Potash

122 Replies to “Potash”

1. “The way capitalism works, if you run your company inefficiently, someone else steps in, buys out the irritated shareholders and fires everyone and puts in place a new management team.”
   OK cgh what proof do you have that would indicate that PCS is(was) being run inefficiently? The fact is large companies tend to buy out smaller companies not because the smaller companies are inefficient but rather by buying out the competition one company can eliminate the competition and increase its market control. Now if you are so deluded to believe that one huge company is better for the economy than 10 smaller ones then I have some swampland in Arizona I will sell you yesterday. You believe that corporate takeovers are a good thing because it gets rid of inefficiency. So how come, over the years, many many many of these takeovers resulted in the buyer bleeding the purchased dry and discarding the shell like an empty Halloween candy wrapper on All Saints Day?
   A few weeks ago in Chili a new technology punched into a collapsed mine. The new technology came about because of the competition of a bunch of companies vying for drilling contracts based on the speed and accuracy of the drilling technology. Now in an efficient monopoly how soon would that new drilling technology be developed? My guess is never!

2. cgh, I’m curious as to how you would address the arguments by Canadian business leaders, by all accounts staunch free market supporters, such as Stephen Jarislowksy and Dick Haskayne, who have made very serious arguments against the acquisition of POT, both arguing that the takeover would be a raw deal not only for Saskatchewan, but for all Canadians. Have you read their opinions? How do you address those issues?
   And again, as I suggested in my earlier post, do you (or anyone here) really argue that Canada should be the only state on the planet that does not consider strategic national interests related to ownership issues in the national economy? I might agree with you if other states followed and implemented your ideological viewpoint, but they don’t, why should Canada? Adhering to an open marketplace is a losing proposition if other states do not follow the same ideology that you wish Canada to. And they do not.
   In an ideal world, I would likely share your opinion, but the world we live in is not ideal, and the decisions made by corporations have huge impacts on national interests. It seems to me simply idiotic to be the only nation in the world that does not actively consider our strategic interests in the market.

3. Inefficiently? It was paying bupkis for dividends. That means it’s inefficient for the shareholder. And if you believe that 10 smaller companies are better for your economy than one huge one, you’ve already bought the swampland.
   Let me tell you a little story about an industry in Canada that was run just the way you think it should be. About 20 years ago, there were a number of wire and cable companies in Canada, Canada Wire and Cable was one, Phillips was another. Now the way these companies were organized is that they had a single small wire pulling operation in each province. Why? Because the provincial governments required their provincial electric utilities to purchase their cable in province. So you ended up with a host of small operations scattered across the country.
   About 1994, all of the business ran dry. None of the provinces were expanding their transmission systems any more. None of these operations were remotely capable of competing for international business. Because of their small size, their unit costs of production were far too high, and they got their lights punched out by the real global giants like Alcatel and GEC Alstom.
   The result today is that Canada has no wire and cable manufacturers, just as we have almost no transformer manufacturers for the same reason. Federal Pioneer, Westinghouse, GE are all vapourized from the transformer business in Canada. Even ABB in the early 1990s couldn’t turn around the dog’s breakfast the provinces had made of the electrical manufacturing industry.
   So no, Joe, you’re dead wrong. Small is ugly and uncompetitive in the modern world of industrial production and international trade. It’s a recipe for failure as has been discovered by every single Canadian industry which has been forced down this route by provincial purchasing policies.
   The point that you’re trying to dodge around is this: the shareholders of PCS bought those shares in the good faith that they could sell them as freely as they bought them. They risked their money, NOT YOURS. Some earlier twit said the bid of $130 was a joke. Well, if it’s a joke then it’s up to the shareholders themselves to decide if they’re getting value for money. Who are you to presume to tell them what’s good for them? Did you have your capital at risk? Ahh, but this isn’t about what’s good for the shareholders. It’s about robbing them.
   By defending this decision, you are defending state theft, and you’re no different than Hugo Chavez. In both cases, it’s expropriation of shareholder value. At least he has the honesty to come out and say what he’s going to do, so that no one can have any false hopes or illusions. By pretending to have a free and open market and then pulling this stunt, Canada and Saskatchewan are just running a cheap con.

4. Can you people please stop assuming that a Conservative (or conservative) has to be a free market libertarian?
   This is a horrible mischaracterization of the conservative ideal and does not in any way recognize the political reality of the Canadian state. Do you have any sense of history? Do you really know what the historical positions of Canadian conservatism have been? This country was founded on a conservative policy of protectionism of key industries.
   You are projecting your narrow, American influenced, personal viewpoint upon everyone else and utterly fail to understand what conservatism actually means.
   In Canada’s electoral system, there are necessarily a wide variety of viewpoints ensconced under the banner of the Conservative Party of Canada. Do not make the mistake of assuming that everyone who votes similar to you must share the exact same values or they are not true Conservatives.

5. Puck: finally a serious position and a reasonable argument from someone. Puck, I’ve read Jarislowsky. What he says, for example in his Feb 11 article, is that investors should look to long term earnings and growth when investing in a company. That’s fine, and I agree with him. All too often investors can be short-sighted. All too often that happens because management has failed to show the investors and thus the market how their development of a company will lead to much greater things down the road.
   As a general principle that’s fine. But here’s the catch. Government regulation can make an industry obsolete overnight. Case in point is the ethanol additive for gasoline. If government ever drops that mandatory requirement the ethanol business is wiped out. In such a climate where so much of your business case can be dependent upon government action, you have to take a short term view, because your business may not survive to the long term. You can think of a host of industries that can be shut down overnight if government simply blinks the wrong way.
   Here’s a second catch. Long term growth is fine. But investors need income. Usually they can’t afford to wait 20 or 30 years for the big payoff. And as noted above, it may be yanked away from them anyway. To a certain extent, PCS was failing this, because as I noted in my reply to Joe, its dividends were modest to say the least. So in my view, to a certain extent Jarislowsky is wrong. To be successful, a business must meet both short term and long term expectations.
   Now as for Dick Haskayne, I followed his arguments on the NP debate. Basically it boiled down to one main point and a secondary one, that PCS would no longer be listed on the TSE and that Canadians would not have the opportunity to invest in it. His secondary point was on defaulted commitments by foreign companies after takeovers had been allowed.
   His first point is easily fixed. Simply require BHP or whomever is the successful bidder to list on the TSE. Regarding his second point, usually the violated commitments come down to employment requirements. Over employment and under investment is a major problem in Canadian businesses. The 65 cent dollar allowed companies to remain profitable and in business even with huge inefficiencies. These can no longer be afforded in a world with the dollar at parity. Increasingly Canadian companies can no longer afford either the lavish union contracts or the overly large workforces required because of a shortage of investment in equipment and automation.
   What this means is that over time companies are either going to have to increase greatly their efficiency and productivity or they are going to go out of business. That means in turn that the employment guarantees that the provincial governments demand are not worth the paper they are written on. Companies will simply say, give us the latitude to restucture the company as we need, or give us the tax payer money to paper over the difference (do we really want more GM bailouts?), or we shut down and consolidate our operations.
   That works in manufacturing, and to an extent it works in resources. There’s always somebody who has an undeveloped lode of copper and isn’t so sticky about terms and conditions. Because it’s all about driving down costs and driving up productivity. And that’s the point that Haskayne is missing.
   Now you’ve raised the point about national interest. I would start by observing that in the resource sector there is no national interest by definition; it all belongs to the provinces. The last attempt to define the resource sector in the national interest was the National Energy Program, and we all know how well that was received. And who’s national interest? For farmers in Quebec and Ontario, it’s their interest to have potash dirt cheap. As the producer, Saskatchewan wants the price sky high. It’s in the ‘national interest’ of farmers in Quebec to have marketing board protection. Western grain farmers? Ehh, not so much. Ontario and Quebec are interested in having dirt cheap natural gas. The West? Oh yeah, that NEP thing again.
   In my view, national interest has never been defined in a Canadian context. Until it is, appeals to national interest will always be arbitrary. A convenient cover for claiming something to be in the national interest but in fact purely in mine. One can accept certain things to be in the national interest. Such as, not supplying weapons to our enemies. But aside from strictly military or physical security items, it becomes remarkably difficult to define what constitutes a national interest.
   It is my contention that such is not at stake in any way, shape or form with PCS. As a natural resource it is and always will be owned by the province. It’s not going anywhere. So as long as the reserves last, Saskatchewan will always get all of the royalties it deems appropriate from whomever it contracts with to extract it.

6. “Pleasing your enemies does not turn them into friends” – Kate McMillan

7. Whichever side of the fence you’re on, the common theme running through both points of view on this issue is this: those with power jockeying to retain or expand that power. Those without — e.g., local farmers, individual stockholders, the average Canadian, you — may or may not see some benefits in the end, but even those winners surely stand to gain far less than those with the money, resources, and connections to actually influence and make these decisions.
   Which is the point that the partisan games, snark, and comments so common here on SDA invariably misses: the great divide isn’t CPC vs. Liberal/NDP/Bloc, Republican vs. Democrat, conservative vs. liberal. It’s those with power vs. those without.

8. puck, Haskayne offers a fulsome and serious argument but my short rebuttal is this: if potash is really that important to the “strategic national interest” then the federal government should buy Potash Corp. and pay me my $130 – 160/share. Otherwise, the government should have told me before I bought shares in Potash Corp. that it was a “special public company” which shares aren’t freely tradeable. If Haskayne wants Canada to be a global mining player, then he should go establish his own Glencore and take over the world. Also, extending Haskayne’s argument to its logical end, no takeovers should be permitted, as in the end, you could never satisfy a net benefit based on his criteria. So, what’t the point of ever investing in Canadian stocks if you can’t sell them freely?
   As for Jarislowsky, sorry, I couldn’t care less if his management fund’s portfolio sucks. That’s why he doesn’t like it. He says the $130 isn’t high enough, well, who cares what he thinks? It’s up to the shareholders to determine whether it’s a good deal, not some 85 year old has-been.

9. I have read a number of comments and I think a few things need to pointed out. This deal was a stoppage of a takeover of one of the largest fertilizer companies in the world by the biggest mining company in the world. Regardless if BHP gets PCS or not they will get into the Potash industry. BHP has spent a ton of money on land purchases and road improvement and drilling in preparation for the Jansen Lake project, which when completed will be the biggest mine in the province. The government in no way is discouraging this investment. The purchase of PCS pushes BHP’s ability to get into the game that much quicker and the government decision will give them a setback in that regard.
   Remeber some of the highest profile business people in Canada were onside of Brad Wall with this decision as they saw the takeover as a bad deal and giving to much control of resource to a foreign company. BHP is in the mining business. Would they stop at Potash if they got control of it. Our other billion dollar baby ,uranium could also be inthere in there line of site. I think it was a good idea to block the sale because it puts a check and a balance in the process. Thanks

10. I have read a number of comments and I think a few things need to pointed out. This deal was a stoppage of a takeover of one of the largest fertilizer companies in the world by the biggest mining company in the world. Regardless if BHP gets PCS or not they will get into the Potash industry. BHP has spent a ton of money on land purchases and road improvement and drilling in preparation for the Jansen Lake project, which when completed will be the biggest mine in the province. The government in no way is discouraging this investment. The purchase of PCS pushes BHP’s ability to get into the game that much quicker and the government decision will give them a setback in that regard.
    Remeber some of the highest profile business people in Canada were onside of Brad Wall with this decision as they saw the takeover as a bad deal and giving to much control of resource to a foreign company. BHP is in the mining business. Would they stop at Potash if they got control of it. Our other billion dollar baby ,uranium could also be inthere in there line of site. I think it was a good idea to block the sale because it puts a check and a balance in the process. Thanks

11. To all those who are throwing around phrases like “strategic national interests”, please define what you mean by this. Otherwise, you are just using a shop-worn bromide to justify what clearly amounts to an act of theft. Saskatchewan and the rest of Canada will come to regret this decision greatly.

12. Sounds like Wall just had his Peter Lougheed moment and flunked his litmus test. They go in blue and turn pink. Politics 1, Principles 0.

13. To anyone who says Canpotex is exactly the same as the Wheat Board, I ask one simple question:
    Does the government force Agrium, Mosaic and PCS to participate?
    I think they just did. But who said they were exactly the same? They are similar in kind, being single desk marketers of, on the one hand, potash for private mining companies, and wheat, on the other, for free loading rural conservative welfare bums.

14. Sad. Bad post, sda. Why not just admit it? The BHP/POT positions taken by the Wall and Harper govts were driven by pure politics. The only “principle” involved is votes – pandering to socialist/nationalist sentiment. Danny (Chavez) Williams must be smiling. Otherwise it’s mercantilism, government interference and bad news for investors. So let’s not twist ourselves into pretzels trying to rationalize it as something else.

15. I am thrilled that it got turned down. BHP will have their mine…that is not an issue. The issue is destorying Mosaic and Argium. Cargil(Mosaic) did not want Canpotex either…but see the need for it.
    You can not compare it the CWB…to do so means you are looking deep enough.

16. LOL…that should have been “Not looking deep enough”.

17. Given that future potash demand for export will likely be massive, the best answer would be to welcome additional players who wish to get their shovels in the ground, not those who prefer to buy up competition on the bourse.

18. I doubt it’ll make any more difference to Canada’s international reputation than the US blocking the Dubai Ports did to the US international reputation, or OPEC made to the middle East reputation. If there’s a profit to be made, investors will put down their money whether they like the country or gov’t or not. Wall knows this, and he probably reinforced his re-election on this one.
    Australia the US have been blocking bids from China themselves … Canada is just doing the same.

19. Unbelievable. I already knew cons were wretched hypocrites, but this is a new low of lows. Canpotex = OPEC = Organization of Potash Exporting Companies. It’s a government supported cartel, like a voluntary (and now government-sanctified) CWB/supply management scheme.
    And why does lance want to ablate the property rights of millions of shareholders and billions of dollars of investment? So his province can get a higher cartel price. Oh, and because ‘radical’ business plans are scary. Lance is pretty much a villain in an Ayn Rand novel, as well as real life.

20. It’s worth noting that Peter Foster in two NP columns pretty much blows the protectionist arguments to bits, much as I and others have done here.
    George, the fact that Australia behaves in a silly fashion, does that mean we should too? Of course he reinforced his re-election prospects. That was the only reason that Wall did what he did. And don’t be naive, reputation is like virtue: easily lost and oh so difficult to regain.
    What is truly interesting is how many here want to protect the Canpotex cartel but are bitterly opposed to the CWB. It’s a contradiction that simply cannot be reconciled in any rational way.

21. It’s a contradiction that simply cannot be reconciled in any rational way.
    The small dead teabagging mind is incapable of
    operating rationally and without hypocrisy.

22. And where are you on this issue, phil?
    Heh, I thought so.