BHP Billiton have officially withdrawn their bid for Potash Corp

BHP Billiton have officially withdrawn their bid for Potash Corp. The cost of the failed bid is 350 million Dollars of which 250 million will be recognized as an exceptional item at the half year stage. Wow. Talk about size and scale, perhaps they learnt something special and will proceed with developing their own potash assets a whole lot wiser. They sound more than a little bummed: "BHP Billiton continues to believe its Offer would have resulted in a significant net benefit to Canada, Saskatchewan and New Brunswick." So there Canada.



So what about their own potash assets? If you visit the front page of their "our businesses" section on their website, the potash division is too small to even make a dent on warranted time. But rather the business finds itself under speciality products, under potash development. There is a massive document that I downloaded to have a look at their Jansen project. They will only, after approval and having obtained permits in the first half of next year, proceed with developing the mine thereafter. Construction of the mine is set to take place all the way through to the end of 2014 and production set to start early the next year. And, as per the monster document, the mine will produce all the way through to 2065.



When finished though, the Jansen shaft will be twice the size of any production asset in the world, right now. That is as far as I understand this: "Currently in the potash industry, the known maximum hoisting capability from one dedicated production shaft having a typical diameter of 5.5 m is 11 Mt of ore per annum. For the Jansen Project, a larger diameter production shaft is planned to meet a hoisting production rate of 22.3 Mt of ore annually. The main mining cost assumption is that the mined ore grade can be consistently maintained throughout the mine area."




What will total production be once finished? Well according to the Jansen project information would reach 8 million metric tonnes. What is that as a percentage of global production? It would in fact be the world's biggest Potash mine. Read that again sport lovers. The world's biggest potash mine. Ah yes, what now for BHP Billiton you say, oh well, let them develop the biggest potash mine in the world. If total global demand is around 50 million tonnes per annum, then this is equates to about one sixth of total global production belonging to BHP Billiton. Is the slower route better for shareholders?



And what now for Kloppers, this must be a blow of sorts for the home time man who resides all over the world in Melbourne? Well, not standing still, that is for sure, he is quoted as saying: "Our core business strategy of diversifying our investments across geographies and commodities differentiates us and, more importantly, continues to deliver value to our shareholders and the communities and countries where we operate. We have an unparalleled portfolio of tier one assets, which we believe can sustain decades of increased production. We plan to invest US$15 billion in our global business this financial year and expect our ongoing capital commitment to continue to deliver robust production growth."



This is going to be the path that they now follow: "BHP Billiton also announced its intention to continue the company's strong track record of returning excess capital to shareholders by reactivating the remaining US$4.2 billion component of its previously suspended US$13.0 billion buy-back program."



Why would you buy back shares? Well if you buy back shares and retire them the earnings power per share is permanent. Check out what I mean, this is chairman Jac Nasser, also quoted in the official release: "The decision to reactivate the buy-back program is entirely consistent with our commitment to maintain an appropriate capital structure while we continue to make substantial investments in our growth projects. BHP Billiton has a strong track record of returning capital to shareholders. From 2005, BHP Billiton has completed buy-backs totalling US$12.7 billion or 11% of issued capital, and has also paid out US$17.9 billion in dividends."



I think what is important for local shareholders to understand is that dividends are taxed in other geographies and it is more beneficial for those guys from a tax planning point of view. Specifically the Aussies. Hey, if you are a long term holder of the stock this is good news for you, not so, less shares in issue mean a bigger EPS share?