Big mining wants a part of big fertilizer

Stephen Beard Aug 18, 2010
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Big mining wants a part of big fertilizer

Stephen Beard Aug 18, 2010
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Steve Chiotakis: The world’s biggest mining company has made a hostile bid for the world’s biggest fertilizer producer. BHP Billiton has offered $40 billion for the Potash Corporation of Canada. A bid Potash rejected. BHP Billiton shares are lower today in London. And yesterday Potash stock surged nearly 30 percent in New York trading. It’s a massive takeover bid for an unusual industry. But it ties into the news recently about the rising cost of commodities and food.

Marketplace’s Stephen Beard is with us live from London with the latest. Hi, Stephen.

Stephen Beard: Hello, Steve.

Chiotakis: The bid was rejected now, this $40 billion bid. But BHP is still pressing forward. I mean, why is the company so interested?

Beard: BHP — an Australian company by the way, listed in London — has, like a lot of miners, done well out of the boon in mineral prices fueled largely by Chinese demand. So BHP has the cash and the credit to expand and it wants to diversify. There is a possibility that China — its biggest market for industrial minerals — could slow down. So BHP wants to diversify into other products.

Chiotakis: So, all right, if they want to diversify, why Potash?

Beard: Well this looks very neat actually. Potash is mined, dug out of the ground, so it’s a natural product of BHP. And it’s a fertilizer. It’s a truism. The world needs to grow more food and therefore needs more fertilizer.

Justin Urquhart Stewart is with Seven Investment in London and says this takeover could be an insurance policy for BHP, especially in its most important market.

Justin Urquhart Stewart: China’s burgeoning economy, even if it does slow down, will still have to feed its growing population. And its population is increasingly looking now not just towards not just ordinary agriculture, but beef production as well. And all of this means demands for more fertilizers.

The head of Potash Corporation says he reckons there will be a 10 percent demand for Potash next year. He’s rejected BHP’s bid as “grossly inadequate.” Other companies could enter into the fray. Some analysts say BHP is best placed to win, but it may have to increase its offer from $40 billion to $60 billion.

Chiotakis: So the competition could be out there. All right, Marketplace’s Stephen Beard reporting from London. Stephen, thanks.

Beard: OK Steve.

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