TORONTO  - The government of Saskatchewan has hired the Conference Board of Canada for an independent analysis of a proposed takeover of Potash Corporation of Saskatchewan, as it mulls the implications of a $40-billion hostile offer for the group.

Potash Corp, which was owned by the provincial government until 1989, has rejected BHP Billiton's offer as too low, and said it is soliciting proposals for other transactions.

Saskatchewan Premier Brad Wall said on Thursday that the government was examining all of its options regarding a buyout of the company, and commented that the province could consider changes to its potash royalty system.

Speculation also continued to swirl on Thursday regarding whether Chinese companies might be preparing a rival offer, with the Wall Street Journal reporting that State-owned Sinochem had hired HSBC to advise it on options regarding Potash.

Deep pocketed Chinese firms are seen as Potash Corp's best bet for a white knight rival to BHP's offer, especially as the nation, a major buyer of potash, would have an interest controlling the biggest producer of the crop nutrient.

There was also excitement on Thursday after the CEO of Alberta Investment Management Corp (AIMCo) said he had received approaches on putting some kind of transaction together with a Chinese partner.

But, in an interview on Canada's BNN station, Leo De Bever emphasised that he had not been approached by the Chinese entities, but rather by "people trying to broker a deal".

"There are a number of people who are trying to play broker between the Chinese and Canadian pension capital and we've been approached, yes," he said.

"But it's all very tentative armchair theory. There's been no specifics."

De Bever said that AIMCo was not interested in particpating in a deal at the moment: "We've concluded that the economics don't necessarily make sense for us."

ROYALTY CHANGES

One of the issues being discussed around the deal is BHP's statement that it would likely run the Potash Corp operations at full capacity, and would prefer to market production itself, rather than through the Canpotex cartel.

Potash Corp has historically operated as a swing producer, reducing output during times of market weakness, to underpin prices.

If BHP opted to run operations at full speed, it would likely result in lower prices, which could affect royalty payments - Saskatchewan's Wall commented in a BNN interview that the province's potash royalty system is biased towards price, rather than volume,
 

A Chinese owner would likely produce the same result, as it would be in the Asian powerhouse's interest to increase output and lower prices for the crop nutrient.

The province may consider adjusting the royalty system, but would prefer to maintain a stable environment, Wall said.

"In the long term there are royalty changes that are possible to take the bias away from price and towards volume, but every time you change royalties, and we have seen it in other jurisdictions, it provides some instability."

Wall said he does want to attract international investment, including from China, but commented that "potash is a little different".

"Because of the strategic nature of Saskatchewan's potash, because of the biblical proportion of the amount of resource that we have here...we want to be very circumspect about sovereign entitiies,  companies from customer countries and their involvement in all of this."

Wall said the government was also looking at "leverage" it has to ensure that a potential buyer lived up to its promises.

He noted that "there isn't any potash mined in the province without a license from the province of Saskatchewan".

INDEPENDENT REVIEW

The size, strategic position and history of Potash Corp mean that any foreign takeover of the company will be a politicised issue, whether it is Anglo-Australian BHP Billiton, or a buyer linked to a foreign government.

As things stand, BHP needs to get approval for its offer under the Investment Canada Act, which means it must prove to the federal government that the deal would be of 'net benefit' to the country.

While there are no direct approvals needed in Saskatchewan, the province's submission on the deal will likely play an important role in the final decision.

Under terms of reference made public of Thursday, the Conference Board of Canada will examine the potential effects for Saskatchewan on employment, royalty revenue, corporate tax revenue and other financial implications.

It will also examine the potential effect on Potash Corp's "strategic position in the international potash industry", as well as Saskatchewan's reputation for a positive investment climate.

"The report will identify options available to the government of Saskatchewan to mitigate the risks identified and act on strategic, economic and revenue opportunities manifest in the takeover bid as it presently exists or any future evolutions of the bid including the potentiality of sovereign or quasi foreign government interests," it said.

The report will be completed and made public by September 30, 2010 and will be used as the basis for Saskatchewan's submissions to Industry Canada, the agency responsible for analysing transactions under the Investment Canada Act.

BHP Billiton has said it would agree to maintain current levels of employment at Potash Corp's Saskatchewan and New Brunswick operations "for the foreseeable future" and would continue with the Canadian firm's planned and announced capital programmes.

It will also establish the global headquarters of its potash unit in Saskatchewan.

Source:miningweekly