Ladies and gentlemen, welcome to the question and answer session. I advise you that this conference is being recorded today. At this time, all participants are in a listen only mode. If you wish to ask a question, you need to press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press pound or hash key.
Please note that due to time constraints, each caller will be allowed one question. Your first question comes from the line of Jason Fairclough from Bank of America. Please ask your question.
Good evening, guys, and thanks so much for doing this twice. We really appreciate it here in London and probably elsewhere too. Look. Just a question on marketing potash. If you decide to build Jansen solo, will you participate in Campo Tex to market your product?
And I I with that, how might this answer change if you were to choose an alter alternative development approach?
Ragh, why don't I ask you to answer that question?
No worries at all. So look, we're Jason, we're deeply respectful of Tampa Texas capabilities and established logistics and joint marketer. The organization is still the best time and continues to deliver some great value for Nutrien and Mosaic. But I think it's important that we actually reflect that this isn't the norm. Most producers typically sell directly to customers via conventional regional representation offices.
And in regions where they do not have representation, they do it by agents. So based on our experience in terms of bulks and recognizing the norm across the industry, we believe that the best way to maximize long term value of the Janssen asset is to control our own production and logistics, supply chain and sales. And so BHP therefore intends to replicate basically the marketing model we use in a whole bunch of other commodities and make use of our existing global network and sales office.
Next question comes from Myles Alstic from UBS. Please ask your question.
Great. Thank you. Maybe just following up from that, why do you need a partner? Obviously, from a financing perspective, you know, six months of cash flow, but at the moment, it's not a big deal. You say you got the expertise in mining, and you're not worried about Campertek.
So would you only sell for value a stake for value, or why why would you be thinking about bringing in a partner?
Right. One for you.
Yeah. Sure. And listen.
I think we we need to be
deeply respectful of the fact that to date, we haven't sold a ton of potash. So there's a reality that, look, we fully respect that there's expertise out there, that others may be able to bring, experience, local knowledge that it would actually come into the mix. Something I do want to emphasize here is that we're not adverse to bringing into a partner to Janssen. Point of fact, if you like to take a look across BHP, our modus operandi tends to be typically to have partners involved. If you take a look at our met coal deposit, iron ore, majority of our petroleum business, we do have partners involved.
That said, we don't need a partner to actually make this work. For ourselves at the moment, we're focused on getting Janssen to a position where we can take it to the Board. And for that, we need to lock in a port solution. But look, happy to consider a partner at this point. We don't need one to proceed though.
Next question comes from Liam Fitzpatrick from Deutsche Bank. Please go ahead.
Thank you. First question is somewhat of a technical one just on excess capacity. And just for full disclosure, I'm far from an expert on the market. But if you look at, some of the capacity numbers out there, there are different ways of quoting it and measuring it. There's effective utilization, and then there's nameplate utilization, which is a lot higher than than what you're showing in the presentation cap.
Can you just discuss the differences there and and why you don't use or refer to to the much higher nameplate utilization number?
Paul, do you wanna take that one?
Yeah. Absolutely.
So, yeah, the the reason we sort of have that slide, that we we've got back up again here to to take you through how we consider capacities exactly because of the shortcomings, I think, from some of the series, that that you might have seen. Either you have nameplate, which I don't think in a lot
of cases is reflective of how
much a site is able to actually produce, or you might have effective, which which might might be a guide of what they can produce this year, but not necessarily what they can produce in the medium term if they're being fully utilized. So we we've developed our own in house model on this to understand capacities where we look asset by asset over the last twenty years trying to estimate what the let their limitations on on output are. So we put those limitations in place. And then when you have years like 2020 where you know that demand was so strong, available capacity was being run very hard, that helps you to validate whether whether your assumptions on on the limitations are are accurate and it's it's done exactly that for us. So that's why we refer to this rather than some of the external series because we think it it gives us a very good indication of what sites are available now.
Sorry. What sites are able to produce now. And also, we can get a good handle on what they're going to be able to produce if any offline or understaffed capacity is brought back in the future.
Our next question comes from Dominic O'Kane from JPMorgan. Please ask your question.
Good morning. My question relates to the port options. So could you maybe just give us some insight into what the the sort of the different, options are for ports and the sort of the pros and the cons? And then in addition, what what you're expecting in terms of domestic transportation costs?
Do you wanna take the first part?
Sorry. I missed that, Tristan. Were you handing that one to me?
Yes. Yep.
No worries at all. And sorry, remind me of the first part of that question I missed, I I'm afraid.
So the so you're you're you're you're looking at two different port options.
Sorry.
Great.
If you could just maybe give some insight into the chosen columns. Not
a problem at all. So look, both port options that we're taking a look at are located in Vancouver, Canada. We have one facility that we're considering that is a commercial operation, that's of an already existing facility. And then another one that's a greenfield operation. Both have relative pros and cons that are quite attractive.
And Giles and the team as our leader up in Canada running the project are exploring the and hopefully finalizing that up in the near term in terms of those options around that. In terms of, look, the logistics costs on that, look, prefer not to talk about that in this call today. I think we've given a broad indication though in terms of the FOB costs that we're broadly expecting with the project. If and when the project does sanction at a later date, we'll be more than willing to actually talk give you a bit more detail at that point.
Next question comes from Sylvain Brunet from Exane BNP Paribas. Please go ahead.
Good afternoon, gentlemen. Thank you for the second presentation. My question is on the risk of displacement of MOP demands by cheaper new specialty fertilizer supply like SOP or or polyolith. We're not specialists in this, but clearly, would help if you could give us a sense of how how real do you think the risk is, or if we're talking slightly different markets, which would find their their own customers, and how much of that is embedded in your one to 3% demand CAGR you're you're presenting into the next decade? Thanks.
Paul, one for you.
Yep. Sure. So as I said, you've you've got different kinds of potash here. When I say prime potash, that's that's sort of stuff that's directly extracted from from natural resources. And then you can also have derivative products that are converted from from primary potash.
So MOP is the most abundant and most economic source of primary potash to extract. And that's why it dominates the market because most people, they buy potash fertilizer because they want the potassium content. That that's its job, and that's what MOP is doing. Most of the these other products like potassium sulfate or polyhalide or potassium nitrate, things like this, they've all got additional characteristics which in certain, niche applications make them more desirable. And they usually trade at a premium per unit of potassium as a result.
But they they do stay as a a niche part of the market because people need to be willing to to pay that that premium for those products. In terms of how we forecast, we forecast sort of the requirement, from agriculture for potassium, and then we look at potential non MOP sources, for that. None of those other products are new, by the way. They will be known known of for a long time. Polyhalide is the one that's most recently come to commercial production, but it's it's long been known as potash mineral.
So at the moment, those are remaining niche and we would expect them to do so. We do as we do with everything, we range things in our forecast, and we range the amount of some other primary sources of potash to come on. But, basically, our expectation is that MOP continues to be by far the largest source of potash fertilizer.
Our next question comes from Carsten Breach from Credit Suisse. Please go ahead.
Thank you very much and good afternoon. I think we can all discuss for hours where demand will actually go, whether the population growth will be positive or slightly negative, looking at the how the risks are forming up in Asia. But one thing is actually more tangible, which is the new capacity coming, especially from Russia CIS. And I was just listening to your assumptions here saying the lowest cost operations are at about $100 per tonne. I think most of the capacity we see from Russia CIS is pretty much in that bracket or even slightly below.
Could that not lead to the flattening of the CASK cost curve quite a bit and also push out rather high cost producers ending up with, I believe, a reasonably lower potash price for a rather extended period of time. And if that happens, is there a point of no return when you actually go with with Janssen, when you simply say, if the decision is done, there's no kind of way that actually can turn from that project, and we have to list the potash prices?
Why don't I ask, Paul to start and then maybe Rag wants to or or Hugh may wants to chip in afterwards. But, Paul, do you wanna start with that answer?
Yeah. Sure. In in terms of projects coming on, I think pretty much all projects that are out there, they have OpEx that is below today's short run marginal cost in the cost curve. So in in other words, on an OpEx basis, they would come come in somewhere in the middle of the cost curve. Some of them might might even be q one on the cost curve.
So that that's true. So they're certainly not gonna be pushing up the short run marginal cost. But you you'd have to take a what I would say would be an extremely bearish view on on future demand if you think that the the capacity that's currently under construction is actually going to push out kind of the the fourth quartile volume that's that's currently setting the marginal cost in the industry at the moment. So or or you think that there's a lot more capacity to come beyond what what is currently being built, which in the case of the CIS, I I certainly don't think is the the case. The deposit in the Urals, where where your card is is, almost entirely staked out.
There's only really sort of three future greenfield permits there all in the hands of Yorkell, and two of those are are earmarked for replacement of of depleting resources. Belarus as well, I think there's gonna be construction in the future just to to replace depleting resources. So given our demand expectations, I don't see a point where you'd have so much very low cost capacity coming in that it depresses the short run marginal cost from where it is today.
If no no comments from Hugh and and Rag, but we might just go to the next question.
Next question comes from Oliver Grubakov from Berenberg. Please ask your question.
Thank you. On the Jansen, do you have any concerns over the past inflation, mining methods, or your understanding of the resource?
Pardon. Rag, do you want to make some comments to the start, and maybe maybe Charles wants to add some comments?
Look. Let let me start there. It'd be fair to say that as we're coming out of COVID, in particular, there's no doubt about we're starting to see some inflationary pressures across most commodities, whether it's diesel or some of the other consumables that sit out there. What I think the potash team have done a fantastic job on though over the last couple of years though, has been really about focusing on optimizing the project to find even more efficiencies in terms of how we take this project and actually hold costs or even in some cases get them to slightly decline. Now important to understand that when this is a BHP project and the work we're doing here, we actually have a very robust system that we built off of a lot of history in terms of projects across iron ore.
And point of fact, we've just completed our South Flank project on time, on budget. Our Spence Growth Option project in Chile on time, on budget. And so using that same project methodology, we're actually quite confident in terms of the cost estimates we put in place, the escalation and the elements that sit behind that. But Giles, I might hand over to you if there's anything further you'd like to add to that.
Giles Hilliard from Canada. I think it it's fair to say that the positioning of of Jansen and Saskatchewan and being close to Alberta would see us having less inflationary pressures on on labor in the short term. So we're getting all indications that we won't see anything more than CPI going forward. I think, as Rex said, there's been a lot of attention to detail around certainly looking at the estimates. And I know we've had questions around steel, for example, and pricing recently have been going up.
But our exposure is quite low. We have, for example, in that particular commodity, we're into roughly all of the supplied and fabricated steel is around about, say, right, let's say, $350,000,000 US dollars. And our exposure on that, say, total steel is probably around about 30% of that. So so the exposure levels on some of those key commodities is relatively low. And, of course, as as Greg said, we've got a lot to do.
This is the project already, and we put quite a bit of infrastructure into the ground with with the shafts. And I think a lot of optimization has definitely taken place. And would also just clarify, understanding resource, which is the second part of the question, such an extensive commitment around three-dimensional seismic across the entire property supported by the HP controlling knowledge of underground structures. We have a very, very good idea of the what we're dealing with resource wise, and we build a mine plan that is capable of going out to the entire life of mine from day one. So so very well positioned in terms of starting like nobody else would possibly have had in the in the last series of constructions, which were fifty years ago.
Thanks, Charles.
Next question comes from Jason Seikler from Bank of America. Please ask your question.
Thanks, guys. Just a follow-up. So really interesting your comments on the the long run marginal project being the Canadian solution mines. I'm just wondering how should we think about the timeline for capital allocation to these mines. For you, is it after Jansen's producing at 16,000,000 tons a year?
Paul, do you wanna do that one?
Well, the easy answer is we don't know because we don't know when Janssen's going to be producing at 15,000,000 tons a year. The, you know, the state one decision on Janssen is completely distinct from subsequent decisions to to expand, which will be made based on how how the the the market evolves. But in terms of timing, so what we showed there were, the projects that are currently under ramp up or under construction. I think beyond that, there's a certain amount of, brown field that we factor in, and some particularly low low cost greenfield projects that might come in, but there's not a huge amount of volume in those two buckets. And then it's after that that we see we see this big resource in Saskatchewan becoming the not not the only source of long term supply, but the one that's really got the big scale resource to to sort of keep adding to, or keep meeting incremental demand volumes, sort of decade after decade.
And, yeah, there is certainly potential for, for Jansen to expand alongside other projects in Canada coming in.
Paul, I wouldn't mind just building on that because I I I think it's it's a really important point here for for folks taking a look at the decision that BHP will be taking on is we're talking about just over 4,000,000 tonnes of potash coming in around 2027 and obviously ramping up throughout that period. So that's into this market of sort of 70,000,000, 80,000,000 tonnes. So that's the sort of scale we're talking about here. Yes, Janssen has got some fantastic optionality to it in terms of the size of the shafts that we've built actually enable Stages two, three and four behind it. But please understand as an organization, we will take decisions on Stages two, three and four, at that appropriate time when the demand basically calls out for it and we are prepared to sanction and it competes for capital like any other project in BHP.
Thanks, Krista.
Next question comes from Myles Allsop from UBS. Please ask your question.
Yeah. Maybe, again, just following up slightly on on Jason's question first, and then there's another question. But what would the incentive price be for stage two, three, and four for Janssen? I presume that would be, you know, back in the the February. And then secondly, just, you know, in terms of the potash content in soil, do you think you know, are we at levels now which are below what is the long term kind of sustainable level.
So you think there is a deficit as we look at soil quality around the world today, or do you still think that there is an excess versus that kind of sustainable level?
Miles, noticed the cheeky two questions in one there, but, why don't we, why don't we get
to you
to to to to start? Choose your one you want to start with, Hugh.
Okay. Thanks, Tristan, and thanks, Miles. I'll take the one about soil quality. On the chart where we talk about demand expectations for the 2020s, one of the metrics you'll see on that slide for each of the major regions is the FAO's latest assessment of the degree of nutrient imbalance in those major regions. And you will see that the positioning is not good.
The word poor appears essentially everywhere, and some of them have a comma and then the word deteriorating. So we're well below where we could comfortably be in those major regions. But this is the uncertainty. We know that it's a problem. We know we're sleepwalking towards something, but we just can't really time it.
And that's why we range a lot of different scenarios where sometimes things adjust steadily and smoothly. And sometimes the disruption is stock, and we have to look at all of those things within our ranges. And that's one of the ways we think about the skew of risks around our central case.
Right. So Miles, I think that you'll set the first part of your question, unless Ragh has anything to add, I think we'll probably pass on that one. So probably hand over to the next question.
And look, let's be a bit more over it on that one. The reality is that any decision in terms of those next couple of stages is at least five plus years out. And so what we're talking about today really is Janssen Stage one. So let's stay focused on that if we could.
Next question comes from Sylvain Brunet from Exane BNP Paribas. Please go ahead.
Thank you. So my question is a back testing question, if I may. The last time BHP took a public view on potash was August 2010 at the time of the bid on potash Corp. Curious to know what the surprise is, positive and negative, has been to your forecast back then over the past decade, please? Thanks.
So Sylvain, not the best line, but, I think it was, what was our supply demand, views in 02/2010. Hugh, over to you.
02/2010. Hugh,
over to Okay. So It's quite an echo there. I think it's been timed. Yes. So in terms of what we were saying ten years ago, I can speak with more force to what's happened over the last five years because I've been on the inside of the process.
Our forecasts have been quite stable over that period. We've been very, very clear about identifying that one particular bench that we've been discussing at length today, that solution mining bench, which is really the best candidate to be the consistent source of greenfield at scale once we get to structural market balance. And if you think about the short term, I think we've also been very consistent saying, well, this market's probably going to get worse before it gets better. Because if you think about where we were in the middle of the 2010s, this is where the supply catch up to the huge price signal around the time of the super cycle was starting to come through at a time when demand was having one of its off years. And we really did get slammed down very, very hard to short run marginal cost through that period.
So it was a tough period for the industry in the second half of the 2020s. Over that period of time, we didn't lose sight of the deep fundamental drivers in this market. And we didn't lose sight of identifying that long run bench. And those two points have been very, very consistent throughout my experience of BHP thinking about this market.
Thanks, Hugh. I think we've just got time for one more question. So take one more question and we'll move over to Rag.
Our final question comes from Carsten Rieck from Credit Suisse. Please go ahead.
Thank you very much. Just on the crop yield differences, especially India versus U. S, as you mentioned it, do you know how much of that is technology driven rather than a function of soil quality? I the availability of machinery such as combines to harvest the crops more effectively?
Paul?
I'm quantifying exactly how much each factor is contributing to to yields in different countries is is is extremely difficult because there's so many contributing factors, and they change in a never mind country to country or state to state, but but field to field and and from crop to crop. There's there's certainly, obviously, a huge scope for for increasing the the amount of technology used in agriculture, in India. As we've said, we think that that's actually a positive because one of the things we think in India, and it's partly driven by by the subsidy system that sort of skews retail prices, so higher retail prices for phosphate and potash, lower retail prices for nitrogen, you know, very high nitrogen to to potash use ratios in, in India. So I don't know that that technology doesn't just sort of, buy you free yield, but it could it's about what can it do for your yield. And one of the things it can do is help you identify, where you need potassium, where potassium is under applied, and work to more of a nutrient budget approach rather than just applying some and seeing whether you get your your yields or not.
But certainly over the last sort of decade, it's ten years ago in your overall subsidy system, potash retail prices kind of trebled overnight as did phosphate retail prices. And if you look at yield growth of different crops in India over the last decade, it hasn't fallen off a cliff, but it was already at a low base. And the rate at which it's been growing seems to have slowed down. So I definitely think that the setback in in consumption of phosphate and potash fertilizers has played a role in that.
Well, thank you. Thanks, Paul, and thanks everyone else for for joining us for the q and a. Before we finish, we thought that some closing remarks from Rag on Janssen would be warranted. So over to you, Rag.
Thanks, Tristan, and a big thank you for joining us today and for your questions. As Tristan said earlier, we've got a really big decision ahead of us on Janssen. That said, a number of investors had asked us for a deep dive into our views on potash ahead of any decision and that is really the primary purpose of today's briefing. But our decision at Janssen depends on more than the fundamentals for potash. We are still working through the final steps to get a decision, as I mentioned earlier, particularly finalizing the port.
Before we close though, I'd like to give you some of my personal reflections on the project. As you'd expect, the starting point for any portfolio decision is its fit with our strategy to create long term value and returns and that's built on three aspects. Firstly, growing our exposure to highly attractive commodities with world class assets and via operational excellence. Now if I was to touch briefly on each of those three components, First on commodity, I don't know that we could do more to impress on you just how evident from Hugh and Paul, the depth of our understanding of the potash market. And in case you missed it, we actually think that the potash market has some very, very attractive fundamentals.
Second, we see world class assets, large, long life, upstream, high margin and expandable as a key focus for us. And Janssen has this potential through a great resource. It also provides us with attractive diversification as a commodity. By products, it's a huge diversification by customers and also by operational location. And finally, in terms of operational excellence, I really believe that we have the capabilities to operate and expand Jansen in a way that would confer a number of significant competitive advantages.
We accept that potash mining is new to BHP, but we do have world class capabilities in bulk mining and have a long history of marketing high quality commodities in global markets. We would apply the latest technologies, be that in three d seismic, advanced material handling capability or automation. We would also bring the BHP culture of safety, simplicity and operational excellence. This includes and really importantly includes our approach to social value on key topics such as cultural heritage, water stewardship and emissions. Now if I was to reflect back on Janssen and sort of the last decade, we've been very open that we're not happy with the amount of capital that we've already sunk here.
And if we were to have our time again, we would have gone about doing things differently. But that said, we are where we are and our decision needs to be about how best to apply the next shareholder dollar. All investments in BHP need to compete for capital against the other options in our portfolio and against cash returns to shareholders. So in making our assessment, are always going to take into account a number of metrics, not just IRR. We will also consider NPV, payback, margin and various risk metrics.
Now in addition to that, you'll also be familiar that in BHP, we don't tend to make assessments on solely single point outcomes. We tend to work in ranges. Now lastly, we are finalizing the assessment concurrently with locking in our port option and we'll then sit with our Board to determine whether to now pull the trigger on the first phase of Janssen. We continue to expect that this will occur in the next few months. Thanks so much for joining us this evening or this morning depending where you are in the world and that represents the end of our briefing.
Ladies and gentlemen, thank you for your interest. You may all disconnect.