Jansen and Legacy Projects Remain in Play after Uralkali Rattles the Potash Market
In particular, questions were raised regarding the future of BHP Billiton’s Jansen potash project and K+S AG’s Legacy potash project, both in Saskatchewan, Canada.
K+S responded on August 6 with a discussion of potash market developments posted on its website. Regarding its Legacy project, K+S board Chairman Norbert Steiner said, “Our Legacy project is on course. We will not call into question this important undertaking in response to mere speculation.”
Commissioning of the Legacy project is scheduled for the summer of 2016, with ramp-up to 2 million mt/y of production capacity by the end of 2017 and then gradual expansion to 2.86 million mt/y by 2023.
Irrespective of the possible impact of the Uralkali announcements, further revenue and earnings growth remains the long-term goal of K+S, he said. “We are a company that operates in a solid manner,” Steiner said. “We have a strong balance sheet, an independent position on the market, and stable customer relationships. Phases of market disruption are something that we are familiar with and know how to deal with. K+S will continuously monitor the competitive environment, incorporate its findings into its business policies, and prepare for potential changes. In this regard, particular attention will be accorded improving cost efficiency in all parts of the company.”
BHP Billiton reported its plans for the Jansen project in a press release dated August 20 that accompanied its report of results for its fiscal year ended June 30. The company intends to invest $2.6 billion to finish the excavation and lining of the Jansen project production and service shafts and to continue the installation of essential surface infrastructure and utilities. “This investment will be spread over a number of years, with completion of both shafts expected during the 2016 calendar year, while the associated works program will extend into the 2017 calendar year,” the company said.
The Jansen deposit is capable of supporting 10 million mt/y of mined potash production for more than 50 years.
“With economies of scale and the use of modern mining techniques, Jansen is likely to be one of the lowest-cost sources of supply once fully developed. The successful excavation and lining of both shafts will substantially reduce development risk and allow the company to time first production to meet growth in market demand,” the company noted.
BHP Billiton CEO Andrew Mackenzie said, “Continued development of the Jansen shafts reflects our confidence in the quality of our 5.3-billion-mt measured resource and the compelling longterm fundamentals of the potash industry. Investment at Jansen is creating a valuable asset, and we will continue to pursue a development path that maximizes returns for shareholders. In time, this may include the introduction of one or more partners, consistent with our approach for other major operations.”
Canpotex, the marketing organization that markets the potash production of North American producers PotashCorp, Mosaic and Agrium, did not comment on Uralkali’s decision to go its own way in potash marketing.
However, PotashCorp CEO Bill Doyle offered his views on the subject in “Ask Bill,” an August 7 virtual meeting with PotashCorp stakeholders posted on the company’s website, where he answered questions submitted online.
Regarding the Uralkali announcement, Doyle said, “There has been a lot written. Unfortunately, I didn’t see much of it that was well-informed. There were some tremendous headlines—you know, the end of the world and a game changer and these things. But I didn’t see anything that really had very good analysis in terms of history both past and more recent in terms of the fundamentals of the potash business and even how the marketplace works.”
Doyle pointed out that PotashCorp was once a Crown corporation and that in the 1970s and 1980s it adopted a corporate strategy of volume over price—and almost went broke. In the late 1980s, the company switched to a price, profit, customer-focused strategy and went on to great success. A volume-driven strategy did not work for PotashCorp then, Doyle said, and he does not think it will work for Uralkali now.
He suggested that the new Uralkali strategy might end sooner rather than later. “Logic tends to prevail,” he said. “I don’t find too many people that selfdestruct intentionally. You know, it just doesn’t make sense.”
Regarding Uralkali’s suggestion that potash prices could drop from $400/mt to $300/mt, Doyle said, “The marketplace will determine what the price is. Supply/demand works every day, and we just don’t see that happening.”
Doyle did suggest that some greenfield potash development projects might come off the boards, because, economically, the numbers don’t work. “Boards of directors don’t approve projects that have a negative return from day one,” he said.
The full Doyle question-and-answer session is available online, both in video and in transcript, at: http://www.potashcorp.com/news/1721/