Flooded Mine Bolsters BHP’s Plan for Potash, CEO Says – by David Stringer (Bloomberg News – November 24, 2014)

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The flooding of a mine owned by the world’s biggest potash producer is confirmation for BHP Billiton Ltd. (BHP)’s Chief Executive Officer Andrew Mackenzie of the wisdom of his company’s planned move into the industry.

“These sorts of factors, combined with continued economic growth and demand for potash all conspire, if you like, to bring toward us the time when a new mine is required,” Mackenzie said in an interview in Sydney. “We have the lowest cost mine that would be useful to bring into the market at that stage.”

According to Mackenzie, no major new mines have begun production since the 1970s and the halt of operations at Uralkali’s Solikamsk-2 mine, which accounts for 3 percent of world supply, is a sign of the vulnerability of supply — just as the need to feed a booming global population spurs demand.

BHP is looking to build its Jansen project in Canada’s Saskatchewan province sometime in the next decade, though Mackenzie is cautious about giving an exact timeline. Spending of $3.8 billion has been approved so far on Jansen, including mine and service shafts, and Citigroup Inc. (C) forecasts the whole project may cost $16 billion.

“We do know we have to wait for the market to come towards us, but once those shafts are complete, we are only three to four years — at most — from first potash,” Mackenzie said yesterday in the interview.

Half the World

Proceeding with Jansen without a partner probably would be “misguided,” Evy Hambro, manager of BlackRock Inc.’s $6 billion World Mining Fund, said last year after Russia’s Uralkali quit a marketing venture controlling almost half of world exports. Sanford C. Bernstein & Co. forecast in July that it didn’t see the industry’s existing capacity overhang fully cleared before 2027 “at the earliest.”

Demand for potash, a crop nutrient that improves drought resistance and strengthens roots, is seen being supported by the need to raise global crop production from limited agricultural land. About 80 percent of growth in crop output will come from more intensive farming, according to the Food and Agriculture Organization of the United Nations.

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