A major Russian company and global mining giant Rio Tinto PLC are teaming up in a joint venture that could lead to the construction of the next big potash mine in Saskatchewan.
Financial terms of the deal between North Atlantic Potash Inc., the Canadian subsidiary of Russia's JSC Acron, and Rio Tinto were not revealed.
"This agreement is another step to maximize the development potential of our vast potash exploration holdings in Saskatchewan," said Arie Zuckerman, president of North Atlantic Potash.
"We strongly believe that together with the professional experience and financial capabilities Rio Tinto brings into this project, we will be able to be the next producing mine in Canada."
The transaction is part of a broader trend of potash producers joining forces on new projects as global fertilizer demand rises in tandem with an ever-increasing demand for food in emerging economies.
The Saskatchewan deal gives Rio Tinto a stake in the world's most prolific potash producing region, while the Russian company will benefit from the Anglo-Australian miner's rich cash resources and longstanding mining experience in Canada and around the world.
"This joint venture, in my opinion, isn't as much for cash as it is for technical ability and know-how," said Marin Katusa, a market strategist with Casey Research.
'A multi-billion dollar venture'
Saskatchewan's pivotal potash industry was in the spotlight last year when BHP Billiton (LSE:BLT) failed in a nearly $40-billion hostile bid for the world's largest fertilizer producer, Potash Corporation of Saskatchewan (TSX:POT).
That deal created a political firestorm and was eventually rejected by the Canadian government, which said the massive takeover would not benefit Canada.
BHP continues to develop its own potash project in Saskatchewan — the Jansen mine about 140 kilometres east of Saskatoon.
Saskatchewan resource minister Bill Boyd said the Rio Tinto-North Atlantic partnership is good news for his province.
"Any time that a new potash mine is proposed, it's a multi-billion dollar venture — $5-billion is kind of a ballpark figure for these types of production facilities — which creates a tremendous amount of business activity and a lot of jobs for Saskatchewan's people," he said in an interview.
If the companies do decide to move ahead with a new mine, "there would be literally hundreds of millions of dollars of royalty revenue for the province of Saskatchewan," Boyd added.
Since Rio Tinto and North Atlantic would be starting from scratch — instead of attempting to scoop up an established company like Potash Corp. — Boyd said he does not foresee much opposition for their deal.
"That type of venture would be welcome here in Saskatchewan," he said.
Extensive exploration planned
Rio Tinto used to have potash holdings, but sold assets in Canada and Argentina to Brazilian miner Vale for US $850 million to help pay down debt.
Tuesday's agreement relates to North Atlantic's potash permit holdings in the southern part of Saskatchewan's potash district.
The joint venture will cover nine permitted areas that cover about 241,000 hectares that extends from the eastern shore of Last Mountain Lake southeast to Broadview in eastern Saskatchewan.
The joint venture partners said they plan an extensive exploration program.
North Atlantic Potash holds nearly 1.1 million hectares and 26 exploration permits in the Saskatchewan potash belt.
David Waugh, CEO of North Atlantic Potash, said the company will begin a drilling campaign on the company's Foam Lake exploration properties this fall.