The Rising Influence of Rising Affluence

[DewDiligence]

BHP Buys Athabasca Potash of Saskatchewan for $320M

[Although this article speaks of a parallel of this deal to VALE’s deal to acquire fertilizer assets in Brazil from BG, the two deals are entirely different insofar as VALE already had a business relationship with BG and those companies had been discussing a possible restructuring for several years.]

http://www.ft.com/cms/s/0/ca66f3f6-0c3d-11df-8b81-00144feabdc0.html

›By William MacNamara
January 28 2010 22:52

BHP Billiton, the world’s biggest miner, was the latest company to make a move in the hot market for potash and other agricultural fertiliser ingredients, as it agreed to buy a Canadian potash developer for C$341m ($320m).

Its move follows iron ore miner Vale, which on Tuesday announced plans to buy Bunge’s Brazilian assets for $3.8bn. The assets centre on phosphate mines used for fertilisers.

BHP’s planned acquisition of Saskatchewan-based Athabasca Potash surprised many in the mining community who expected BHP to splash out on a bigger potash name. Potash Corp and Mosaic, leaders in the highly consolidated industry, have long been rumoured as top targets for BHP.

But Athabasca brings with it almost 7,000sq km of acreage for potash exploration and development. The acreage, which includes Athabasca’s star Burr project, abuts BHP’s Jansen potash project in Saskatchewan.

The company recently said it would spend $240m to develop the first stage of Jansen. Plans for that project are so large, with annual production targeted around 8m tonnes, that BHP could be slowly, organically growing its way to a position of market influence to rival Potash Corp and other established players [duh]. BHP, whose cash and equivalents was $10.8bn on June 30, has signalled strong interest in the sector since its acquisition of Anglo Potash in July 2008 for C$284m.

“In terms of dollar amount the move is negligible for BHP, but it shows intent,” said Tony Robson, mining analyst at BMO Capital Markets in Toronto. “BHP has been progressively enunciating for almost two years that [potash] is the sector it is most interested in expanding in to.”

Building Jansen alone, he said, would cost $8bn-$10bn, Mr Robson added, highlighting the necessity of scale for any company interested in entering the industry.

Potash prices fell alongside most commodity classes during the financial crisis and remain stagnant. But the commodity is thought widely to have good demand prospects. As the world’s population grows, grain will need to be produced ever more intensively with the aid of fertilisers, and supply of fertiliser sources may not be able to meet demand.

BHP agreed to buy Athabasca for C$8.35 a share, an 25 per cent premium to its closing price of C$6.70 on January 27.

Speculation is mounting about buyers for Copebras, the Brazilian fertiliser-stuffs business that Anglo American slated for sale in October. Vale, the world’s biggest iron ore company, features in speculation.

BHP’s acquisition would expand its acreage in the Saskatchewan potash basin to over 14,000sq km, it said in a statement.‹