Daily analyst comments

On January 22, Akron, which owns 634,000 common registered shares in Silvinit (6.08% in the charter capital or 8.10% of the total amount of common shares) announced that orders are to be accepted from persons interested in acquiring at least 1% in its charter capital. According to a press release, the company is not interested in these shares after a new contract has been signed. Previously, this stake ensured guarantees of strategically important raw material supplies to the holding. The proceeds are to be allocated to expand production capacities. Akron does not rule out that the company could retain investment companies to sell its stake in Silvinit in smaller chunks. In this case, large portfolio investors could purchase them.

For the record: Silvinit is one of the largest Russian companies to extract and produce potassium chloride. The company’s share on the global potassium chloride market is estimated at 9-10%. In 2006, Silvinit produced 5.3 mln tons of potassium chloride. The company develops the Verkhnekamskoye deposit of potash-magnesium salts. According to company data, its industrial deposits amount to 3.8 bln tons. The company’s strategic development plan calls for increasing annual production capacity by 1 mln tons.

Silvinit’s voting shares are held by numerous offshore companies. According to unofficial data, they are registered in the names of the company’s top managers who own over 50% shares. According to materials for Uralkaly’s IPO, Dmitry Rybolovlev owns 19.47% of common shares in Silvinit, his partner Vladimir Shevtsov 5.65% which totals to over 25%. However, Rybolovlev’s chances to gain control over Silvinit remain weak and he will not likely continue to buy the company’s shares on the open market. The top management will not likely fully consolidate Silvinit shares.

In the long term, Silvinit has a fairly good upside potential due to plans to expand production capacities and stable potassium chloride prices, while the arrival of large portfolio investors could strengthen the company’s positions in the domestic potash industry.

At present, we have no formal recommendation on Silvinit (RTS: SILV) shares. The estimated target price based on a comparative analysis is $503 per common share which, based on the relation to the current market price, corresponds to a Buy recommendation.