CANADIAN PERSPECTIVE: Potash sector heats up

The Prairie winds are swirling rumours as well as autumn leaves around potash country. If one of those specula...

The Prairie winds are swirling rumours as well as autumn leaves around potash country. If one of those speculations comes to pass, PotashCorp will be unseated as the world's largest producer.


Report One: BHP Billiton should consider a takeover of PotashCorp. This was suggested by analysts at Bank of America Merrill Lynch. They speculate that the world's largest miner could take over the Canadian company at a 30% premium to the share price. A deal such as this could add 13% to BHP Billiton's bottom line in the two years following its completion. BHP Billiton filed a proposal late last year to develop the Jansen potash mine and mill. It would be a massive undertaking to build a mine capable of hoisting 22.5 million t/y and a plant that produces 8 million t/y of saleable product.


Report Two: Athabasca Potash is studying the economics of perhaps doubling the output of its proposed Burr project, adjacent to PotashCorp's Lanigan mine. Athabasca has said it wants to build a 2-million t/y facility for a cost of slightly more than $2 billion.


Report Three: The government of Saskatchewan awarded a permit to China's Zongchuan International Mining to explore for potash in 2008. China imports more than 65% of its potash requirements, and owning a 3-million-t/y mine might be a very profitable venture.


The numbers that have investors hot on the potash sector come largely out of PotashCorp's 2008 annual report. The company sold 3.86 million tonnes of potash last year, compared to 1.58 million in 2007. Over the same interval, net sales rose to US$8.99 billion from US$4.76 billion. Quarterly earnings broke record after record.


Well, people have to eat, and to help the planet produce enough to feed its growing population, the earth must be fertilized. Potash looks like a solid investment.


The interesting part is going to be watching how ownership of Canadian mines changes over the next year. The fight for potash dominance will certainly be heated.


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