* Jansen project expected to begin production in 2015
* Says greenfield economics continue to make sense
* Likely to own its own ports for potash export
(In U.S. dollars unless noted)
By Euan Rocha
TORONTO, June 8 BHP Billiton (BHP.AX) (BLT.L)
sees potash as an ideal fit within its portfolio of commodity
products and the global mining giant is focused on developing
its potash projects in Western Canada into a world-class basin
play, a top executive said on Tuesday.
"Even though we have highlighted the priority areas, we
actually do have a number of other areas we plan to explore
over the next five years. Our game is to really develop a
resource basin for the long term," said Graham Kerr, the head
of BHP's Diamond and Specialty Products business.
Kerr noted that BHP is focused on investing in assets that
are long-life, low-cost and have expandable resources, making
its potash projects in the Canadian Prairie province of
Saskatchewan an ideal fit for the company's portfolio.
Earlier this week, BHP released resource data related to
Jansen -- its flagship potash project in Saskatchewan. Jansen,
which is expected to begin production of the fertilizer in
2015, has 3.37 billion tonnes of material that contained 25.4
percent potassium oxide.
Kerr said BHP has also finished all of its exploration work
around its Boulder and Young potash projects in the province.
The company also controls the Burr potash project, which it
acquired earlier this year through its C$341 million ($325
million) takeover of Athabasca Potash.
Kerr, who was speaking at the RBC Capital Markets' Global
Mining and Materials conference in Toronto, noted that the
Jansen project will be developed first, followed by the Boulder
and Young sites.
BHP plans to develop Jansen into the world's single largest
potash mine with eight million tonnes of annual output.
Kerr said the mine will be developed in three phases, with
two million tonnes of capacity being added by each of the two
initial phases, followed by four million tonnes of capacity in
phase three. The mine is expected to be operating at full
capacity by 2025.
Kerr said that BHP expects to receive board approval and
the necessary environmental approvals to move the project
forward in late 2011.
GREENFIELD VS BROWNFIELD
The three big incumbent producers in Saskatchewan, Potash
Corp (POT.TO), Mosaic Co (MOS.N) and Agrium Inc (AGU.TO) are
all currently in the midst of expanding their output of the
crop nutrient through brownfield expansions that will increase
production from existing mines.
Many existing producers have argued that the current potash
price of slightly below $400 a tonne -- although well above the
historical average -- is too low to justify the development of
new, or so-called greenfield potash mines.
Kerr, while declining to provide the anticipated capital
expenditure requirements for the Jansen projects, said BHP
believes that the economics continue to make sense for it to
push forward on the development of Jansen.
"There has been a lot of talk around brownfield versus
greenfield. One of the important points that we would like to
make is that, in the long-term forecast, we believe there is
room for both, and in fact both are needed," he said.
Kerr noted that although BHP is a new entrant in the potash
sector, it has the skills and the balance sheet necessary to be
"The combination of BHP's strength and ... the resource,
gives us the opportunity to build a very competitive greenfield
project," he said. "We see ourselves being in a position to be
on the right side of the cost curve for a long time."
Kerr also hinted that the Australian mining giant would
rather sell its potash through its own marketing channels, than
buy itself a seat at the table within Canpotex -- the potash
export arm of the three incumbent producers in Saskatchewan.
"One of the strengths in our operating model is that we
have a centralized marketing model. We have a central marketing
organization that is independent and very customer focused. And
in all cases BHP Billiton prefers to sell its own production,"
said Kerr, adding that the firm prefers a transparent spot
Analysts and investors have speculated about whether BHP
would try to structure a deal that would allow it to export
potash overseas through Canpotex, which competes with BPC --
the export arm of Russia's Uralkali (URKA.MM) and Belaruskali.
Potash -- the common name used to describe compounds that
contain potassium -- caught investor interest a few years ago
when high grain prices, tight supplies and strong demand drove
the fertilizer to above $1,000 a tonne from less than $150.
The price gradually retreated last year, as farmers, hit by
the credit crisis and falling grain prices, reined in their
applications of the crop nutrient, but demand has already begun
to rebound this year.
Potash is currently mined in only a handful of countries
globally, with Canada being the largest producer.
Kerr said that BHP has already looked at four different
ports from where it could ultimately ship its production.
"We certainly see ourselves owning our own ports. In terms
of ensuring that we actually have control and in terms ensuring
that our product gets priority," he said. "To be honest, longer
term, we see ourselves having two ports rather than one."
(Reporting by Euan Rocha; editing by Rob Wilson)