BHP's $14 billion Jansen potash becomes latest victim of commodities rout

After months of speculation, BHP Billiton’s (ASX:BHP) massive potash project in Canada has finally begun feeling the impact of a sustained rout in commodity prices, as the world’s biggest miner has confirmed it is reducing spending on the Saskatchewan-based asset this year.

Speaking to Bloomberg, the president of BHP’s Canadian unit Giles Hellyer said the company has cut $130 million from the planned $330 million capital expenditure to develop and study the feasibility of the Jansen project in the current financial.

BHP will allocate less than $200 million this year, down from $330 million in 2015.

“We’re doing more with less,” Hellyer told Bloomberg. “The intent is to be a lot more effective and efficient in what we’re doing and complete the work over a slightly longer time horizon.”

The crop nutrient began its decline four years ago as weak crop prices and currency declines pinched demand. Prices also suffered from increased competition following the breakup in 2013 of a Russian-Belarusian marketing cartel that previously helped limit supply.

In recent months, potash collapse has picked up speed, with some prices falling by a quarter since last spring. That has put a lot of more pressure on producers, whose profits have been hit by falling prices, largely due to weak currencies in countries such as Brazil and low grain prices.

BHP is in the midst of a $2.6-billion investment to build production shafts at its Jansen project in Saskatchewan. Jansen would be a game-changer in the industry, as the company expects to generate eight million tonnes of potash a year, which would amount to nearly 15% of global supply.

By comparison, the Mosaic Company’s (NYSE:MOS) Esterhazy mine will produce about 6.3 million tonnes per year once its latest expansion is complete, while most Saskatchewan operations churn out between three and four million tonnes per year.

So far BHP has invested about $3.8 billion in Jansen, $2.6 billion of which was earmarked for surface construction and the sinking of shafts in August 2013. And while the company does not release capital cost estimates, analysts have predicted it will cost about $14 billion to bring the mine into production.

BHP has not committed to a completion date, nor received board approval.

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