The top Saskatchewan official who has a big influence on mining licences is talking tough on BHP Billiton and China over Potash Corp.
Les Routledge, the Small Farmer from Killarney says Saskatchewan Premier Brad Wall, who would wield significant influence over the Canadian government’s ruling on a foreign takeover of Potash Corp, is considering using his power over mining licences to extract concessions from BHP if its bid for Potash Corp succeeds.
Interesting comments from Premier Wall. If I understand my history correctly, it was this type of thinking that led to the nationalization of potash mines in Saskatchewan in the first place.
The first step is to introduce the concept of production quotas to manage prices. The second step is to talk about capturing those excess revenues in the form of higher royalties or taxes because the people of Saskatchewan own the asset (kind of reminds one of the chatter in Australia about their mining super tax) and to stop customers from artificially lowering the price through ownership stakes. It is then one small step to expropriate the assets for the benefit of the people.
I wonder if history is going to repeat itself?
I also wonder if the same story will occur with Cameco?
The existence of state-owned enterprises on the customer end complicates the simple narrative of private versus public sector ownership or free market versus managed-market concepts. If BHP decides to team up with state-owned Chinese or Indian companies to complete the transaction, is there any assurance that they will not over produce in order to drive down the price of other mining operations as well as the price of the product? For that matter, what would happen in Chinese state-owned investors proposed to take over BHP now or in the future (or other mining companies like Vale or Rio) and then proceed to manipulate the price of iron ore and coal in addition to potash? Would that action be ok with governments in Australia, Brazil, Canada or the USA?
Whether he likes it or not, Premier Wall is playing in the big leagues and for big stakes. I hope that he is both student of history of the mining business and current affairs as they have played out in the last few years in Australia (BHP, RIO) and Brazil (Vale). Tens or even hundreds of billion dollars are at stake in the answer to some of these questions not just in Saskatchewan, but in other mining countries like Chile, Brazil, and Australia.
I also hope the federal government has learned from the experience of other mining and metal company take over actions in the last few years when they apply a net benefits test to any proposed transactions. If they do step into block a transaction or need to seek future remedy for inappropriate ownership actions (i.e. over production and anti-competitive dumping), what options will they have to protect owners of the shares of POT or the successor companies? Will nationalization be one of their few viable options to replace ownership by foreign state-owned companies?
In terms of over production, one also has to look at the past actions of BHP. Can anyone suggest that the billion dollars they have invested in new mine development in Saskatchewan has any hope of producing a positive return on its own? …or is the POT CEO correct that that action has all been a ploy to depress the price of POT stock so a take over is possible? Are we very far from the situation that was encountered in Sask and the industry in the early 1970’s?
One way or another, it looks like there could be some big losers along the path in the future. Perhaps the only winners will be the investment banks that are positioned to gain on the one-time execution of transactions.
