Rio and BHP upstaging each other in global potash dash
Matt Chambers and Sarah-Jane Tasker | July 26, 2008
RIO Tinto and BHP Billiton are both eyeing big investments to tap growing global food and biofuel demand, with Rio yesterday revealing plans to spend $US3.5 billion ($3.6 billion) developing an Argentine potash deposit.
The announcement comes less than a month after BHP chief executive Marius Kloppers said his company could spend $US10 billion on its Canadian potash assets.
Rio is looking to tap growing Brazilian demand for fertilisers, which are the main market for the high-margin potash.
It hopes to be producing from its Potasio Rio Colorada deposit, which is at the foot of the Andes, in 2012.
A second operation, in Canada, could start two years later and if all goes to plan the company could be producing 10 per cent of the world's potash, Rio's energy and minerals boss Preston Chiaro said in Sydney yesterday.
"The market is poised for strong growth," Mr Chiaro said.
Potasio Rio Colorado is currently undergoing a feasibility study and its capacity has been increased to 4.3 million tonnes of potash a year when it moves into full production, which would not be until 2020.
Initial production would be about 1 million tonnes a year.
Mr Chiaro later told investors that Brazilian potash consumption was expected to grow at about 4.1 per cent a year to 2015 and that Brazil consumed about 14 per cent of the world's potash.
There were no other significant planned projects in South America and the country's significant production of biofuels was adding to growing demand, Mr Chiaro said. Operating costs at the project would be between $US50 and $US60 a tonne, Mr Chiaro said, illustrating the huge margins that were possible.
Spot prices into Brazil have recently hit $US1000 a tonne.
"Looking at the market, there's not a lot of capacity coming on," Mr Chiaro said, adding that he thought prices would stay strong.
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