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Another article of interest.


Russia-Belarus truce helps BHP in quest for potash play partner
BARRY FITZGERALD THE AUSTRALIAN JANUARY 03, 2014 12:00AM
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The Jansen potash mine in Canada's Saskatchewan province, for which BHP is seeking joint venture partners. Source: Supplied
AN apparent end to the potash war between Russia and Belarus in the dying days of 2013 is set to aid BHP Billiton's search for a partner in its $US15 billion ($16.8m) push into the global fertiliser industry with the development of its Jansen potash project in Canada.

The need to find "one or more partners" to join the Jansen development was identified as a key strategic objective by BHP chief executive Andrew Mackenzie last August. BHP committed an additional $US2.6bn to the staged development of the project just weeks after the late July bust-up between the Russian and Belarussian BPC export cartel partners, Uralkali and Belaruskali. The falling out sent potash prices into a tailspin, with Uralkali saying it was pulling out of BPC, which accounts for about 40 per cent of global trade in the crop nutrient.

The move raised questions over the longer-term price outlook as the Russian producer, the world's biggest, said it would chase volume rather than BPC's price-over-volume strategy.

Belarus was furious. The impact was widespread, with the equity values of global producers smashed, including those of Potash Corp, Agrium and Mosaic Corp, the companies behind Canada's version of BPC, Canpotex.

Uralkali boss Vladislav Baumgertner was also a casualty, having been arrested in the Belarus capital of Minsk in August after he had been invited to the country to discuss the BPC pullout.

He has since been extradited to Russia, where he faces abuse-of-power charges related to the fallout from pulling Uralkali out of BPC. And he has recently been replaced as chief executive following a change of control at Uralkali engineered by Russia's oligarchy. His replacement is Dmitry Osipov, deputy chairman of another Russian chemical group, Uralchem.

Osipov's appointment was announced on December 23. A week earlier, Mikhail Prokhorov (a Russian billionaire, political aspirant and owner of American basketball team the Brooklyn Net) and Dmitry Mazepin (a Minsk native and owner of Uralchem) took control of a 47 per cent stake in Uralkali, mostly supplied by another Russian billionaire, Suleiman Kerimov.

The management and ownership changes have led to an easing of tension between Minsk and Moscow on potash, a commoditythat Belarus in particular is heavily dependent on for income.

Russian ambassador to Belarus Alexander Surikov last week confirmed that the peace-brokering between Moscow and Minsk was all but complete.

He confessed that the Russian side of BPC had acted thoughtlessly and did not calculate all the consequences.

"The joint marketing of potash fertilisers should be restored," Mr Surikov said.

BHP is not interested in the BPC or Canadian marketing cartels. Former BHP boss Marius Kloppers summed up the company's approach to the marketing of a commodity that Mr Mackenzie says could become BHP's "fifth pillar" (alongside iron ore, petroleum, copper and coal) in August 2010, when he said the group would self-market, run its operations at fully capacity and take the market price.

He was in effect talking about breaking up the Canadian cartel, as at the time BHP was bidding $US38bn for Canada's Potash Corp. The bid was thwarted by the Canadian government on foreign investment grounds, prompting BHP to step up its commitment to break into the industry through the development of Jansen.

But the market's ongoing unease with the potash push, as well as BHP's new era of capital expenditure austerity, has led to a refinement of BHP's strategy, to include the option of taking on one or two partners for the potash push. Morgan Stanley believes the selldown is vital to reduce the capex burden, as well as provide an "external validation of the project's value".

Having flagged the potential selldown, BHP is under pressure to strike a deal. When it committed another $US2.6bn for the project in August, there was speculation that it already had a deal lined up. But it was put on hold pending clarification of the Russia-Belarus kerfuffle.

That now seems to have eased as a concern, but weakness in potash demand -- in part fuelled by expectations of lower prices because of the prospect of unchecked Russian sales -- has prompted fresh concerns that the market will be oversupplied for years to come.

That came into sharp focus early last month when BHP's old takeover target Potash Corp said it would lay off 1045 workers -- 18 per cent of its workforce -- because of soft demand.

"While these are steps we must take to run a sustainable business and protect the long-term interests of all our stakeholders, these decisions are never easy," Potash Corp president and chief executive Bill Doyle said.

The Potash cutback did not faze BHP, nor did the potash war between Moscow and Minsk. "We take a long-term view and our decision-making in building a project or a business is not driven by short-term market conditions," BHP told The Australian.

"We are confident in the long-term fundamentals of the potash market. As we said in August, completion of the two Jansen shafts will create substantial flexibility and enable us to time our entrance to meet market demand," a BHP spokesperson said.

In its August statement in support of the ongoing investment in the Jansen project, BHP said: "The longer-term outlook for potash, a fertiliser that improves the yield and quality of agricultural production, is strong.

"As the world's population grows and incomes in emerging economies improve, agricultural demand is expected to rise. This will increase the need for potash . . . Our projections assume a shift away from the current marketing dynamic and we believe the potash price will ultimately reflect the cost of adding new supply."

It is that sort of pitch BHP is now making to potential joint venture partners in Jansen.