BHP's rough week: is the Jansen sell-off going too far?

ASX: BHP has shed 8% of its market value in a matter of days. Cost blowouts at its Jansen potash project in Saskatchewan are the stated reason, but the real picture is more complicated.

The headlines look bad. BHP's 5.6% drop on Friday was its worst single day this year. Stage 2 costs at Jansen have been revised upward by 41% (plus a US$2.3bn impairment charge), catching investors off-guard, even those who had already braced for an increase. And the stock had been sitting at record highs just days earlier, up 32% for the year, making profit-taking all but inevitable.

But is the market overreacting? There's a reasonable case that it is.

What actually happened at Jansen

Jansen is one of BHP's most debated growth projects, and that debate has been running for nearly two decades. BHP first entered the Saskatchewan potash basin through the acquisitions of Anglo Potash in 2008 and Athabasca Potash in 2010, and famously made an unsuccessful tilt at Potash Corp (now Nutrien) the same year. All up, BHP has spent roughly US$20bn on the project to date.

Stage 1, a 4.2 million tonne per annum operation, is tracking to first production in mid-2027, on the original schedule, though the budget has crept from US$5.7bn to US$8.4bn. The bigger shock was Stage 2: capex now looks closer to US$6.9bn.

The post-tax IRR on Stages 1 and 2 combined sits at around 11%. But it's worth noting the long-run potash price underpinning those returns — around US$385 per tonne FOB — is roughly 18.5% below current spot. There's some buffer baked in.

Bull and bear

Negative views on Jansen are becoming louder. The logic goes like this: the fertiliser sector globally — including Nutrien and Mosaic — trades on an average forward EV/EBITDA multiple of around 6.5–7x. Copper miners are being rewarded with multiples above 8x, buoyed by the AI infrastructure and electrification trades. If BHP sold Jansen and redeployed the capital into copper, the argument goes, it would be trading up.

It's not an unreasonable view. Jansen represents only around 6% of BHP's net asset value today, and even by FY35 — when it reaches full scale — potash will still be less than 10% of group EBITDA. 

The bull case is more nuanced. Jansen is shaping up as one of the lowest-cost potash producers globally. Operating costs are modelled at around US$130 per tonne against a long-run price assumption of US$385 per tonne. That implies EBITDA margins of roughly 60% over the 60 year life of the mine.  

Long term demand looks one-way. Potash is an essential agricultural input with no direct substitutes and price-inelastic demand growing in the low single digits annually. That's exactly the kind of stable growth story that investors love BHP for.

Index funds did some of the damage

One underappreciated factor in Friday's sell-off: index rebalancing. Friday was a rebalance day for S&P Global, Solactive, and several others, requiring index funds to mechanically match their benchmarks. Equal-weighted and fundamentally-weighted indices sell winners and buy losers — and BHP had been a significant winner. The stock's sharp move into the closing auction carries the footprint of index-linked selling; market-on-close orders are the standard tool.

Trading on the ASX isn't fully anonymous — broker codes are visible — and Friday's selling looked broad-based: private wealth managers, self-directed retail, and flows consistent with benchmark-tracking mandates were all net sellers. But the selling continued into Monday's close, without any index-linked catalyst, suggesting the street wasn't only reacting to forced flows. It genuinely was unimpressed.

There's also a yield dynamic at play. Australian investors are famously income-focused — close to 40% of ASX-listed ETFs are built around yield or income strategies. When BHP's share price runs hard, its yield compresses, and the income bid thins. That's a mechanical headwind every time the stock outperforms.

Why BHP likely holds up

Despite the noise, the long-term case for BHP remains intact.

Copper now supplies more than half of BHP's group earnings. And the copper pipeline is genuinely compelling: Escondida and Spence in Chile, Olympic Dam and the former OZ Minerals assets in South Australia, and — most intriguingly — Resolution in Arizona.

After decades of legal battles, the Resolution land exchange was completed in March, clearing the way for BHP (45%) and operator Rio Tinto (55%) to advance what may be the world's most ambitious block-caving operation. Early drilling results are suggesting grades of 3–5% eastwards, which would be exceptional if confirmed, and modelling suggests Resolution adds around $3 per share to BHP's net asset value.

The Jansen cost revisions are real, and the debate about whether BHP should keep investing, defer Stage 2, or explore a JV or divestiture with neighbouring operators Nutrien and Mosaic is legitimate. But an 8% market cap wipe-off for a project that represents 6% of NAV, in a company whose copper division is firing, looks like an overshoot.

The sell-off may be creating an entry point.

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