Q+A-BHP Billiton to stay on potash path despite Canada snub

By James Regan

SYDNEY, Nov 5 (BestGrowthStock) – Global miner BHP Billiton
(BHP.AX: ) (BLT.L: ) will continue to build its Canadian potash
business despite Ottawa blocking its $39 billion bid for the
nation’s largest producer, Potash Corp (POT.TO: ), this week.

Here are some questions and answers about BHP’s ambition to
become a major supplier of fertiliser to an increasingly
crowded world where better crop yields are the key to survival.

WILL BHP PERSIST IN BUILDING A CANADIAN POTASH BUSINESS?

Probably. BHP Chief Executive Marius Kloppers has committed
to spend billions of dollars on developing the company’s Jansen
project in Saskatchewan, whatever the outcome of its Potash
Corp offer.

Saskatchewan province is favoured for its abundant potash
reserves, which are typically easy to mine, consistent over
large areas and cost less to exploit than deposits in other
countries.

BHP has already invested $400 million in Jansen, which is
expected to start producing potash by 2015, ultimately at an
annual rate of 8 million tonnes, according to Kloppers.

However, Canadian court documents show BHP will not make a
final investment decision on Jansen until next year.

WHY DOESN’T BHP LOOK ELSEWHERE FOR POTASH ASSETS?

Canada offers the most attractive investment potential
among the world’s three major potash basins — Canada, Belarus
and Russia.

Potash deposits in Belarus and Russia are more complex and
costly to mine. Belarus and Russia are also seen as difficult
to break into for new potash entrants.

Uralkali (URKA.MM: ) and Silvinit (SILV.MM: ), Russia’s top two
potash firms, are currently being merged by potash tycoon
Suleiman Kerimov, prompting speculation that Russia is trying
to create a national potash champion, possibly involving
privately owned Belaruskali and Russia’s No. 3 Phosagro.
[ID:nLDE66I071]

WHAT DOES BHP’S FAILURE MEAN FOR POTASH PRICES?

If BHP had clinched Potash Corp, the miner would have
changed marketing and production practices in Canada’s potash
industry, probably weighing down prices, at least in the short
term.

The current industry practice — followed by the Canpotex
marketing consortium — is to link production rates to prices,
assuring high returns for its three members: Potash Corp,
Mosaic Co (MOS.N: ) and Agrium Inc (AGU.TO: ).

BHP has shown it is anti-cartel in all the commodities
markets that it operates in. The rejection of its Potash Corp
bid means North American producers of the crop nutrient will
avoid a shake-up in their marketing cartel.

With the status quo intact, fertiliser retailers and
farmers are stuck with a pricing system they say is rigged
against them.

HOW DEEP ARE BHP’S ROOTS IN THE CANADIAN POTASH SECTOR?

BHP first formed a joint venture with Canada’s Anglo Potash
Ltd in 2006 to evaluate the potential to develop the Jansen
deposit. Anglo Potash had previously spent two years acquiring
potash permits covering about 1.8 million acres in
Saskatchewan.

In July 2008, BHP paid $280 million to buy out Anglo
Potash. In January it paid $320 million for neighbouring
Athabasca Potash, increasing its exploration ground.
(Editing by Lincoln Feast)

Q+A-BHP Billiton to stay on potash path despite Canada snub