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Marius Kloppers, CEO of BHP Billiton, at The Globe and Mail editorial board, Tuesday, Sept. 21, 2010. (Fred Lum)
Marius Kloppers, CEO of BHP Billiton, at The Globe and Mail editorial board, Tuesday, Sept. 21, 2010. (Fred Lum)

Globe Editorial

BHP is up against the Potash Wall Add to ...

BHP Billiton Ltd., the Australian mining giant willing to deploy tens of its billions for the Saskatchewan company that mines potash, touts its market credentials, but it should not forget about the politics. While there should not be undue interference with its bid to take over Potash Corp. of Saskatchewan Inc., it is right and reasonable for the Saskatchewan government to get more clarity on the future royalties stream the province can expect.

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BHP appears committed to an eventual orderly exit from Canpotex, the fertilizer-marketing cartel that Potash Corp. co-owns. It also plans to invest in new mines, and to run existing mines at higher capacity.

The effects of these sensible, pro-market moves, however, would likely be to drive down the price of the commodity in the short term. Under the current royalty regime, that would have a direct impact on Saskatchewan's bottom line. In 2008-09, when prices spiked from under $200 to over $500 (U.S.) a tonne, 11 per cent of the provincial government's entire revenue was derived from potash-related royalties. But the return fluctuates wildly, a sign that the province needs to diversify.

After a crippling strike in Sudbury and a flight of head-office jobs upon Vale SA's takeover of Inco, and with the federal government in litigation over U.S. Steel's acquisition of Stelco, there is waning public tolerance for foreign takeovers of Canadian resource companies that carry few enforceable conditions. Having been twice burned in such short order, Canadians may justifiably be three times shy.

Brad Wall, the Premier of Saskatchewan, is no Hugo Chavez or Danny Williams, but he is sounding less the free-market conservative by the day. If the price of potash drops, he needs to make up the revenue. Of the existing promises made by BHP - the reassertion of a head-office presence in Saskatoon and the repatriation of some jobs from Chicago; new mining jobs; a "Centre of Excellence" for potash - none will decisively change Mr. Wall's political calculation. And what Mr. Wall says will have a great influence on the federal government, and therefore on whether Investment Canada decides that the transaction is of net benefit to Canada and approves a deal.

That said, a BHP takeover would be preferable to the acquisition by a Chinese-state-owned company of a controlling interest in Potash. There is a fine line here, one that would allow any takeover to go ahead while giving Saskatchewan the assurances it feels it needs. Both parties should work toward that outcome.

 

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