"With BHP coming in, if there is some reasonable discipline among all the players, you could still maintain a price level that is from a high-$200 to a mid-$300 range, which is still extremely profitable," Mr. Neivert said.

But pricing in this range could imperil the projects of many junior explorers, whose comparatively small-scale potash projects will only generate viable returns with the price at $500 to $600 a tonne, or more.

"It's been hard enough for juniors to find funding before this (BHP project), because of the expansions that Potash Corp ., Mosaic and Agrium have planned," said Mr. Neivert, adding that it could become even tougher for the juniors going forward.

Dawn Zhou, the chief executive of Athabasca Potash shrugs off the threat posed by BHP, but admits that junior explorers like Athabasca will have to look for more creative ways to fund their projects with prices at current levels.

BMO Nesbitt Burns analyst Joel Jackson contends that BHP's plan may adversely affect junior explorers in Saskatchewan more than it would affect a company like MagIndustries, which is pursuing a potash project in Africa, as the economics of projects differ in both places.
However, not many analysts are overly optimistic about the long-term prospects for both existing potash producers and junior explorers.

In a note to clients, CIBC World Markets analyst Jacob Bout said that BHP's plans for Jansen would "flatten the long end of the potash pricing curve," hurting junior potash companies.

Eoin Treacy's view Investors have been wondering why BHP Billiton has so far failed to make significant acquisitions even though they have an enviable cash-rich balance sheet and the prices for many resources have fallen from peak levels. Potash may contain part of the answer. The market is dominated by a small number of companies. The world's largest known reserves are in Canada; one of the most politically stable countries. Although prices have fallen significantly from their highs, operations on the scale BHP Billiton is considering would still be profitable. Larger producers will also be aware of the potential benefit to themselves of squeezing smaller producers and picking up their assets at prices lower than might otherwise be expected.

Potash prices peaked near $575 in July 2009 and have since fallen to $320 where some two-way action has been evident over the last month. If new supply is brought online by BHP or other miners, the upside for the commodity is likely to be curtailed without a corresponding advance in demand. However, since the market is dominated by such a small number of companies, the likelihood of them allowing prices to fall back into the long-term base is low. This suggests that a lengthy convalescence is likely above $200 and a sustained move back above $400 would be required to indicate demand has regained the upper hand. Grain and bean prices will have a significant impact on investor interest in fertiliser related companies, (Also see David's piece above for more on this subject.)

BHP Billiton's share price is not currently affected to any significant degree by its investments in potash. The share has retraced the entire bear market decline and retested the 2008 high earlier this month. It has since pulled back to the progression of higher reaction lows and some further consolidation of last year's powerful advance appears likely.