Following demands by the Belarus government for Russian potash producer Uralkali to change ownership in exchange for the release from house arrest of the company's CEO -- what might otherwise be called "extortion" in polite circles -- the fertilizer maker announced that top shareholder Suleiman Kerimov will sell his 21.75% stake for $4.5 billion.
The buyer is Onexim, the private investment fund of Russian billionaire Mikhail Prokhorov, but the winner could be Canada's PotashCorp (NYSE:POT), even if pricing doesn't march forward right away.
There's still the matter of Kerimov having to pay $100 million in "restitution" to Belarus, presumably for the damage caused to the country's finances following the breakup of the Belarusian Potash Co. cartel consisting of Uralkali and Belaruskali. However, the sale looks like the start to relations thawing once more and the business of producing potash -- and resurrecting the cartel -- returning to the fore.
Because just a handful of companies control the vast majority of potash production in the world, any rapprochement could have a beneficial impact on pricing. That may see it touch some of its lowest levels in years in 2014, but could still be setting the stage for a rebound.
In addition to the Russian-Belarusian pair, which control 40% of world potash supplies, and PotashCorp, there's also Canpotex, an exporter jointly owned by producers Mosaic, Agrium, and PotashCorp, which controls another 30% of the market. The balance of the market is made up of companies like Chemical & Mining Co. of Chile (NYSE:SQM), also known as SQM, Europe's leading player K+S, and smaller U.S.-based operations like Intrepid Potash.
The lush margins of the industry still tempt BHP Billiton (NYSE:BHP), which sought to buy its way into the market by acquiring PotashCorp in 2010. It made the fatal mistake of saying it would withdraw from Canpotex and market the fertilizer on its own, causing the Canadian government to put the kibosh on the deal because it would reduce its own revenue.
The miner then began building its own world-class mine in Saskatchewan, which is home to half the world's potash deposits. The $3.8 billion Jansen project is still in development, but mine shafts are expected to be completed within three years, and surface facilities will come online the year after that.
And that's just one of the reasons why PotashCorp is poised to accelerate its regrowth. Despite pulling in its horns on projects elsewhere around the world, BHP still has enough confidence in the long-term future of potash that it's willing to plow money and resources into the endeavor.
Moreover, Potash Corp is angling to acquire SQM, or at least establish a majority stake in the Brazilian miner from its current stake of nearly one-third. It failed once before in the effort, but following the breakup of Belarusian Potash and the collapse of producer share prices everywhere, in addition to pressure exerted by the Chilean government on its owner over possible securities violations, PotashCorp may find a more receptive audience this time around. With SQM's stock trading at half the value it did at the start of 2013, PotashCorp could see a bargain-basement means of acquiring a greater swath of the market on its own.
In short, there's still a level of uncertainty facing the potash market, but the sale of shares by Uralkali's majority owner signals the turmoil it initiated this past summer is starting to die down. PotashCorp's shares are 14% higher than the lows they hit when the cartel dissolved, and there's no reason to think that now they won't start heading even higher.