The fate of one of the country's last remaining major mining companies hinges on Ottawa's openness to foreign investment from China and will ultimately be decided by the Prime Minister's Office.
Chinese chemical conglomerate Sinochem Group requires assurances from the PMO that a potential white knight offer for Potash Corp. of Saskatchewan Inc. will be fairly considered by the Canadian government, according to sources close to the state-owned enterprise. Sinochem won't proceed with a bid for the world's largest fertilizer firm unless it receives a positive signal from Ottawa, they said.
The Chinese company is considering leading a consortium bid for Saskatoon-based Potash Corp. that would top a $38.6-billion (U.S.) hostile offer from Australian mining giant BHP Billiton Ltd. The potential Sinochem counterbid would be unprecedented as most Western countries, including Canada, have been wary of allowing state-controlled companies from China to buy major domestic resource assets.
Beijing-based Sinochem is understood to be willing to make extraordinary concessions to both the federal and Saskatchewan governments to assuage concerns over Chinese ownership of the Canadian resource crown jewel.
Among the considerations being discussed is a "golden share" in Potash Corp. that would give the government a veto over any major changes to the corporation and its operations as well as a binding mechanism to allow it to enforce remedies if the new owners fail to live up to their commitments. The Chinese company would also promise to continue to sell Potash Corp.'s production to China through the Canpotex marketing arm.
Sinochem, however, won't decide whether to go ahead with an offer until it has clarity from the highest levels of the Canadian government that a bid would stand a reasonable chance of being approved.
"That is the most important question," said a source familiar with Sinochem's position. "Ultimately, the Prime Minister's Office will be involved in the decision."
A tacit nod of approval for a Chinese-led bid for Potash Corp. would be a controversial and precedent-setting decision by the government of Stephen Harper, which has never explicitly stated whether or not it is open to allowing state-owned enterprises from China to buy major Canadian resource assets. Under the Investment Canada Act, which governs major takeovers, government-backed foreign companies are not prohibited from buying Canadian firms but are more closely scrutinized under amendments made to the act by the Conservatives in 2009.
A Chinese-led consortium, which could include investors from Canada, currently stands as Potash Corp.'s most viable alternative to BHP's unsolicited $130-per-share takeover offer, which has been rejected by the Saskatoon company as too low.
Potash Corp. chief executive Bill Doyle spent much of an exclusive interview with The Globe and Mail's editorial board on Thursday making the case as to why Canadian regulatory authorities should consider a potential bid from a state-backed company from Asia on the same terms as BHP's advance, despite widespread apprehension from politicians and business leaders.
"People assume the Chinese or Indians aren't business people … You don't buy a company to destroy the value of the company," Mr. Doyle said. "People think they want low potash prices so therefore they are going to drive the company into the ground … People say: 'What do they get out of it?' They get the profits from the company, which is a natural hedge against every tonne of potash that they buy over the next 100 to 200 years."
Saskatchewan Premier Brad Wall and a Conference Board of Canada report commissioned by the province have raised concerns about a potential bid for Potash Corp. from China, which is the world's largest potash consumer.
Yet while many believe Ottawa is unlikely to approve a Chinese-backed bid because of such concerns, Mr. Doyle said they shouldn't be an issue.
"I can guarantee you that any player that we are talking to would be pleased to come and meet with the government and express their commitment to running this company on a commercial basis in the best interests of the province of Saskatchewan and the shareholders and [would remain committed to]the capital expenditure plan and Canpotex," Mr. Doyle said.
"If they violate that agreement, a golden share would kick in and the government could force those changes," he added.
Although rare in North America, golden shares, which give governments veto power over major corporate decisions, are common in Europe and in South America. Brazil, for instance, has golden shares in Vale SA, the aggressive iron ore miner that bought Canada's Inco in 2007.
Chinese state-owned enterprises have been active buyers of Canadian resource assets in recent years, but political concerns have restricted the acquisitions to small development projects or minority stakes in major energy or mining companies. However, Sinochem is considering a bid for Potash Corp. in part because Chinese authorities are deeply worried about BHP, which already dominates iron ore, coal and other commodities needed to fuel China's fast-growing economy, gaining control of the world's top potash mines.
People close to Sinochem said the Chinese company would be willing to address any government concerns head on in hopes of getting the nod from Ottawa to proceed with a bid.
"Tell us what your concerns are and we will give you an answer to each one of them. We will give you assurances in that regard, whether it is a golden share or some other mechanism, you will have real and effective remedies," one source said.
If Chinese authorities decide to back a potash offer from Sinochem, financing for the massive bid is unlikely to be an issue. Industrial and Commercial Bank of China, the world's largest bank by market capitalization, is expected to anchor a consortium of lenders for a potential white knight offer.