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Deutsche Bank analyst expects US$1.2B impairment for BHP's Jansen potash project

BHP Group may record a US$1.2 billion impairment on its Jansen potash project in Saskatchewan as accounting firm EY starts auditing the mining giant in July, The Australian Financial Review reported June 2, citing Deutsche Bank analyst James Gurry.

The analyst said it is time to review the carrying value of the Jansen project following CEO Andrew Mackenzie's admission that BHP overinvested in the US$5.7 billion project.

However, Mackenzie said the asset remains an attractive option given its "strategic fit, risk-return metrics and the longer-term optionality."

In May, the mining giant was flagged for using improbable potash price forecasts to justify the economics of the Jansen project. BHP is banking on a price increase of 24% compared to current prices to deliver a project return of up to 15% ahead of an investment decision, according to JPMorgan analyst Lyndon Fagan.

Potash prices have been weaker than expected over the last six years since construction started at Jansen due to a surplus of the fertilizer ingredient.

An investment decision for Jansen, which is projected to produce 4 million tonnes of potash per year, is expected within 18 months. BHP said first production at the operation is unlikely to occur before 2024 due to the supply surplus.