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By John Helmer in Moscow

Volatility in Uralkali share price is no sign of change in value.

A month ago, when Mineweb reported that the spot price of potash had cleared the $1,000-tonne threshold and was continuing to rise, the Russian stock market reacted by lifting the share price of lead potash producer, Uralkali (ticker URKA:RU), by 1% in the first hour of trading, then another 5% in the second hour. That represented $1.3 billion in extra market capitalization for the company — $11 million per trading minute.

The news was real, and that day, April 23, URKA’s share price hit its historic high of $12.40; this represented a market capitalization of $26.3 billion. Since then, with virtually no news to speak of, and negligible trading volumes, the charts show that Uralkali’s share price has been extremely volatile, seesawing down and upwards by up to 17% in value on the day.

Chief executive Vladislav Baumgertner explained the share price increase as the direct result of the commodity price growth, itself driven by the underlying global supply-demand balance, and the relative attractiveness of potash to commodity investment funds. “These price increases,” Baumgertner said on April 23, “are driven by the continuous growth of global demand, historically low inventory levels and unprecedented tightening of the supply for the remainder of 2008 after the agreements reached by the Company in China and India.”

Nothing has changed in the plant kingdom or in the global fertilizer market, so how to explain the instability of the share price in recent days?

Roydel Stewart, the Alfa Bank fertilizer analyst in Moscow, told Mineweb the reaction is irrational. “People are afraid that this is a bubble. They think that the price of potash may fall. They are simply fixing their profits; they are selling out. The main evidence is that potash did 1000% for one year. So they suppose it is bubble, and that it can blow. Personally I disagree with such opinions.”Stewart was exaggerating the technical point – the Uralkali share price has been falling, but according to the Bloomberg chart for the past month, almost no-one has been selling out: http://www.bloomberg.com/apps/cbuilder?ticker1=URKA:RU

Mikhail Stiskin of Troika Dialog in Moscow, another fertilizer sector specialist, told Mineweb: “The only one thing which affected the URKA price is that investors became afraid of such intensive growth of potash prices. That is the only news event.”

He too may not have counted how marginal this sentiment was.

On May 7, when URKA recovered by about 8%, just over 500,000 shares were traded. That was the biggest daily volume over the past month; but it represented just 0.02% of the 2.1 billion shares on issue. Counting only the estimated 15% free float of Uralkali’s shares, this traded volume was still less than 0.2%. Not much market sentiment there.

A senior executive at another Moscow-based fertilizer group said he knows of no domestic reason for the higher volatility of URKA’s share price, compared to potash rival Silvinit, or complex fertilizer producer Acron. “I have heard no news or inside information which could affect URKA’s share price. Besides, the current price is gaining again.”

Between May 8 and 13, the price seemed to be diving again, and on May 12, following a board meeting of Uralkali, it was announced that the dividend for 2007 would be Rb1.90 per common share, or Rb9.50 for the London-listed GDR, making a total payout of just over Rb4 billion ($171 million).

This represented 50.2% of the company’s reported net income. A year ago, the dividend distributed for 2006 – before Uralkali listed publicly – was about 90%. The impact on the share price was a 5% drop on the day, although this was a continuation of a slide that started before the dividend news was known. Again, the volume of trades was infinitesimal. George Lilis, chief analyst at MDM Bank, told Mineweb: “I think that the prices went down, due to URKA’s announcement that they will keep the dividends low. The market reacted. ”

A week later, chief executive Baumgertner took the star turn at the annual conference of the International Fertilizer Industry Association. He said Uralkali “isn’t in a rush” to make acquisitions outside Russia, because it plans to triple output by 2015 at its existing Russian mines. Baumgertner went on to lay out Uralkali’s “strategy of growth”.

“We are focused on maximizing the shareholder value. In addition to the organic growth which we have clearly communicated to our investor base we do not exclude an M&A route. Our organic plans currently envisage both brownfield and greenfield expansions (up to 7 million tonnes based on brownfield projects and up to 10.7 million tonnes by developing a new license – Mine-5). At the same time we have always stated that we do not exclude those M&A opportunities that fit our strategy, which is a potash-focused one. In our normal course of business we are reviewing different opportunities, however at the moment we do not have any concrete plans or targets.”

Lilis of MDM reported that Uralkali “can certainly use its shares to fund acquisitions. In the North American sphere, the recent takeover [by BHP Billiton] of Canada’s Anglo Potash may have opened a consolidation cycle, while it certainly makes strategic sense for Uralkali to obtain a base and lower its transportation costs. Clearly, a consolidation phase in the global potash industry has opened, and Uralkali, with its large size, seeks to play a dominant role.”

Uralkali is at a current market cap of about $25 billion; Potash Corporation is at C$63 billion, Mosaic at $56 billion, and Agrium at $14 billion. But the North Americans are multi-mineral fertilizer producers, not potash specialists.

The BHP buyout of Anglo Potash – with which it had already been in an exploration joint venture – offered C$284 million, a premium of 34% over the pre-deal share price of Anglo Potash. The transaction assigns a market cap to the prospector of C$225 million. The company’s last technical report estimates that its future mine in Saskatchewan has 1.5 billion tonnes of measured, indicated and inferred potash resource.

Baumgertner aims to hit a steadying note, and he is backed by Stewart of Alfa Bank. “Uralkali’s unique selling point,” according to stewart, “has been that it is a liquid, transparent, dedicated potash producer. We believe it is unlikely that Uralkali will acquire a fertilizer company that derives revenue from a less profitable nutrient businesses such as nitrogen and phosphate. There is no bubble which can blow.”

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