Nitrogen-maker Terra Industries, based in Sioux City, Iowa, this week voiced an out-of-hand rejection of an unsolicited bid from CF Industries, a nitrogen-maker and phosphate miner. This week also, CF Industries found itself at the receiving end of an unsolicited bid from Agrium, which produces the holy three ingredients for fertiliser: nitrogen, mined and milled potash, and mined phosphate.This may well signal the start of a consolidation phase in potash, arguable the most exclusive product in mass mining, and one increasingly under attraction from the biggest names in the business. Vale, the world's No 2 miner overall, already ranks as a potash miner, of sorts, but recently also bought debt-soaked Rio Tinto's potash assets in Argentina and Canada for USD 850m.BHP Billiton, the world's biggest diversified resources group, in May 2008 bought for USD 282m Anglo Potash, which held 25% of a Canadian joint venture company, in which BHP Billiton already held the other 75%. The numbers in the potash game are invariably impressive; listed potash stocks (which also sometimes mine phosphate, and may also produce nitrogen) currently carry an aggregate market value of USD 90bn.The Agrium bid for CF Industries is at a premium, for USD 3.6bn, of which some USD 1.5bn would be by way of cash, reflecting the relatively robust shape of the global fertiliser sector. While fertilisers require three key inputs, nitrogen, phosphate and potassium (NPK), potash, raw material for potassium, remains the Holy Grail, with the highest actual and potential margins. Potash is mined in only 12 countries; potash miners are specialist, and most are listed.PotashCorp, based in Saskatchewan, ranks as the leader in global potash production, with around 20% of world capacity, amounting to around 40m tons a year. PotashCorp mines and produces the holy three; it also holds 28% of Jordan's Arab Potash, 10% of Israel's ICL, 32% of Sociedad Química, all potash miners, and 20% of Sinofert, the biggest distributor of potash and other fertilizers in China. Unlisted Belaruskali follows PotashCorp in terms of percentage of global potash output, followed by Mosaic.
Potash is not only exclusive, is it also a hugely capital intensive game, requiring monster long-term capital investments. According to recent calculations by PotashCorp, it requires USD 2.8bn to finally commission a 2m tons a year potash mine from scratch, a process that takes seven years; the cost quoted excludes costs outside plant gates - rail, road networks, utility, port systems, and so on. At Agrium's Vanscoy Potash Operations, potash is only encountered after mine shafts have been through 80 meters of glacial deposit, 440 meters of shale, 120 meters of water-bearing sandstone (the Blairmore formation), 420 meters of limestone, and 15 meters of salt.During January, possible consolidation in the potash sector was also under the spotlight in Russia. Talk - now apparently abandoned - was that the Russian government would agree to form a mega mining entity where government would hold 25%, plus a vote, in return for absorbing the debt in a number of big mining names, including Siberian nickel miner Norilsk, plus Metalloinvest (unlisted), Evraz, and Mechel, three of Russia's biggest names in iron ore and steel. There was also a similar plan to merge Uralkali and Silvinit, two big potash miners, along with Apatit, a phosphate miner, and also possibly also Acron, a major distributor. Uralkali and Silvinit combined would hold around 20% of global potash capacity, roughly equal to that held by PotashCorp.Phosphate mining is far less concentrated, being produced in at least 40 countries; here, PotashCorp ranks third in the world, but contributes just 5% of global output. A new 2m tons a year phosphate mine costs around USD 3bn, and takes three to four years to build. Nitrogen, produced in at least 60 countries, requires about USD 2.8bn for a new 2m tons a year facility, and a build time of about three years.There was period during 2008 when PotashCorp's market value ranked as the biggest in Canada, outflanking Royal Bank of Canada. This time around, it appears that Barrick, the world's biggest gold producer, may challenge for Canada's top spot, but PotashCorp, the humble miner from Saskatchewan, remains a strong contender.
Selected potash & related stocks
Selected agromineral players
Gujarat State Fert.
Egyptian Fin & Ind
EID Parry India
* 12 month
Source: market data; table compiled by Barry Sergeant