BHP Group Ltd. is in discussions with the Saskatchewan government about possible tax breaks as it nears a construction decision on the giant Jansen potash mine, two sources familiar with the talks said.
Australia’s BHP has already sunk US$4-billion into building mine shafts at the site, 140 kilometres east of Saskatoon, and as much as US$5.7-billion is needed to bring Jansen into production. The company is expected to decide as early as next month whether it will proceed with Jansen.
The Globe and Mail and Bloomberg reported in May that BHP was negotiating with Saskatoon-based Nutrien Ltd. on a possible joint venture agreement for Jansen. But the Melbourne-based miner is now facing the prospect of going it alone on Jansen, as talks with Nutrien have fizzled without an agreement in place, one of the sources said.
The Globe is not identifying the sources, as they are not authorized to talk to the media because discussions are confidential.
BHP and Nutrien declined to comment for this story.
While Saskatchewan has some of the world’s richest reserves of potash, it is also a high-cost jurisdiction compared with Russia and Belarus, the other two market leaders. Canadian potash producers face elevated regulatory costs, pay a federal carbon tax that their competitors are not subject to, and because of the vast distances to carry product to ports in Canada, face higher transportation costs than Russians or Belarusians.
The provincial tax burden on potash producers has also crept higher over time. In addition, about two years ago, Saskatchewan introduced a provincial sales tax (PST) on new construction that adds another 6 per cent to BHP’s building costs for Jansen. Both of the sources said BHP hopes the government will abolish or reduce that sales tax.
“The government of Saskatchewan values BHP’s investment and interest in our province,” James Parker, a spokesman for the provincial government, wrote in an e-mail to The Globe. “We’ll continue working with all industry partners to ensure we protect our competitive investment climate and we remain hopeful that BHP’s Jansen project will reach production stage.”
Pamela Schwann, president of the Saskatchewan Mining Association, wants to see the provincial government ease the tax burden for all potash producers, a move that would also make it easier for BHP to pull the trigger on Jansen. “We’re seeing the increasing costs, like the new PST on construction or increased potash taxation, [are] a real disincentive to new capital, whether it be BHP or anybody else,” she said.
If Jansen goes ahead, it would finally mark BHP’s entry into the potash market at a time when the sector is showing signs of life after close to a decade in the doldrums. In 2010, when the price of potash was near a record high of US$700 a tonne, BHP tried to buy Potash Corp., Nutrien’s predecessor company, for US$38.6-billion.
But the deal was rejected by the federal government, which decided it wouldn’t be a net benefit to Canada. Potash Corp. subsequently merged with Agrium Inc. to form Nutrien, a deal that combined the country’s biggest miner of fertilizers with the biggest player in retail distribution.
While BHP has said it is open to taking on a partner to share the risks and capital costs of Jansen, as recently as last month, the company said it doesn’t need one to proceed on the project. BHP also recently sounded a bullish tone on the global potash market, which is in the midst of a recovery after years of flat or falling prices that has seen producers such as Nutrien idle millions of tons of production a year.
“Demand is catching up to excess supply and major supply basins are mature,” the company said in a presentation in June. BHP is also keen to diversify away from dirty fossil fuels, such as coal and oil, into potash and other cleaner commodities.
The environment means analysts are expecting the project to get the go-ahead, especially given that BHP has sunk so much capital into the project already. “We think BHP will approve Jansen,” Jason Fairclough, an analyst with Bank of America, wrote in a recent note.
After falling sharply early in the COVID-19 pandemic, the price of potash has ticked higher this year as global economies bounce back. In June, Nutrien boosted its production forecast and profit expectations for the year. Jansen would add about four million tonnes of potash to the global market of 75 million tonnes a year, with a projected startup date of 2027.
While BHP has been developing the Jansen project since 2008, it has never operated a potash mine. Jansen would see the creation of more than 1,000 jobs in the construction phase and the mine itself would employ hundreds of people when it begins operating.
Valued because of its high potassium content, potash is the third-most used fertilizer ingredient in the world after nitrogen and phosphorous.
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Niall McGee
Emma Graney