What's the significance of BHP's Jansen Project and its latest US$4.9bn injection?

BHP (ASX: BHP) is set to sink another US$4.9 billion (A$7.7 billion) into stage two of its Jansen potash Project in Canada, as it seeks to increase its exposure to commodities leveraged to global megatrends such as population growth and decarbonisation.

This brings the total tab for Jansen to US$15.1 billion, comprising a stage one investment of $5.7 billion in August 2021 and an initial investment of US$4.5 billion in 2008. 

The additional investment will transform Jansen into one of the world’s largest potash mines and double its production capacity to approximately 8.5 million tonnes per annum.

Jansen so far

BHP says Jansen Stage-1 is 32% complete and progressing as scheduled. First production is expected to be delivered in late 2026.

The Stage-2 investment seeks to:

• Add an additional 4.36 million tonnes of annual of production

• New capacity at a capital intensity approximately US$1,050 a tonne lower than Stage-1 due to the leveraging of existing and planned infrastructure

• Construction of Stage-2 is anticipated to take approximately six years and deliver first production in FY29, followed by a ramp up period of three years

What’s the significance of Jansen?

To provide some colour on how BHP’s various commodities and projects are valued, Macquarie has a $47.00 price target (as at 19 October 2023) based on the following contributions (per share): 

• Iron ore $31.13

• Copper $11.35

• Coal $2.02

• Nickel and Potash $2.50

• Cash: $6.59

• Debt: -$7.39

• Group and unallocated: -$0.06

Nickel and potash are contributing approximately 5% to BHP’s current valuation. Macquarie has grouped the two commodities together, making it difficult to get a read on their respective weightings.

From a more long-term perspective, the analysts view the Jansen Project as one of BHPs  core growth options with the potential to become the largest and lowest cost potash mines globally, with a mine life of approximately 100 years. An acceleration in Jansen Stage-2 is viewed as a key catalyst for the company’s growth outlook.

Jansen production outlook (Source: Macquarie)

Bringing large projects like Jansen online is easier said than done. Morgan Stanley analysts have flagged project execution as a key risk to BHP’s valuation, especially for Escondida, Olympic Dam and Jansen (which is basically all of its major projects).