The Anglo-Australian mining company's investment in Jansen will be spread over a number of years with completion of two mining shafts expected in 2016.
"We'll direct capital even more selectively towards our major basins, while continuing with measured investment at Jansen to de-risk the project and maintain the flexibility to enter the potash market only when the time is right," BHP Billiton CEO Andrew Mackenzie said in a call with analysts.
Mackenzie said he was confident in the value of developing Jansen, a project he believes will achieve low costs of production, especially with the slower timeline
"Everything we're doing, by giving ourselves more time, by using our productivity agenda to drive down capital costs and drive down operating costs, means we're only going to improve from where we are today," Mackenzie said.
Under his predecessor, BHP Billiton attempted in 2010 to buy Potash Corporation of Saskatchewan (TSX:POT) — Canada's largest producer — but was blocked by the federal government under pressure from Saskatchewan Premier Brad Wall.
Among other things, BHP's detractors warned that the Jansen project would be sidelined if it could be supplied through PotashCorp's extensive operations in the province. BHP consistently said there would be enough demand for Jansen too.
Tuesday's capital investment announcement will take BHP's total commitment to the site, 140 kilometres from Saskatoon, to approximately US$3.8 billion.
The plans include completing the excavation and lining of the production and service shafts, as well as the installation of essential surface infrastructure and utilities.
Premier Wall called news of BHP's investment "very, very good for Saskatchewan."
"This is a strong vote of confidence in the potash industry in our province, but (also) generally in the economy," he said at the legislature in Regina.
"The long-term fundamentals of our province, where we are leaders in food production and fertilizer production, I think is very positive. It's not just the government that feels that way. A company like BHP Billiton today I think has also said, 'look we're pretty confident in the long-term fundamentals as well.'"
BHP also signalled it would look for partners as the project moves forward, saying it may "sell a minority stake to one or more joint venture partners," which is consistent with its approach at many of its other major operations.
"For now, we're looking at a relatively straightforward arrangement with potential partners who would come and take a minority share of Jansen and be very much a partner, like we have in our petroleum ventures," Mackenzie said.
The company calls Jansen, a project that is 100 per cent owned by BHP Billiton, the world’s best undeveloped potash resource and expects it to produce 10 million tonnes of potash a year for more than 50 years.
Mackenzie also said he was confident about market demand, projecting an expected growth of two to three per cent per annum to 2030, driven by increasing global population and greater economic prosperity, which will lead to changing patterns of food consumption and increased agricultural demand.
"We have a long-stated preference for transparent pricing mechanisms that truly reflect the supply and demand — the fundamentals of any given commodity on any given day," he said.
"In the case of potash, our projections have always assumed a shift away from the current marketing dynamic."
His comments came after Russian firm Uralkali's split from Belarusian Potash Company last month, exiting a potash cartel that helps determine prices and creating fears that the move could lead to a 25 per cent drop in the price of potash.
The decision sparked a major sell-off in the stocks of potash producers, but the CEO of Potash Corp. played down concerns at the time, saying such spats have happened before and are usually resolved.
The project is also going ahead despite weak commodity prices, which impacted the company's profits.
BHP Billiton reported Tuesday that its annual profit fell nearly 30 per cent on lower prices for copper, coal and iron ore. Earnings amounted to $10.9 billion for the year ended June 30, and were also dented by one-time charges of $922 million.
BHP said record production was offset by lower commodity prices amid slowing global economic growth.
BHP has exploration rights to more than 14,500 square kilometres in the Saskatchewan potash basin, but Jansen is its most advanced project.
Analyst Maxim Sytchev of Dundee Capital Markets said the announcement was also a positive one for SNC-Lavalin (TSX:SNC), a Montreal-based engineering and construction company that has contracts with BHP for work at potash projects to be developed and built mainly in Saskatchewan.
— With files from Jennifer Graham in Regina.