BHP Billiton Ltd. 's biggest obstacle in buying Potash is shaping up to be the province of Saskatchewan, which says it's not ready to back the current bid without more economic benefits.
Just days before the province announces whether it plans to support BHP's $38.6-billion (U.S.) hostile offer in front of Ottawa, politicians say the Australian mining giant still hasn't proven the proposal will leave its citizens better off. Instead, what stands out is the threat of losing billions in tax or royalty revenues over the next decade if BHP's offer succeeds.
"The concerns are real," Energy and Resources Minister Bill Boyd said in an interview with The Globe and Mail. "There would have to be a net benefit or we wouldn't be interested in this."
Despite weeks of talks between Saskatchewan officials and the world's largest miner on how to make the bid more appealing to the province, "I don't think much has changed," Mr. Boyd said late Friday.
BHP is running out of time to get Saskatchewan on side before Investment Canada's expected ruling by Nov. 3 on whether the takeover is a "net benefit" to the country. While Saskatchewan can't stop the bid, Prime Minister Stephen Harper has said the federal agency will consult with the province in making its determination. Since both the province and federal government are run by centre-right parties, the two sides aren't expected to come out with opposing views.
While Ottawa has passed many foreign takeover deals in the past, there is heightened scrutiny this time. Saskatoon-based Potash Corp. is one of the country's last major mining companies. There has also been backlash about previous foreign takeovers after the new owners broke promises about investment and job guarantees.
Melbourne-based BHP has promised to maintain jobs in the province and make Saskatchewan home to its global potash headquarters. It has also vowed to make community investments and bring Potash Corp. head office jobs to Saskatchewan from Chicago.
But that hasn't been enough for the province, particularly after a Conference Board of Canada report it commissioned showed BHP's bid could cost Saskatchewan at least $2-billion (Canadian) in lost tax and royalty revenues over the next 10 years. The number jumps to $5.7-billion if the Australian miner runs both existing mines and new projects it has planned at full capacity.
BHP responded saying some of those lost taxes would be made up down the road, but the province still isn't swayed.
"I think the people of Saskatchewan are looking for net benefits now, not at some later date," Mr. Boyd said.
The province is also concerned about BHP's desire to pull out of Canpotex, the powerful arm that markets Saskatchewan's potash to global markets. Saskatchewan believes BHP would drive down potash prices as a result of such a move, and in turn lower the lucrative royalties it collects from the commodity.
Saskatchewan is home to more than half of the world's potash reserves and the province is considering the economic impact if future predictions are correct that potash prices are set to soar as demand for the fertilizer ingredient soars, amid concerns of global food shortages.
As for what improved economic incentives the province is seeking from BHP, Mr. Boyd said it was "safe to assume" it includes more undertakings. He wouldn't provide specifics, but often undertakings can include tying companies to maintain spending and staffing for a certain period of time.
For instance, Saskatchewan is believed to be asking BHP to remain a member of Canpotex for a lengthy time period. This would be a sticking point for BHP, which is arguing the Canpotex model is outdated and that potash pricing is moving to a more market-based system similar to coal and iron ore.