Pot of Ash at Rainbow's End

BHP Billiton's Jansen project gives it access to the world's exclusive potash club

Mark Taylor 15 June, 2010 | 10:07AM
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BHP Billiton has announced a mineral resource estimate for its Jansen project located in Canada's Saskatchewan potash basin. The in-situ mineral resource is 3.4 billion metric tons at a grade of 25.4% potassium oxide. To put this into context, the world's largest producer, Canada's PotashCorp, reports combined measured, indicated and inferred resources for its seven Saskatchewan mines at 18.4 billion tonnes at 23.3%. This includes proven and probable reserves of 1.6 billion metric tons at 23.6%. PotashCorp says the average extraction ratio of recoverable ore to in-place material for the mines is around 30%.

On this basis, you'd think BHP has a long-life mine. The company suggests more than as much, saying Jansen is nearing the end of its pre-feasibility study, and is anticipated to progress to feasibility during the first half of fiscal year 2011. Based on the current schedule, it could produce saleable potash from 2015, and Jansen is only one of multiple development options for BHP. Nearby it has the less advanced Boulder and Young projects in the concept study phase.

Like an iron ore project, this is the sort of resource play where returns on capital are made via incremental development, not necessarily with initial construction of the first mine and infrastructure. PotashCorp is the world's largest producer at 22% of global supply. It suggests a development cost for a conventional 2 million metric ton greenfield Saskatchewan potash mine at approximately CAD 3 billion to mine gate. Rail and port infrastructure potentially add another CAD 1.2-1.7 billion.

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Mark Taylor  is an equity analyst at Morningstar.

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