The 77,000 tonnes of Potash (a free by-product), ADY plans to...

The 77,000 tonnes of Potash (a free by-product), ADY plans to produce will be significant to the bottom line.


BHP eyes potash miner
Jamie Freed | May 14, 2008

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BHP Billiton has shown it can handle more than one takeover offer at a time by launching a $C284 million ($298 million) friendly bid for Canada's Anglo Potash, its partner in Saskatchewan fertiliser projects.

BHP has a 75 per cent stake and operational control over the joint venture, but it has moved to consolidate its holding at a time of high global demand for potash because of the industrialisation of emerging economies.

Anglo Potash directors have agreed to vote their combined 26 per cent stake in favour of the BHP bid. BHP had avoided the fertiliser market, having sold WMC Resources' Southern Cross Fertilisers to Incitec Pivot for a bargain price soon after it acquired the nickel and copper miner in 2005.

But BHP said last year it liked the structure of the potash industry compared with the phosphate business. The industry is dominated by a few key players and is concentrated in Russia and Canada. There are high barriers to entry and high margins because it is technically challenging and expensive to build an underground potash mine.

Anglo Potash last week estimated it would cost $US2.5 billion ($2.64 billion) to build 2 million tonnes of annual capacity in Saskatchewan.

At a briefing in Sydney last year, a senior BHP executive, Alberto Calderon, said the company was unlikely to produce potash until the middle of the next decade.

"The issue in potash is that land is so big and so good that we will spend time choosing the best mine sites," he said.

With Russia tending to export to Brazil, China is one of the natural markets for Canadian potash exports. Potash use is rising in tandem with the industrialisation of emerging economies because it tends to be used more as median incomes and diets improve.

During a results briefing last month, Bill Doyle, the head of the world's largest potash exporter, Canada's PotashCorp, presented a bullish outlook for the fertiliser.

Mr Doyle said the potash price, which recently rose $US200 a tonne to $US735 a tonne, was heading towards $US1000 a tonne and was expected to remain high in the future.

Anglo Potash last week said the $US2.5-billion Saskatchewan joint venture with BHP would provide a 42 per cent return on investment if the potash price averaged $US625 a tonne. It added that returns would double to 84 per cent and the project would pay for itself within about 14 months if the potash price averaged $US1150 a tonne.

"There's no new greenfield production coming on anywhere in the world in the next five years," Mr Doyle said, noting the Chinese were expected to be 3 million tonnes short of supply this year.

"The bottom line is that the world needs more potash, and this is likely to continue for the foreseeable future."