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BHP Fires Another Potash Warning Shot

BHP Billiton announces reserve estimates at a major potash project in Saskatchewan as it aims to take on the entrenched potash industry.

NEW YORK (TheStreet) -- BHP Billiton (BHP) - Get Report 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.


, 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?

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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

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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.

The multinational giant has three other potash mines in development, which could eventually churn out more than 20 million metric tons a year. That would amount to 40% of the total amount of potash expected to be produced globally in 2010. In 2009, Potash Corp. itself had output of 13 million metric tons.

Charles Nievert, an agriculture stock analyst at Dahlman Rose in New York, cautioned in a note to clients Tuesday that investors may be downplaying BHP's eventual impact on the potash market. "While the market continues to discount BHP's entry into the Potash market, we view BHP's posture as a major threat to the existing players," he wrote. "We expect BHP's existing plans, if fully realized, would make the company one of if not the major player in the potash industry."

Potash shares were trading at $94.37 Tuesday morning, down 73 cents. The stock has declined more than 25% since touching a year high of $128.42 in March.

-- Written by Scott Eden in New York

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Scott Eden has covered business -- both large and small -- for more than a decade. Prior to joining, he worked as a features reporter for Dealmaker and Trader Monthly magazines. Before that, he wrote for the Chicago Reader, that city's weekly paper. Early in his career, he was a staff reporter at the Dow Jones News Service. His reporting has appeared in The Wall Street Journal, Men's Journal, the St. Petersburg (Fla.) Times, and the Believer magazine, among other publications. He's also the author of Touchdown Jesus (Simon & Schuster, 2005), a nonfiction book about Notre Dame football fans and the business and politics of big-time college sports. He has degrees from Notre Dame and Washington University in St. Louis.