Sordid Details Behind Potash Stock Massacre

Uralkali's bombshell last Tuesday wreaked havoc not only among the Russian potash giant's competitors and juniors hoping to break into the market – including giants Potash (POT) and Mosaic (MOS) -- but also sliced off almost 25% of its own market value.

POT Market Cap Chart

POT Market Cap data by YCharts

Uralkali overnight turned the potash market from a cozy oligopoly to cost-based open market, betting that its costs – the lowest in the industry – and its ability to turn on 3 million tonnes of idle capacity will offset the inevitable decline in the potash price.

But now many are questioning the wisdom of CEO Vladimir Baumgertner's surprise move, which he says was prompted by a decision by former export partner, Belarus, to bypass the cartel.

FT.com quotes an industry insider as saying Uralkali is "playing Russian fertilizer roulette" and a "greater concern for minority investors" according to industry analysts is "why two of Uralkali’s oligarch shareholders decided to sell out in the past two months:"

"In June Zelimkhan Mutsoev sold his 6.4 per cent stake back to the company for $1.3bn – a 5 per cent discount to its market price at the time. Separately, Alexander Nesis, another billionaire shareholder, gradually sold his 5 per cent stake back to the market during June and July, when the company was simultaneously conducting a buyback."

"Uralkali says it did not buy back shares from Mr Nesis directly, and representatives for both tycoons and the company deny any wrongdoing. A spokesman for Mr Nesis noted that he had treated the stake as a financial investment, and had begun a strategy of gradually exiting the company up to a year before. Mr Mutsoev’s representative said the businessman, who is also a Russian parliamentarian, had decided to sell his asset because of a new law that prohibits MPs from having direct control over business assets."

"One Moscow-based analyst described his clients as “furious”, arguing that Uralkali had conducted “a value-destructive buyback”, borrowing money and issuing a eurobond to help pay for the programme."This makes Russia look like a basket case," the analyst said. Uralkali made a handful well-connected Russians very wealthy during the Yeltsin-era when Soviet state-owned potash mines passed onto private hands and brought about another massive payday when it merged with homebase rival Silvinit in 2011."

Nesis founded Polymetal in the late 1990s, sold out to Suleiman Kerimov in 2005, only to buy most of it back on the cheap during the 2008 financial crisis. A trained radiochemist Nesis kickstarted his shipbuilding and industrial investment business ICT with money from uranium mining in the Uzbek desert.

A former truck driver, Mutsoev, may use the proceeds of his potash sale to help fund the $3.6 billion he and Gavril Yushvaev are spending to buy 38% of Russia's number one gold producer Polyus.

Three oligarchs still own chunks of Uralkali. Suleiman Kerimov holds 17.2%, while Filaret Galchev and Anatoly Skurov have a 7% and 5% stake.

Uralkali's plummeting share price burned a huge hole in Kerimov's pocket, taking the shine of his $6 billion estimated total worth.

Kerimov, long suspected of being the front man for secret Kremlin investments, at least had the foresight to sell some of his Uralkali holdings to China in 2012 for a couple of billion. His investments in his pals' gold mining companies Polymetal and Polyus Gold have also taken a tumble though.

Galchev is neck and neck with Kerimov in the billionaire stakes with a fortune of $6.7 billion thanks to his thriving cement business, while Muscovite Anatoly Skurov with $1.7 billion in the bank originally made his money with coal mining before getting in on the fertilizer game.

Anatoly Lomakin, with a net wealth in the region of $1.2 billion, joined the billionaire ranks when he sold his Silvinit stake in the merger, but Dmitry Rybolovlev has been the most prudent potash investor.

Rybolovlev is the richest of the Russian potash potentates. He sold part of his controlling stake in Uralkali in 2011, pocketing $6.5 billion overnight and affording him the time and money to splash out on high-profile properties around the world.

The Donald Trump Palm Beach mansion, Maison de L'Amitie, he picked up for $95m in 2008 is now the centre of a divorce fight with wife Elena.

He also set the bar for New York with $88m for a Manhattan apartment for his daughter Ekaterina bought from former Citi chairman Sandy Weill and paired his $300m Belle Époque penthouse in Monaco, with the local soccer team.

Frik Els, a contributing editor at YCharts, is an editor at MINING.com. He can be reached at editor@ycharts.com. You can also request a demonstration of YCharts Platinum.

Read more articles about: Company Analysis  mining   

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