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Fertilizer giant Potash Corp. of Saskatchewan owns a 13.8-per-cent stake in Israel Chemicals Ltd.; now it wants to buy more of the publicly traded Israeli firm which, like Potash, makes most of its profits mining potassium salts. The deal, which could cost Potash upwards of $13-billion, is highly unlikely to happen for two reasons – although it's easy to see why Potash is making the attempt.

ICL's potash from the Dead Sea is high-quality stuff, there's lots of it to mine, and it's cheap to produce – $100 per tonne (U.S.) or less, says Gilad Alper, an analyst with Excellence Nessuah Brokerage Services in Israel. That's slightly less than Potash's production costs, which are among the world's lowest. ICL's output is also easier and cheaper to stockpile than Canadian-mined potash thanks to the arid conditions – it basically sits outside in large mounds.

But resource nationalism will be a big obstacle to any deal. Israelis don't have much in the way of natural resources other than potash, sand and offshore natural gas, and are protective of them. (The country's world-beating technology industry is a different story and is long accustomed to foreign investment.)

Israeli potash, about 9 per cent of the world's supply, is ICL's to mine, and politicians are already sensitive to the optics of selling control of a company that profits from such a valuable domestic resource, particularly to a company that fended off its own takeover by playing the protectionist card at home when it was stalked by BHP Billiton two years ago. Already this year Israel's antitrust authority has blocked an attempt by Potash to increase its stake in ICL to 25 per cent. Politicians and regulators are unlikely to be moved this time, either. "The damage hugely outweighs the benefits as far as the politics are concerned," Mr. Alper says.

And there's an equally important effect to consider. ICL typically operates flat out to maximize revenue, while Potash carefully manages its output, regularly shutting down its mines and temporarily laying off employees. CEO Bill Doyle said this year he can make good money when he's operating at just 30 per cent of capacity, and would gladly sacrifice volumes to protect prices. Potash can afford to do that for now, given that the company, along with Mosaic Co.and Agrium Inc., are the only three companies that currently mine the massive Saskatchewan potash reserves and together jointly market their product overseas.

But if Potash plans to extend its supply-controlling strategy to ICL, that could translate into reduced royalties to government, which now add up to hundreds of millions of dollars a year. That new way of doing business won't win Potash any points with austerity-minded politicians in Israel. Even if Potash Corp. has other plans, it will have to overcome perceptions in Israel that is what it has in mind. Don't expect this attempted deal to bear fruit.

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Tickers mentioned in this story

Study and track financial data on any traded entity: click to open the full quote page. Data updated as of 28/03/24 7:00pm EDT.

SymbolName% changeLast
BHP-N
Bhp Billiton Ltd ADR
+0.28%57.69
ICL-N
Israel Chemicals Ltd
+0.37%5.38

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