GLOBAL MARKETS-Euro under the gun, shares hit after Italy votes 'no' on reform
* Euro had biggest one-day loss since June on referendum defeat
* BHP has already sunk $2 bln into potash push
* BHP would shun North American marketing cartel
* BHP seen postponing full Jansen commitment
By Clara Ferreira-Marques and Rod Nickel
LONDON/WINNIPEG, Canada, July 31 Miner BHP Billiton's new boss is facing his biggest test to date, weighing the fate of a $14 billion Canadian potash project just as the collapse of a dominant potash cartel puts more pressure on already weak prices.
The Jansen project in Canada's Saskatchewan province was a tough call for BHP Chief Executive Andrew Mackenzie even before Tuesday, with mining investors reluctant to spend on big-ticket projects and most also cool on an oversupplied potash market.
But Russian potash giant Uralkali's decision on Tuesday to break out of its venture with Belaruskali - a move that it said could slash prices of the crop nutrient by 25 percent - could leave Mackenzie with an even tougher choice.
"Jansen is a project that will alter the dynamics of the industry. It is a big bet - you are betting that you will be so low-cost that you can kill the others," said Hunter Hillcoat, an analyst at Investec in London. Jansen, indeed, would produce 8 million tonnes a year - around 15 percent of 2012 potash supply.
"But this is a market with established players, and it will not be easy to be the 800 pound gorilla."
Until Tuesday, the global potash market was dominated by two cartels: the Belarusian Potash Company (BPC) and North America's Canpotex, the export arm of Potash Corp, Mosaic Co and Agrium Inc. BHP had tried unsuccessfully to take over Canada's Potash Corp in 2010.
BHP declined to comment on Wednesday on its plans for Jansen. The miner said as recently as last month that Jansen remained "an option."
BHP's shares slipped 0.2 percent to A$34.88 in Australia on Wednesday, in contrast to potash producers' shares overseas which were clobbered on Tuesday.
Pushing ahead with the project would likely be taken negatively by investors eyeing BHP's spending, debt and dividend levels, according to analysts and industry sources.
"I think the company would be rewarded if they canned the project," said portfolio manager Darko Kuzmanovic at Caledonia Investments, which holds BHP shares, citing the oversupply in the potash market and potential lack of pricing discipline.
But few expect BHP to scrap its push into potash. It has already invested $2 billion and dropping it would mean giving up a lucrative profit stream in future decades as developing countries begin to feed themselves better.
"Clearly markets have changed overnight, but BHP don't invest for daily moves. They invest for longer term," said Craig Sainsbury, an analyst at Goldman Sachs.
He predicted BHP could commit around $500 million more to the project by June 2014 to continue sinking shafts. That would reduce risk and add value in case BHP opts to sell a stake ahead of a full investment decision in around two years, ensuring its potash would not reach the market until around 2020.
"They can sit back and see what happens with the market and to other greenfield projects," Sainsbury said.
BHP, whose board was due to consider the project in the coming 12 months, has long said it saw the Jansen mine as a potential "fifth pillar," in addition to iron ore, copper, coal and petroleum.
The future of the project, though, has been in the balance since investors began to push companies to rein in spending last year, amid cooling commodities prices. Rivals have questioned the economics of Jansen and warned the mine could sink potash prices still deeper into the doldrums.
"I don't know whether the project's going ahead or not. What I do know is the economics of that project don't work," Potash Corp Chief Executive Bill Doyle told Reuters last week.
"It's a negative return on investment and I don't know too many boards of directors that would approve a $14 billion project with a negative return on investment from Day One."
Uralkali on Tuesday predicted potash prices would fall below $300 a tonne in the second half of 2013, from $400 now.
Jansen is the only remaining "mega project" for BHP - projects intended to capitalise on its low costs - after it shelved its $20 billion Olympic Dam mine last year and a plan for a new harbour to boost Australian iron ore exports.
"NO SACRED COWS"
For Mackenzie, named chief executive of BHP in February, the decision on Jansen will also be critical personally.
A Glasgow-raised geologist and academic, Mackenzie ran BHP's non-ferrous minerals division before taking on the top job. He has close ties to potash, having been the lead executive in BHP's ill-fated tilt for Potash Corp.
"It has to perform. It has to compete for a smaller amount of capital," Mackenzie said of Jansen at a presentation in May.
Some analysts expect potash prices to rise over the longer term, and say that a wrong move on Jansen - which would not be producing before 2017 - could batter confidence in both BHP and its peers.
Uralkali said in May that it would delay two of its potash mine expansion projects for as long as a decade if Jansen proceeds. Conversely, Mosaic said that it might reconsider its plans to scrap the remainder of its potash expansion if BHP cancels Jansen.
"The market is very myopic in terms of wanting just free cash flow and cash generation right now, instead of investment in projects," Sam Catalano, analyst at Nomura in London said. "If BHP approves what seems to be a marginal project, on the economics, the fledgling confidence investors have in the large miners to allocate capital will be shaken."
Goldman Sachs analysts calculated a return of 10.3 percent - well below levels in an industry that favours 15 percent and above.
* Euro had biggest one-day loss since June on referendum defeat
WELLINGTON, Dec 5 New Zealand Deputy Prime Minister Bill English said on Monday he is considering running for the leadership the ruling National Party after the surprise resignation of Prime Minister John Key.
MELBOURNE, Dec 5 Aluminium maker Alcoa Corp said on Monday it was assessing the impact of a power outage last week at its Portland smelter in Australia that forced it to halt a potline, adding that it was facing 'substantial challenges'.