Interfax reports that chemical producer Silvinit increased its potassium chloride output by 3.8% y-o-y in January-September, 2008, to 4.318 million tons. Output of granulated potassium picked up 7.3% to 768,100 tons, while potassium chloride shipments expanded 3.4% to 4.329 million tons. The nine-month output of salt increased 12.9% to 903,590 tons and sylvinite ore extraction advanced 2.5% to 18.186 million tons.
These production results are primarily attributed to production modernization: The bulk of investments went to building another shaft at Rudoupravleniye (mining group) No. 2, enabling it boost sylvinite ore extraction, developing transport infrastructure, building a power station and revamping granulated potassium chloride production.
Silvinit has steadily stepped up its potassium chloride output. In 2007, output climbed 3.2% to 5.47 million tons. According to our estimates, the company will make 5.76 million tons of potassium chloride in 2008, up 5.4% y-o-y. Beginning in 2009, the company expects to produce 6 million tons of potassium chloride yearly.
Production expansion should enable the company to significantly improve its financials in 2008, given that demand for potassium chloride on world markets now outpaces its supply, causing steady growth in its prices.
Our target price for Silvinit (RTS: SILV) is USD 1,730 per share, which implies an upside potential of more than 200% and corresponds to a BUY recommendation.
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