Australian mining company BHP Billiton Ltd. says it intends to pull out of the powerful group that controls overseas exports of Canadian potash if it succeeds in buying the country’s largest producer, a move that would change the economics of one of the West’s most important natural resources.
Executives at BHP, which formally launched its $38.6-billion hostile takeover attempt of Potash Corp. of SaskatchewanPOT-T on Wednesday, told investors that the company plans to handle its own negotiations with buyers of potash. That pledge poses a threat to Canpotex, the global marketing arm of Canada’s major potash companies, which plays a major role in controlling the supply and the price of a commodity that is a key ingredient in the fertilizer that farmers use around the world to grow their crops.
Canpotex, which represents Potash Corp., Agrium Inc. and Mosaic Co. in selling potash produced in Saskatchewan, accounts for an estimated 40 per cent of the commodity’s global trade. If BHP were to succeed in its takeover quest and follow through on its plan, analysts say that could result in even greater price swings for an already-volatile commodity. That, in turn, could have negative implications for smaller or higher-cost potash companies in Canada and possibly for the Saskatchewan government, which makes sizable royalties from the potash business.
Provincial leaders have so far given no indication that they would try to block BHP’s bold move on Potash, the largest company in Saskatchewan and the sixth-largest public company in Canada by stock market value. But Saskatchewan Energy Minister Bill Boyd warned in an interview that his government would want to be involved in any major changes, including any decision that weakens or dissolves the export monopoly.
“That [Canpotex] model has worked well for Saskatchewan in the past,” Mr. Boyd said in an interview. “We want to make sure naturally that the resources, potash itself, that we maximize on the resource for the taxpayers of our province. Of course we would want to talk about any changes to that structure and it may impact upon other decisions we would make.”
The province would have to review any impact a breakup of Canpotex would have on provincial revenues, which benefit from higher potash sales through taxes and royalties, Mr. Boyd said.
The battle over the future of Potash Corp. highlights the growing importance of Prairie potash reserves in the effort to increase crop yields and raise the global food supply to meet higher demand, particularly from ever-wealthier consumers in Asia. Canada has 53 per cent of the world’s potash, and Potash Corp. is the largest potash miner, with about one-fifth of global production.
Though most potash production is ultimately controlled by just two groups – Canpotex and a marketing group that represents primarily Russian potash suppliers – the nutrient has still seen wild changes in price, ranging from $200 to $1,000 a tonne over the past three years. The price was driven higher by fears of world food shortages, then pushed down by the recession as farmers bought less of the expensive fertilizer.
But Potash prices are rebounding, sitting around $375 today, lifted by rising prices for crops such as wheat and corn after extreme weather conditions curbed production in Canada and Russia.
