The BHP Group Ltd (ASX:BHP) share price could still have a good long-term future thanks to different resources.
BHP’s potash update
The resources giant recently held an investor day, showing a presentation about its potash Jansen project.
As the Australian potash website describes, potash refers to potassium-bearing minerals or compounds. Apparently, the word potash comes from the “ash” of a “pot”. The Australian potash website says that “potassium, nitrogen, and phosphorus are the three macro-nutrients vital for plant growth. Potassium helps the ‘blood flow’ of the plant, enabling sugars and waters to move around.”
Why does potash seem good?
BHP outlined a few thoughts about the resource. The company said that potash sits at the intersection of global demographic, social and environmental megatrends.
The environmental footprint of potash is “considerably more attractive” than other major chemical fertilisers.
BHP also said that potash has a reliable base demand with attractive upside. The traditional demand drivers of population and diet are reliable and slow moving.
Management believe there is attractive upside over basic drivers (such as just population growth) due to the rising potash intensity-of-use needed to support higher yields and offset depleting soil fertility. On top of the already compelling case, decarbonisation could amplify demand upside.
The resources giant also said that demand is catching up to excess supply and major supply basins are mature.
How does this benefit BHP and the share price?
BHP’s Jansen project in Canada was described as modern, long life, expandable which will support long-term value and returns.
It will increase the company’s diversification of commodity, customer base and operating footprint for BHP. Management noted that Canada is a leading, stable mining region.
The company also noted that potash is not strongly correlated with broader economic and commodity cycles and a global customer base, with the USA and Brazil being the largest global customers.
BHP also said that the Jansen project has optionality for further stages at a low capital intensity and higher returning expansion potential. The underlying EBITDA (EBITDA margin) margin could be around 70%.
Stages 2 to 4 would make Jansen one of the world’s largest potash operations. A long-term, reliable asset with seemingly high profit margins seems like a very strong addition to the BHP portfolio. Combine that with an exit from oil and hopefully (eventually) an exit from coal would make the portfolio of resources very attractive, including iron ore, copper, nickel and potash. I’d prefer BHP over Woodside Petroleum Limited (ASX: WPL) as one of the ASX dividend shares.
