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. Last Updated: 07/27/2016

Silvinit Bids to Buy Out Uralkali's 25% Stake

YEKATERINBURG -- Russian potash miner Silvinit has offered to buy out a 25.1 percent stake held by managers of rival miner Uralkali to sidestep a looming conflict over development of a huge deposit.

A source close to Silvinit's main owners said Wednesday that the firm had offered a 10 percent premium on market value for the stake, held by two Uralkali board members who oppose plans to raise a loan to develop part of the world's No. 2 potash deposit.

The source did not state the price offered by Silvinit to Dmitry Rybolovlyov and Vladimir Shevtsov. Silvinit's current market capitalization of $10.70 billion would make a 25 percent stake, plus the 10 percent premium, worth $2.94 billion.

Russia is among the world's top potash suppliers. Silvinit alone accounts for over one-tenth of global supplies and, like Uralkali, is set to profit from runaway prices as shrinking grain stocks prompt farmers to buy more of the fertilizer. This unprecedented demand for soil nutrients led three Russian miners to pay 20 times the asking price at a series of auctions this month as the government sold off the largest potash deposit outside the Canadian province of Saskatchewan.

Silvinit, through its Kama Mining joint venture with state corporation Russian Technologies, was the biggest winner in the carve-up of the Verkhnekamskoye deposit, agreeing to pay $1.47 billion for the rights to the Polovodovsky license area.

Uralkali failed to win any of the three licenses on offer.

Rybolovlyov, Uralkali's chairman and largest shareholder, said Tuesday that he opposed Silvinit's plan to raise a loan to build a mine on the license area and would vote against the proposal at a board meeting scheduled for April 19.

In a statement issued on Tuesday, he said Silvinit would struggle to raise the $3.5 billion he says would be required.

"Silvinit does not have such means, and the possibility of it raising loans is limited, partly because it is not transparent," Rybolovlyov said.

The source said Silvinit shareholders had yet to receive an answer from Rybolovlyov to their buyout proposal.

Troika Dialog analysts said they did not expect him to sell.

"The stake is of strategic importance to him and he will continue to look to increase his stake in Silvinit to merge the company with Uralkali at some point," they said in a note.

Troika Dialog added that Uralkali, as the second-highest bidder for Polovodovsky, might be able to acquire the asset should Silvinit -- which needs the deposit to replenish reserves estimated otherwise to last only 20 years -- fail to pay.

Silvinit spokesman Anton Subbotin said the company would be able to raise loans and would build the mine as planned. "A feasibility study is nearly ready. The project will be implemented in the nearest future," Subbotin said. "Banks are queuing up to offer us loans. We have a good credit history."

He said Silvinit planned to run four mines at Polovodovsky that would guarantee mine life of more than a century.

The company also plans to build a plant to enrich carnallite, a mineral containing magnesium and potassium, which would be supplied to titanium producer VSMPO-Avisma -- another subsidiary of its partner, Russian Technologies.