BHP’s US$5.7bn commitment to developing Jansen points to strong potash outlook
A signal the long-term outlook is bright for the muriate of potash (MOP) market is BHP Group’s (ASX: BHP) recent decision to move ahead with developing its multi-billion-dollar Jansen project in Canada, with chief executive officer Mike Henry saying the asset will create value for “generations”.
Last week, BHP revealed it has approved the capital expenditure investment of US$5.7 billion (A$7.96 billion) for Jansen, which is required to get the first stage of the MOP project off the ground in Canada’s Saskatchewan Province.
Commenting on the mining major’s investment decision Mr Henry said it was aligned with the company’s strategy of boosting its exposure to “future facing commodities” in world-class assets that are large, low cost and expandable.
“This is an important milestone for BHP and an investment in a new commodity that we believe will create value for shareholders for generations.”
Mr Henry noted that Jansen was located in the “world’s best potash basin” and is expected to operate for 100 years underpinned by measured and indicated resources of 5.23 billion tonnes.
The global landscape is shifting as countries race to decarbonise amid rising populations, changing diets and people become more aware of their impact on the environment.
Mr Henry said the Jansen operation would provide BHP with “increased leverage” to these world trends.
Trends spurring the need for potash in a decarbonising world include increased biofuel production and the subsequent land and yield implications.
Global warming and reduced rainfall have also driven crop growers to seek out new practices, technologies and additives to help boost yield, including potash, which is deemed vital for efficient agricultural practices.
The nutrient is used to improve a plant’s durability and resistance to drought, weeds, disease, parasites and cold weather.
BHP anticipates higher demand in the coming years will absorb any excess capacity currently in the MOP market.
Mr Henry said the company forecasts excess potash supply will be required to meet global demand by the late 2020s or early 2030s under the commodity’s current “fourth wave”.
“That is broadly aligned with the expected timing of first production from Jansen,” he said.
MOP production from Jansen is targeted for 2027, with the asset expected to produce 4.35 million tonnes per annum.
The current MOP market consumption is around 70Mtpa and this is expected to expand to 97Mpta by 2035.
Mr Henry also noted MOP has a “considerably more attractive” environmental footprint compared to other major chemical fertilisers.
Future facing commodity
The Jansen investment is classified as part of BHP’s “future facing” commodity portfolio.
With populations increasing, more land and higher crop yields are needed to feed the masses. The challenge most growers are facing include poor soil nutrient balance and this is expected to continue deteriorating.
By bringing Jansen online, BHP and other MOP producers expect to meet this demand with quality potash that can be used in multi-nutrient fertilisers.
The traditional demand drivers of population and diet are also described as reliable and slow moving.
BHP anticipates “attractive upside” is also present (other than basic drivers) due to rising use of potash to support the required higher yields and depleting soil fertility.
Good news for ASX explorers
The global major’s massive long-term investment in the MOP market is a positive signal for explorers in the space, which are also vying to get projects off the ground to meet expected demand.
Highfield Resources (ASX: HFR) has secured the mining concessions for its Muga project in northern Spain.
The company is gearing up to construct the mine which once operational will produce about 1 million tonnes per annum of MOP, with 30.1Mt to be generated during its mine-life.
With a similarly massive resource to Jansen, South Harz Potash’s (ASX: SHP) MOP assets have global inferred resources of 5.27Bt within Germany’s historic South Harz potash field.
The company also plans to meet mounting potash demand within the European market.
With its MOP assets on Europe’s doorstep, South Harz will leverage its competitive advantage to supply the region’s potash at a lower cost than operators in other countries such as BHP with Jansen in Canada.
Another advantage for European customers is a faster delivery time from the South Harz operations, along with a reduced carbon footprint compared to imports.
South Harz describes its MOP assets as “world class” with shallower resources to Jansen.
Work is underway on upgrading the mineral resource for its Ohmgebirge project which currently stands at 325Mt.
Ohmgebirge will be South Harz’s first cab off the rank with a definitive feasibility study due for completion next year and three other projects to be developed shortly after.