After announcing last month that it will not approve any major projects for the next six months, BHP Billiton (ASX:BHP,NYSE:BHP,LSE:BLT) maintains that the start up of its Jansen potash project will not be delayed.
BHP’s vice president of external affairs, Chris Ryder, recently told The StarPhoenix that despite earlier media comments, “there is no change right now” to the targeted 2015 start-up date for the massive Saskatchewan mine.
A variety of news outlets, analysts and industry watchers had been predicting delays after BHP CEO Marius Kloppers said the company will not approve any “mega” projects until at least December, and likely later.
“I think for the next two years, 18 months perhaps, we will just wait and see how things develop,” Kloppers told Chinese media site Caixin Media.
The company, despite recently announcing that it will delay its Olympic Dam project in Australia, is resolute that Kloppers’ comments do not refer to the Jansen project.
“He’s never said we’re going to not do Jansen, in fact it’s still one of our top priorities, if not the top priority to growth,” Ryder said last week. “It’s important for people to understand that we’re going as fast as we ever have out there.”
BHP’s desire to move faster on Jansen while going slower on new “mega” projects has led many to believe that the commodities “supercycle” may be coming to an end. With concerns about the slowing of Chinese demand, the less-than-formidable strength of the US recovery, and cresting commodity prices, many analysts are predicting a period of more subdued growth.
The Financial Times‘ Javier Blas has suggested that instead of thinking of the commodities supercycle as an approaching bust, it makes more sense to think of it as less “super” and less “cyclical,” as raw materials are likely to settle at higher price levels than they did previously.
This view appears to be true for the potash industry, which had prices averaging between US$100 and US$300/tonne prior to the 2008 spike. For the last year, prices have flatlined around the US$500 to $550 level.
Potash prices are not expected to push any higher this year. Last week, Vladislav Baumgertner, CEO of Uralkali (LSE:URKA), the largest producer of potash by output, announced that Uralkali has cut its 2012 production target and said supply deals with China and India may be signed later than expected.
Uralkali also projects that global consumption of potash will not exceed 57 million tonnes in 2012, unchanged from last year. It expects to sell 10 million of the 52 to 53 million tonnes of potash to be sold on global markets in 2012.
PotashCorp (TSX:POT,NYSE:POT) and Mosaic (NYSE:MOS) are also facing concerns regarding a global commodities supercycle slowdown, and hit 22-month lows this month. North American potash inventories in April were resting 25 percent higher than their five-year average despite predictions of record planting of US corn crops.
PotashCorp doubtful of Jansen success
In the spirit of no love lost, one of the biggest critics of BHP’s prospects at Jansen is PotashCorp CEO Bill Doyle. Since successfully defending BHP’s hostile takeover bid for PotashCorp in 2010, Doyle is doubtful that the US$12 billion Jansen project will be able to come online in the current potash market.
Doyle recently told the Financial Post that his biggest doubts for Jansen are the high costs and long lead time required to bring the project into production, which make it too risky amid price volatility.
“[R]ight now they can’t make the numbers work. I know. Returns aren’t there. There is no mystery to us why they haven’t decided to go ahead, because no one takes a project to the board of directors and they say, ‘What is the return on investment?’ And you say, ‘It’s negative.’”
But despite the rising labor costs of operating potash mines in Saskatchewan, BHP says 200 people are currently working on the Jansen site and will soon sink one- kilometer shafts underground to continue site evaluation.
To date, BHP has set aside C$1.2 billion for Jansen’s feasibility study with the hope of producing about 8 million tonnes annually and employing 400 at the site.
Securities Disclosure: I, James Wellstead, hold no direct investment interest in any company or resource mentioned in this article.