BHP faces $14 bln potash decision as price war looms

Tue Jul 30, 2013 4:42pm EDT
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By Clara Ferreira-Marques and Rod Nickel

LONDON/WINNIPEG, Canada, July 30 (Reuters) - Miner BHP Billiton's new boss is facing his biggest test to date as he weighs the fate of a $14 billion Canadian potash project just as the collapse of a dominant potash cartel puts more pressure on already weak prices.

The Jansen project in Canada's Saskatchewan province was a tough call for BHP Chief Executive Andrew Mackenzie even before Tuesday, with mining investors reluctant to spend on big-ticket projects and most also cool on an oversupplied potash market.

But Russian potash giant Uralkali's decision on Tuesday to break out of its venture with partner Belaruskali - a move that it said could slash prices of the crop nutrient by 25 percent - could leave MacKenzie with an even tougher choice.

"Jansen is a project that will alter the dynamics of the industry. It is a big bet - you are betting that you will be so low-cost that you can kill the others," said Hunter Hillcoat, an analyst at Investec in London. Jansen, indeed, would produce 8 million tonnes a year - around 15 percent of 2012 potash supply.

"But this is a market with established players, and it will not be easy to be the 800 pound gorilla."

Until Tuesday, the global potash market was dominated by two cartels: the Belarusian Potash Company (BPC) and North America's Canpotex, the export arm of Potash Corp, Mosaic Co and Agrium Inc. BHP had tried unsuccessfully to take over Canada's Potash Corp in 2010.

BHP declined to comment on Tuesday. The company said as recently as last month that Jansen remained "an option."

Pushing ahead with Jansen would likely be taken negatively by investors eyeing BHP's spending, debt and dividend levels, according to analysts and industry sources. But a decision to scrap Jansen - in which BHP has invested $2 billion - means giving up what could be a crucial profit stream for future decades as developing countries begin to feed themselves better.   Continued...