SYDNEY (AP) — BHP Billiton's hostile $38.5 billion takeover offer for one of the world's biggest fertilizer producers, a bet that developing nations will drive a farming boom, could get the Australian iron ore miner involved with yet another commodity prized by China — potash.

In what is likely just an opening salvo, BHP yesterday reacted to Potash Corp. of Saskatchewan's dismissal of its bid as "grossly inadequate" by going directly to shareholders with the $130 a share offer. BHP said it was offering a 20 percent premium to the closing price on August 11 — the day before BHP's first approach to Potash directors.

BHP is better known for digging up iron ore and shipping it to resource-hungry manufacturers in China, India and elsewhere. But potash, a key fertilizer ingredient, also is mined and is a big global business dominated by Belarus Potash Co. and Canpotex Ltd., which represents Saskatchewan potash producers.

As the world's population grows, more food is needed and more fertilizer to grow crops. Demand for potash, a potassium compound also used in industry, is getting a boost from the global economic recovery and rising demand from emerging giants China and India — the main markets for potash, along with the US and Brazil.

The International Fertilizer Industry Association predicts global demand for fertilizer in 2010-11 will rise by 4.8 percent to 170.4 million metric tons.

That makes the proposed acquisition a big growth opportunity for BHP — particularly because the share prices of fertilizer makers, including Potash, are relatively low after demand faded during the global recession. Potash is the world's biggest producer of the mineral, with about 17 percent of the market, according to investment bank Credit Suisse.

"BHP's got tons of cash at the moment," said Austock Securities senior client adviser Michael Heffernan in Sydney. Potash "looks like it's cheap compared to where its price has been in the past. ... BHP is being a bit opportunistic about it".

Credit Suisse analysts predicted Potash may accept a bid based on a 50 percent premium, and said in a report they expect BHP to make a revised offer in the coming weeks or months. Some analysts said BHP rival Rio Tinto may be contemplating a counter offer but others thought that unlikely since it sold its potash businesses in 2009. As for Vale, it already has a substantial potash operation in Brazil.

The Potash bid is BHP's first major takeover attempt since it abandoned its $68 billion takeover of rival Rio Tinto in 2008. China, already disgruntled about the high prices it pays BHP, Rio and other Australian resource companies for iron ore, was a vocal opponent of the deal, fearing it would give BHP even more power over prices