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BHP seeking potash partner

BHP Billiton’s (ASX: BHP) CEO Andrew Mackenzie confirmed that the company is in discussions with a number of parties to become partners in the Jansen potash project, whereby Mackenzie stated that new partnerships would add value that BHP perhaps couldn’t add by itself.

Many believe that BHP is unlikely to approach a fertilizer player in order to protect information regarding production and pricing. Instead, it has been speculated that key rival Rio Tinto (ASX: RIO) or AngloAmerican could be viable options, or BHP could also approach a distributor or marketer of potash instead of seeking out an operational partner.

Across its core operations, BHP has already realised enormous benefits from entering partnerships, in which the partner (or partners) adds its own fire power and expertise. For instance, the copper joint venture with Rio Tinto at Escondida has delivered ‘enhanced returns’ whilst a different approach to business taken by numerous Japanese companies add value to various iron ore projects.

Speaking to Nine’s Financial Review Sunday program, Mackenzie stated, “I’m looking for a partner who will add value… We get enormous benefits from having minority partners in our operations.”

The confirmation comes after BHP surprised investors last week when it announced that it would invest a further $2.6 billion into the Jansen project, despite the recent plunge in potash prices sparked by the collapse of one of the key cartels controlling the market. Mackenzie decided to proceed with the investment holding firm on the belief that the fertilizer ingredient maintained outstanding long-term potential – as the global population increases, so will the need for quality fertilizer for agriculture.

The addition of potash to BHP’s list of existing business operations is a way of diversifying the risks facing the company, whereby major concerns already exist regarding the future profitability of other commodities such as iron ore.

Foolish takeaway

Whilst investors expressed their concerns over the project and the amount being spent on it, a number of analysts have thrown their support behind the company. The $2.6 billion will be spent over a number of years, which will give the company the opportunity to further reduce operating costs, whilst some of the oversupply in the potash market will work through the system before production begins.

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Motley Fool contributor Ryan Newman does not own shares in any of the companies mentioned in this article.

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