BHP profit jump could dampen rivals in Potash bid

Tue Aug 24, 2010 5:45pm EDT
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By Sonali Paul

MELBOURNE (Reuters) - BHP Billiton's monster earnings expected this week could strengthen its hand in its $39 billion bid for fertilizer group Potash Corp and intimidate any rival bidders.

The world's biggest miner is set to report a 50 percent jump in second-half profit to $6.9 billion on Wednesday, sending a loud warning shot toward Potash, which is trying to line up white-knight bidders to fend off the world's largest miner.

"Clearly it's going to be a very good result ... The balance sheet is in excellent shape and the cash flow will be significant," said James Bruce, a portfolio manager at Perpetual Investments, which owns BHP shares.

On Monday, Potash, the world's biggest fertilizer company, talked up the chances of a counterbidder, in a move analysts said might be aimed at coaxing a higher bid from BHP.

Canada's Globe & Mail newspaper web site, citing unnamed sources, said global miner Rio Tinto might be considering a bid for Potash with a Chinese partner.

Yet investors, analysts and bankers have played down the chances of Rio bidding for Potash as it has only just slashed $40 billion in debt from an ill-timed takeover of Alcan in 2007 and plans to spend $13 billion on projects through 2011.

"I would be very surprised," said Adam Dixon, portfolio manager at Ausbil Dexia, which owns BHP and Rio shares.

"Rio has a very full pipeline of organic growth opportunities. Coupled with this, the company is still busily integrating the Alcan business that it bought not so long ago," he said.   Continued...

<p>A train car waits in line at the Potash Corp's Cory mine site near Saskatoon August 19, 2010. REUTERS/David Stobbe</p>