* BHP board to decide on Jansen mine by mid-2013
* Province fears new production could hurt prices
* Saskatchewan's potash taxes are highest in world
By Rod Nickel
WINNIPEG, Manitoba, Dec 18 Saskatchewan, the
world's richest potash-producing region, will not review how it
taxes miners of the crop nutrient until late next year at the
earliest as it waits to see if BHP Billiton PLC follows
through on plans to develop a huge mine in the Western Canadian
"We're going to monitor the market behavior, and if there's
change in the market structure we'll take a look at that," Kent
Campbell, Saskatchewan's deputy minister of energy and
resources, said in an interview with Reuters. "If there's a
whole bunch of production that comes on, that could change the
nature of the market.
"The BHP decision is obviously a big one."
Potash taxes in Saskatchewan are the highest in the world,
according to Campbell, with producers Potash Corp of
Saskatchewan, Mosaic Co and Agrium Inc
collectively paying hundreds of millions annually.
Those companies are investing billions in mine expansions,
while new players such as BHP and Germany's K+S AG
are doing preliminary digging on Saskatchewan's first new potash
mines in 40 years. With crop prices surging in 2008 and again
this year on bullish outlooks for food demand, potash has
attracted new interest for its ability to boost crop yields.
Saskatchewan's royalty system is weighted toward the price
of potash, rather than production. If too much new capacity
comes to market and pressures prices, Saskatchewan's revenue
One of the aims of a revised royalty system would be to give
additional weight to production levels, Campbell said.
"That's one of the things you would want to look at, for
sure. One of the weaknesses of the current system is it's highly
reliant on price."
BHP, the world's biggest miner, has started construction on
an 8-million tonne potash mine at Jansen, Saskatchewan. A final
go-ahead by its board, however, is not expected until mid-2013.
NEW MINERS TO SELL OUTSIDE OF CANPOTEX
Both the BHP and K+S mines, which aim to start production as
early as 2015, would sell potash to offshore markets
independently of Canpotex, the marketing arm of Potash Corp,
Agrium and Mosaic. That scenario has raised concerns about
Canpotex losing negotiating leverage and prices weakening due to
an expanded field of sellers.
Still, it's possible Saskatchewan will wait as long as
several years, until both mines have started production or
backed away from it, to review the tax system, Campbell said.
"My sense is there's nothing in the immediate plans (for a
review) and it would be at the very least sometime following
(BHP's) decision before we would initiate a process."
In August, Saskatchewan Premier Brad Wall said the
government may need to adjust the potash tax formula because of
the additional production. Shortly thereafter,
Potash Corp said it is not worried about a review, and doesn't
see it as a revenue grab.
Wall's comment seemed oddly timed as a subsequent buildup of
North American supplies, due to Canpotex's inability to sign new
contracts with China and India, has made it unlikely that tax
changes will come in the near future, said Spencer Churchill, an
analyst at Paradigm Capital.
"Right now, it's not on anybody's front burner, it's there
in the background," Churchill said. "It could become a bigger
issue depending on how aggressive they wanted to be."
Saskatchewan justifies charging the highest royalties in the
world on the basis that it has the globe's richest reserves,
But with new mines planned outside the main
potash-producing areas of Saskatchewan, Russia and Belarus, the
province must stay competitive, Churchill said.
Projects are on the drawing board in Africa, Brazil and, on
a smaller scale, the United States, although capital markets
remain tough for them to crack, Churchill said.
Saskatchewan's potash tax reviews have yielded big changes
in the past.
In 2005, the province gave miners a 10-year holiday on the
base tax payment on new production capacity, one of two
components of the potash tax. After the last review in 2010,
Saskatchewan changed the way new potash miners are taxed to
close a loophole that would have given the miners an advantage.
Saskatchewan usually collects several hundred million
dollars annually in potash royalties and taxes, and pocketed a
record C$1.4 billion ($1.4 billion) in 2008.
This year, with prices sliding, Saskatchewan's potash
revenues are expected to tumble to C$465.4 million from earlier
Any Saskatchewan review of the formula would include
consultation with existing producers and companies that own
permits and leases to mine potash reserves. They include Rio
Tinto PLC, Vale SA, Western Potash Corp
, Karnalyte Resources Inc and Encanto Potash
Corp, Campbell said.