After spending a lot of effort defending its continuing multi-billion dollar investment in the Canadian potash industry, there was news at the weekend that perhaps BHP Billiton isn’t as wedded to total control as it has been making out.
Reuters reported that BHP is considering selling a 25% interest in its Canadian potash mine project, a stake that could be worth close to $US2 billion.
On Friday, news of the potash move saw BHP’s US-listed shares rising as much as 4.5% to hit a two-year high of $US43.60. They closed up 2.4% at $US42.56 in afternoon trading in New York.
Citing “people familiar with the matter” Reuters reported that BHP is working with an investment bank for the potential stake sale in its partly-built Jansen potash mine in the Canadian province of Saskatchewan.
The US vulture Fund, Elliott Management has questioned the continuing investment in potash and BHP has defended the move by saying it still regards the mineral as part of its future.
Reuters said the justification for bringing in an equity partner is to share the risk of developing the mine and reduce its exposure to the project.
BHP last week reported a very solid rise in earnings for the year to June, a big jump in shareholder payouts and plans to quit its costly shale onshore oil and gas businesses in the US.
BHP laid out options for the Jansen project in an investor presentation dated August 22, saying it could wait, find a partner, divest or optimise it. It said in the presentation “Jansen will proceed only if it passes strict capital allocation framework tests.”
The company said last week it would not seek board approval in 2018 as expected for capital to finish building Jansen due to uncertainty in the potash market.
Some analysts interpreted the comments as delaying the project. Production could start in the mid-2020s, BHP said. The 4-million tonne a year mine will cost around $US8.5 billion to build, with more than half of that sum still uncommitted.
BHP spokeswoman Bronwyn Wilkinson told Reuters it was too early in the process for the company to have determined the size of a potential stake sale.
“If you bring in a partner, you can share the capital and risk and, depending on who the partner is, help secure an off-take (supply agreement) or offer expertise,” Wilkinson said.
BHP wants to keep control of the mine, and the final stake could be 25%, or it could be a smaller or larger figure – Reuters said that will depend on the level of interest and the size of the offers received.
The potash asset is expected to attract interest from global players, including Indian and Chinese firms at the head of the pack.
It could be that if and when BHP gets a partner onboard, the two could share the final costs of completing the project, or the new partner will fund the final stage of the project to earn its share, thereby cutting BHP’s future spendin.
