BHP Fires Another Potash Warning Shot

NEW YORK (TheStreet) -- BHP Billiton(BHP) went public with enormous reserve estimates for its potash mining project in Saskatchewan, and it ought to be enough to strike fear in the entrenched industry interests, according to some market watchers.

But don't expect those interests to show much concern -- at least not publicly. Bill Doyle, CEO of Potash Corp.(POT), the world's biggest producer of the eponymous fertilizer, danced around the issue when he came to New York from Saskatchewan last month for a powow with investors and analysts.

Potash CEO: What Weakness?

For years, a veritable oligopoly of 14 potash miners -- some have called it a cartel -- has maintained a stranglehold on global pricing. Though the rate charged for a ton of the stuff has plunged since reaching all-time bubble highs in 2008, the oligopoly still controls the market enough to enjoy profit margins as sweet as white-kernel summer corn.

But for the last two years, BHP Billiton, the world's most formidable miner of everything from copper to uranium to diamonds, has been making noise with its entry into the potash field, promising to spend billions to develop mines and upend the potash status quo.

The latest salvo from BHP arrived late Monday, with word that the company's Jansen project in Saskatchewan, which borders an important Potash Corp. property called Lanigan, contains an estimated potash deposit of 3.37 billion tons. Further, the quality is high: it's more than a quarter potassium, the key chemical component in this particular nutrient.

BHP expects Jansen to produce 8 million tons of potash each year, once the mine is up and running. Developing such mines isn't easy, though. The company must sink mining shafts miles into the earth, and in the case of Jansen, they must pass through aquifers. BHP doesn't expect Jansen to begin production until 2015.