Sydney/Melbourne - BHP Billiton has approved $2.6 billion (R26.3bn) in spending on its Jansen potash project in Canada, less than a month after the largest producer of the crop nutrient set off a possible price war.
“We have actively been approached and have approached people to see what might be possible” over selling a stake in the project, chief executive Andrew Mackenzie said yesterday, declining to provide further details of the talks. The project might cost $16bn to build, Citigroup said last month.
Russia’s Uralkali quit a marketing venture in July that controlled about 43 percent of global exports and signalled that prices might fall by as much as a quarter.
The projections for Jansen assumed a shift away from the current market dynamic and the expectation that prices would reflect the cost of adding new supply, BHP Billiton said.
“They’ve always said they want market-related pricing, and that’s what we’ve got with the breakdown in the Russian pricing,” Glyn Lawcock at UBS said. “It’s unlikely that they wouldn’t go ahead” with Jansen because they would have invested about $4bn by the time they make a decision.
BHP Billiton posted a 30 percent drop in full-year profit yesterday, sending its shares down 1.35 percent in Sydney.
It made a $40bn hostile bid for Potash of Saskatchewan in 2010, as it sought to add production of the crop nutrient. The bid was blocked by the Canadian government.
BHP Billiton may see Uralkali’s move as accelerating a switch to more market-oriented pricing for potash, a process it has encouraged in other commodities such as iron ore, and a development that may bolster its faith in Jansen’s economics.
“Investment at Jansen is creating a valuable asset and we will continue to pursue a development path that maximises returns for shareholders,” Mackenzie said.
BHP Billiton said work at the project in Saskatchewan would extend into 2017. Annual investment would be about $800 million. – Bloomberg