Potash hit spotlight in 2010

When the year began, potash was just another little-known commodity.

Saskatchewan Premier Brad Wall speaks during an interview with the Canadian Press in his office at the provincial legislature in Regina

Saskatchewan Premier Brad Wall speaks during an interview with the Canadian Press in his office at the provincial legislature in Regina

OTTAWA — When the year began, potash was just another little-known commodity.

But potash and PotashCorp, the world’s largest producer of the key fertilizer ingredient, took centre stage on Bay Street and Parliament Hill in 2010 as BHP Billiton launched a hostile takeover bid for the Canadian company that saw Ottawa eventually step in block the deal.

“I think Canadians were proud to discover that half of the world’s reserves of this resource are in Canada,” said Saskatchewan Premier Brad Wall, who led the fight to stop the hostile takeover offer.

“I think it is a source of pride and it should be.”

But now, having survived the takeover bid, PotashCorp chief executive Bill Doyle must deliver on his belief that the BHP offer significantly undervalued the company amid growing demand for the pinkish mineral.

Though they have fallen from highs hit in the immediate aftermath of the announcement of BHP’s hostile bid, PotashCorp shares remain well above BHP’s offer price of US$130 per share — or roughly $40 billion.

PotashCorp (TSX:POT) shares are trading for about C$140 on the Toronto Stock Exchange after hitting $160.65 in August after the BHP offer was announced.

In a recent meeting with financial analysts, PotashCorp focused on three themes including rising potash prices and sales volumes next year, the low probability of new potash mines in the medium term and robust fundamentals for its nitrogen and phosphate businesses as keys to its solid prospects in the near term.

“Management suggested the environment remains supportive for additional potash price increases particularly in the offshore markets, which have lagged the robust North American domestic market,” RBC Capital Markets analyst Fai Lee wrote in a note to clients.

“PotashCorp believes the market is too tight for prices to decline with producers currently running full out and a lack of inventory restocking.”

Helped by a campaign by Calgary businessman Dick Haskayne and Montreal investment guru Stephen Jarislowsky, Wall fought against the deal, which would have cost the Saskatchewan government coffers billions in revenue.

In fighting the hostile takeover offer, PotashCorp made what it called its “Pledge to Saskatchewan” that included seven promises including to not only maintain its headquarters in the province, but to relocate executives responsible for legal, human resources and investor relations to Saskatchewan.

Wall said the province was working with the company toward a memorandum of understanding.

“The head office jobs should be at the head office,” he said.

The only other time Ottawa outright rejected a foreign takeover was in 2008 when MacDonald, Dettwiler and Associates Ltd. (TSX:MDA) tried to sell its space division to U.S. defence firm Alliant Techsystems Inc.

A study after that decision added a specific national security test to the Investment Canada Act review process as well as several other recommendations, including a requirement that the minister release reasons for the decision.

However, because BHP walked away from its offer after the initial rejection — but before a final ruling was made — Industry Minister Tony Clement will not immediately release his reasons for turning down the bid.

“A lot of investors are going to be looking at this very closely so I’ve been crossing Ts and dotting Is,” the minister said recently when asked when the guidance would be released.

Potash has been a hot commodity as farmers around the world look to improve crop yield. Demand has been strong especially from developing countries including China, India and Latin America.

The fertilizer, which sold for less than US$200 a tonne in 2007, topped US$800 per tonne in 2009, and most recently traded for about US$350 per tonne.

Despite the setback, BHP hasn’t turned its back on potash in Canada. The company added to its roughly 14,000 square kilometres of exploration properties with the purchase of a 340-square-kilometre permit just last month.

BHP is also expected to make a development decision on its Jansen potash project late next year.

Vale recently said it was evaluating a 2.9-million-tonne project in Saskatchewan that could create some 500 jobs once in operation. The project is currently in the pre-feasibility stage, with board approval expected in 2012.

And German company K+S Aktiengesellschaft has signed a deal to buy Potash One Inc., which has about 2,100 square kilometres of exploration permits in Saskatchewan.

Wall said the recent investments prove those who proclaimed the sky was falling when the PotashCorp deal was rejected, and that foreign investors would steer clear of Canada, were wrong.

“When we made our position known there were a lot of commentators that were making dire predictions about the investment climate and that people were going to spontaneously combust and the world was ending in terms of our business attraction abilities,” Wall said.

“Our point was that multinationals understand that in this day and age countries are going to — hopefully on a rare occasion but on important occasions — perhaps say no. It doesn’t change the fact that they are free-trading free-market economies.”