BHP and Anglo

So what will BHP and Anglo do?
Spend at least US$5 billion each to develop new projects.


Or will they abandon their expensive plans?
And why wouldn't BHP just take out Mosaic?

Crazy that they aren't looking at DNK which they could grab for $200 mn.
But I'm sure someone is doing the numbers (maybe in discussions with Eritrea behind the scenes)


The best outcome for shareholders would be BHP bidding for Mosaic, which would see DNK share price rocket, just like it did 9 years ago.


BHP and Anglo Facing Potash Dilemma

In theory, the push into potash and the maintenance of generous dividends can be delivered together, but the global economic slowdown triggered by widespread lockdowns in the fight against COVID-19 has made doing both at the same time much more difficult.

It wasn't like that as recently as three months ago as BHP continued to invest in early-stage work at its US$5 billion Jansen project in Canada and Anglo American moved to acquire financially-stressed Sirius Minerals, developer of the equally-expensive Woodsmith project in Britain.

Times change, as is blindingly obvious to every investor, and there are some starting to ask whether its time to park the potash plans until a clearer picture emerges of the broader economy and the potash supply/demand equation.


BHP's slow-march into potash, a fertiliser which improves crop yields, has seen it start with a $1 billion outlay digging the holes required to reach deeply-buried beds of the material.

At least another $4 billion is required to finish the job and get finished product to farmers.

The commitment to Jansen by BHP only started after a failed 2010 attempt to buy the Potash Corporation of Saskatchewan, one of the world's major producers of the material which has, since BHP's bid was ruled out by Canadian government, changed its name to Nutrien.


Anglo American's move into potash has been equally opportunistic, launched after Sirius failed to raise the capital required to do more than start digging the holes and associated tunnels in Yorkshire to turn Woodsmith into a world-class source of potash.

Like BHP's Canadian mine, Anglo American needs to spent up to another $4 billion to finish the job, a heavy lift as pressures build on other parts of both companies.


BHP, for example, has been hit hard by the collapse in the oil price and, to a lesser extent a lower copper price. Iron ore and metallurgical coal are performing strongly, but are starting to feel price pressure from declining steel demand, especially in countries other than China.

Anglo American has been buffeted by low prices for platinum and diamonds, but is benefiting from the higher-than-expected iron ore price.

Potash, for both big miners, appears to be a natural addition to their skill sets, large-scale mining of a bulk mineral while crop fertiliser could be a way of adding exposure to agriculture as an important diversification step.

But what looked interesting, and perhaps even attractive just a few months ago, is looking less appealing by the day as the global economy slows and potash prices weaken courtesy of weak demand and abundant supply from existing producers in Canada and Europe.

A notoriously cyclical material because it is dependent on demand from farmers, and they're dependent on the weather, potash prices have been weak for the past few years, leading to a number of project closures in North America.

Like most other raw material producers, the share prices of potash producers have plunged since the start of 2020. Canadian-listed Nutrien is down 25% to C$48.58, a price which values the company at $27.6 billion, close to half what BHP offered in its 2010 bid.

US-listed Mosaic, another big potash producer, has seen its share price fall by 45% since the start of the year to US$11.33, a price which values the company at $4.2 billion, roughly the same amount BHP needs to spend to finish building Jansen.

It's the close value-connection between Mosaic and Jansen's capital requirement which has prompted speculation that BHP might be better off returning to its original potash plan and buy an established producer with all of its distribution and marketing connections rather than try and enter a business it wants to learn but about which it currently knows little.

Another possible development is that both BHP and Anglo American acknowledge the warning signals coming off the market, and from some institutional investors, that now is not a time to be adventurous with shareholders' funds.