November 19, 2014 / 4:28 PM / 3 years ago

UPDATE 1-Russian potash mine accident pushes Uralkali shares to 4-year low

* Uralkali suspends work at mine after water flows in

* Accident could hit supply, lift global potash prices

* Uralkali is key market player, part-owned by Putin ally (Adds details, effect on global supply, updates shares)

By Polina Devitt and Natalia Shurmina

MOSCOW/YEKATERINBURG, Russia, Nov 19 (Reuters) - Shares in Russia’s Uralkali, the world’s top potash producer, fell sharply for a second day on Wednesday after a mine accident that could reduce global supplies and push up prices of the crop nutrient worldwide.

Uralkali shares have fallen 28 percent since Tuesday when it suspended work at its Solikamsk-2 mine, which accounts for a fifth of the company’s output and 3.5 percent of global capacity, following an inflow of water.

A sinkhole, stretching 30 by 40 metres (yards), found at an abandoned mine 3.5 km (2 miles) to the east, increased concern about the future of the mine because an inflow of water and the resulting sinkhole in 2006 forced another Uralkali operation to shut permanently.

Despite this, Chief Executive Dmitry Osipov said: “The accident is not catastrophic for the company’s operations or people living in the area.”

Uralkali will consider accelerating the commissioning of new mining capacity at two other blocks -- Ust-Yayvinsky and Polovodovsky -- which are also in the Perm region near the Ural mountains, Osipov said.

The global market in potash, mostly used to fertilise crops, is worth around $20 billion. Shares in its main competitors -- Potash Corp, Mosaic Co and Agrium Inc -- have been rising since the accident was announced.

The accident is potentially a further blow for Russia’s economy, already hit by Western sanctions over the Ukraine crisis, an economic downturn and a falling currency.

GLOBAL PRICES

Uralkali is part-owned by Russian tycoon and politician Mikhail Prokhorov and by fertiliser firm Uralchem. Prokhorov ran for president against Vladimir Putin in 2012, but has been careful not to alienate him.

The previous main owner was Suleiman Kerimov, a billionaire who had close ties to Putin’s administration, but he and his partners sold their stakes after Uralkali quit a trading alliance with Belarus last year in a move that triggered a diplomatic row between the two former Soviet republics.

The July 2013 decision to quit the trading alliance sent the global potash market into turmoil, creating more competition among producers, but prices have stabilised since then.

Uralkali has yet to determine the cause of the accident, but flooding is a common problem for the potash mining industry. In previous cases, clarity on the fate of the mine has emerged within a week, financial services company VTB Capital said.

Under the worst-case scenario -- flooding at both Solikamsk-2 and the Solikamsk-1 mine which are separated by a concrete dam -- Uralkali’s capacity could decrease by 3.3 million tonnes from its current 13.3 million tonnes, VTB said in a note.

That means the accident could push up global potash prices that have been subdued for a long time, something that could strengthen Uralkali’s position as it negotiates the contract for supplies to China in 2015, Morgan Stanley said.

The price of China’s contract is often seen as a benchmark for the industry.

“This issue could improve the industry’s negotiating position on upcoming Chinese and Indian contacts as well as aid in getting to targeted price levels in South East Asia,” Morgan Stanley said in a note.

VTB capital said the price of Uralkali’s contract with China could reach $340 per tonne. Uralkali had expected to raise the price for China by 10 percent from the $305 per tonne set in the previous contract.

Uralkali shares fell 21 percent in Moscow on Wednesday -- their sharpest drop in 16 months -- to their lowest since July 2010. (Additional reporting by Rod Nickel in Winnipeg; Editing by Timothy Heritage and Robin Pomeroy)

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