BHP’s $20 Billion Canadian Potash Dilemma: To Build or Not? – by David Stringer, Thomas Biesheuvel and Jen Skerritt (Bloomberg News – December 13, 2018)

BHP Group may be heading for another clash with investors as the world’s biggest miner gets closer to a decision on whether to build, sell or mothball its $20 billion potash project.

The Jansen mine in Canada is aimed at giving the company exposure to rising global food demand and represents one of its few big growth prospects. BHP has already spent about $2.7 billion on the project, according to an October filing, and Chief Executive Officer Andrew Mackenzie last month spoke enthusiastically about the outlook for potash, a crop nutrient.

Yet investors and analysts are skeptical. The big-ticket project in the prairie province of Saskatchewan means getting into a new commodity dominated by a small handful of producers.

The world’s largest miners are still on probation for spending decisions made during the last commodity boom and BHP has a poor record of capital allocation, including a disastrous $20 billion foray into shale. While BlackRock Inc. and others have flagged they’ll back some projects, particularly in copper, there’s less appetite for riskier investments.

“There’s no case to be made where they throw good money after bad,” said Brenton Saunders, a Sydney-based analyst at Pendal Group Ltd., which holds BHP shares. While the outlook for potash has improved, Jansen “is not a project that at this stage we think deserves serious consideration,” he said. “It should be shelved or sold.”

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