil and gas company to be successful going forward is different than it’s been in the past,” he said.
In its push into future-facing commodities, BHP made a friendly, all-cash offer to acquire Canadian junior Noront Resources for $0.55 per share to get more exposure to nickel through the company’s Eagle’s Nest deposit. Its offer comes after major Noront shareholder Wyloo Metals made an unsolicited $0.315 per share bid for the company.
Development in northern Ontario’s mineral-rich Ring of Fire, where Eagle’s Nest is located, has been largely halted for years, despite promises from successive provincial governments to advance mining in the region.
Rag Udd, minerals Americas president at BHP, said the company is aware of the Ring’s challenges, but sees Noront’s exploration in the region as being “fairly far advanced” and said it believes the likelihood of finding additional deposits around existing discoveries is high.
Noront itself has also been the target of pushback from numerous Indigenous communities, who oppose mine development in the region. A coalition of environmental groups have called on the OSC to investigate the company for failing to properly disclose the “significant” opposition to its project in materials to investors.