Expecting the potash market to shed its "current marketing dynamic," mining giant BHP Billiton has formally put down further roots in its east-central Saskatchewan claim.
The British/Australian mining firm said Tuesday it will invest another US$2.6 billion to finish excavation and lining work on the production and service shafts at its Jansen, Sask. development site, and to continue setting up "essential surface infrastructure and utilities."
"Continued development of the shafts reflects our confidence in the quality of our 5.3 billion-tonne measured resource and the compelling long-term fundamentals of the potash industry," Billiton CEO Andrew Mackenzie said in a release.
Annual investment of about US$800 million at Jansen, about 70 km southeast of Humboldt, is to form an "important part" of Billiton's capital and exploration budget, which in total is expected to decline to about US$16 billion this year, he noted.
"Investment at Jansen is creating a valuable asset and we will continue to pursue a development path that maximises returns for shareholders," Mackenzie said, noting that path "may include the introduction of one or more partners, consistent with our approach for other major operations."
Billiton noted it has also dialed up its in situ mineral resource tonnage estimate for the Jansen site, based on added freehold mineral rights it has bought nearby; advanced data analysis; improved estimation methods; and the inclusion of "additional inferred resource" within its granted mining lease.
"Resource confidence has also increased and we have converted significant tonnages of indicated resources to measured resources," Billiton said.
As the world's population grows and incomes in emerging economies improve, agricultural demand is expected to rise, Billiton reiterated Tuesday. "This will increase the need for potash and require the construction of new mines."
Furthermore, the company said, "our projections assume a shift away from the current marketing dynamic and we believe the potash price will ultimately reflect the cost of adding new supply."
Economies of scale
Billiton's move forward at Jansen follows a move by Russia's Uralkali to exit the BPC potash cartel, which by itself has been expected to pressure potash prices and lead mining rivals to cancel their potash development plans.
Uralkali's move also puts pressure on the Canpotex group of potash-exporting companies -- PotashCorp, Agrium and Mosaic -- who in recent years have been able to market their product, mined mainly in Saskatchewan, well above its cost of production.
That said, Uralkali is also watching Billiton's plans with a wary eye. Uralkali CEO Vladislav Baumgertner told Reuters in May that his company would postpone its own mine expansion plans by as much as five to 10 years if Billiton moves ahead at Jansen.
Billiton described its Jansen site as "the world's best undeveloped potash resource... capable of supporting a mine with annual capacity of 10 million tonnes for more than 50 years."
Billiton's petroleum and potash president Tim Cutt further hailed Saskatchewan, "with its attractive geology and stable political and fiscal environment, (as) the best place in the world to develop a potash business."
Given its economies of scale and "modern" mining techniques, Jansen "is likely to be one of the lowest-cost sources of supply once fully developed," the company said. "The successful excavation and lining of both shafts will substantially reduce development risk and allow the company to time first production to meet growth in market demand."
Cutt noted the company has "successfully introduced specialized boring machines that reduce the development timeframe and safety risk associated with construction of the shafts. This technology has been in operation for several months and we are very pleased with the results." -- AGCanada.com Network
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