MOSCOW Nov 11 A renewed probe of a two-year-old
accident at potash miner Uralkali (URKA.MM) has landed a fresh
blow on fragile confidence in Russian stocks and raised fears of
a state asset grab, analysts and fund managers said on Tuesday.
London-listed shares in Uralkali, beloved of investors since
an IPO last year, have fallen more than 70 percent since Friday
when Prime Minister Vladimir Putin's influential deputy, Igor
Sechin, ordered Russia's mining safety watchdog to re-open the
Uralkali lost 22.9 percent at $5.06 in London trade
URKAq.L on Tuesday, hitting its lowest since the October 2007
share float, while the Moscow-traded share closed down 34.8
percent at 45.89 roubles.
Uralkali, controlled by Russian billionaire Dmitry
Rybolovlev, said on Monday its future could be in doubt if the
government forces it to pay full damages for a 2006 mine flood
for which it had earlier been cleared of blame. [ID:nLA727764]
"This is an opportunistic move to gain a foothold in that
industry or take some assets," Uralsib strategist Chris Weafer
said of the renewed investigation.
Uralkali, through its Belarus-based export agent, accounts
for about one-third of global potash exports and more than
tripled first-half profits this year as prices for the soil
nutrient rocketed to all-time highs.
Investors fear that influential figures near the top of the
government, widely suspected of expansionist ambitions in the
natural resources sector, have also noticed the fat profit
margins that have made Uralkali a darling of fund managers.
Senior figures in the Kremlin and the government have been
silent on Uralkali since Friday's news.
Analysts point to a joint venture between state conglomerate
Russian Technologies, led by Sergei Chemezov, another Putin
ally, with Uralkali rival Silvinit SILV.RTS as evidence of
state interest in the fertiliser business.
The Kama Mining joint venture won the largest of three
potash deposits in the Ural mountains up for auction in March,
outbidding Uralkali for a portion of the largest deposit of the
mineral fertiliser oustide Canada's Saskatchewan province.
Silvinit's potash deliveries were disrupted by the sinkhole
that opened up as a result of the flood at Uralkali's Mine-1,
threatening a rail line and the nearby town of Berezniki.
Some investors see a parallel between the multi-billion
dollar back-tax claims that destroyed the once mighty YUKOS oil
company. They say Uralkali could face not only the cost of
resettling some Berezniki residents and rebuilding a bypass rail
line, but could also be penalised for lost potash supplies.
"Costs could potentially spiral if the government were to
find Uralkali guilty of destroying potash ore," Citigroup said
in a note downgrading the share from 'buy' to 'speculative hold'
and halving its price target on increased equity risk.
The company declined to comment on Tuesday. A day earlier,
it said it could face an "enormous financial burden" if forced
to pay damages and that it believed there were no legal or moral
grounds to make it responsible for the flood.
Investor sentiment had yet to fully recover from the YUKOS
fiasco of 2004, much less Putin's July lashing of another market
darling, coking coal miner Mechel (MTL.N), when news broke on
Friday that the flood investigation would resume.
A steep sell-off of Russian equity began in July, long
before the global financial crisis sent investors fleeing from
emerging markets, when Putin slammed Mechel's coking coal
pricing policy on live television.
"The big problem is that Mechel and Uralkali were very
widely owned by high-profile folks and recommended globally by
many, many houses. This is another disaster," said a
Moscow-based hedge fund manager, who declined to be named.
Weafer said the Uralkali investigation would pit a group of
politicians keen to see more state control of natural resources
against Kremlin liberals, and that investors wanted to see
President Dmitry Medvedev take sides.
"We are at an important point, not just for Uralkali, but
for the investment climate overall," Weafer said. "If this asset
grab is successful, it will be seen as a victory for the
statists and a defeat for the liberal agenda."
(Additional reporting by Robin Paxton; Editing by Sharon