A rig operates on BHP Billiton's Jansen potash project in Saskatchewan.
The world's two largest mining companies continue to make bold moves in the potash business that threaten to shake up how the crucial fertilizer ingredient is sold to global customers.
BHP Billiton Ltd. said Thursday it will spend another $488-million toward developing its Jansen project in Saskatchewan that, if approved, could see the world's largest miner begin producing potash by 2015.
The Australian-based miner also said it's aggressively pursuing development of other potash projects in the province that have the potential to some day make it one of the world's largest producers of the coveted crop nutrient.
Also, Vale SA said late Wednesday that it's planning to consolidate its position in the potash industry by taking its fertilizer unit private.
The change would give the Brazilian-based miner more control over the business that now represents about 2 per cent of global potash production, as the country tries to reduce dependence on imported fertilizers. Vale is also planning to build a $3-billion potash project in Saskatchewan, and has other projects in the pipeline around the world.
Miners are looking to enter the potash business or expand existing operations as they anticipate increased demand from rapidly growing nations such as China, India and Brazil.
The moves come amid a recent surge in potash prices as farmers buy more fertilizer to boost crop production and capitalize on rising prices of agricultural commodities such as corn and wheat.
The spot price for potash has risen by about 25 per cent so far this year to more than $500 (U.S.) per ton.
Still, prices aren't predicted to surge to a record $1,000 as they did in 2007, in part because of new projects being proposed from companies such as BHP and Vale that would increase supply.
"Four years ago, when potash prices took off, we didn't have a lot of greenfield projects on the go," said BMO Nesbitt Burns analyst Joel Jackson.
BHP is moving forward with plans to develop Jansen, even after the Saskatchewan government successfully campaigned for Ottawa to block BHP's $38.6-billion bid for Potash Corp. of Saskatchewan Inc. last fall.
BHP's latest infusion of $488-million to support development of Jansen brings its total investment so far to $1.2-billion. And that's only preparing the site for construction.
BHP's board is expected to decide next year whether to approve construction, estimated to cost about $12-billion. If approved, the mine is scheduled to begin producing two million tons of potash annually, growing to its capacity of eight million tons by 2022.
BHP also said Thursday it could produce more than 16 million tons a year from Jansen and its later-stage Melville, Boulder and Young sites nearby. BHP said it plans to begin drilling at its Melville project in Saskatchewan next month.
Executives at Saskatoon-based Potash Corp., the world's largest potash producer, have been critical of competitors' plans to build new mines and enter the potash industry, saying the high cost of construction doesn't make it economical.
There is also the argument that new projects will increase global potash supply, which would weigh on prices. Other contend that new players could also threaten the industry dominance of the two main potash marketing companies, Canpotex Ltd. and Belarusian Potash Co., which together control about two-thirds of the global market. Canpotex markets potash produced in Saskatchewan by Potash Corp., Mosaic Co. and Agrium Inc., while BPC is an arm of Belaruskali and Russia's Uralkali.
BHP, whose push for more market-driven potash sales became an issue in its bid for Potash Corp., believes global potash demand will continue to increase as new mines come into production.
"We believe the world needs more tons of potash," Graham Kerr, BHP's outgoing president of diamonds and specialty products, said in an interview Thursday.