Investors are eagerly waiting to find out BHP Billiton's (ASX: BHP) intentions regarding its potash projects, with the mining giant set to release its full-year results to the market today.
Whilst BHP's Canadian Jansen project posed as a very promising investment for the company, its potential has come under the microscope in recent weeks following the breakdown of one of the key cartels controlling the potash market. This happened when the world's largest producer of the fertilizer ingredient, OAO Uralkali, broke away from the market and slashed prices by 25% in order to gain a greater share of the market.
Based on reports, BHP has already invested roughly $1.2 billion in the Jansen project whilst a further $600 million was planned to be spent this fiscal year. When potash was priced at around US$400 per tonne, BHP's project was tipped "to work", but at US$300 per tonne (the price proposed by Uralkali), further investment in the project would be difficult to justify for the group.
Chris Baker, Caledonia Investments portfolio manager, is amongst BHP's shareholders that are expressing their concerns over capital spending on the project, calling for the company to slow down their developments. He said, "I think it is risky and I think they should drip-feed capital into it, but they need to be very careful about making major commitments."
Whilst the company's shares are already priced in for a 26% fall in profits and a slightly increased dividend payout, the reaction of investors to tomorrow's report will be hinged upon a number of circumstances, including the company's new CEO,
Foolish takeaway
Since the induction of Andrew Mackenzie as BHP's new CEO earlier this year, the company's focus has been to drastically reduce costs and unnecessary spending in order to maximise returns. It seems that the market would prefer to see costs cut further, rather than run the risk of investing heavily in the project. This comes amidst concerns regarding other areas of BHP's business, which are already struggling with lower commodity prices and falling demand from China.
Are you interested in our #1 dividend-paying stock? Discover The Motley Fool's favourite income idea for 2013-2014 in our brand-new, FREE research report, including a full investment analysis! Simply click here for your FREE copy of "The Motley Fool's Top Dividend Stock for 2013-2014."
More reading
- BHP expected to increase dividends
- BHP and Rio Tinto employees go on strike in Chile
- A dire outlook for China's economy
Motley Fool contributor Ryan Newman does not own shares in any of the companies mentioned in this article.
