SYDNEY — BHP Billiton, the world’s biggest miner, will proceed with its plans for a Canadian potash project that has been called "misguided" by its biggest shareholder, driven by the prospect of strong investor returns.
"We are continuing on this investment because we strongly believe, and we’ve talked a lot about it with the board, this is going to offer very high returns for shareholders in the decades to come," CEO Andrew Mackenzie said yesterday on the Australian Broadcasting Corporation’s Inside Business programme.
"We have the best undeveloped greenfield mine on offer to the world and what we are doing, we will be prepared to respond very quickly to the market when it’s needed."
Russia’s Uralkali, the largest potash producer, last month ended a marketing venture with Belarus’s state producer that controlled about 43% of global exports and kept limits on production, and signalled prices may fall by as much as a quarter. BHP said last Tuesday that its projections for the project were assuming a shift would occur away from the current market dynamic.
BHP has said it is seeking partners for the Jansen project after approving spending of $2.6bn. The company had been approached and had approached possible purchasers of a stake in the project, Mr Mackenzie said then. Jansen might cost $16bn to build, Citigroup said last month.
"I’m looking for a partner that will add value," Mr Mackenzie said in a separate interview with the Australian Financial Review newspaper, aired on Channel 9 on Sunday. The potential partners were in "a wider range than just some of our mining peers that would be interested in a project like this".
BHP shares have slipped 3.9% this year, compared with a 10.2% gain in the benchmark S&P/ASX 200 index.
Blackrock’s Evy Hambro, who manages the $7bn World Mining Fund, said earlier this month that BHP’s plan for its Canadian potash project, Jansen, did not make sense after Uralkali’s decision, given the expectation for lower prices.
Mr Hambro "said he can see the value of that in the long term, as long as we don’t spend too much on it right now", Mr Mackenzie said yesterday. "We’ll take our time about pushing the button of the development of a major mine that will absolutely reflect our ability to afford it but more importantly, the ability to earn strong returns for our shareholders."
Potash is an ingredient in fertiliser that strengthens plant roots and improves their resistance to drought.
Andrew Mackenzie succeeded Marius Kloppers as CEO of BHP in May. In August last year Mr Kloppers put major project approvals, including Jansen, on hold amid lower prices and waning demand for raw materials. Projects that remain shelved include the Olympic Dam iron-ore port expansion in South Australia and the outer harbour iron-ore project in Western Australia.
BHP is still optimistic about growth in iron-ore as Chinese steel production continues to expand. "They have a lot of additional steel that they need to build into their economy," Mr Mackenzie told the Financial Review. "To get to US levels, they’d have to effectively add two more times the amount of steel they’ve got in the economy.
"That’s going to take time, so we can look to a good future for the growth in iron ore to feed that steel demand," Mr Mackenzie said.
BHP has said second-half profit fell 6.9% to $6.7bn as slowing emerging market growth sapped demand for raw materials and dragged prices lower.