BHP Group is taking a $2.3 billion writedown on its Jansen potash mine in Saskatchewan, Canada, following a series of cost and time overruns for the project's expansion. The world’s largest miner indicated that the second phase of the project, originally estimated at $4.9 billion in 2023, will now cost $6.9 billion. This marks the third time BHP has exceeded its cost and time projections for the Jansen project, which aims to diversify the company's portfolio beyond copper and iron ore. The impairment charge is attributed to higher capital intensity across the entire project, including future expansions.
The cost increases are primarily driven by inflationary and real cost escalation, design development and scope changes, lower productivity, and additional labor hours and material quantities required to complete the project. First production from Stage 2 is now anticipated in late financial year 2031, a delay from previous estimates. Despite these challenges, Stage 1 of the project is still expected to begin production in mid-2027, with its costs also rising to $8.4 billion from a $5.7 billion approval.
Jefferies analysts described the cost increase as exceeding expectations and the update as "unhelpful" given a poor foreseeable outlook for potash. The company maintains that the combined Jansen mine will be the lowest unit cost Canadian potash mine at $114-130/t once Stage 2 ramps up, reinforcing its competitive advantage in the market.
BHP expects the Jansen Stage 2 to deliver approximately 4.36 million tonnes per annum (Mtpa) of production. Following a two-year ramp-up period, the combined output from Jansen is projected to reach 8.5 Mtpa, representing about 10% of total global potash production. The internal rate of return for Jansen Stage 2, at consensus prices, is updated to 11% with an expected payback period of 8 years, and underlying EBITDA margins are anticipated to remain above 65%.
