Jansen's long-term gain for BHP's short-term pain

Company News

by Glenn Dyer

Shares in BHP and other major miners fell sharply yesterday as iron ore prices again sold off in China, continuing the weakness of the last week or so.

BHP shares slid more than 5% to $40.26 by the close Monday.

Rio shares lost more than 5% as well to end at $101.59, while shares in Fortescue Metals Group slumped more than 8% to end at $17.

Shares in the three giants were down by 4% to 5% on Friday when the nervousness about iron ore pricing really hit hard.

BHP shares fell 5% last week, Rio shares lost 7% and Fortescue shares shed 12% because of the weaker iron ore prices and fears the Chinese economy is not improving.

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The weakness in BHP shares is all short-term and linked the continuing worries about economic growth, demand for iron ore and rising inflation.

Looking to the longer-term, the company’s huge Jansen potash project in central Canada is now on the ‘good projects’ list globally after winning support from the country’s government which because the multi-billion-dollar project is going to be a carbon emissions cutter, and also a boost to global food security.

For years analysts have not rated the project with some regarding it as a waste of money.

Not so now in the wake of the Russian invasion of Ukraine and a sudden global shortage of potash and other fertilisers, with no sign of any improvement with Russia destined to be an international pariah for years to come.

The Canadian government rates Jansen and hard a better understanding of its importance than do most Australian analysts who followed BHP up to the Russian invasion of Ukraine.

In an announcement earlier this month the Canadian government said it will co-invest with BHP in the huge project to help cut carbon emissions.

That doesn’t sound very investment-oriented story, but greenery is money these days and BHP is making a determined derive to recast itself as a renewables giant, not a king of carbon.

The Canadian will invest up to $C100 million in the development of the potash mine in Jansen, Saskatchewan.

BHP plans to spend up to $US10 billion on the project, of which, $US5.7 billion will be spent on the first stage to produce around 4.4 million tonnes of the key fertiliser a year from 2027.

BHP said last month that it was looking at accelerating the Jansen project by a year because of tight global potash supplies after Russia’s invasion of Ukraine.

Potash prices, a key input used in nitrogen fertilisers, have soared since Western sanctions were imposed against Russia in March.

Russia and Belarus, which also faces sanctions, are the world’s second- and third-largest producers of the crop nutrient, while Canada is the top producer.

“We know how critical potash is for our country when it comes to food security, and that’s why we are pleased to partner with BHP on this very ambitious project that will bring strong economic benefits to Saskatchewan, while also helping cement Canada’s mining industry as the best in the world as we pivot toward a zero-emissions future,” Canadian Industry Minister Francois-Philippe Champagne said in a statement.

BHP’s deal with the Canadian government covers a $C400 million component of that project, said Rag Udd, president of BHP’s Minerals Americas.

BHP is partnering with Sandvik AB to install new mining systems at the Jansen mine that are expected to create lower environmental impact by using 60% less equipment underground than traditional potash mines, Udd said.

The investment will allow BHP to use electric vehicles and equipment to operate the mine.

The Canadian government has been investing heavily in clean energy projects, including plants for producing electric vehicle batteries and battery materials, after it set a goal to reach net zero carbon emissions by 2050. It has a $C3.8 billion fund designed to help finance the move to a cleaner future.

Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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