BHP (NYSE:BHP) Claims Tax Revenue More than Conference Board Estimates

Head of non-ferrous at BHP Billiton (NYSE:BHP), Andrew Mackenzie, said the findings of the Conference Board of Canada that over a period of ten years the province of Saskatchewan would lose as high as $2 billion from the acquisition of Potash Corp (NYSE:POT) and the development of the Jansen mine, is overstated.

Mackenzie says the province would probably actually gain tax revenue during that period rather than lose revenue. Most of the tax benefits are simply being deferred, so on the front end there will be less taxes, but on the back end a huge increase in taxes, according to Mackenzie.

The Board did admit over a period of time the acquisition of Potash by BHP would probably end up benefiting the province and Canada in general.

Even so, the report said "the (PotashCorp) acquisition would allow the company to organize its affairs in such a way as to minimize corporate taxes paid to the province."

The question is: so what? That's why tax laws and deductions are in place, in order to stimulate business deals which benefit everyone over the long run.

The reason BHP claims tax revenue is understated even on the front end, is the number of workers on the construction phase of the projected were vastly underestimated. The Conference Board said made their determination based on 1,000 people working during that phase, when in fact it would be closer to 4,000 during the peak of the work.

That's a lot more taxes from 4,000 workers than the 1,000 workers assumed by the Board. Workers also spend money generating more tax revenue for the province, added Mackenzie.

This is about an unholy alliance between the Canadian government and the cartel, monopoly of Canpotex, which has been fixing prices for a long time in order to control and support margins in the business.

Canpotex includes competitors (if you could identify them as such) Agrium (NYSE:AGU) and Mosaic (NYSE:MOS).

The illogical and unreasonable response from Potash and the Canadian province, which was more emotional than practical, reveals this isn't really about paying a good price for the company or anything else. It's about the monopoly and price controls resulting from the potash monopoly, and by extension, Saskatchewan monopoly, that has created all the emoting.

BHP's (NYSE:BHP) Taxes from Jansen Could Reach $90 Billion

The Jansen potash project owned by BHP (NYSE:BHP) in the Canadian province of Saskatchewan will pay an estimated $90 billion in taxes and royalties to various arms of governments in the country over the life of the resource, according to projections by the mining company.

That includes the entirety of the project, including workers wages being taxed and companies connected to the project.

Referring to short-term benefits of tax deductions related to the construction phase of the asset, BHP said, "BHP Billiton notes that in future years when Jansen starts to operate and such deductions have been utilised, the reverse occurs and the province receives more taxes than it would have otherwise."

This was in response to a report from the Conference Board Of Canada that in the beginning phase taxes would decrease.

But who cares? Too bad the majority of the earnings aren't retained by the company to create far more benefit via growth and earnings and the creation of something that has value, rather than ridiculous and wasteful government spending programs.

If for some reason their bid for Potash Corp. (NYSE:POT) is unsuccessful, BHP won't be in the potash game until full production is reached in 2021.

BHP Billiton (NYSE:BHP) Major Potash Player

There hasn't been much noise or notice about the entry of BHP Billiton (NYSE:BHP) into the potash market, but that seems to be about to change as the reserve estimates for its potash mining project in Saskatchewan is huge, and will make them a force to be contended with in the global potash market for years into the future.

To add insult to injury to one of the major potash players, Potash Corp. (NYSE:POT), the project of BHP Billiton is located on the border of the Potash property named Lanigan. BHP's project is called Jansen.

Estimated reserves for BHP at Jansen are 3.37 billion tons of high quality potash, which includes over 25 percent potassium, the key ingredient which makes up potash.

Included with three other major potash mines currently under development, BHP is expected to produce over 20 million metric tons of potash annually, which would account for 40 percent of estimated global production in 2010.

To give an idea of how quickly that has happened, Potash Corp. produced 13 million metric tons in 2009. BHP has been at it for only about 2 years.

This would put them in the pricing drivers seat in regard to competitors and those they're supplying, which should be a big boost to the bottom line of the company.

Now it remains to be seen how the rest of the industry will respond to this major threat.