BHP announced this week that its colossal Canadian crop nutrient endeavour would be even more expensive than expected, adding more than $1bn (R16.35bn) to its capital cost estimate for the second time in six months.
The news is a major setback in the race between two of the world’s largest mining houses to become the next big producer of potash, and the ballooning cost begs the question: why are the world’s biggest miners spending billions to mine fertiliser?
The Jansen potash project’s new $8.4bn price tag, up sharply from an estimated $5bn last year, now represents more than three-quarters of BHP’s $11bn annual budget for the 2026 and 2027 financial years.
“These cost increases have been driven by inflationary and real cost escalation pressures, design development and scope changes, and lower productivity outcomes,” BHP said in a statement.
“The majority of the cost increase since the estimated range announced in July 2025 is from construction hours and quantities of materials that were not included in previous execution cost estimates. These construction costs were identified following the comprehensive review of Jansen Stage 1 budget and schedule,” it said.
While the opportunities in potash are clear (demand for the fertiliser ingredient is expected to grow 70% over the next quarter century), the hiccup means BHP’s potash return profile is now thinner, said Aheesh Singh, chief investment officer at MP9 asset management.
“The internal rate of return of roughly 8%-9% is acceptable, but it is no longer exciting — especially when BHP has alternatives like copper that offer stronger growth prospects,” he said.
“The concern is that capital is being tied up for longer. In an environment where miners are judged on discipline and capital returns, that matters a lot.”
Slimmer returns put the world’s largest listed miner at a disadvantage to Anglo American, which is its main competitor in the race for potash.
As part of its radical portfolio restructuring in recent years, the rival base metal heavyweight has already sunk more than $7bn into its own large-scale crop nutrients project in the UK.
“If BHP can show that Stage 2 [of Jansen] is built with stronger cost control and better execution, this becomes a speed bump — but if costs continue to drift higher, the potash growth story’s credibility starts to weaken,” said Singh.
BHP Americas president Brandon Craig reassured shareholders on Tuesday that the group “remains positive about the progress at Jansen”.
“Potash [is] a future-facing commodity with strong long-term demand fundamentals driven by population growth, better diets, rising living standards, and the need for more productive and sustainable use of arable land,” he said.
Like copper and iron ore, the other two targets in Anglo’s reworked production profile, the beauty of crop nutrients lies in the predictable trajectory of population growth and industrialisation.
Over the past six decades, potash demand has consistently grown at a higher rate than the steadily rising global population, even during the collapse of the Soviet Union (with Russia a major producer) and the 2008 financial crisis.
BHP predicts that the world’s population will reach 9.7-billion by 2050, underscoring a 70% increase in global demand for potash as farming continues to be constrained by limited arable land.
Potash, a potassium-rich salt that has become essential in modern farming for supporting plant health, will be increasingly critical in this environment.
“Food demand does not erode; it grows slowly over long periods. That makes potash different from iron ore, coal and even oil, which are far more cyclical and politically sensitive,” Singh told Business Day.
BHP’s Jansen will produce about 4.15-million tonnes of potash a year, with underlying earnings before interest, tax, depreciation and amortisation margins estimated at about 63%-64%.
At consensus prices, that means Jansen will reach its breakeven point 11-15 years after first production, which is now set for mid-2027.
Shares in BHP fell by 2% after the group’s Tuesday trading update but recovered 2.13% by midday on Wednesday. They are up more than 5% this year amid a broader rally in copper prices.
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