BHP Billiton Ltd. is set to disrupt Canpotex Ltd., the world’s biggest potash exporter by volume, by keeping its big new Jansen mine in Saskatchewan out of the marketing cartel.
The Anglo-Australian miner’s relationship with the cartel was a bone of contention in its abortive bid last year for Potash Corp. of Saskatchewan Inc. , the biggest of Canpotex’s three members.
“We believe in taking the price of the day, and so the likelihood is that we would not market through Canpotex,” BHP executive Tim Cutt told the Financial Times. “We’d market in a very consistent manner with the rest of our commodities.”
Canpotex and a similar arrangement among Russian and Belarussian producers control the bulk of world shipments of the food nutrient.
“If you have a large producer that is outside Canpotex, you could see a much different pricing dynamic, depending on how demand is,” said Joel Jackson, an analyst at BMO Nesbitt Burns Inc.
BHP initially said that it would pull Potash Corp. out of Canpotex but, as a political backlash against the bid intensified, it agreed to remain for at least a limited period. Ottawa eventually blocked the $39-billion deal last November on the grounds that it would not provide a “net benefit” to Canada.
Despite that setback, BHP is set to become a leading force in the potash industry, and has repaired relations with the province of Saskatchewan, which led the campaign against the Potash Corp. deal.
“We decided that once we got past the bid, we were still committed to being here,” Mr. Cutt said. “The government respected that, and we’ve had a very positive relationship moving forward.” The company recently moved its Canadian head office from Vancouver to Saskatoon, the commercial centre of Saskatchewan.
According to Saskatchewan energy and resources ministry, BHP has 56 potash exploration permits covering almost 1.44 million hectares, the most extensive land holdings of any company.
Its Jansen project, east of Saskatoon, is expected to receive a final go-ahead next year, with production starting in 2015. BHP has already earmarked $1.2-billion for the project, and has started work on two mine shafts.
It is also evaluating two other projects, known as Melville and Young. If all three are brought to production, BHP’s capacity could reach 16 million tonnes a year.
Potash Corp. has an annual capacity of 11.3 million tonnes, but is two-thirds through an expansion plan that would raise capacity to 17.1 million tonnes in 2015.
Asked to comment on BHP’s non-participation in Canpotex, Potash Corp. responded, “That question is a long way off.”
Mr. Jackson of BMO said that BHP could come under political pressure to reconsider its position toward Canpotex, given that the province’s royalty revenues from potash are based more on price than volume.
“What we’re doing now is developing a business that looks like the one we described during the bid – headquartered in Saskatoon, investing in Jansen and other growth projects, involved in the community and preparing to market its own product,” a BHP spokesman said.