BHP flags cost overrun at Jansen potash project, to book $2.3 billion charge

By Sneha Kumar

June 18 (Reuters) - BHP Group on Thursday warned of cost overruns at its Jansen Stage 2 potash project in Canada and said it will book a $2.3 billion charge as higher costs and additional labour hours drive up spending and delay first production.

This is the third time BHP has blown past its cost and time estimates for the two stages of the project, dealing a major setback to the miner's decade-long plans to diversify from copper and iron ore.

BHP accelerated the development of Jansen in 2022 on bets that the Russia-Ukraine conflict would disrupt fertiliser supply and boost prices. But inflation, design changes and lower productivity drove up costs and delayed first output.

"It is noted that cost and schedule pressures are driven by inflationary and real cost escalation, design development and scope changes, lower productivity outcomes and additional labour hours and material quantities to complete," BHP said in its statement.

Its total investment estimate for the project's second stage is now expected to be $6.9 billion, up from $4.9 billion approved in 2023. First production is now expected in late financial year 2031.

Jefferies analysts said the cost increase exceeded expectations and called the update "unhelpful" due to a poor foreseeable outlook for potash.

"We reiterate our hold rating on BHP as we see better value elsewhere in mining for now."

The first stage of the project is expected to cost $8.4 billion, nearly 50% higher than what was approved in 2021, and remains on track to begin production in mid-2027.

As a result of the cost overruns, BHP said it will recognise an impairment charge of about $2.3 billion for the potash project. It maintained its annual capital expenditure forecast at $11 billion for 2027 financial year.

The firm said that Stage 2 is 16% complete as of May-end and is expected to deliver around 4.36 million metric tons per year.

The combined output of the project after a two-year ramp-up would be about 10% of total global potash production, BHP said.

(Reporting by Sneha Kumar in Bengaluru; Editing by Rashmi Aich, Varun H K and Diti Pujara)