Potash Corp. of Saskatchewan Inc. last week established a “Pledge to Saskatchewan” that it said incorporates many of the company’s existing practices, as well as strategic imperatives for the future. “We believe these practices, and a commitment by any bidder to endorse them, will serve the best interests of the Province of Saskatchewan and PotashCorp stakeholders,” added PotashCorp. BHP Billiton, which is seeking to buy PotashCorp, has also made promises to Saskatchewan (GM Aug. 23, p. 15).
“For 35 years, including the past 21 as a publicly traded company, Potash Corp. of Saskatchewan Inc. has served as a steward of the Province’s potash resources, employer of choice at all of our locations, and an ambassador for Saskatchewan and Canada around the world,” said Dallas Howe, chairman of the PotashCorp board of directors. “We intend to ensure the purpose and spirit of this company are maintained in every circumstance as we move forward.”
PotashCorp pledges to:
- Maintain a strong and vital corporate headquarters in Saskatchewan. It says senior officers, including the CEO, CFO, and president, PCS Potash, will maintain residency in Saskatchewan. In addition to existing corporate functions and the more than 200 employees at the Saskatoon corporate headquarters, executives responsible for legal, human resources and investor relations will relocate to Saskatchewan.
- A commitment to Canpotex and strong continuing provincial revenues.
- Support for continued profit-maximization strategies.
- Development of a strong aboriginal workforce.
- A commitment to community programs, including being the number one corporate citizen in the province with respect to philanthropic giving. This would include commitments to major projects that would promote excellence in education, enhance access to the best in medical care, and provide Saskatchewan residents with improved recreational facilities.
- A commitment to local purchasing. As per PotashCorp’s current policy, any supported bidder must commit to a local spending target of at least 60 percent on competitive terms, excluding purchases for major expansions, energy, transportation, and raw materials.
- Continuing PotashCorp expansion projects. Beginning in 2003, PotashCorp initiated a plan to invest more than $7 billion in long-term capital expansions of its potash assets, including $5.7 billion of expansions in Saskatchewan between 2005 and 2014. Any supported bidder must commit to complete these projects.
Alternatives should be allowed to emerge, says Doyle
PotashCorp also said in an Oct. 12 letter to employees from President and CEO William Doyle that alternative bidders should be allowed to come forward. On Oct. 4, The Conference Board of Canada issued its report for the government finding fault with bids by BHP and Sinochem (GM Oct. 11, p. 1). Speculation has arisen that a Chinese bid may now be stymied until the country gets clear direction that its consideration will not be discarded outright by governmental authorities.
In fact, Reuters was reporting Oct. 15 that Sinochem has abandoned its attempt to submit a bid.
“As we work through the process, we believe it is critically important for both the provincial and federal governments to understand that the interests of PotashCorp shareholders and the citizens of Saskatchewan and Canada will be best served if alternatives are allowed to emerge. Our Board is working hard on this, and we have urged the Canadian government to remain open and to provide a level playing field as it reviews the impact of any potential transaction. We believe that a robust process, in which multiple alternatives are considered, is the best way to ensure the best possible outcome for our stakeholders.”
Peer shares going up based on market conditions
Doyle also pointed out that strong crop prices have been boosting fortunes of the fertilizer industry in general, and that PotashCorp shares would have been expected to go up regardless of the BHP offer.
“… Since Aug. 16 – immediately prior to the disclosure of the BHP bid – the stock prices of our peer group have risen significantly, both in absolute terms and compared to the broader market indices, on the basis of improving fundamentals,” said Doyle. “Applying the appreciation in our competitors’ share prices over the last eight weeks to our stock price before the BHP bid was launched, the offer reflects a negative premium. We continue to believe the stand-alone value of PotashCorp significantly exceeds $130 per share.
“Agricultural commodity prices are strong,” said Doyle. “The combination of strong food demand and production issues has had a predictable impact on agriculture commodity prices, with most key global crops well above their 10-year average. This past week, the USDA increased the projected U.S. corn farm price for the 2010/2011 crop year by $0.60 per bushel to $5.00 per bushel, based on the expectation that U.S. corn stocks-to-use will decline to the lowest level since 1995. With this price assumption, U.S. corn farmers are expected to generate record returns this year.
“Importantly, this is a global crop story, not just a U.S. corn story,” added Doyle. “Coffee and sugar are more than double their 10-year averages. Palm oil is nearly 75 percent above its 10-year average. Soybeans and wheat are about 50 percent above their 10-year averages. In our view, this provides a highly supportive environment for farmers, and encourages them to maximize production through proper fertilization and other best farming practices.”
Doyle said all three of its nutrient sectors are benefiting from this positive trend, and that potash demand is strengthening and prices are rising.
First Nations want potash revenue sharing
The Federation of Saskatchewan Indian Nations (FSIN) Chief Guy Lonechild says it is time for a resource revenue sharing agreement between the First Nations and the Province of Saskatchewan. FSIN wants to develop a long-term strategy that includes its participation in current and future potash developments in Saskatchewan.
“As commendable as this government’s commitment is to teaching Treaties in the classroom, it has so far failed to honor those treaties in accordance with their original spirit and intent of mutual benefit,” says Chief Lonechild. “It is my role and duty to point out that First Nations never ceded their rights to minerals below the depth of a plough, and that no government can point to documents or processes where First Nations consented to the transfer of these assets.
“The potash mining operations that have been operating since the early 1960s within Treaties 4 and 6 have provided virtually no benefit to First Nations in the area, and further, the province has not shared the royalties it has extracted from those operations with First Nations, either directly or indirectly,” says Chief Lonechild. “First Nations in the north have a proven track-record in working with large mining companies. We need to build upon this experience in southern Saskatchewan potash industry.”
FSIN says it represents 74 First Nations in Saskatchewan.