BHP’s bid in Federal Government’s Hands

By Leia Michele Toovey-Exclusive to Potash Investing News

It is now up to Canada’s Federal Government to decide on whether BHP’s bid for Potash Corporation of Saskatchewan (NYSE:POT) will move forward. The provincial government has already voiced its opinion in being against the proposed acquisition, claiming that if BHP were to acquire the potash giant, the province’s revenue would drop drastically.

Under the Investment Canada Act, the federal government can only allow a takeover bid by a foreign company to proceed if it deems that a deal would bring a “net benefit” to Canada. Nov. 3 is the deadline for a ruling. Canada’s industry minister, Tony Clement, said on Friday, “We have noted Saskatchewan’s position and we have noted the bidder’s position, and we are in the process of deliberations,” Clement said. “So we will do our own analysis and it will be done on our schedule.”

Although it is not the be all, end all in the decision process, the Federal Government of Canada will take the province’s distaste for the Potash bid to heart, and use it as a factor in the decision process. On Thursday the government of Saskatchewan, Potash Corp’s home province, urged the government to block BHP’s plan to buy Potash.

In addition to the Province of Saskatchewan, post-secondary education unions have added their two cents, claiming that a takeover of Potash Corporation of Saskatchewan by BHP Billiton would mean less money for post-secondary education. The students’ unions at the University of Saskatchewan and University of Regina are asking students and politicians to support Premier Brad Wall’s effort to block BHP Billiton’s hostile takeover of PotashCorp. The students are adamant about the projected $3 billion shortfall in revenues that BHP’s acquisition could pose on the province, a sum that would take funds out of education coffers.

Still, BHP’s (NYSE:BHP) CEO, Marius Kloppers is confident that he can overcome provincial and federal government concerns about his $40.8 billion Potash Corp bid. Mr. Kloppers told media that he is “very confident” he could use write-offs on the BHP’s greenfield Jansen project to overcome Saskatchewan Premier Brad Wall’s concerns about a $C300 million a year potential tax loss for the government. While, at the same time, Mr. Kloppers has reassured shareholders he will not pay too much for the fertilizer maker. After reporting extremely strong earnings, BHP’s largest shareholder has suggested that the mining conglomerate should start buying back shares. Blackrock World Mining Fund said BHP should take advantage of a strong balance sheet and current share price to return capital to investors. Blackrock supports BHP’s bid for Canadian fertilizer company Potash Corp, because it complements the miner’s activities in the region.

Before the bid can be successful, many analysts claim that BHP would have to offer both more money for the purchase, and at the same time come to some agreement pertaining to the company’s involvement with marketing arm Canpotex.

Company News

A subsidiary of China’s Sinofert has conditionally agreed to purchase more potash from North American Potash Marketing arm Canpotex. The new deal, much larger than the one announced last week includes additional purchases of up to US $52 million. Sinochem Macao, a wholly owned subsidiary of Sinofert, had agreed to a three-year agreement, in which it will buy more than three million tonnes of potash in a US$2.2-billion deal. Under the deal announced last week, Canpotex will supply about one million tonnes of potash in 2011, with the supply increasing by 50,000 tonnes in each of 2012 and 2013. The prices paid for the potash will be subject to negotiated adjustment in relation to market conditions, but the $2.2-billion price is the current estimate. That’s broken down as $600 million in 2011, $730 million in 2012 and $870 million in 2013.

Rio Tinto (NYSE:RIO) is currently looking into acquiring potash and platinum projects around the world, according to RBC Dominion Securities. In a Briefing, Harry Kenyon-Slaney, head of Rio’s diamonds and minerals unit said that the company has already screened 80 mineral categories with a view to identifying which would fit Rio in terms of size or market and potential for demand. RBC Dominion Securities analysts have pegged potash and platinum to be at the forefront of Rio’s potential interests.

Shares of Potash Corp’s competitor Monsanto (NYSE:MON) witnessed an unusual spike on Wednesday, fueled by rumours that the company is next in line for a takeover bid. Shares spiked nearly 1.5 points sending the stock up- nearly half a percent from negative territory.

With help from Assistant Editor Vivien Diniz