BHP Group (ASX:BHP) plans to book a $2.3 billion write-down on its giant Jansen potash mine in Saskatchewan, Canada, citing cost and timing overruns for the planned expansion.
In Thursday’s announcementThe world’s largest mining company said it decided to undertake the delisting after a “thorough review” of the mine’s second phase expansion, which is now expected to cost $6.9 billion – about $2 billion more than its previous estimate.
Janssen, which is currently in the construction phase, represents a key pillar of BHP’s decades-long strategy to diversify into copper and iron ore.
After years of controversy over the project’s high cost, the Melbourne-based group agreed to build the first phase of the mine at an original cost of $5.7 billion. since then, The cost estimate has been inflatedBut the first production has also been postponed to 2027.
Prior to this cost increase, BHP had already given the green light for the second phase expansion in October 2023, as rising fertilizer prices following the Russian invasion of Ukraine provided a favorable market environment for the company to accelerate its potash plans.
The first production of the second phase was scheduled for 2029. However, due to cost overruns for the first phase, management has since decided to postpone the project for two years.
Cost increase ‘exceeded expectations’
BHP says the majority of the cost increase for Jansen Stage 2 comes from “additional construction hours and material quantities”. Given the rising costs, the company is now targeting first production in late fiscal 2031.
Analysts at Jefferies, in a note to… ReutersHe said the cost increase of about 30% “exceeded expectations” and described the update as “unhelpful” due to poor potash forecasts.
“We are reiterating our rating on BHP stock as we see better value elsewhere in the mining space at the moment,” they added.
This represents the third time that BHP has exceeded its cost and time estimates for both phases of the project. The cost of the first phase, according to the company, is now estimated at $8.4 billion, approximately 50% higher than what was approved in 2021. With the second phase, the expected cost of the mine will reach $15.3 billion.
10% of global output
In its update on Thursday, BHP said construction of the second phase was approximately 16% complete. Once completed, it is expected to produce approximately 4.36 million tons per year, similar to the first phase, which the company said is on track for production in mid-fiscal 2027.
She added that the operation at full capacity is expected to provide about 10% of the total global potash production.
“Once Jansen Phase 2 commences, we continue to expect the combined Jansen mine to be the lowest unit cost Canadian potash mine at US$114-130 per tonne, in line with our unit cost estimates at sanctions, strengthening Jansen’s enduring competitive advantage in the potash market,” BHP said in a statement.
After taking the $2.3 billion charge, the company maintained capital spending guidance at approximately $11 billion.
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