BHP adds another $1B to Jansen mine expense

Continued inflationary pressures have forced BHP (ASX, LSE, NYSE: BHP) to bump up the cost of its Canadian potash project’s first stage to $8.4 billion (C$11.6 billion) – the second revision in six months.

Jansen, as BHP’s first potash mine in Saskatchewan is called, will cost at least 14% more than the revised $7 billion-$7.4 billion budget that the company disclosed in July, according to a company statement issued Tuesday. BHP’s original cost estimate was for a construction budget of $5.7 billion. All figures include contingencies.

The revision follows a detailed review of costs and the schedule for Jansen’s stage one. First production is targeted for mid-2027.

Located about 140 km east of Saskatoon, Jansen is crucial to BHP’s ambitions of building a significant footprint in potash – a new commodity for the mining behemoth. The investment, the largest in Saskatchewan’s history, is part of an effort by BHP to shift its portfolio away from steelmaking materials and towards what executives call “future-facing commodities” such as copper and potash. About 65% of BHP’s capital will be invested in these sectors over the medium term, the company said last year. 

Scope changes

Most of the cost increases at Jansen stem from inflationary pressures, design development and scope changes, and lower-than-expected productivity outcomes, BHP said. A reassessment allowed executives to identify material quantities and construction hours that had been omitted from earlier execution estimates.

Work on stage one is now about three-quarters complete, according to the company.

A new “response plan,” recently implemented to address cost and schedule risks for the project, has improved productivity, strengthened project management and enhanced oversight of execution contracts, BHP said. This plan is expected to support sustained efficiency gains in the delivery of the mine and improved capital intensity in subsequent stages.

Expandable asset

“Jansen is an important pillar in BHP’s long-term growth strategy and is a long-life, low-cost expandable asset that is expected to generate benefits for shareholders for decades,” Brandon Craig, head of BHP for Americas, said in a statement.

“Once operational, Jansen will establish BHP as a leading player in the global potash industry. We remain positive about the progress at Jansen and in potash as a future facing commodity with strong long-term demand fundamentals driven by population growth, better diets, rising living standards, and the need for more productive and sustainable use of arable land.”

Jansen will initially produce 4.15 million tonnes of potash a year. At consensus potash prices, the mine’s first stage has an updated internal rate of return of 7.9% to 9.1% and an updated expected payback period of 11 to 15 years following first production, BHP said.^. Pretax margins are expected to average 63%-64% due to the mine’s low-cost position,  the company said.

In the meantime, construction of a second stage is advancing. An updated cost estimate will be provided to investors in the fourth quarter of the company’s 2026 fiscal year, BHP said. At last count, the investment for that part was expected to cost $4.9 billion.