Mining heavyweight BHP Billiton (ASX: BHP) has not yet ruled out investing further in its potash project in Canada, despite the fertilizer's price being heavily impacted recently.
Whilst the miner has been ambitious to add potash as another business operation in order to increase diversity – alongside copper, iron ore, oil and gas and coal projects – many critics have argued that its $14 billion Jansen project is now too risky, following the plunge in price of the crop nutrient.
Potash's price plummeted after one of the two cartels controlling the market collapsed late last month, with the world's largest producer, OAO Uralkali, announcing it would lower its prices to increase market share. The company announced that by the end of the year it could potentially lower prices by up to 25% and charge just US$300 per tonne.
In a report by Bank of America Merrill Lynch last week, BHP's Jansen project would "work" at US$400 per tonne but would be difficult to justify at the prices proposed by Uralkali.
However, CEO Andrew Mackenzie is taking a longer-term view of the project's prospects. He said, "The impacts of what we've seen recently are interesting, but we have to look forward tens of years in terms of potash supply to really understand what, if any, investment we'll make and at what pace… We saw this evolving in time to being a more open market, and therefore you'd expect that would be in any of our plans."
With BHP's earnings report due out on August 20, investors can expect an update on the company's intentions regarding the Jansen project, as well as any other future prospects.
Foolish takeaway
With analysts suggesting that the miner has already invested $1.2 billion on the project (and had a further $600 million planned for this fiscal year), it would be an enormous disappointment for shareholders should the company choose to forego the project. On the other hand however, it may be the safest bet with the company's overall profits plunging in recent years.
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More reading
- BHP boss confident about Australia's future in resources
- BHP's tough potash assessment
- Mining profits expected to fall
- BHP's profit expected to drop 26%
Motley Fool contributor Ryan Newman does not own shares in any of the companies mentioned in this article.
