Exploding potash demand is catalyst in BHP hostile takeover bid

Potash mining for potash fertilizer

Exploding future demand for potash could be the main inspiration of BHP Billiton's hostile takeover of Potash Corp. DeltaMik/Flickr photo.

For people in the agricultural industry, potash has been a hot topic lately. Potash is essentially potassium, one of the critical nutrients that makes modern agricultural yields possible. There is no alternative source for potassium in fertilizer. Potash is vital to the world’s food supply. Because there is no futures market for potash, other minerals have outperformed it in a recent commodities market boom. However, a huge increase in demand for potash is in the forecast. This has inspired the hostile takeover of a Canadian potash company by an Australian minerals company.

Potash urges shareholders to resist BHP tender

Potash Corporation of Saskatchewan, known as Potash, has control over a big chunk of the world’s potash market. BHP Billiton, a big minerals extraction company out of Australia, desperately wants to buy the Canadian fertilizer giant. The New York Times reports that a few days ago BHP made an offer to acquire the company for $130 a share. The Potash board rejected the offer as too low. In response, BHP launched a hostile takeover of Potash by beginning a tender offer for the same price, which means BHP is dangling the cash directly in front of shareholders. Potash is urging its shareholders to resist BHP’s tender while it searches for a better price from another bidder.

Potash is critical to the world’s food supply

Potash is produced in 12 countries. More than 75 percent of global supply comes from Canada, Russia, Belarus and Germany. Reuters reports that potash is the generic term for  different compounds containing potassium, a critical ingredient in fertilizers. Potash strengthens a plant’s resistance to disease, improves crop quality and boosts yields. It is the only existing source for potassium in fertilizer. For years, the price of Potash has been extremely volatile. Ten years ago it sold for less than $150 a ton. The price of potash skyrocketed to more than $1,000 a ton during the global food crisis of 2007-08. Since then, it has crashed to about $350-$375 a ton.

The world covets Saskatchewan potash

Potash had been overlooked in a recent commodity market boom until BHP’s aggressive moves. Entrepreneur reports that if the growth in potash demand over the last five years continues, by 2011 the world will be unable to produce what it needs to sustain the food supply. A big reason for the forecast for exploding demand is increasing meat consumption trends in China and places like Latin America and India. Another factor is exploding growth in biofuels such as ethanol, which the UN said could meet 25 percent of the worlds energy needs in the next 20 years. Both of these trends are already spiking wheat and corn prices, and portend a huge increase in potash demand. Yet the industry’s ability to increase supply is limited. More than 85 percent of the world’s potash mines are more than 25 years old. Untapped production capacity is limited and nearly all of it is Saskatchewan potash.

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