March 10, 2009 / 2:09 PM / 9 years ago

UPDATE 2-Uralkali settles $218 mln mine costs, shares soar

* Company has pledged total 7.8 bln roubles

* Latest pledge 5 bln roubles for rail bypass

* Shares rise 29.9 pct in London, investor fears subside

* Lost potash reserves still to be calculated (Adds analyst comment, background, updates share price)

By Robin Paxton and Melissa Akin

MOSCOW, March 10 (Reuters) - Russian potash miner Uralkali (URKA.MM) has pledged about $218 million to cover costs related to a mine flood, the company said on Tuesday, easing fears among investors that the company could have faced crippling penalties.

Uralkali’s London-traded stock gained nearly 30 percent in value as the firm, a major supplier of potash to world markets, appeared to have resolved most of the issues related to a renewed probe into the accident at the mine over two years ago.

Analysts said, however, that compensation to the government over lost potash reserves were still to be calculated.

“The latest agreement can be taken as a positive driver for the stock, as investors will likely interpret it as a sign of reconciliation between the company and the state,” UralSib analyst Anna Kupriyanova said in a research note.

“Given the existing uncertainty over the compensation for lost reserves, we maintain our generally cautious view of the stock and we still see potential risks to the company’s minorities.”

Uralkali, whose Belarus-based export agent is the world’s biggest potash exporter, was under investigation over a flood at its Mine 1 in the Ural mountains in 2006. The company said in November its future was at risk should it be found culpable.

On Tuesday, the company said it had offered to pay 5 billion roubles ($140 million) toward the cost of a 53-km (33-mile) rail bypass around the affected region. The original rail line became impassable as a result of the flood and associated sinkhole. Uralkali President Anatoly Lebedev, in a meeting with senior government officials, reiterated a separate pledge to pay 2.767 billion roubles representing costs incurred by the federal and regional governments and state rail monopoly Russian Railways.

Uralkali also said it would pay about 36 million roubles to the municipal budget of Berezniki, the city where the mine is located, taking the total costs it has agreed to pay to approximately 7.8 billion roubles, or $218.3 million.

AGREEMENT WITH STATE

Uralkali, controlled by billionaire Dmitry Rybolovlev, enjoyed record profits in the first half of 2008 as the price of potash, a key ingredient in fertilisers, rocketed to all-time highs. But its stock lost nearly 90 percent in value in the second half of last year, as the renewed government investigation and fears of a possible state asset grab exacerbated steep declines in the Russian stock market due to the global financial crisis. Uralkali said the total cost of building the new railway link was estimated at 12.33 billion roubles, citing the results of the meeting chaired by Finance Minister Alexei Kudrin and attended by Natural Resources Minister Yuri Trutnev.

The federal budget would contribute 2.79 billion roubles to the total cost, Russian Railways 3.54 billion roubles and rival potash miner Silvinit SILV.MM -- which will also make use of the rail link -- 1 billion roubles, Uralkali said.

Analysts said the state’s apparent willingness to share the costs related to the Mine 1 accident was a positive sign.

“The proportion of compensation associated with lost reserves is now the only unknown,” analysts at investment bank Renaissance Capital said in a research note.

“There is no methodology for determining this element, and we think it likely that the government will simply request the portion of lost mineral resource tax,” RenCap said, estimating the amount at between $30 million and $40 million.

Uralkali’s London-traded stock closed up 29.9 percent at $9.85. In Moscow, its shares climbed 24.7 percent to 67.4 roubles.

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