BHP takes $2.3B hit on Jansen potash mine as cost forecast swells again

BHP Group (ASX, NYSE, LSE: BHP) plans to record a $2.3-billion (C$3.25-billion) impairment charge on its giant Jansen potash mine in Saskatchewan due to cost and timing overruns for the project’s planned expansion.

The world’s biggest miner opted for the write-down after conducting a “comprehensive review” of the mine’s stage two, it said Thursday. The expansion is now expected to cost $6.9 billion — about $2 billion more than its previous estimate.

“Inevitably the update to stage two is likely to increase investor focus on mid-term capex management and sequencing given the pipeline of major projects” such as Escondida and Vicuña in Latin America, BMO Capital Markets mining analyst Alexander Pearce said in a note.

Jansen, now under construction, represents a key pillar in BHP’s decades-long strategy to diversify from copper and iron ore. But it’s the third time that BHP has blown past its cost and time estimates for both stages of the project. The cost of stage one is estimated to be $8.4 billion, almost 50% higher than what was approved in 2021. Combined with stage two, the mine’s expected cost would reach $15.3 billion. First production has been pushed forward to mid-2027.

Stage two

Shares in BHP fell 0.8% on Thursday in Sydney to A$65.04 apiece, valuing the company at A$330 billion ($232 billion.) 

Melbourne-based BHP greenlit the stage two expansion in October 2023 as rising fertilizer prices after Russia’s invasion of Ukraine provided a favourable market environment for the company to accelerate its potash plans.

First production of stage two was initially set for 2029. However, due to the cost overruns for stage one, management has since decided to delay the project by two years.

Most of the cost increase for Jansen stage two comes from “additional construction hours and quantities of materials,” BHP says. First production is targeted for late in the 2031 fiscal year, which ends that June. 

10% of output

Construction of stage two is about 16% complete, BHP also said Thursday. Once complete, Jansen’s second phase is expected to deliver about 4.36 million tonnes a year of production, similar to that of the first stage. 

At full capacity, the operation is expected to deliver about 10% of total global potash production, BHP says.

“Once Jansen Stage 2 ramps up, we continue to expect that the combined Jansen mine will be the lowest unit cost Canadian potash mine at $114-130 per tonne, in line with unit cost estimates” when the company approved the project, BHP said in the statement.

BHP’s capital expenditure forecast remains unchanged for fiscal 2027 at about $11 billion, the company added.