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BHP Billiton CEO Marius Kloppers

TOBY MELVILLE/Toby Melville/Reuters

BHP is backing away from its promise to dismantle Canada's potash export cartel as part of its $38.6-billion (U.S.) bid for Potash Corp. amid growing concerns about the deal's economic impact in the province.

When it launched its bid last week, BHP said it planned to market its potash independently rather than rely on the decades-old consortium Canpotex, which is operated jointly by Saskatoon-based Potash Corp., Calgary's Agrium Inc. and Minnesota's Mosaic Co.

Saskatchewan is home to some of the world's richest deposits of potash, used to enhance crop yields on farms around the world. Saskatchewan government officials have warned they are taking a close look at BHP's acquisition plan, citing concerns about the effect a breakup of the cartel would have on the province.

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Saskatchewan earns royalties from potash sold by the group, and a breakup of the marketing system could lead to lower potash prices - and reduced revenue for the province - if BHP were to fast-track production. The Saskatchewan government is seeking independent advisers to study the impact of BHP's move on its revenues.

On Wednesday, after it appeared the Canpotex controversy would not go away, BHP chief executive officer Marius Kloppers acknowledged his company might not get its way.

"Without all the [Canpotex]shareholders coming to a mutual understanding … it's not going to happen," Mr. Kloppers said in an interview. "Partners are partners. They're different from competitors," he said. "Getting into a bad blood situation with other [Canpotex]shareholders … would be reasonably silly on my behalf."

Mr. Kloppers also said BHP wouldn't do anything that "misaligned" the company with the province or the federal government when it comes to making profits.

The Canpotex issue has become a surprise twist in BHP's takeover fight for Potash Corp., which has rejected BHP's $130 per share offer as too low. Potash Corp. said this week it's talking to other potential suitors in hopes of finding a higher price.

Mr. Kloppers said BHP, the world's largest miner, prefers an independent marketing approach. But it remains part of joint-marketing arrangements for other commodities.

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BHP has a joint-partnership called Samarco with Vale SA in Brazil to sell iron ore pellets, and is also involved with Xstrata PLC and Anglo American PLC in the energy coal partnership Cerrejon in Columbia.

Agrium said it would continue to support Canpotex, no matter what BHP decides.

"Canpotex has developed an enviable rapport and reputation with customers globally and utilizes its extensive infrastructure to the benefit of its members and customers alike," the company said in a statement.

Agrium CEO Mike Wilson told Canada's Business News Network Wednesday that BHP would be "crazy to leave" Canpotex.

Canpotex represents Potash Corp., Mosaic and Agrium for all potash sales from Saskatchewan mines sold outside of North America, representing about one-third of global capacity.

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The terms of the agreement state that all three parties will not make offshore sales independently as long as they are members of the group. It also states that any member can drop out of the consortium with six months' notice.

In an interview Wednesday, Mr. Kloppers brushed off speculation another bidder could come along and trump his offer.

"We've only got a 50-per-cent minimum acceptance condition on here, so that hopefully will send a clear message to anybody that hopes to take a 5- or a 10-per-cent stake in hopes of blocking us that that won't deter us," he said.

He also shot back at Potash Corp. CEO Bill Doyle who earlier this week said there was a "broad universe" of companies interested in making a rival bid.

"This is a cash bid. It's a large bid. The universe of possibilities here are probably not endless," Mr. Kloppers said. "If we rule out that a minority stake blocks, if we rule out the major mining companies, it's a really short list. I don't want to rule out the possibility of that appearing, but I can tell you that it doesn't seem to me like there's a huge universe of things happening here."

Mr. Kloppers, also known for walking away from a proposed merger with Rio Tinto PLC in 2008 on the eve of the global economic downturn, said he would be ready to walk away from the Potash offer as well.

"Clearly we would like to own these assets. We've put a price on the table that reflects that, but if I need to step out of this without completing this deal I will do it with the same conviction that we stepped away from the Rio Tinto transaction when the market changed on us," he said. "I feel under no compulsion to complete a deal that I don't want to do, just because I've entered the fray."

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About the Author

Brenda Bouw is a freelance writer and editor based in Vancouver. She has more than 20 years of experience as a business reporter, including at The Globe and Mail, The Canadian Press, the Financial Post and was executive producer at BNN (formerly ROBTv). Brenda was also part of the Globe and Mail reporting team that won the 2010 National Newspaper Award for business journalism. More

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