The BHP Group Ltd (ASX: BHP) share price is under the spotlight today after the ASX mining share announced another huge investment in potash.
We already knew that BHP is investing several billions of dollars into stage one of its Jansen potash project in Canada. Potash is seen as a greener form of fertiliser, so it could have growing demand in the coming years.
BHP share price
Jansen project stage 2 approval
The ASX mining share revealed that it has approved US$4.9 billion to invest in stage two of the Jansen potash project.
This additional investment will make Jansen into one of the world’s largest potash mines, doubling production capacity to approximately 8.5 million tonnes per annum (mtpa).
Jansen stage 2 is expected to deliver approximately 4.36 mtpa of production, for a ‘capital intensity’ of US$1,050 per tonne, which is lower than Jansen stage one, due to the leveraging of existing and planned infrastructure.
The additional US$4.9 billion investment will be used for the “development of additional mining districts, completion of the second shaft hoist infrastructure to handle higher mining volumes, expansion of processing facilities and the addition of more rail cars.”
Jansen stage 2 is projected to have an internal rate of return of between 15% to 18%, at potash prices that a group of analysts (consensus) have forecast. The payback period will be approximately six years from first production.
The underlying EBITDA (EBITDA explained) margin for stage 1 and stage 2 of between 65% to 70% is expected due to a low-cost position of US$105 per tonne to US$120 per tonne. That could be good news for the BHP share price if it delivers on that profitability expectation.
Potential synergies of US$0.3 billion have been used for the stage 2 economics, based on transitioning to stage 2 construction once stage 1 has been completed.
Stage 2 is expected to take six years to construct and deliver first production in FY29.
How is stage 1 going and how many more stages could there be?
BHP revealed that stage 1 is 32% complete and progressing in line with its schedule. First schedule is expected to be delivered in late 2026.
In the longer-term, Jansen has the potential for two additional expansions to reach an ultimate production capacity of between 16 mtpa to 17 mtpa (subject to studies and approvals). This could be a strong long-term help for the BHP share price if it gets up to that level of potash production.
Management commentary
The BHP CEO Mike Henry said:
The stage two investment advances BHP’s strategy to increase its exposure to commodities positively leveraged to the global megatrends of population growth, urbanisation, rising living standards and decarbonisation. Potash, used in fertilisers, will be essential for food security and more sustainable farming.
Final thoughts on the BHP share price
I think this is a great move by BHP. It reduces the reliance on China buying a lot of BHP’s commodities and diversifies the ASX mining share’s earnings base.
It’s projected to make good returns, which is good to see. If I were a shareholder, I’d be happy to see this development go ahead. This may not be the best time to buy, with the relative strength of the iron ore price, but there could be an opportunity in the year ahead.
