Canada's trio of small but well-financed potash exploration juniors -- Western Potash (TSX.V: WPX), Potash One (TSX: KCL) and Athabasca Potash (TSX: API) -- are potential takeover targets for potash-hungry BHP Billiton, the world's largest mining company. So says Don Coxe, one of the investment industry's leading experts on commodities.
Chicago-based Coxe is the chief strategist for Canada's Coxe Commodity Strategy Fund (TSX: COX.UN), which was named after him by the BMO Financial Group, the big-league investment banking firm that runs the fund.
BHP Billiton has already stated that it wants to be a "major" player in the potash industry within the next decade. And it is already hard at work developing the world's largest potash mine ever. Located 150 kilometres east of Saskatoon near the town of Jansen, it will eventually produce eight million tonnes per year mine and is scheduled for commissioning in early 2015. The mine will cost upwards of Cdn. $2.5 billion to build.
Yet, the diversified Australia-based mining company is a newcomer to the potash business and its grand aspirations cannot be realized with the commercialization of just one potash mine -- no matter how big it is. Hence, Coxe believes that BHP Billiton may become an aggregator by buying out other valuable potash resources, such as potash deposits that are already in-development elsewhere in Saskatchewan.
And the most obvious candidates would be Saskatchewan's trio of publicly-traded potash explorers -- Western Potash, Potash One, and Athabasca Potash - all of which are making good headway with their respective flagship projects.
"If you're a small potash exploration company operating in Saskatchewan, BHP Billiton might be interested in you," Coxe hinted during an exclusive interview with BNW Business News Wire. "Their cash flows are enormous and they want to be known as the leading resource company in the world."
This astute insight is shared by Jacob Bout, a fertilizers analyst for the Toronto-based investment banking heavyweight CIBC World Markets.
"Companies involved solely in exploration of potash are likely take-out candidates, either by diversified mining companies seeking a way into the potash industry or by countries looking to lock-in supply," he stated a few months ago in a comprehensive research report entitled 'Global Potash Supply - A Focus on Saskatchewan Exploration.'
In the same report, Bout pointed out that BHP Billiton is "looking to get involved in potash mining." It is worth noting that global mining giant Vale has recently taken over all of Rio Tinto's global potash assets, making Vale another potential suitor for potash juniors in Saskatchewan.
A BHP Billiton spokesperson, Ruban Yogarajah, declined to discuss any future takeover plans that BHP Billiton might have to significantly build up its potash assets in the region in order to become a "major" producer.
Among the three remaining publicly-traded mining juniors that are still in the race to develop Saskatchewan's first new potash mine in nearly 40 years is Potash One. It announced the completion of a multi-million dollar pre-feasibility study (a preliminary blueprint for a mine) in late June. The assessment suggests that Potash One's solution-extraction amenable (low-cost and scalable) Legacy Deposit has a net present value of US $4.47 billion.
The company recently received another major boost with the arrival of its new chairman, Robert Friedland, in May. The mining magnate is best-known as the man behind the epic Voisey's Bay nickel discovery in the remote Labrador region of eastern Canada. His company later sold the deposit to the mining multinational Inco Ltd. (now Vale Inco) for the princely sum of Cdn. $4.3 billion.
Coxe says he greatly admires Robert Friedland's "visionary" business acumen and believes that the famous financier has made a shrewd move by becoming the new driving force behind Potash One.
Friedland's efforts to develop huge mining projects in Mongolia and the Democratic Republic of Congo have lately been thwarted by "Third World politics," Coxe laments. By comparison, Friedland's commitment to developing a new potash mine in Saskatchewan represents a "pretty attractive" opportunity, he adds.
Meanwhile, BHP Billiton's drive to break into Canada's lucrative potash mining business may prove to be yet another master stroke, experts agree. In recent years, BHP Billiton helped break up De Beers' seemingly omnipotent diamond cartel with the commercialization of Canada's first ever diamond mine in 1998 -- the rich Ekati Mine in the Northwest Territories.
Such takeover talk is music to the ears of Western Potash's president, Patricio Varas. "At WPX, we are exploring and developing a world-class resource. But lots of work is still ahead of us to prove and show companies like BHP that we have a worthwhile asset. On our side, we have the funds and the technical ability to explore and discover that one special asset that attracts mine builders like BHP," he told BNW News Wire.
Rumors are even circulating that BHP Billiton could take a run at Potash Corp. of Saskatchewan -- which boasts the world's largest potash reserves. Fai Lee, a mining analyst for another major Canadian investment bank, RBC Capital Markets, thinks that the merger would make strategic sense.
"We view Potash Corp.'s potash assets as long-life, low-cost assets that can be expanded and are largely export-oriented. As such, we believe Potash Corp.'s potash business would represent a good fit with BHP Billiton's stated business strategy," he recently advised clients.