A takeover tussle between two of the world’s biggest potash players could have an unlikely winner: BHP Billiton.
Analysts say a deal between Canada’s Potash Corp and Germany’s K+S will mean the remaining players in the market have increased pricing power over the next decade.
BHP has its foot on a potash megaproject called Jansen in Canada, which CEO Andrew Mackenzie has said is the best potash asset in the world.
But BHP is yet to decide whether to develop it could hinge the success of exploration and acquisitions in its other two key growth commodities: oil and copper.
Mr Mackenzie told The Australian Financial Review this month that BHP may have to choose between copper, potash and conventional oil in about five years, and could take on partners or exit one of the plays to protect its progressive dividend.
Deutsche mining analyst Paul Young said a Potash Corp deal with K+S would probably be positive for BHP.
Potash Corp – the world’s largest potash producer and a one time takeover target of BHP – has made a private offer to German potash producer K+S, thought to be worth at least $US7 billion ($9 billion).
“Potash Corp would increase their market share on the back of this – therefore they would be able to increase their influence on pricing, which can only be positive for BHP,” Mr Young said.
UBS analyst Glyn Lawcock said that potash was a “next-decade story” for BHP, but any deal that generated consolidation in the industry “has got to be good for the long run”.
“Consolidated industries generally generate better returns and higher margins than fragmented industries – you only have to look at the iron ore industry and the steel industry to see that.”
BHP would be watching the Potash Corp tussle from the sidelines as development of Jansen continued to slow, Mr Young said.
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