UPDATE 2-Uralkali to delay potash expansion if BHP mine proceeds
By Rod Nickel
WINNIPEG, Manitoba May 22 (Reuters) - Russia's Uralkali OAO would delay two of its potash mine expansion projects for as long as a decade if rival BHP Billiton builds the world's biggest mine of the crop nutrient, Uralkali's chief executive said in an interview.
Uralkali is aiming to become the largest global producer of potash by 2021, leapfrogging Canada's Potash Corporation of Saskatchewan in mining capacity.
But BHP's not-yet-final plan for a mine near Jansen, Saskatchewan, that would produce 8 million tonnes annually, would change the global supply and demand picture so dramatically that Uralkali would rein in its own expansion plans if BHP goes ahead, Chief Executive Vladislav Baumgertner said in an email exchange with Reuters this week.
"This uncertainty is mostly due to (the) BHP project," Baumgertner said. "If Jansen is developed, then we will postpone the realization of Solikamsk-3 expansion and Polovodovsky by five to 10 years."
Uralkali is the second major potash producer in a week to highlight BHP's decision as pivotal to its own expansion plans, as miners aim to avoid a glut of the pink or white crop nutrient, which is produced mainly in Canada and Russia.
U.S.-based producer Mosaic Co told Reuters last week that it would reconsider a decision to shelve its Canadian potash expansion if BHP scuttles Jansen.
The $1 billion Solikamsk-3 mine expansion would add 2 million tonnes of annual capacity, and the new Polovodovsky mine would cost an estimated $2.4 billion to build and increase Uralkali's capacity by 2.5 million tonnes. Uralkali has not yet completed feasibility studies on the projects.
Uralkali expanded its Berezniki-4 mine last year by 1.5 million tonnes of annual capacity and is planning a new mine, called Ust-Yayvinsky, that would yield 2.8 million tonnes per year.
BHP spokesman Ruban Yogarajah said the company's forecast on Jansen has not changed -- BHP has said its board will decide whether to fully approve the project in its next fiscal year, which starts July 1.
BHP Chief Executive Andrew Mackenzie briefed analysts in Australia on Wednesday, and some concluded that Jansen, which industry sources have estimated to cost $14 billion, may not proceed.
"Jansen looks likely to be shelved," J.P.Morgan in Australia said in a research note, adding that Mackenzie told analysts that approved expenditures on the project will run out in the next few months.
BHP, like other miners coping with an uncertain global economy, is scaling back capital projects. The company expects to spend $18 billion in capital and exploration work in 2014, down from $22 billion this year, and with a target of $15 billion annually by 2015, according to a note from Investec Securities, so Jansen will have to compete for funds with other projects.
"(Jansen) is clearly the biggest decision Andrew Mackenzie has to make, and so early into his term," said an industry source familiar with BHP. "I can think of more ways Andrew can get this wrong, than get it right. If you ask him what keeps him up at night, he will say Jansen."
Potash, used as crop fertilizer, animal feed and for industrial use, is a key nutrient for maximizing yields of crops like corn and rice, by improving root strength, disease resistance and water retention.
Shares of Uralkali were up 0.2 percent on Wednesday, while BHP stock gained about 1 percent.
Trending On Reuters
We are living longer but not creating financial plans to keep pace. Advisers give tips on how to make sure you don’t outlive your money. Video