The major North American stock markets today opened on a high note buoyed by the news that Potash Corp. (TSX: POT) has received an unsolicited takeover bid from the world’s largest mining company BHP Billiton Ltd (NYSE: BHP).Potash Corp. shares surged 25 per cent after it said it had received a$130 per share or $38.6-billion (U.S.) offer from BHP Billiton Ltd.This bid was at a 25% premium to Potash Corp’s latest closing shareprice. Potash Corp labelled the offer grossly inadequate, rejected itand put in place a shareholder plan to prevent any shareholder fromaccumulating more than a 20-per-cent ownership stake.
This news has shaken the potash sector and already sent otherfertilizer stocks higher. At the bell, CF Industries Holdings Inc.(NYSE: CF) rose 7.3 per cent and Agrium Inc. (TSX: AGU) rose 5 per cent.
Ubika Research views this development as very positive for thepotash sector in general and for junior potash players such as AllanaPotash Corp. (TSXV: AAA) and IC Potash Corp. (TSXV: ICP) in particular. In our research bulletin issued on February 1, 2010 available at https://www.smallcappower.com/microsite/allana_potash_corp_reports.html,we had specifically commented on the then purchase of Athabasca Potashby BHP Billiton for $341 million. We believe that BHP bought Athabascadue to the proximity of Athabasca property to its own properties. Wehad commented then that BHP’s strategy of going after its adjacentproperty bodes well for Allanaas its properties are adjacent to BHP’s properties in Danakhil basin inEthiopia. Allana’s potash property is located in the evaporite basin ofthe Danakhil Depression, Ethiopia, which holds significant potential.The region is attracting extensive interest lately from some majormining companies, including BHP Billiton and there is a potential forthe development of a potash cluster in the region, which will benefitcompanies like Allana.
We believe that the demand for fertilizer is expected to continueits secular uptrend. This is bringing attention to potash deposits forlarge mining companies including BHP Billinton and Vale SA (NYSE:VALE)as these mining conglomerates scout for high quality potash assetsworldwide. Today’s announcement only underscores Ubika Research'swidely known view. We believe that as there are not many major potashproducers and as the industry consolidates further, junior potashexploration companies with high potential asset and an ability toconfirm sizable resource base will attract attention from potentialsuitors and a company like Allana Potash (TSXV:AAA) has the right characteristics in place to be a potential target.
We can’t help but notice that at the bell, both IC Potash Corp and Allana Potash Corp’s sharesare up already by 10% on the news of these developments in the potashsector, which indicates that market participants are probably makingsimilar assumptions about the potential related to junior potashexploration companies. We will keenly watch this story unfold in comingweeks and months and will update our visitors and readers of ourresearch reports on these developments.