Potash mining, like any business, is faced with scrutiny and controversy which range from environmental to political and financial concerns.
By Leia Michele Toovey- Exclusive to Potash Investing News
Canada blocks BHP Billiton’s bid for Potash Corp.
In November 2010, the Canadian government blocked BHP Billiton’s (NYSE:BHP) $39 billion bid for Potash Corp of Saskatchewan (NYSE:POT), saying the deal would not be of “net benefit” to the nation. The rejection of BHP’s bid was made possible through the Investment Canada Act. Under the Act, in order for a foreign takeover to be approved by the government, it must be beneficial to Canada, in terms of jobs and financial gain. After crunching the numbers, the Canadian government determined that BHP’s bid was inadequate to be of “net benefit” and therefore, the bid was blocked.
Before the bid was blocked, the loudest voices seemed to be coming from those who were against the bid, claiming that Canada has a history of selling out to foreign ownership. Once the bid was blocked people complained that Canada would suffer backlash, including less interest from foreign investors, and some even went as far to say that the share values of Potash Corp., which had run-up during the course of the bidding saga, would collapse.
The blocking of the bid fed into the growing international controversy of resource nationalism. Over the past years, there have been debates that countries are starting to stockpile their resources, and shun foreign investors. Resource nationalism is critiqued because market participants fear that it will steer away foreign investment and stagnate the development of resources. Countries who have been accused of resource nationalism claim that it is their duty to control who buys into their resources and for how much money, to be certain that the development is in the best interest of the country. This was only the second time in history that the Canadian government had blocked a foreign takeover. BHP bid the equivalent $130 per share for Potash Corp., since the bid, Potash’s shares have split, three-for-one, and are currently trading around $57.00 each, equivalent to $171.00 if the shares would have stayed as one.
Is Canpotex a cartel?
Accusations of price-fixing and collusion are not new to the potash market; they have fueled the rumour mill for years. However, this year they received more attention, on the back of BHP’s bid. When bidding, BHP made it fairly clear that it would most likely not participate in Canpotex, the joint marketing arm of potash producers Potash Corp., Agrium Inc. (NYSE:AGU) and Mosaic Co. (NYSE:MOS). Speculations hit that the Canadian government weighed heavily on this, thinking that by letting potash sell on the free-market, it would lose out on money.
Canpotex was started by the potash producers of Saskatchewan in 1972 (and protected by an exemption in Canada’s Competition Law). Canpotex handles potash sales from all the aforementioned companies, controlling a large share (about one-third) of the global potash market. Canpotex is known to be very rigid when it comes to dealings and at times more likely to lose out on a deal then sell product for a lower price. Canpotex got a lot of flak during the recession, due to the fact that potash prices were not lowered even as the recession spread, impacting grain prices. Canpotex, and its members, vehemently deny the allegations, claiming that they are just working to ensure that they get the adequate price for their product.
There are environmental concerns involved in any mining activity, and while the potash industry did not suffer directly any public fall-out this year, indirectly it did through Mosaic and the controversy behind its phosphate mine in Florida. Mosaic decided to close its phosphate mine in South Fort Meade, Florida, in September after a court ruling that would prevent expansion of the strip mine. Last July, The U.S. District Court in Jacksonville, Florida, granted an injunction preventing Mosaic from expanding the phosphate-rock mine into neighboring wetlands. Mosaic executives said they filed a notice of appeal, claiming that the mine is uneconomic without access to the land for expansion. The Sierra Club and other non-governmental groups sued the U.S. Army Corps of Engineers in the Jacksonville court, contending that a permit issued by the corps to Mosaic did not fully account for potential environmental damage from the expansion.
Controversy in the potash sector is not always from the outside in, occasionally potash miners may get into a legal battle with each other. Currently, this is exactly what is happening between Mosaic Company and Potash Corporation of Saskatchewan. The two companies have had a tolling agreement for the past 40 years. Under the agreement, Mosaic was providing Potash Corp. with potash from its Esterhazy mine, at cost, and on May 2011, Mosaic informed Potash Corp. that it had satisfied all obligations and therefore will cease to offer the potash to Potash Corp. at cost. Potash Corp. disputed Mosaic’s determination, claiming that there were a few years left under the supply agreement. A trial is scheduled for January 2012, and in the meantime Mosaic must continue to supply Potash Corp., as ruled by the Saskatchewan Court of Queen’s Bench.
Mining, like any business is faced with scrutiny and controversy. Potash, in particular, is already put under the microscope due to the fact that it is a crucial component in increasing global food supply. Food supply, by its very own nature is a politically-charged subject, and therefore the supply of potash is not only critiqued like any mining operation, it is under extra attention due to its close ties with the politically charged matter of food supply.