BHP May Delay Jansen Project in Canada If It Buys Potash, Fertecon Says

Sep 14 (Bloomberg)--

BHP Billiton Ltd., bidding $40 billion for Potash Corp. of Saskatchewan Inc., may shelve development of its own Canadian potash project if it succeeds with the offer, according to consultants Fertecon Ltd.

BHP, the world’s biggest mining company, may push back building the Jansen project beyond 2020 as it would be cheaper to expand the adjacent Potash Corp. assets already in operation, Barrie Bain, director of Tunbridge Wells, England-based Fertecon, said today on a conference call arranged by UBS AG.

BHP Chief Executive Officer Marius Kloppers has invested almost $1 billion in the Jansen venture and said the company would keep developing the mine if it acquires Potash Corp. Bill Doyle, CEO of Potash Corp., last month described BHP’s Jansen project as a "smokescreen” and a "charade.”

"They’ve said they will continue to develop that,” Bain said. "My view is that they will put it on the back-boiler and look to develop that beyond 2020. Potash Corp. has got the potential for substantial expansions at much lower cost.”

The Jansen project may cost $11.2 billion to build, Paul Galloway, an analyst at Sanford C. Bernstein Ltd., estimated in an Aug. 23 report. BHP is studying development plans for Jansen, where output could start in 2015, and is scheduled to make a final investment decision on the project by late 2011. Jansen may have an 8 million-metric-ton annual capacity, BHP has said.

Alternative Offers

"BHP’s commitment to Jansen and other greenfield projects would be unchanged by the acquisition of Potash Corp.,” Ruban Yogarajah, a London-based spokesman for BHP, said today by phone. "In fact, we expect the valuation and potential development of these projects to be enhanced by having operational experience and adjacent operating facilities.”

Potash Corp., the world’s largest producer of the crop nutrient by output capacity, rejected the $130-a-share offer from Melbourne-based BHP and has begun talks with third parties. A number of those "expressed interest in alternative transactions,” Doyle said last week.

A recovery in potash prices, after they tumbled more than 50 percent during the global economic crisis, is fueling takeover plans, including BHP’s bid and a reported combination of Russia’s OAO Uralkali and OAO Silvinit.
Still, prices will remain "relatively flat” going forward and won’t return to peak levels reached in 2007-2008, Bain said. Fertecon’s clients have included ConAgra Foods Inc., Goldman Sachs Group Inc. and Exxon Mobil Corp.

Canpotex Market Share

Potash Corp. controls about 20 percent of global output capacity for the commodity, which is mined from underground deposits left by evaporated seas. Potash demand, which slumped last year after crop prices plunged, will rebound to 50 million tons this year from less than 30 million tons in 2009, Doyle said on a conference call on Aug. 17.

Potash Corp., based in Saskatoon, Saskatchewan, is a supplier to trader Canpotex Ltd., which accounts for as much as 40 percent of global potash trade. Potash Corp. supplies Canpotex with 54 percent of its product, with the rest coming from Agrium Inc. and Mosaic Co. BHP has said it would seek to market its sales independently should it acquire Potash Corp.

BHP has "talked of operating low-cost capacity at full output,” Bain said. "This would be a big culture shock in the potash market. It’s not necessarily a bad business model but it is a different business model and I think it would almost inevitably, in the near-term at least, result in lower potash prices.”