BHP Billiton Ltd. BHP-N

is muscling its way further into the fertilizer sector by bolstering its potash assets in Saskatchewan, but the sector’s global leader, Potash Corp. of Saskatchewan Inc., POT-T

is up for the fight.

William Doyle, the feisty president and chief executive officer of Potash Corp., says he’s prepared to take on the world’s largest miner, convinced that BHP is out of its league when it comes to fertilizer production.

“BHP doesn’t walk on water,” Mr. Doyle told investors Thursday in reaction to the Australian mining giant’s $341-million purchase of Athabasca Potash Corp.

The deal includes the Burr development project, which is expected to start production in 2014 with a capacity of two million tonnes. It is located next door to BHP’s Jansen potash development and further hones in on some of Potash Corp.’s properties in the area.

Mr. Doyle scoffed at BHP’s latest move, which came days after it promised to spend an extra $240-million on Jansen.

“It gives everyone holding a lottery ticket hope. … All of us that are in the business are scratching our heads with that one,” he said.

BHP’s Jansen project, which analyst say could cost $8-billion to $10-billion, is expected to begin production within five years and has a capacity of about eight million tonnes. That equals Potash Corp.’s current production – its current capacity is about 11 to 12 million tonnes.

Although the Athabasca deal announced yesterday is small for BHP, it’s the latest in a series of moves by giant miners to increase their fertilizer content as demand for crop production grows, especially in places such as China and India.

Vale SA said earlier this week it will pay $3.8-billion for fertilizer assets in Brazil.

Mr. Doyle said he has seen resource companies take a shine to fertilizer in the past, citing investment by major oil companies in the 1960s.

“They ended up losing billions of dollars and they got out of the business just as fast as they got in. A study of this history might be a worthwhile exercise for companies with no fertilizer expertise,” Mr. Doyle said.

“I am fully confident we will be able to compete against them, or anyone else who decides they might want to enter this space. No one should take us for granted. We can be very tough when we need to be.”

Dahlman Rose & Co. analyst Charles Neivert said while potash is different than BHP’s main ore, coal and petroleum products “they’ll figure it out.

“They’re not stupid. These guys never go into anything with their eyes closed.”

Adds Mr. Neivert: “If you’re think they’re stopping here, you’re wrong. They are number one or two at what they do for a reason. This ain’t the end of the story.”

Macquarie analyst Sam Catalano believes BHP is unlikely to expand by buying a major potash producer, but that deals such as Athabasca allow it to add “significant expertise and value for minimal upfront spend.”

“We cannot rule out further acquisitions of potash juniors: With over half a billion dollars committed to potash within the past week, it’s clear that BHP Billiton are favourable towards the commodity,” Mr. Catalano said in a note to clients.

A BHP spokesman said the company is excited to explore and develop “in one of the world’s best potash basins.

“We believe our Saskatchewan land position has the potential to be a world class potash business and next long-life, low-cost basin play for BHP Billiton.”

The deal comes as potash prices begin to recover from what many believe was a bottom of about $345 (U.S.) per tonne earlier this month. Potash prices peaked in 2008 at close to $1,000 a tonne as prices for many agricultural crops hit record highs.

The market began to tumble last year as farmers cut back on potash purchases in the wake of the global recession.

Athabasca executive chairman Dawn Zhou believes the timing is right for the company to be sold. Athabasca began looking for buyers last March, as part of a strategic review, and she said there were a few interested parties.

“There are not many companies that would be able to do this kind of project after the financial crisis,” she said.

She wouldn’t say what other companies presented offers.

BHP offered $8.35 (Canadian) cash for each Athabasca share, which is about 25 per cent higher than where the shares closed Wednesday on the Toronto Stock Exchange. The shares closed at $8.30 Thursday, up $1.60 or about 24 per cent.

About 40 per cent of Athabasca shareholders have locked up their shares in favour of the BHP deal. Athabasca is restricted in the deal from pursuing other offers, and there’s a break fee of $12-million.