Potash business proves fertile ground for Kerimov

The prospect of rapidly rising agricultural and fertiliser prices is reflected by the emergence of a new Russian natural resources behemoth.

In August, Russian oligarch and member of parliament Suleiman Kerimov bought controlling stakes in Russia’s two largest potash miners, Uralkali and Silvinit. Potash is major ingredient in agricultural fertilisers, and Russia has the second largest deposits of the naturally occurring mineral in the world. The combined company will become the world’s second largest producer after Canada’s PotashCorp.

Soaring grain prices have spurred frenzied M&A activity in the fertiliser sector. In the last week of August, BHP Billiton, the world’s largest mining company, bet billions on the growing demand for agricultural commodities with a hostile $39bn bid for PotashCorp.

The numbers

9.5bn
Annual revenue (in dollars) 
of Canada’s PotashCorp, a 
potential rival of Uralkali

13m
Output (in tons) of potash planned by Uralkali and 
Silvinit after their planned merger in 2011

The price of potash soared during the commodities-driven boom, rising to $1,000 a ton in 2008 before crashing back to its current level of about $350 to $375. However, prices are widely expected to rise as economies around the world recover.

Moreover, following the record temperatures this summer and the subsequent fires that destroyed a third of Russia’s grain harvest, rapidly climbing agricultural prices will carry the price of potash along with them.

Despite the global financial crisis, the fact remains that nothing has fundamentally changed in the dynamics of food supply since 2008, when a shortfall in supply caused agricultural prices to spike.

Mr Kerimov, who has been serving in the Duma as a deputy for Dagestan since 2007, is a member of the ruling United Russia party. But he is best known for his wide ranging investments in gold, oil,property and technology, and was recently reprimanded for having one of the worst attendance records of any politician in Russia. As investment bank Troika Dialog suggests: “Kerimov is a typical financier; we suspect that he is playing a multi-act drama on the road to monetising his investment.”

POTASH PRICES: LAST FIVE YEARS



Still, the merger makes good economic sense. The effects of sector consolidation and rising agricultural prices are already making themselves felt in the fertiliser sector after Uralkali raised spot prices around 10pc on September 1. A similar bid in February was thwarted by an aggressive reaction from customers and indiscipline from the likes of Silvinit.

While the market watches BHP’s courtship of PotashCorp, it’s also wondering what’s on the cards in Russia. Suggestions that Kerimov could team up with Norilsk Nickel to form a diversified mining giant are unlikely, while a tie-up with 
a chemical fertiliser manufacturer, such as PhosAgro, offers few benefits because production methods are entirely different.

Instead, Kerimov is thought to be trying to expand the new giant across the border into Belarus, which has the third largest deposits of potash in the world. In early August, first deputy prime minister of Belarus Vladimir Semashko denied that the government was discussing a $7.5bn bid from Kerimov for 51pc of the country’s largest potash producer, Belaruskali.

However, despite reports 
of Chinese and Indian interest in the Belarussian producer, the official expects the emerging Russian conglomerate to be among the prime bidders.

“I believe [Kerimov’s interest] arose from his recent acquisition of control in Uralkali,” Semashko added.

“I expect that after [gaining control of] Silvinit... Belaruskali is next in line.”

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