Rising Potash Prices May Bring Boom to Saskatchewan

The Canadian province of Saskatchewan is already home to the largest global potash producer by capacity, Nutrien (TSX:NTR).

If potash prices continue to climb, it could be enough to entice international diversified miner BHP Billiton (ASX:BHP,NYSE:BHP,LSE:BLT) to begin the process of bringing its Jansen project online.

If that happens, Saskatchewan would strengthen its position as the potash capital of the world, and Canada’s spot as the leading producer by far.

Potash prices have steadily increased over the last 12 months in part due to increased demand for the critical fertilizer ingredient. A strategic move by premier potash producer Nutrien to idle capacity has also helped the prices grow.

“Strong global potash demand in major spot markets has maintained tight supply and provided support for potash prices,” Nutrien notes in its Q2 update. “Many global exporters are reportedly sold out until the fourth quarter of 2018.”

The company says in the report that it has increased its 2018 global potash shipment projection to between 65 and 67 million tonnes to meet surging demand.

Potash prices are expected to hit US$370 a tonne this fall, a significant increase from the US$226 level seen in February of this year.

BHP will be closely watching to see whether the price of potash continues its upward trend. According to Reuters, Bernstein analyst Jonas Oxgaard said a potash price of US$400 would likely be the point when BHP would continue to advance the Jansen project, located in Saskatchewan.

The mining giant began work at the site in 2011, and invested US$226 million in 2013 to fund excavation and lining, building service shafts and the installation of essential surface infrastructure and utilities.

The work was scheduled to be completed last year.

According to BHP, Jansen is the world’s best undeveloped potash resource and is capable of supporting a mine with an annual capacity of 10 million tonnes for more than half a century.

“Annual investment at Jansen of approximately US$800 million will form an important part of the group’s capital and exploration budget,” Andrew Mackenzie, BHP’s CEO, said at the time.

“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,” he added.

Although the company has made no announcements regarding its Jansen plans recently, Nutrien has to be cognizant of what the startup of Jansen would mean for its grip on the global potash market.

Nutrien’s share price was up slightly on Tuesday (August 21) at C$72.60. Meanwhile, BHP’s share price closed the day at AU$32.55.

Editor’s note: A previous version of this article included an inaccurate quote by BHP confirming it will begin the process of bringing its Jansen project online if prices continue to climb. This article has been updated on August 23, 2018 to correct the error.

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Securities Disclosure: I, Georgia Williams, hold no direct investment interest in any company mentioned in this article.