Is BHP Billiton Limited (ADR) (BHP) Jumping Into the Potash Corp./Saskatchewan (USA) (POT) Market?

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Since BHP doesn’t plan to join Canpotex, we think the global mining duopoly could be slightly disrupted. Jansen could have 8 million tonnes of capacity (15% of the global potash demand in 2012) and a useful life of more than 50 years, making BHP no small player. In fact, BHP could become a serious player, and the addition of robust supply could eventually put downward pressure on global potash prices—bad for potash producers, but potentially positive for companies such as Caterpillar Inc. (NYSE:CAT) and Deere & Company (NYSE:DE). Lower potash prices could free-up farmer capital to invest in other areas, like machinery.

BHP continues to scrutinize capital-allocation decisions, and it may ultimately decide that betting on potash in the long-term is the right choice. In any case, the next few years seem to be setting up to be a struggle for the global mining giant. As for the potash producers, we like the long-term demand potential for crop nutrients to boost food production for burgeoning nations. Still, we believe Agrium Inc. (USA) (NYSE:AGU), Mosaic, and Potash Corp./Saskatchewan (USA) (NYSE:POT) look fairly valued at current levels. BHP is also now trading in line with our fair value estimate (at the time of this writing).

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RJ Towner has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. RJ is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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