Northern Miner Editorial – Political Power Play Over PotashCorp

The Northern Miner, first published in 1915, during the Cobalt Silver Rush, is considered Canada’s leading authority on the mining industry. This editorial is reproduced with permission of The Northern Miner and is from the November 1-7, 2010 issue.

BHP Billiton’s $40-billion hostile bid for Potash Corp. of Saskatchewan entered a critical period in late October, as the broadly free market-friendly Saskatchewan Premier Brad Wall and his government set aside years of “Saskatchewan-is-open-for-business” talk and came out strongly against the deal.

Wall said the deal fails to provide a “net benefit” to the people of Saskatchewan and Canada in three key areas: jobs and investment, Canadian control of an important Canadian resource, and provincial revenues. He also voiced concern over the fate of the Canpotex potash-export marketing arrangement if BHP succeeds in its bid.

“Do we want to add PotashCorp to that list of once-proud Canadian companies that are now under foreign control?” asked Wall, who cast doubt on the ability of federal authorities to enforce restrictions should approval be granted with specific conditions.

“In the past decade, promises about maintaining jobs, corporate headquarters and future investment have all been broken,” said Wall. “We simply cannot take that risk with this valuable resource that belongs to the people of Saskatchewan.”

Wall’s thumbs-down came three weeks after the Conference Board of Canada released its own, provincial government-commissioned study that concluded the deal was generally a good one for Saskatchewan, and that provincial tax losses could be mitigated through negotiation.

It’s noteworthy that, instead of focusing on the nitty-gritty of tax points, a Canadian politician from the conservative end of the spectrum is taking the public posture that PotashCorp is an asset of national strategic importance.

The difference this time is that most large Canadian mining and oil and gas companies have already been sold to foreigners, and PotashCorp was a provincially owned corporation only 22 years ago.

PotashCorp’s management, which earlier said its views were ignored by the Conference Board, thanked the provincial government for “its thorough and thoughtful review of the matter” and embarked on a public-relations offensive in the national media to stress the company’s Canadianness — neatly downplaying that its CEO is an American and its executive offices are in Chicago.

Wall is also backed up by recent polls showing roughly 70% of people in Saskatchewan are against the sale of PotashCorp to foreigners.

Wall’s hard power in this instance is limited, though, as approval of the bid ultimately comes at the federal level under the Investment Canada Act. The matter is now before federal Industry Minister Tony Clement and his department, and a decision is expected soon.

Canadian Prime Minister Stephen Harper showed his inclination early on, when he said during Question Period that BHP’s bid is a “proposal for an American-controlled company to be taken over by an Australian-controlled company.”

However, simple power politics may in the end trump free-market ideology as the federal Conservative party, now in its fourth year of running a fragile, minority government, holds 13 of Saskatchewan’s 14 seats.

With both the Liberal and New Democratic parties coming out vocally against the bid, and the sale widely unpopular in the province, failure to kill the bid at the federal level will probably result in the Conservatives losing several federal seats in the province, enough to put a majority government decisively out of reach for the Conservatives in the federal election that will likely happen next year.

And if Harper can’t attain a majority government in the next federal election, his days as party leader are numbered.

On the other hand, there are realistically no Conservative seats to be gained by approving the bid.

Another Tory twist is that BHP has hired former Harper spokesperson and Saskatchewan native Kory Teneycke to lobby for the bid on its behalf. But given Teneycke’s track record as a spokesman and lobbyist, this is probably of little consequence.

There must be a lot of hand-wringing at BHP headquarters these days. On Oct. 18, BHP and Rio Tinto officially dissolved the proposed combination of their Western Australian iron ore assets in the face of regulatory disapproval on anti-competition grounds.

Clearly, the guiding “bigger-is-better” idea behind BHP Billiton’s rapid and historic growth into the world’s largest mining company is reaching its practical limits.

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