February 4, 2009 / 11:30 AM / 9 years ago

UPDATE 2-Mine probe may cost Uralkali over $86 mln

* Govt has incurred 3.1 bln rbls in expenses from flood * Future expenses could include mineral resource losses

* No judicial decision to date

* Uralkali says ready to voluntarily pay 3 bln rbls

(Adds details, analyst comment, share price)

By Robin Paxton

MOSCOW, Feb 4 (Reuters) - Potash miner Uralkali (URKA.MM) could face an expense bill in excess of $86 million after the Russian government ruled it could have done more to prevent a mine flood in 2006, the company said on Wednesday.

The final amount, say analysts, could be higher as the government has not yet made public future losses it expects to incur as a result of the accident. The renewal of the probe has stoked investor fears of a possible asset grab by the state.

“The Russian government might use Uralkali as a cash cow for future remedial expenses, which should continue to put pressure on the stock,” UniCredit Aton equity analyst Anna Kochkina said in a note.

A Russian government commission, at the behest of Deputy Prime Minister Igor Sechin, has conducted a fresh investigation into the 2006 flood at Uralkali’s Mine 1 in the Ural mountains. The company was absolved of blame in the original probe in 2006.

Uralkali, citing the commission’s report, said on Wednesday the government had incurred expenses of 3.1 billion roubles ($85.8 million) resettling local residents and building a 6-km rail link around a sinkhole caused by the flood.

The government report said Uralkali would be liable for these damages, plus possible future costs including mineral resource losses, expenses incurred relocating power utilities and by state railway monopoly Russian Railways, Uralkali said.

“There has to date been no judicial decision requiring Uralkali to reimburse the expenses listed in the report,” the company said.

“However, the company cannot give any assurances that claims will not arise for such reimbursements, which could exceed 3.1 billion roubles.”

Uralkali repeated its earlier proposal to voluntarily compensate expenses incurred by the government in managing the consequences of the accident. Uralkali estimates these costs at around 3 billion roubles.

The new probe concluded a combination of geological and technological factors were responsible and that systematic geological surveys would have detected the problem earlier. A protective pillar should also have been placed under the railway.

Uralkali, whose London-traded stock URKAq.L has lost over 90 percent of its value since June, said it could not comment further until it had received and considered 57 appendices to the government document.

The company, controlled by billionaire Dmitry Rybolovlev, said in November its future could be in doubt if the government forces it to pay excessive damages. [ID:nLA727764]

Uralkali, through its Belarus-based export agent, accounts for a third of global exports of potash, a soil nutrient used in making fertilisers.

First-half profits soared last year on record potash prices, but the company has been hit hard by the collapse in Russian stocks and commodity prices.

Uralkali’s London-traded stock edged up 1.5 percent to $4.75 by 1515 GMT. Its Moscow-traded shares were down 0.3 percent. (Editing by Jon Loades-Carter)

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