What is concerning the BHP investors despite the high iron ore prices?

BHP Billiton Limited (ASX: BHP) is moving in a continuous uptrend from its January 2016 low of A$14.060. The share prices marked a surge from A$14.060 to the level of A$38.200, which marked a monthly high in February 2019. The array of supporting factors such as its product portfolio and higher commodity prices led the company to surge on multiple exchanges. The company, with a strong balance sheet and an estimated strong cash reserve due to high iron ore prices, looks promising to its stakeholders.

The company now stands strong with diversified products such as iron ore, copper, coal, and oil. However, the company’s outlook on the diversification and bet on different products looms the investors.

One such bet by the company is its Jansen Potash Project. The project is stuck in a holding pattern since mid-2017 when the company announced publicly to invest U$5 million into the project. The announcement concerned the investors as any large-scale investment in a project which is based on forecasts will require a significant tranche of money from the other established products of the company.

Another dark cloud on the investor’s head is the delay in the project, in which a significant amount is already allocated. However, as per the CEO Andrew Mackenzie, the company cannot hurry towards the project as it is a long-term opportunity for the company, and it should be timed just right to take the full potential advantage of the project. Mr. Mackenzie also said that in the meantime the company is de-risking and improving the project economics.

The company sees it as a long-term project, but the problem with the project which concerns the investors is the time period. The commodity which the company is expecting to boom over the long term will depend upon the development in the global economy and the prosperity of the population. As the pollution reaches the upper deck of an economy, their diet habit will include high protein, which can be delivered by potash as it increases the farming yield. Thus, the prosperity will play a significant role in the development, and the outcome of the project and the company is believed to take high leverage on time period.

The company previously postponed the production from the project from 2015 to 2020, which is likely to get postponed further and it looms the investors with questions like- When will the production start? And what will be the results from it?

The concern of further delay is mainly due to the late visible outcomes. It was just in August 2018, when the company managed to take the service shaft to its final depth of 1,005 meters. The company was expected to further proceed for the excavation of the Dalla Valle shaft to its final depth of 975m, and there has been no visible outcome about the advancement of the project.

The delay in the project and the rising prices are concerning the investors of the company as in the scenario if prices of potash booms other competitors might enter the market and keep the BHP project on a bay.


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