The governor of the Perm region where the Solikamsk-2 mine is located says the inflow of water at the mine had "practically stopped" and there is no danger to residents of the area, where a large sinkhole has formed.
Uralkali does not know how seriously the mine at Solikamsk-2, which accounts for 20% of the company's capacity, would be affected, but a water inflow and resulting sinkhole in 2006 shut another Uralkali mine in the same region permanently.
North American potash producer shares jumped 2%-5% yesterday, and are up early again today: POT +2.5%, MOS +2.4%, AGU +0.7%, IPI +2.3%.
Uralkali (OTC:URALL) shares fell by the most in a year after the potash miner suspended operations and evacuated workers from a potash mine in Russia’s Perm region because of an increase in brine inflow.
The world’s biggest potash producer says it is monitoring the situation at the Solikamsk-2 mine, while its four other mines continue to operate normally.
Uralkali's misfortune is sparking gains in North American potash producers: POT +5.1%, MOS +3.4%, AGU +3.4%, IPI +5%.
The CEO of Russian potash firm Uralkali (OTC:URALL) says it has no plans to return to the sales arrangement it had with Belarus, WSJ reports.
Share prices of major potash producers in North America, Germany and Israel have rallied this year, partly on hopes of a reconciliation, but Uralkali CEO Dmitry Osipov says no talks have been held since April and none are planned.
However, potash prices have not fallen as much as some analysts had predicted following the breakup, due in part to better than anticipated demand from Brazil and China.
Consumption will be sustained at least through this fall as farmers replenish declining nutrient levels in the soil after crop production that reached an all-time high this year, Uralkali says; the region’s H1 demand was ~6M tons, up 30% Y/Y.
Uralkali, competing with Potash Corp. (NYSE:POT), Agrium (NYSE:AGU) and Mosaic (NYSE:MOS), sells ~5% of its output in the U.S.
Uralkali (URALL) yesterday reached a potash sales deal with China for $305/metric ton, indicating a possible end to the uncertainty in the potash market after prices fell more than 25% from $400/ton last summer when the Russian producer left a trading partnership with Belarus and broke an informal global pricing cartel.
While J.P. Morgan seems to see a return to price rationality, others aren't so sure; Morgan Stanley is looking ahead to H2, when demand is weak and there's incentive to price undercut again, while Cowen thinks the new contract is likely to keep pricing down for some time to come and, combined with Agrium's (AGU -0.1%) downward guidance, may weigh on fertilizer shares.
Wunderlich notes Intrepid Potash (IPI -0.6%) sells granulated potash, which is priced at a 10%-15% premium to standard; at $335/ton potash, the firm figures IPI could see a ~$165M swing in free cash flow in 2014 from a negative $115M last year to a positive $50M-$55M in 2014.
Uralkali (URALL) Q3 revenue of $856M (-19.2% Y/Y). Net revenue of $697M (-21% Y/Y).
Production volumes broadly unchanged Y/Y at 2.7M tonnes of KCI
Sales volumes broadly unchanged at 2.6 million tonnes
Average export price -27% to $272 per tonne
Management comments: "Q3 was a turning point for Uralkali. By mid-summer 2013, potash prices had been declining for six quarters and responsible market leadership via a price focused strategy had started to materially negatively impact Uralkali’s market share. Therefore, after careful consideration, Uralkali’s Board of Directors decided to change the Company’s market posture and move from a rigid ‘price-over-volume’ strategy to a more flexible approach whereby the Company continues to focus on shareholder value maximisation, prioritising volumes or prices depending on the market situation."
"During July-August, the potash market remained stagnant, firstly, due to a seasonal lull, and, secondly, due to customer caution in response to the changing market landscape. However, as the fall application campaign approached, we saw restoration of demand in major growing regions, such as China, India and Brazil. We believe that the new market environment will balance potash supply and demand in a more efficient way, thus ensuring higher levels of fertiliser availability for consumers."
The end of the uncertainty weighing on Potash (POT +0.1%) and Mosaic (MOS +2.2%) may be at hand, J.P. Morgan analyst Jeffrey Zekauskas writes, believing the point of Uralkali's (URALL) ownership change is the alteration of its go-to-market strategy, and an execution of a change in strategy should raise the value of POT and MOS given their sensitivity to changes in product prices.
POT and MOS are "undervalued," the firm says: Both companies have replacement values nearly twice their current share prices, POT has a 7.5%-8% sustainable free cash flow yield following the conclusion of its large potash capacity expansion, and MOS has a large share repurchase program it plans to execute beginning at the end of this month.
At least one analyst thinks Baumgertner will resign; a lot depends on the attitude of the Belarus president toward him, and "given that it may be not warm, it would be easier for Uralkali to negotiate the terms of the new trading venture with Belarus with another CEO.”
Baumgertner was arrested in August and spent a month in a Belarusian jail after he withdrew his company from a joint venture with potash supplier Belaruskali.
Russian billionaire Mikhail Prokhorov - owner of the Brooklyn Nets - has agreed to acquire a 21.75% stake in Uralkali (URALL), the world's biggest potash miner, from the company's main owner, Dagestani tycoon Suleyman Kerimov.
Kerimov and his partners own a third of Uralkali, while China Investment Corp, China's sovereign wealth fund, purchased a 12.5% holding in September.
Uralkali caused turmoil in the potash markets after it ended its joint venture with Belarusian state-owned miner Belaruskali in July. The JV, called Belarusian Potash Co, controlled around 40% of the global market and so had a major influences on prices.
Following the breakup, Belarus arrested Uralkali CEO Vladislav Baumgertner in August, since when he has been in jail or under house arrest. (Previous)
While some reports suggest the partnership could be revived, Ostling says it would be difficult to "put Humpty Dumpty back together again" because of deep animosity on both sides, but that it wouldn't be impossible if the right agreements were reached.
Russian authorities say they opened a criminal case against the jailed chief executive of potash producer Uralkali (URALL.PK) and are seeking his extradition from Belarus to face charges in Russia, in what could be a face-saving move to defuse the potash rift.
Russia's main investigative agency says its review of the case indicates enough evidence to charge the Uralkali chief in Russia, though political analysts doubt he would serve any prison time even if convicted.
Global potash prices will stay above $300/metric ton but likely will fall further this year, bottoming out in early 2014 when supply contracts for top global consumer China are set, and rebounding thereafter, according to Uralkali's (URALL.PK) head of sales.
He gives no current average price, but says the domestic price in China of ~$330/metric ton delivered at the border was a "guideline" for the company's rail supplies.
Recent reports have said a large stake in Uralkali could be sold to one of several local bidders, but sources tell Reuters that no buyers are close to a deal now.
Sources say the Kremlin is eager to repair the rift with Belarus that led to the collapse of the informal global potash cartel and has made clear to potential bidders that some kind of sales cooperation with the country - a close Russian ally - should be restored after any deal.