Potash Pessimism Clouds Prospects for BHP’s Jansen Project – by David Stringer (Bloomberg News – September 21, 2015)


BHP Billiton Ltd.’s prospects of building potash into the fifth pillar of its portfolio of big-ticket businesses is looking a long way off. That’s the view of Macquarie Group Ltd., which has a “very pessimistic view” of the market.

The world’s biggest miner’s Jansen project in Canada, which has already consumed about $3.8 billion in capital, is unlikely to be developed unless prices rise, according to Macquarie. The bank has cut its long-term price forecast by 16 percent to $280 a metric ton.

“Our base-case scenario for BHP assumes the indefinite deferral of Jansen’s development,” Macquarie analysts wrote in a note to clients dated Sept. 21. The company will probably favor development of less capital intensive petroleum and copper projects, they said.

Mosaic Co., the largest U.S. producer of potash fertilizer, said Monday it plans to reduce output as low crop prices continue to erode farmer demand for agricultural products. The company, along with rivals including Potash Corp. of Saskatchewan Inc., have endured a 17 percent drop in spot potash prices and are bracing for further declines amid a wave of new capacity.

Middle Class

For Jansen to proceed, prices would need to rise to at least $400 a ton to achieve an acceptable rate of return and probably to about $500 a ton to compete for capital with the company’s other projects, Macquarie said. It forecasts the potash price will average $254 a ton this year.

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