Market Overview

Potash Takeover Action Heats Up In Canada


The race to build up Canada’s potash supplies to keep pace with burgeoning global demand is turning Saskatchewan’s tiny handful of junior potash explorers into ripe plums for the picking.

Last week’s proposed $341 million buy-out of Athabasca Potash Inc. (TSX: T.API) by the world’s largest mining company, BHP Billiton Ltd. (NYSE: BHP), leaves only three publicly-traded junior explorers remaining.

One of them, Potash One Inc. (NYSE: POT), is striving to develop its own mine, and the newest arrival on the scene, Encanto Potash Corp. (TSX: V.EPO), is still at an early stage of development. This leaves only Western Potash Corp. (TSX: V.WPX) as the next most likely buy-out candidate – now that it finally has a grasp on the actual size and potential of its flagship deposit.

To be more specific, the Vancouver-headquartered company has just announced a preliminary resource calculation for its emerging Milestone potash deposit. A total of 34 million tonnes of potash have been estimated in the ‘indicated category,’ along with a further 245 million tonnes in the more approximate ‘inferred category.’

These numbers were determined by an independent U.S. engineering firm, Agapito Associates, which next has the task of upgrading the deposit to a much more definitive ‘measured and indicated’ category. This should allow the company to proceed with a preliminary economic assessment.

See more here.

Around 80% of the deposit’s ‘in situ’ (mineable and non-mineable) size of 1.3 billion tonnes has been discounted by Agapito. This is due to the potential presence of “unknown geological anomalies” and because of tonnage that needs to remain in place to support the mine, and various logistics related to anticipated mineral losses during production.

Commenting on Western Potash’s announcement of its initial resource estimate at Milestone, potash analyst Robert Winslow of Toronto-based Wellington West Capital Markets Inc. says: “They have some very favorable things going for them and today’s news really makes them more attractive to a potential suitor.”

Meanwhile, BHP’s move to gobble up Athabasca Potash is an example of how badly it wants to muscle its way into Canada’s lucrative potash mining business. Athabasca’s Burr deposit contains 425 million tonnes of potash in the measured and indicated category.

In other developments in Saskatchewan that further underscore BHP’s resolve, the Australian powerhouse just announced a $240 million cash infusion into its Jansen project, which promises to become by far the world’s largest potash mine. It is scheduled to be commercialized in 2013 or 2014 and could produce up to eight million tonnes a year, making it about four times as prolific as most other major potash mines.

The mining giant is also rumored to be interested in buying out Canada’s largest potash producer – Potash Corp. of Saskatchewan (NYSE: POT). Even Bill Doyle, the CEO of the very profitable potash producer, is caught up in the speculation. He is recently quoted as saying: "We do think some of [BHP's] recent public pronouncements have been designed to drive down the share prices of existing potash players to make a potential acquisition more attractive."

But BHP is not the only new power player aiming to make a big splash in the potash mining business by way of key acquisitions. The world’s second largest mining company, Vale SA, announced a $3.8 billion deal in January to buy fertilizer and mining assets from Brazil’s agricultural trading giant Bunge Ltd.

Though it is also based in Brazil, Vale SA (NYSE: VALE) has a strategic foothold in Saskatchewan. This is where it is developing a ‘solution-extraction’ (cost efficient and relatively inexpensive to build) prospective potash mine-the-making near Regina.

See more here.

Posted-In: M&A News Rumors Markets


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