Potash slump raises stakes in Russia legal battle

decrease font size  Resize text   increase font size       Printer-friendly version of this article Printer-friendly version of this article

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.

The deal accounted for a large share of Shaft Sinkers' order book, enabling the company to float in London in 2010.

Shares in the company have slid 80 percent since the halting of work on the shaft a year later and the start of litigation.

Volgakaliy is one of two Russian projects that Eurochem is developing from scratch and wants to bring into production from 2017. Combined annual potash output should be ramped up to 8.3 million tonnes by 2022.

Eurochem based its October 2012 claim on the $160 million it says it paid to Shaft Sinkers and an appraisal of the cost of lost output caused by a two-year delay. Shaft Sinkers has made a $15 million counterclaim for unpaid inventory.

The Dutch writ filed this year by Eurochem against IMR claims that it and Shaft Sinkers were responsible for concealing an expert report that said its "grouting" method to seal the shaft would not work.

At a preliminary hearing on July 19, the Amsterdam District Court found that Eurochem's claim against IMR was well grounded, stating also that IMR effectively controlled Shaft Sinkers. It granted Eurochem the right to freeze IMR assets worth $1.2 billion pending main proceedings in the case.

IMR declined to comment in detail but said it would make a robust defence in the main hearings on the case, for which no date has yet been set. 

Cartel Collapse

Eurochem has since restarted work on the Volgakaliy cage shaft and says it is committed to commissioning its two Russian expansion projects - the other is the Usolskiy project in the Perm region - on schedule by 2017.

"These are very important long-term projects for Eurochem as we continue to pursue our strategy to become one of the few global players present in all three nutrients - nitrogen, phosphates and potash," Eurochem spokesman Vladimir Torin said.

Torin dismissed suggestions that Eurochem's Russian projects were at risk from price declines resulting from the exit by Uralkali from the Belarussian cartel that had controlled two-fifths of world potash sales.

Uralkali is unconnected to the Eurochem legal battle. Its main owner, Suleiman Kerimov, has declined through his investment firm to comment on reports of a possible Uralkali sale.

Sector analyst Boris Krasnojenov, of Renaissance Capital in Moscow, has forecast that Uralkali's sale prices to China, on a cost-and-freight basis, will fall to $300 per tonne in 2014 from $350 this year and $470 in 2012.

"No price collapse has occurred," Torin said. "The Volgakaliy project is not scheduled to commence commercial production until mid-2017, by which time it is expected that potash prices will have further increased."


Prev 1 2 Next All



Buyers Guide

Doyle Equipment Manufacturing Co.
Doyle Equipment Manufacturing prides themselves as being “The King of the Rotary’s” with their Direct Drive Rotary Blend Systems. With numerous setup possibilities and sizes, ranging from a  more...
A.J. Sackett Sons & Company
Sackett Blend Towers feature the H.I.M, High Intensity Mixer, the next generation of blending and coating technology which supports Precision Fertilizer Blending®. Its unique design allows  more...
R&R Manufacturing Inc.
The R&R Minuteman Blend System is the original proven performer. Fast, precise blending with a compact foot print. Significantly lower horsepower requirement. Low inload height with large  more...
Junge Control Inc.
Junge Control Inc. creates state-of-the-art product blending and measuring solutions that allow you to totally maximize operating efficiency with amazing accuracy and repeatability, superior  more...
Yargus Manufacturing
The flagship blending system for the Layco product line is the fully automated Layco DW System™. The advanced technology of the Layco DW (Declining Weight) system results in a blending  more...
Yargus Manufacturing
The LAYCOTE™ Automated Coating System provides a new level of coating accuracy for a stand-alone coating system or for coating (impregnating) in an automated blending system. The unique  more...
John Deere
The DN345 Drawn Dry Spreader can carry more than 12 tons of fertilizer and 17.5 tons of lime. Designed to operate at field speeds up to 20 MPH with full loads and the G4 spreader uniformly  more...
Force Unlimited
The Pro-Force is a multi-purpose spreader with a wider apron and steeper sides. Our Pro-Force has the most aggressive 30” spinner on the market, and is capable of spreading higher rates of  more...
BBI Spreaders
MagnaSpread 2 & MagnaSpread 3 — With BBI’s patented multi-bin technology, these spreaders operate multiple hoppers guided by independent, variable-rate technology. These models are built on  more...


Comments (0) Leave a comment 

Name
e-Mail (required)
Location

Comment:

characters left


Demco 1400 Grain Cart

Demco offers a 1400 bushel grain cart to provide unmatched efficiency and operator convenience. In addition to the large 1400 ... Read More

View all Products in this segment

View All Buyers Guides

Feedback Form
Feedback Form