BHP Faces $1.7 Billion Potash Project Cost Increase While Weighing Nickel Business Sale

BHP's Billion-Dollar Gamble: Mining Giant Faces Potash Cost Blowout While Eyeing Nickel Exit

Record Iron Ore and Copper Output Overshadowed by Strategic Pivots

MELBOURNE, Australia — Deep beneath the prairie soil of Saskatchewan, Canada, the foundations of BHP Group's future are being laid at a steeper price than anticipated. The world's largest mining company by market capitalization revealed Friday that costs for its flagship Jansen potash project have ballooned by nearly 30%, casting a shadow over what was meant to be its crown jewel in an increasingly diversified portfolio.

The Australian mining behemoth now expects to spend between $7 billion and $7.4 billion on the first phase of Jansen—a $1.3 to $1.7 billion increase from previous estimates of $5.7 billion. The company also indicated production may slip back to its original mid-2027 timeline, abandoning more optimistic targets to begin operations by late 2026.

"This represents a significant reset of expectations for BHP's only major development project currently under construction," explained a mining sector analyst who requested anonymity. "The question investors are asking is whether this is a one-time adjustment or the beginning of a pattern we've seen too often in large-scale mining projects."

The Prairie Paradox: Betting Billions on Future Food Security

Against the backdrop of Saskatchewan's vast horizons, BHP's decision to pour billions into potash—a critical fertilizer component—was always a strategic pivot toward agricultural commodities and away from fossil fuels. The Jansen project represents the largest investment in Saskatchewan's history and would eventually produce 4.35 million tonnes of muriate of potash annually, positioning BHP as a major player in global food security.

Walking through the partially completed site last month, workers described a project of unprecedented scale. "You don't grasp the magnitude until you're standing at the bottom of the shaft, looking up nearly a kilometer to daylight," remarked one engineering contractor familiar with the operation.

The economics, however, have shifted. With construction costs climbing and timeline extensions, internal rate of return calculations have reportedly fallen from approximately 12% to 9.5%, according to investment analysts tracking the project. At current market prices of around $370 per tonne for potash, the project remains viable but with substantially reduced margins.

"The cushion is essentially gone," noted a commodities strategist at a major investment bank. "BHP now needs sustained potash prices above $280 per tonne just to break even on this massive investment."

Cutting Losses: The Nickel Dilemma

While doubling down on potash despite rising costs, BHP is simultaneously contemplating an exit from its troubled nickel operations in Western Australia. The company has suspended its Nickel West operations since October 2024 amid persistently low prices, which hover around $14,800 per tonne—well below the $19,000 level industry observers consider necessary for sustainable production.

"Any divestment decision would be subject to an assessment of other options including continued temporary suspension, restart or closure," BHP stated in its quarterly report, signaling a strategic retreat from a metal once considered essential to its battery materials portfolio.

The nickel operations, which include mines, concentrators, a smelter, and a refinery, have been bleeding approximately $300 million annually in operational expenses before their suspension, according to industry estimates. An impairment charge of roughly $300 million has already been recorded.

"BHP faces a classic 'cut and run' scenario with nickel," said a Perth-based resources consultant. "They're likely looking at accepting a low sale price—possibly below $1 billion—if it removes the ongoing financial drag and environmental liabilities from their balance sheet."

Record Production Powers Forward Despite Strategic Shifts

In stark contrast to these challenges, BHP delivered record-breaking performance in its core copper and iron ore divisions. The company's Western Australian iron ore operations set new production benchmarks, with the South Flank mine exceeding nameplate capacity in its first full year. Meanwhile, copper output increased approximately 10% year-over-year, driven by strong performance at Escondida, Spence, and Copper SA assets.

This operational excellence has maintained BHP's cash-generating engine, with iron ore operations estimated to achieve EBITDA margins of approximately 64% at current prices of $108 per tonne. These robust margins provide essential financial flexibility as the company navigates its strategic transitions.

"What's remarkable is BHP's ability to simultaneously set production records while undertaking these massive strategic pivots," observed a Melbourne-based fund manager specializing in resources. "The cash flow from iron ore and copper essentially underwrites their ability to absorb the Jansen cost overruns."

Investment Implications: Navigating BHP's Evolving Portfolio

For investors watching BHP's strategic maneuvers, the company presents a nuanced opportunity. Despite the Jansen cost inflation, analysts suggest the company trades at approximately 4.9 times estimated FY-26 EV/EBITDA based on current commodity prices—a discount to rival Rio Tinto despite offering a more diversified growth portfolio.

The company's dividend capacity appears robust, with calculations suggesting distributable cash flow exceeding $8 billion annually, supporting a forward dividend yield approaching 9%. This yield would remain defensible unless iron ore prices collapsed below $70 per tonne for an extended period.

Key upcoming catalysts include the August financial results announcement, expected to clarify dividend and share buyback plans; resolution of the nickel business strategic review; and ongoing Jansen construction progress reports. Any renewed approach to Anglo American could also dramatically alter the investment landscape.

"BHP essentially offers a bet on three distinct trends: traditional mining excellence through iron ore, the energy transition through copper, and global food security through potash," explained a resources analyst. "The question is whether management can execute effectively across all three domains simultaneously."

Looking Forward: Strategic Execution as the True Test

As BHP navigates these transformative decisions, market observers suggest focusing on two key metrics: keeping Jansen on budget from this point forward and finding a resolution to the nickel business that minimizes ongoing liabilities.

The World Bank projects potash prices rising approximately 5% in 2025 before stabilizing, potentially improving Jansen economics if BHP can prevent further cost escalation. Meanwhile, copper prices—currently near $9,600 per tonne—could reach $10,700 within twelve months according to some investment bank forecasts, providing continued tailwinds for BHP's core operations.

For investors considering BHP, analysts recommend evaluating the company's execution against these benchmarks while weighing the long-term strategic benefits of its diversification against near-term project challenges.

Investment Disclaimer: Market analyses and forward-looking statements reflect current assessments and may not predict future performance. Commodity prices fluctuate based on numerous factors beyond any company's control. Past performance does not guarantee future results. Consult a qualified financial advisor before making investment decisions based on this information.