According to Interfax, Akron's BoD has approved the decision to open two credit lines with RUB 25 bn limit each to bid in the auctions for licenses to tap the potash and magnesium salt deposit in the Perm region. The first credit line is to be opened by Sberbank and the second by a syndicate of Russian and foreign banks. Both credit lines are to be opened if the company wins these auctions.
For the record, auctions to sell off licenses to tap the Verkhnekamskoye potash and magnesium salt deposit in the Perm region are slated for March 11. Three lots are to be auctioned off with aggregate reserves of around 5 bn tons of sylvinite. The first lot includes the Polovodovsky block, part of Novo-Solikamsky and part of other area with aggregate reserves of over 3 bn tons of sylvinite. The second lot includes the Palashersky and Balakhonstevsky blocks with aggregate reserves of over 1 bn tons of sylvinite and around 0.5 bn tons of carnallite. The third lot includes the Talitsky block with nearly 1 bn tons of sylvinite.
A total of 21 bids were placed for three lots, including from EuroChem, UralKhim, and Akron. However, we view Uralkali and Silvinit as bidders tipped to win, since these companies have already been tapping the Verkhnekamskoye field, possess completed infrastructure and are therefore prepared to offer a higher price for them. Thus, Akron has slim chances of winning the auctions. An overly high price paid for the licenses in competition with other contenders could question the project margin for Akron.
In other developments, Akron's BoD approved the sale of 8.1% of the company's common shares, 6.076% of the charter capital, to JP Morgan, Goldman Sachs International, UniCreditAton, Troika Dialog, UBS, Credit Suisse Bank (Moscow), Deutsche Bank AG, and Renaissance Capital.
Akron's sale of a stake in Silvinit is to significantly improve the stock liquidity. At present one of the reasons behind the discount between Silvinit and its main rival Uralkali is the former's modest free float. In our opinion, the company's increased free float will help prop up its market valuations in the mid term.
The estimated target price for Silvinit (RTS: SILV) is USD 1,420 per share which implies over 30% upside potential and corresponds to BUY recommendation. The estimated target price of Akron (RTS: AKRN) is USD 52.20 which implies over 30% downside potential and corresponds to SELL recommendation.
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