BHP Billiton Ltd. is honing its strategy to sell Saskatchewan potash on its own to Asian customers, sidestepping Canada’s export marketing agency for the farming commodity.
The Australian mining giant, which this week announced a $2.6-billion (U.S.) investment in its Jansen mine southeast of Saskatoon, is crafting detailed plans to transport potash by rail. The company will use Canadian Pacific Railway Ltd. across Western Canada, then connect to Burlington Northern Santa Fe Corp.’s train system through Washington State, say BHP officials.
BHP is still working out the logistics of shipping potash from the Port of Vancouver in Washington, where a sprawling U.S. property has been set aside for a new export terminal that would be built in time for the company to launch sales in 2020.
The company’s plans highlight the new pressure being placed on Canpotex Ltd., Canada’s export agency for potash, one of two groups that together control roughly 70 per cent of global supplies of the fertilizer ingredient, used to boost crop yields on farms.
Potash Corp. of Saskatchewan Inc., Mosaic Co. and Agrium Inc. are the agency’s members.
For decades, the cartel-like dominance of Canpotex and the Belarusian Potash Co. have allowed major producers to get better prices for their product than if individual companies competed for export customers. But that dominance is now in question. BPC appears to be splitting up, with the Russian partner walking away – a move that caused the stock prices of Canpotex’s three members to plummet. BHP’s plans for Jansen may shift the market dynamics further.
“It’s several years away before we start production, but we favour open and transparent markets,” BHP chief financial officer Graham Kerr said in an interview. He emphasized that BHP has no need or desire to join Canpotex.
Through Canpotex, the three major Canadian potash producers transport the mineral along the Western Canadian systems of both CP and Canadian National Railway Co. for export from the West Coast, primarily at the Port Metro Vancouver in British Columbia.
As part of its quest to enter the potash business, BHP has been eyeing the Washington State port for three years. The company originally signed a preliminary pact with the U.S. port in August, 2010, but three months later, the Canadian government rejected the Australian mining giant’s $38.6-billion hostile bid for Potash Corp.
BHP said Wednesday that it has the expertise to effectively bypass Canpotex and sell the product from what would become the world’s largest potash mine. “One of BHP’s strengths is its centralized marketing organization, and the company plans to use this platform and its freight, supply chain and distribution expertise in potash,” a BHP spokesman said. “BHP can also draw on its experience in important centres of demand like China and India.”
The miner’s latest Jansen investment is part of a megaproject that analysts estimate will cost up to $16-billion to bring to fruition, though BHP has not yet approved the final stage to produce potash. BHP added that is open to overtures from prospective partners to help finance the cost of constructing processing and other facilities.
Joel Jackson, an analyst with BMO Nesbitt Burns Inc., said BHP’s corporate culture favours independent marketing. “BHP’s philosophical demeanour is to run full out, stay in front of your customer, market on your own and knock out the high-cost producers,” Mr. Jackson said. “BHP is looking at creating its own marketing operation, separate from Canpotex.”
Fai Lee, an analyst with Odlum Brown Ltd., said BHP’s success will hinge on world potash demand growing at an annual average rate of 2 per cent to 3 per cent until 2030, with the hope that prices for the commodity will rise from current levels of $440 a tonne. “You need a higher potash price because the potash price now doesn’t reflect the cost of adding new supply,” he said.
Calgary-based CP plans to build a new spur line that will connect to the Jansen mining site.Report Typo/Error
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