Long dominated by a small group of local players, Canada's potash industry has suddenly become red hot, as soaring prices have begun drawing both top mining companies and small exploration firms to the vast resources buried deep under the western prairies.

Used as a key ingredient in fertilizer, demand for potash has soared along with grain prices, driving up shares of world No. 1 producer Potash Corp
nearly threefold over the past year.

It has also pushed explorers' stocks higher, prompted a staking rush and raised expectations of takeovers.

With potash being sold for well over $700 a tonne recently -- about triple last year's price -- several small companies are getting into the game, while top global miner BHP Billiton has also thrown its hat in the ring.

In May, BHP launched a C$284 million ($277 million) bid for explorer Anglo Potash Ltd to gain full control of an exploration joint venture between the two companies.

Speaking at a mining conference in Toronto last week, Graham Kerr, BHP's head of special projects, said the mining giant planned to pursue multiple projects over the course of the next few years.

Analyst Ray Goldie of Salman Partners said he could see other big players coming in to snap up smaller leaseholders.

BHP's shown it wants to play, and I think you could see other companies like Vale and Anglo (American) wanting to move into the area, Goldie said.

One way of doing that would be by taking over smaller companies.

For explorers, finding potash is not the hard part, as the western province of Saskatchewan has an almost unending supply. The trouble is the high cost of digging the deep mines, with long lead times needed to procure scarce equipment and find skilled workers.

With prices stagnant until recently, it has been about 40 years since a new mine has been built in Saskatchewan.

Now the market is waiting to see who will build the next greenfield mine, which would likely cost somewhere above C$2.5 billion and take well into the next decade to build, with an expected annual production of 2 million tonnes.


The increased investor interest has pushed Potash Corp's market capitalization to around C$70 billion, making it one of the largest companies on the Toronto Stock Exchange.

Shares of junior players, some yet to even identify resources, have also gone through the roof.

Potash North Resource Corp's
stock has risen a remarkable 16-fold since last Tuesday, when the company changed its name from Timer Explorations and an announced it had been granted a potash permit covering 91,000 acres.

The TSX Venture Exchange-listed property-holder now boasts a market capitalization of more than C$100 million, and has backing from well-known mining entrepreneurs Robert Friedland and Lukas Lundin.

Raytec Metals Corp shares are up 85 percent since releasing a potash resource calculation earlier this week, while Western Potash has climbed 48 percent since it announced last week it would begin a drilling program on its Manitoba property.

The Saskatchewan government says there are 130 current potash mineral claims or leases in the province, more than half of which were entered this year.

There weren't a lot of exploration permits, if any, a couple of years ago, said Roy Schneider, a resource official for the province, which holds the vast majority of the country's potash reserves.

Now we've got 130 sitting there that are already processed plus more than that in the system.

He said potash sales in the province in 2007 were C$3.1 billion, up 38 percent from the previous year, largely due to increased demand from countries such as China and India.

When you are the province that's known as the Saudi Arabia of potash, that's good news.

($1=$1.03 Canadian) (Additional reporting by Roberta Rampton in Winnipeg; editing by Rob Wilson)

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