BHP’s Jansen sale hope hit by Potash Corp-Agrium $36bn merger

A merger between Potash Corp and Agrium has hit BHP Billiton’s hopes to sell its potash mine in Canada.

The prices for potash, displayed by a Potash Corp employee, have plunged.

Prospects that BHP Billiton will find a buyer for its Jansen potash project in Canada have dived on news of a proposed $US27 billion ($36bn) merger between Potash Corporation — once a takeover target of BHP — and Agrium.

The planned merger of equals comes as prices for potash have plunged because of hugh capacity overhanging the market, with consolidation of production cap­acity a key driver of the merger proposal.

The merger also signals that big and established players are averse to acquiring new production capacity, like that on offer by BHP with its partly completed Jansen project.

BHP has persisted with Jansen’s development — albeit at a slow pace — after its failed $US40bn takeover bid for Potash Corp in 2010 when prices for the fertiliser were a multiple of the current price of about $US150 a tonne.

Potash Corp today is worth $US14.5bn, making the regional government’s blocking of the 2010 BHP bid a blessing in disguise. BHP’s response to the failed bid was to continue to prepare Jansen for production by sinking two deep shafts to access the potash mineralisation.

The shaft sinking is proceeding under a $US2.6bn budget allocation made a few years ago. At the same time, BHP has said it is open to taking on partners or selling the out of the project, once touted as its fifth “pillar’’ along with iron ore, copper, coal and petroleum.

At last month’s profit briefings, chief executive Andrew Mackenzie said BHP had been derisking the project to make it more attractive to potential partners. “We had some technical challenges early on in sinking the shafts. For the kind of partners we want, that made the risk of becoming part of our enterprise higher than they wanted,’’ Mr Mackenzie said.

He said the problems had been resolved and that the shafts were now 500m-600m down through the more difficult aquifers, with 300m-400m still to go.

“We are now progressing at a faster rate and cheaper rate than we expected, and so it is a more attractive proposition. People will have to weigh whether or not there will be a case for investing once we complete the shaft and construction of the mine,’’ Mr Mackenzie said.

Mr Mackenzie said BHP had “better news” now for potential partners from its slower pace of development. “We have used the time wisely and improved the capital efficiency of the project, both by being able to do it for less capital and lower operating costs,’’ he said.

He said BHP had broken down a full-blown development plan — previously assumed to cost more than $US12bn — into smaller stages, meaning Jansen potash could be brought to the market over time. He acknowledged that with the state of the potash market, BHP would have to be flexible in timing its entry into the market.

“That is a decision for a couple of years. We do not have to get too preoccupied with it just yet. In the meantime, we will watch how the market evolves,’’ he said.

Mr Mackenzie said the agriculture cycle seemed to be lagging what is going on in the other commodities. “We will have to wait and see how things look, but our estimates still suggest that sometime in the next decade we are going to need a new large greenfield mine,’’ he said.