Thursday, September 16, 2010

Potash (NYSE:POT) Looking to China Again Against BHP (NYSE:BHP)

The obsession of Canada, Potash (NYSE:POT) and Saskatchewan with being "delivered" from the bid by BHP Billiton (NYSE:BHP) is getting more bizarre by the day, as after Chinese company Sinochem - who was considered among leading white knights for the company - backed out, they are now pursuing some type of consortium, led by Chinese investors, to battle the bid.

None of this makes much sense for casual observers, as why would Potash and Canada prefer a bid from the Chinese over BHP?

It's about the socialist practices of the Provinces of Canada, in this case Saskatchewan, which has royalties they extract from Potash as a result of the Canadian monopoly through their price fixing with Canpotex, the marketing arm of the potash industry from Canada, which includes Agrium (NYSE:AGU) and Mosaic (NYSE:MOS), along with Potash.

BHP is a fierce competitor and has signaled they have little interest in remaining involved with Canpotex once the existing agreements have been fulfilled and ended.

This means BHP would harvest the potash at levels they want, and would compete on scale and price, and not the fixed and monopolized prices now being forced on farmers and ultimately, consumers.

It's about power and the loss of royalty fees which is at issue, and the reason they're gravitating toward China is it's a similar command-and-control economy as far as Potash goes. In other words, the Chinese understand and approve of the price fixing being done in Canada, and wouldn't oppose like competitors in the free market would.

Spin as they may try, this is about socialism and fascism, where government and corporate lines blur. The end game is who controls the price of potash, and how much the Province of Saskatchewan can siphon off from the company.

A BHP-controlled company would result in better prices and lower costs at the supermarket. The continuation of the current monopoly in Canada will continue to artificially inflate prices and keep them above market rates. That always scares governments attempting to interfere with and control business.

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