According to Interfax, Uralkali, based in Berezniki, Perm Territory, has clinched a series of deals with the Swiss Mining Technology S.I.M. AG firm at a total value of around EUR 54 million. The contracts provide for the delivery of mine hoist equipment and the replacement of five skip hoists at the second and fourth mine groups (BKPRU-2 and BKPRU-4). The German Siemag company has undertaken to make mechanical parts for new machinery, while Siemens is to manufacture electric drive systems. The upgraded machinery will help boost the carrying capacity of skip hoists at BKPRU-2 from 22 to 25 tons and that of hoists at BKPRU-4 from 25 to 30 tons. The program involves replacing the obsolete equipment phased in many years ago.
The program is part of the company’s general investment plan aimed at boosting potassium chloride output to 7 million tons a year by 2010, and to 11 million tons annually by 2015. This goal is to be achieved by scaling up ore extraction at the existing mines and building the Ust-Yaivinsky mine, with a capacity of roughly 15 million tons of ore yearly. The upgraded machinery is needed to increase output of potassium ore, from 7 to 11.4 million tons a year at BKPRU-2, and from 14 to 19.8 million tons at BKPRU-4. In so doing the company expects to extract 46 million tons of ore and produce 11 million tons of potassium chloride annually by 2015.
The program should allow the company to boost its financial indices over the short term and in the long run. Brisk demand for potash against a limited supply of the product has set all the necessary preconditions for high market prices to remain in place in the years to come. Uralkali ranks among the fastest growing companies in the chemical industry and, in light of this; we regard the company as an attractive vehicle for investment.
We estimate the fair value of Uralkali (RTS: URKA) at USD 18.5 per share, with an upside of about 270%, which corresponds to a BUY recommendation.
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