BHP takes $2.3bn hit as Jansen potash costs surge

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A $2bn blowout in funding costs at BHP’s Canadian potash project will drag down the mining giant’s upcoming financial results, it warned on Thursday.A BHP statement on the JSE news service on Thursday showed that capital costs at its Jansen potash project had increased from $4.9bn to $6.9bn following a long-awaited review of the asset’s cost and schedule estimates.The revision means BHP will recognise a hefty $2.3bn impairment (before and after tax) in terms of its investment to date in Jansen when it publishes annual results in about a month.(Dorothy Kgosi) The write-down charge is more than half the group’s latest annual revenue of $4.4bn. It is, however, expected to be a one-off and should not affect capital expenditure guidance for 2027, which remains about $11bn, said the miner.Shares in the miner fell by more than 3% on Thursday, their worst day since April last year as the news stoked fears about the project’s ballooning costs.This is not the first setback for Jansen. In July, BHP warned that significant delays and cost increases had taken total expenditure for the project’s first development stage to $7bn-$7.4bn, implying about $1.7bn in cost overruns.Then last August BHP said it would extend the second stage of Jansen’s development by two years, shifting first production from the 2029 financial year to 2031. It warned at the time that the move would hurt capital expenditure estimates further.Business Day reported in January that these hiccups have made BHP’s potash return profile less competitive with peers such as Anglo American, which has already sunk $7bn into its own large-scale crop nutrient project in the UK.Potash, a salt that has become essential in modern fertilisers, is core to BHP’s growth strategy, with the company expecting demand for the nutrient to increase by 70% by 2050.The Jansen project is expected to produce about 4.36m tonnes of potash a year over the next two years and 8.5m tonnes thereafter, accounting for about 10% of the world’s supply.In an update on Thursday, the company said most of the cost increase came simply from the added construction hours and amount of materials needed to complete Jansen stage 2 after the two-year extension.It said by May Jansen stage 2 was 16% complete, with 83% of the engineering work done.“Jansen is an important pillar of BHP’s strategy and will deliver exposure to a future-facing commodity with strong demand fundamentals and portfolio diversification benefits,” said BHP Americas president and soon-to-be CEO Brandon Craig.“With the reset of Jansen stage 2, we are progressing with our intention of building a Tier 1 asset.”