November 20, 2008 / 10:32 AM / 11 years ago

UPDATE 2-Uralkali slashes potash output as crisis bites

* Q4 output cut will cost $650 million in lost revenues

* Outlook for 2009 production unclear

* Shares plunge 30 percent in London

(Adds details, background, analyst)

MOSCOW, Nov 20 (Reuters) - Shares in Russian potash miner Uralkali (URKA.MM) plunged more than 30 percent in London on Thursday after it slashed output in the final two months of this year and warned it could reduce cash revenue by $650 million. “The turmoil in the global financial markets...has triggered a drop in demand for crops, thereby hindering farmers’ capacity to purchase planned volumes of fertiliser,” Uralkali said in as statement.

“As a result, demand for potash has decreased in some markets...The unfavorable market situation is likely to continue through early 2009, and the company’s production will be curtailed as a result,” Uralkali said.

Uralkali shares, beloved by investors for the company’s fat profit margin, were dumped earlier this month after the state re-opened an investigation into a 2006 mine accident.

As its shares went into freefall, the company said it would face an ‘enormous financial burden’ if the state sought damages and its future could be in doubt. [ID:nLA727764]

Uralkali Global Depositary Receipts, traded in London URKAq.L, are now down 96 percent from their June peak, a fall on par with those suffered by Russia’s most heavily leveraged real estate developers. They were trading at $3.30 apiece at 1359 GMT. In Moscow, the shares were down 23 percent at 24.8 roubles.

The renewed investigation brought back memories of the vast tax claims that destroyed Russian oil company YUKOS, and investors, wary of rising corporate governance risks as Russia grapples with the global crisis, fled the stock.

On Thursday, the company said it was halving production this November and December — in line with plans announced to slash this year’s output by 500,000 tonnes which were announced on Oct. 30.

That would reduce full-year output by 10 percent and cut revenues by $650 million, Uralkali said.

Analysts said, however, that the mine investigation was a more pressing issue for shareholders.

“Uralkali’s share price dropped ... on the (production cut) news,” UniCredit analysts wrote in a comment on the cuts.

“We welcome the company’s initiative to address its operations and believe that the resolution of its issues with the Russian government is a more important factor affecting the company’s going-concern status than temporary production cuts.”

Last year it produced 5.1 million tonnes of potash, while this year’s output is now seen at 4.9 million tonnes — falling short of production capacity of 5.35 million tonnes.

With revenues reduced, Uralkali now expects end-2008 cash on its balance sheet of around $300 million and debt around $470 million.

The company, which is controlled by billionaire Dmitry Rybovlev, was currently unable to give firm guidance on production in 2009 and “will inform its investors and the public about its decisions as the situation becomes clearer.”

Uralkali said its plans for dealing with a worsening economic climate included repairing production facilities, cancelling overtime work and suspending employees’ bonus plan. (Reporting by Toni Vorobyova; Editing by Victoria Bryan)

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