BHP acquires Athabasca Potash

BHP Billiton (BHP-N) will pay $341 million in cash to snap up junior explorer Athabasca Potash‘s (API-T) assets in Saskatchewan.

BHP has agreed to pay $8.35 per share in cash for Athabasca, a 25% premium to Athabasca’s closing price of $6.70 per share on Jan. 27 and a 37% premium based on its 60-day volume weighted average trading price.

The news sent Athabasca Potash’s shares up 23.7% or $1.59 apiece to close at $8.29 per share. (Over the last year the junior has traded in a range of $1.44-$7.06 per share.)

Athabasca Potash’s Burr project is right next to BHP’s Jansen project, a proposed underground mine in east-central Saskatchewan that it acquired through its acquisition in July 2008 of Anglo Potash.

News of the deal came a day after Brazilian mining giant Vale (VALE-N) said it would pay US$3.8 billion to buy fertilizer assets in Brazil owned by Bunge (BG-N).

Potash, a crop nutrient, became a hot commodity a few years ago with prices above US$1,000 per tonne. Today prices are in the US$350-400 a tonne range.

BHP estimates that about 95% of potash is used as a fertiliser, and Saskatchewan has one of the best potash reserves in the world.

Graham Kerr, BHP’s president of diamonds and specialty products said in a statement that the acquisition “fits well” with the company’s other projects and properties in Saskatchewan.

Athabasca’s board has approved the proposed deal and major shareholders have entered into lock-up agreements, promising shares that account for about 40% of Athabasca’s outstanding stock in favor of the deal.

Athabasca Potash launched a strategic review of its operations in July 2009 and said the scope of transactions it might consider included potential mergers or acquisitions of all or a part of its business.

Looking ahead, BHP plans to invest $240 million to develop its Jansen project this year. The proposed underground potash development is 140 km east of Saskatoon and covers a project area of 780 sq km.

In a description of the Jansen project in a November 2008 report posted on its website, BHP said the potash deposits for the proposed Jansen mine lie at depths of 850 metres to 1,100 metres, “similar to other producing mines in the region.”

Potash in southern Saskatchewan is hosted in the Prairie Evaporite formation, which forms part of the Elk Point Basin. The potash deposits in the Prairie Evaporite formation are all sedimentary with the potash minerals representing the final stages of evaporation of a shallow inland sea.