It is unlikely that BHP’s latest $US4.7 billion ($5.8bn) plan for its Jansen potash project in Canada — which chief executive Andrew Mackenzie is aiming to have in directors’ hands for approval within a year — will go ahead without substantial improvements to design or the market outlook.
Mackenzie put the big Canadian potash project back on the drawing board as BHP’s major medium-term mining growth option, alongside a Spence copper mine expansion in Chile, just two months ago, after previously flagging a slowdown and even mothballing of the project. So it is expected to be a focal point of briefings after BHP delivers an expected full-year profit of $US7.2bn later this month.
At Spence, a $US2bn underground mine approval is looking very likely in the next few weeks, as copper sentiment is running hot and BHP has cut a previous cost estimate by a third, boosting the expected rate of return to around 15 per cent.
But the longer-dated Jansen potash, on the Saskatchewan prairie, is a far different matter. This is not least because it has drawn the attention of $US33bn activist hedge fund Elliott, who is campaigning to restructure BHP and return more cash to shareholders.
Under the latest, $US4.7bn design flagged by Mackenzie in May, Jansen’s first-stage mine will produce 4 million tonnes a year and deliver a 12 per cent rate of return. This puts it on the lower-returning side of BHP’s growth options.