TORONTO (miningweekly.com) – BHP Billiton started studying a potential combination with Potash Corp in May this year, according to a regulatory filing on Friday.

BHP also reiterated that it would honour existing commitments, but would seek to sell its own output if successful in acquiring Potash Corp, rather than through the Canpotex marketing group that sells potash on behalf of Canadian producers.

The firm has gone hostile with a $130 a share offer ($40-billion on a fully diluted basis) for the Saskatchewan fertiliser company, after Potash Corp refused to talk about a friendly transaction.

BHP Billiton CEO Marius Kloppers contacted his counterpart at Potash Corp, Bill Doyle, on August 3 to request a meeting, which took place in Chicago on August 12.

Kloppers outlined a proposal for the $130 a share share offer, but Doyle “stated that PotashCorp was 'not for sale' and had no interest in discussing a combination at this time", BHP said on Friday.

The offer was formally launched on Friday and will remain open until midnight on October 19, unless extended.

BHP Billiton has said for years that it wants to become a significant producer of potash.

The company has acquired a handful of greenfield projects in Saskatchewan, but speculation persisted in the market that it would eventually make a play for one of the big producers.

CANPOTEX

In its offer document filed on Friday, BHP also repeated that, while the company will honour existing commitments between the partners of marketing firm Canpotex, the company intends to eventually sell its own production if successful in buying Potash Corp.

Canpotex is the offshore marketing company for Canadian potash producers Potash Corp, Agrium and Mosaic, and negotiates contract pricing with key customers on behalf of the miners.

Potash Corp is the biggest contributor to sales volumes through Canpotex, with 54%, according to the company's website.

“BHP Billiton will work with the Canpotex shareholders in order to further understand existing agreements and establish the basis for a relationship that provides for continuous and undisrupted supply to export markets and ultimately permits BHP Billiton to market its potash independently,” the document said.

“BHP Billiton intends that Potash Corp will continue to honour existing commitments and contractual arrangements Potash Corp has entered into in relation to Canpotex.”

The other major potash cartel is Belarusian Potash Company, which markets production from Russia's Uralkali and Belaruskali of Belarus.

The acquisition of Potash Corp would also likely have an effect on supply levels, as the company has operated as a swing producer, curtailing production to support prices during times of weak demand, while BHP might be more inclined to run operations at their full capacity.

MORE ON MINING WEEKLY'S COVERAGE OF THE BHP OFFER FOR POTASH:

Potash Corp will review BHP offer, clock starts ticking

Who's to say there's a higher Potash offer coming?

BHP would honour Canpotex pacts, prefers to market own output

BHP's Kloppers tight-lipped on how far he'll go to get Potash Corp

Analysts expect sweetened Potash Corp bid, mixed on rival offer

Potash Corp comes out swinging after BHP makes first move

Potash Corp rejects takeover offer from BHP Billiton

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