Potash slump raises stakes in Russia legal battle
Engineering firm Shaft Sinkers has dismissed as "nonsensical" an $800 million claim brought by Russia's third-largest fertilizer firm over the flooding of a mineshaft that delayed a $4 billion potash project.
The claim by Eurochem pits its owner - tycoon Andrei Melnichenko - against a trio of oligarchs from ex-Soviet states who indirectly control Shaft Sinkers.
Eurochem filed for arbitration in October 2012 in France and Switzerland after terminating the contract in late 2011. It says Shaft Sinkers concealed evidence that the chemical sealants used would fail to keep groundwater out of the mine.
Shaft Sinkers, which is based in South Africa and listed in London, counters that Eurochem is motivated by a desire to avoid losses after the collapse of a Russo-Belarussian sales cartel in July hammered global prices for the soil nutrient.
"I could agree with many commentators who suggest (that) given the collapse in the price of potash it is better to stop the work, keep the potash in the ground and sue somebody," Chris Hall, chief financial officer of Shaft Sinkers, told Reuters.
The price slide may render potash investments uneconomic, analysts say, while fallout from Uralkali's exit from the Belarus alliance may force the sale of the Russian company, redrawing the competitive landscape.
Hall described the Eurochem claim as "nonsensical and fabricated," adding that it was "out of all proportion to the disputed contractual issues." Shaft Sinkers declined to comment on the status of the arbitration, which is confidential.
Eurochem - seeking to become a leading global producer of all three key soil nutrients: nitrogen, phosphates and potash - rejected Shaft Sinkers' statement as "demonstrably false".
Eurochem has launched a second case, suing Shaft Sinkers' main owner, International Mineral Resources (IMR), for a similar sum for alleged fraud in a Dutch court. IMR is wholly owned by the founders of ENRC - Alexander Machkevitch, Patokh Chodiev and Alijan Ibragimov - and in turn owns 48 percent of Shaft Sinkers.
Kazakh-focused miner ENRC is delisting from London after a buyout of minority investors led by the trio.
Melnichenko, 41, is estimated by Forbes magazine to have a fortune of $14.4 billion. He owns a $300 million "megayacht" named "A" after his wife Aleksandra, a Serbian model and pop star turned society hostess.
Shaft Not Sunk
Eurochem in 2008 awarded a $342 million contract to Shaft Sinkers to bore a 1,100-metre-deep "cage shaft" that would move men and equipment to a seam of potassium salts at its Volgakaliy mine.
Self-contained hydraulic system with power cables (hydraulic). Tandem Henschen axles (hydraulic). Hydraulic fenders. Manual or hydraulic tilt. 6,500-gallon tank.
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