The BHP (ASX:BHP) share price slips on future potash potential

Potash provides some food for thought for BHP investors.

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The BHP Group Ltd (ASX: BHP) share price is slipping in early trade today after the mining and metals giant held an investor and analyst briefing.

The company’s shares have enjoyed a 34% rally over the past 12 months as demand for resources has boomed. That means before dividends, BHP has outperformed the S&P/ASX 200 Index (ASX: XJO) by 11% — which any investor would be chuffed with.

At the time of writing, the BHP share price is trading at $47.97, down 0.8%.

Today’s announcement has given the market some insights into BHP’s plans for the future.

Potash gives food for thought

BHP’s presentation goes into depth on the supply and demand dynamics of potash. For those unfamiliar with it, potash is a mixture of various mined and manufactured salts that contain potassium in water-soluble form. Potash is widely used as the potassium additive in fertilisers, making up approximately 92% of its applications.  

According to the presentation, there are several factors that BHP sees as strong demand catalysts for potash. A combination of population growth, a shift to plant-based diets, and a need for increased crop yields are all attractive for demand.

See, potassium is essential for healthy crop growth and increased yield. Additionally, BHP believes there are major yield gaps between regions that could narrow with better farm practice, including fertiliser application.

With that in mind, the mining giant sees a 4th wave of major demand underway. Once demand catches up with supply, the company expects an inducement pricing regime. That means, at minimum, the pricing would cover the costs of production. Currently, the consensus view is that demand will catch up in the late 2020s to early 2030s.

BHP’s Jansen potash project is located roughly 140km east of Saskatoon, Canada. According to the company, the project has an anticipated initial capacity of 4Mtpa, boding well for the BHP share price.

Big picture thinking

BHP also covered some megatrends that could present opportunities for potash. Firstly, climate change is presenting greater pressure on land use. As a result, increased potash usage to increase yields and aid in drought tolerance might ensue. Secondly, the adoption of precision agriculture presents an opportunity for automated potassium regulation.

It also helps that the potash market is estimated to grow to between 89Mt to 97Mt by 2035 from 70Mt today. Evidently, the miner is hoping to capture a big chunk of that growth for itself.

Fuelling the BHP share price

Despite the BHP share price putting on a stellar performance over the past 12 months, one broker thinks there’s more to come. Analysts at Goldman Sachs have a 12-month price target of $53.90 per share. In addition, Goldman is forecasting a dividend bonanza — potentially yielding in excess of 6.5% for FY21 and FY22.

Today’s investor briefing shows the mining giant is looking for the fuel to keep that growth engine pumping into the future.

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Motley Fool contributor Mitchell Lawler has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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