BHP sees no imminent decision on Canada potash mine

Thu Oct 25, 2012 11:55am EDT

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* CEO sees Jansen as a good project

* BMO report says better to return cash to shareholders

By Clara Ferreira-Marques

LONDON, Oct 25 (Reuters) - BHP Billiton said on Thursday it won't decide soon on whether to build the world's biggest potash mine in Western Canada, a project some say would exacerbate a global glut of the fertilizer nutrient.

In late August, BHP pushed back to at least June 2013 a decision on building an 8 million-tonne mine at Jansen, Saskatchewan, but emphasized it would still proceed with construction and was planning to double the first phase of production. The Anglo-Australian mining giant has been aiming to start production in 2015.

The emphasis appeared to shift on Thursday, when Chief Executive Marius Kloppers made remarks that suggested there's little urgency to proceed.

"The guys still have their lease agreements to complete, they have a substantial amount of engineering to complete," he said when speaking to reporters after BHP's annual meeting in London. "We do have quite some time ahead of us before we need to consider additional approvals."

Kloppers said the company still considers Jansen "a good project" but added, "we approve only projects that are value-creating for our shareholders."

BHP continues to dig two shafts and build surface facilities at the mine site. Analysts estimate the mine could cost up to $14 billion to complete.

Kloppers' comments follow a report this week by BMO Capital Markets that concluded BHP should shelve Jansen, which it said would not provide an attractive return, and instead return cash to shareholders.

The next best option would be buying U.S. potash producer Mosaic Co, the report said.

The world's potash capacity surplus looks to climb as high as 19.3 million tonnes by 2020 from 11.3 million tonnes in 2012 due to expansions and potential new mines, including Jansen, and Jansen's capacity will not be needed for at least another decade, BMO said.

"We believe that the worst option is to build Jansen, although this may well be what BHP intends to do," BMO analysts Joel Jackson and Tony Robson wrote.

If BMO's estimates of rate of return prove correct, which BHP disputes, the Jansen project would not get approval, said chairman Jac Nasser.

"Those numbers, I can tell you, would not pass muster," Nasser said at the meeting. "You can feel very comfortable, that if that is the presentation, if that is the proposal, to management first and the board second, it won't pass the first hurdle."

Demand for potash has been rising due to a growing global population, rising incomes in developing countries and a declining amount of arable land. But planned new supplies may outstrip that demand growth.

Germany's K+S AG has started building a potash mine in the Western Canadian province of Saskatchewan, home to more than 40 percent of the world's potash reserves. Other mines under construction include EuroChem's project in Russia, a Vale SA mine in Argentina and Intrepid Potash Inc's small mine in the U.S. state of New Mexico.

The Canadian government blocked BHP's hostile takeover bid in 2010 for top potash producer Potash Corp of Saskatchewan .

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