Potash Corp. CEO Bill DoyleDAVID STOBBE
BHP Billiton must make a long-term commitment to remain in the Canpotex potash marketing cartel if it wants Saskatchewan's blessing to buy one of the province's largest revenue-generating companies, a provincial cabinet member said.
The province is considering a move that would force the Australian mining giant to maintain Potash Corp. lead role in the powerful potash marketing agency if its $38.6-billion (U.S.) bid for the world's largest fertilizer firm is successful.
"In order to protect the interests of the people of Saskatchewan we would have to have an extremely firm commitment and guarantees before we felt comfortable," Energy and Resources Minister Bill Boyd said in an interview Wednesday.
Asked if the government would set a minimum period in which BHP would have to be tied to Canpotex, Mr. Boyd said: "Absolutely. Either a time frame or an indefinite time frame."
Canpotex has become a key issue in BHP's hostile bid for Potash Corp., given its dominant position in the agency that sells Saskatchewan potash to markets outside North America and represents about one-third of the world's supply of the crop nutrient. BHP said in launching its hostile offer last month that it planned to pull out of Canpotex and sell potash by itself.
After an uproar from the province and Canpotex's other players, Calgary-based Agrium Inc. and Minnesota-based Mosaic Co., BHP backed down, saying it wouldn't make a move unless the other parties agreed.
However, analysts say they expect BHP to eventually break free of Canpotex, which helps keep prices for potash higher by adjusting supplies. BHP prefers to run its mines at full capacity and negotiate with buyers on its own. In the potash market, such a move could eventual squeeze out smaller players unable to compete.
For the province, the worry is that BHP's style of operating could drive down potash prices, and in turn, reduce government royalties and taxes.
"We feel that this is a very important question and we'll be looking for clarification from BHP," Mr. Boyd said. "Any change in the way potash is marketed or sold and its potential negative impact of lowering prices will be of concern."
The province has hired the Conference Board of Canada to review a potential takeover of Potash Corp. The province will use that report, and the results of its own internal task force, to put forward its recommendation to Ottawa on whether to approve a takeover of Potash Corp.
Potash Corp. has rejected BHP's $130 (U.S.) per share offer as too low, and is talking to other potential suitors.
Saskatchewan's review will also include the possibility of a rival bid, which is most likely to come from a consortium led by a Chinese state-owned company. The province is concerned that a state-owned buyer would also drive down potash prices, if its primary concern is to secure fertilizer supplies for its farmers. China is the world's largest potash consumer.
Even if a rival bid includes a smaller interest from China, backed up by other public or private companies, such as a Canadian pension fund, Mr. Boyd said there would still be some hesitation.
"I think there will always be concerns when you talk about people who consume the product having control over production of the product," he said.
Chinese chemical firm Sinochem Group is considering a rival bid to BHP's offer and has been trying to round up potential partners for a bidding consortium. Both Canadian and overseas pension and investment funds have been contacted to join the group.
Sources close to Potash Corp. said that a Chinese-led consortium would have to make undertakings and promises regarding production and employment levels that would assuage federal and provincial concerns.
"Any entity coming in to look at this, the government is going to look at how it is going to be operated and what provisions there are," said a source close to the company.
"If Sinochem wants to come in, or whomever it might be, and run this business in a profit-maximizing way, why shouldn't that be viewed differently than someone who wants to come in and drive prices down?"