First impressions

A few quick notes on the Conference Board of Canada's potash report which was released today.

To start off with, the report includes some highly questionable assumptions which fit into the Conference Board's tendency to echo corporate buzzspeak. Most notably, it's stunning that the Conference Board ignores BHP Billiton's own repeated statements that it wants nothing to do with Canpotex by rationalizing that "market discipline" would override that explicit intention.

But that only makes for the difference between loss of $2 billion over 10 years, compared to one of $5.7 billion under a scenario where a buyer decides to undercut potash prices based on its own internal considerations (whether gaining market share or wanting to favour particular purchasers). So either way, the clear decision for the Wall government is whether it's worth losing hundreds of billions of dollars per year solely in order to be perceived as friendly to business.

Meanwhile, the Conference Board does present one useful suggestion to minimize the cause of the possible tax losses from a BHP Billiton takeover:

(T)he Province may want to consider making the impact of capital
expenditures on potash royalties project-specific, rather than company-specific.

Of course, it's open for question whether there should be much need for tax breaks on potash investment in any event. But to the extent they're going to remain in place, the Conference Board's suggestion would seem to make for a useful means of linking tax breaks to the capital investment they're supposed to stimulate, rather than having them serve as a means to put the province on the hook for a takeover.