Agribusiness & Food, Mining and Heavy Industries

BHP talks up massive potash plan

BHP has launched a major campaign to support its proposed $6 billion Jansen potash project in Canada, despite significant declines in the commodity’s price in recent years, and continued attacks against North American expansion from activist investor Elliott Management.

BHP analyst Dr Paul Burnside, in a report published on the miner’s website, said the miner expects demand for potash to double by the late 2040s, “by which point it could be a US$50 billion market”.

BHP chief executive Andrew Mackenzie announced in May he would seek board approval to increase approved spending on the project from US$3.8 billion to US$4.7 billion, in order to fully commit to the first phase of the project, which would achieve first production by 2023.

This is despite the potash price dropping from roughly $500 a tonne to $200 a tonne over the last half-decade.

Burnside, who is BHP’s principal potash analyst, said a decision to invest counter-cyclically would make sense.

“As an essential nutrient for plant growth, potash is a vital link in the global food supply chain,” he wrote. “And the demands on that supply chain are intensifying; while cultivated land area will remain almost static, the global population will be close to 10 billion by 2050.”

As global population rises, diets will also become more varied, Burnside forecasted in his report. Both trends would increase strains on finite land supply.

“Between now and the middle of the century, food demand will grow by 50% and sustainable increases in crop yields will be crucial if we are to continue to feed the world,” he wrote.

“Advances in farming practices, farmer education and new seed varieties will all help to optimise yields in the future. But as the quantity of production grows, so too does the amount of potassium removed by harvesting – and the sustainable, targeted use of potash fertilisers will be critical in replenishing our soils.”

Elliott Management, a BHP shareholder which is campaigning for major changes at the miner, including a management shake-up, and a divestment of North American petroleum and shale gas businesses, used the board’s looming Jansen decision to again criticise the miner.

“BHP is now arguing that it should spend billions of dollars of shareholder money to diversify into potash,” the investor reportedly told The Telegraph in the UK. “This sounds alarmingly familiar and comes as the company proclaims the dubious strategy of ‘Thinking Big’ – a concept that has been disastrous for BHP shareholders.”

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