BHP’s ambitious project to thrive in a challenging potash environment

BHP Group’s Jansen mine in Canada is poised to remain profitable even with weakened potash prices, according to Karina Gistelinck, the head of the project. Positioned to be one of the world’s largest potash producers, Jansen is designed to operate at lower costs than those of major Canadian competitors such as Nutrien Ltd. and Mosaic Co. BHP’s significant investment in automation and the scale of the mine are expected to provide a competitive edge in the global market.

The company’s strategy focuses on being the most cost-effective mine possible. Gistelinck expressed confidence that the mine would remain profitable despite current market conditions, emphasizing the efficiency of Jansen’s operations.

Market challenges and opportunities

Potash prices surged in early 2022 amid concerns over supply disruptions following sanctions on Belarus and the onset of the Russia-Ukraine conflict, with Belarus and Russia accounting for a large portion of global potash trade. Since then, the market has rebalanced, leading to a significant drop in prices. Despite this, BHP remains committed to its investment in Jansen, having allocated $5.7 billion in 2021 for the first phase of the mine’s development. An additional $4.9 billion was approved in 2023 to further expand the project, bringing BHP’s total investment in the area to $10.6 billion.

Jansen is projected to begin production in 2026, with an initial output of 4.2 million tons annually, increasing global potash supply by approximately 5%. By 2031, when the mine reaches full capacity, production is expected to double.

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Profitability amid depressed prices

Gistelinck anticipates that Jansen will produce potash for less than $140 per metric ton, positioning it to generate profits even in the event of further market declines. Market prices for potash are expected to range from $300 per ton to $450 per ton over the medium to long term. BHP has already secured pre-commitments from distributors for the entirety of its initial output, with binding contracts anticipated to be finalized next year.

The company is also considering offering initial discounts to gain market share, particularly targeting regions such as Brazil, Southeast Asia, and the United States. These areas are expected to be major markets for Jansen’s output as BHP seeks to diversify its customer base and reduce reliance on China.

 Long-term demand outlook

Looking ahead, Gistelinck projects steady growth in potash demand, estimating a 2% annual increase over the next two years. This growth is largely attributed to rising global population and increasing agricultural needs. Additionally, the impacts of climate change and extreme weather events are expected to further boost demand for potash, as potassium is essential for enhancing the resilience of crops.

Gistelinck highlighted that catastrophic events are likely to become more frequent and severe, which will increase the importance of potassium in agricultural resilience.

Despite the current market challenges, BHP is confident that Jansen will become a key player in the global potash industry, offering a cost-effective solution for meeting growing agricultural demand.