BHP Billiton bets $2.6bn on fertilizers amid potash market chaos
BHP plans to spend $2.6 billion by 2017 to build shafts and
surface infrastructure at the Jansen mine in Canada, which could
produce 10 million metric tons of potash a year for more than 50
years, the Wall Street Journal (WSJ) reports. The company is also
seeking partners that could take a stake in the project.
The Jansen investment will end a freeze in the company’s spending
on new projects. Last year BHP moved to conserve cash and protect
earnings, as China's slowing economy hurt commodity prices.
The economics of the Jansen project seems even more uncertain now after the collapse of one of the two global cartels that helped control potash prices for the benefit of producers.
Last month Uralkali, a Russian potash miner and the world’s
largest supplier of the fertilizer, announced the end of its
trade agreement with a Belorusian potash company, Belaruskali,
breaking with the world-wide pricing consortium and changing the salt fertilizer industry in a
day. The company added that it expected prices to fall
In a separate report, Goldman Sachs cut its 2014 potash price
forecast by 42 percent to $281 a ton, according to Bloomberg.
However BHP’s new chief executive Andrew Mackenzie is reported as
saying that continued development of Jansen “reflects our
confidence in the . . . compelling long-term fundamentals of the
potash industry”, according to FT.
The Jansen investment was announced as BHP reported a 30 percent
drop in its net income to $10.9 billion during the fiscal year
through June, with revenues falling more than 8 percent to $70
billion. Annual investment at Jansen of $800 million would be
part of BHP’s capital and exploration budget, which this year
would fall 26 per cent to $16bn.