Timing right for PotashCorp takeover: analysts
Last Updated: Wednesday, August 18, 2010 | 9:04 PM CST
By Scott Anderson, CBC News
The CEO of Potash Corp. of Saskatchewan termed BHP Billiton's $38.6-billion bid for the Saskatchewan company as "highly opportunistic" when it was made public Tuesday.
BHP Billiton's all-cash takeover bid for Potash Corp. was slammed as opportunistic by Potash CEO Bill Doyle. (Troy Fleece/Canadian Press) Although Bill Doyle was accusing the Australian mining powerhouse of trying to take advantage of PotashCorp's slumping share price, which hit a 52-week low of $88.68 in early July, he wasn't out of line.
After all, with the price of potash, a key ingredient in fertilizer, poised for a huge rebound, the timing might be ripe for global mining companies to make a play for the key commodity.
The price for potash hovered around $400 a tonne during the second quarter, but analysts see it rising higher — possibly up to the $500 to $550 a tonne range over the long term as demand returns. In its peak in 2008, it hit about $1,000 on the spot market.
"They [BHP] believe that over time, potash will continue to be a product that the world will need, so they decided to go ahead with this," said Richard Kelertas, an analyst at Dundee Securities, in Montreal.
Fuelling this belief, Kelertas said, is the growing global population that will led to increased food consumption and an insatiable demand for fertilizer products from countries such as China that are bulking up their farming activities.
The current potash market is estimated at some 50 million tonnes annually, but that is projected to grow at a rate of about three per cent to four per cent as farmers, who deferred applications of fertilizer, replenish their fields.
Fertilizer prices soared in early 2008 on surging demand, tight inventories and record grain prices. But the global credit crunch and deepening economic downturn weighed on the agricultural sector, and grain and nutrient prices fell as farmers deferred fertilizer applications.
The International Fertilizer Association predicts potash consumption will remain almost unchanged during the 2009/2010 farming period, before soaring about 18 per cent in the 2010/2011 season as farmers ramp up their fertilizing programs.
"Global demand for food is steadily increasing, creating an attractive operating environment for the entire fertilizer industry and, with our premier position, PotashCorp is uniquely poised to benefit," Doyle said in a tersely worded release that rebuked the offer.
Potash explained
PotashCorp is viewed as a prize acquisition target as it is the top producer in the world with production of almost 11 million in 2009, followed by rival Canadian company Mosaic Co. at nine million tonnes.
Its geographic location is also coveted. Most of its operations are in Saskatchewan, which is favoured for its flat and consistent reserves, making production of the commodity relatively low cost.
Potash is used as a major agricultural component in about 150 countries, with the largest importers of the product being the heavily populated countries such as China, India and Brazil, according to the website of Potash One, another Saskatchewan company, with its head office in Vancouver.
Potash production is limited to only 12 countries around the world, with the bulk coming from Canada, the world's largest producer, followed by Russia and Belarus.
| Potash Corp. of Saskatchewan | BHP Billiton | |
|---|---|---|
| Headquarters | Saskatoon | Melbourne, Australia |
| Market capitalization | $33 billion US | $119.86 billion US |
| Employees | 5,136 at the end of 2009 | 40,990 as of June 2009 |
| Main products | Potash, nitrogen and phosphate | Aluminum, energy coal and metallurgical coal, copper, manganese, iron ore, uranium, nickel, silver and titanium minerals. Also has substantial interests in oil, gas, liquefied natural gas and diamonds |
| Operations | Produces potash from six mines in Saskatchewan and one mine in New Brunswick | More than 100 operations in 25 countries |
