A renewed probe of a two-year-old accident at potash miner Uralkali (URKA.MM: Quote, Profile, Research, Stock Buzz) has landed a fresh blow on fragile confidence in Russian stocks and raised fears of a state asset grab, analysts and fund managers said on Tuesday.

 

London-listed shares in Uralkali, beloved of investors since an IPO last year, have fallen more than 70 percent since Friday when Prime Minister Vladimir Putin's influential deputy, Igor Sechin, ordered Russia's mining safety watchdog to re-open the probe.

 

Uralkali lost 22.9 percent at $5.06 in London trade (URKAq.L: Quote, Profile, Research, Stock Buzz) on Tuesday, hitting its lowest since the October 2007 share float, while the Moscow-traded share closed down 34.8 percent at 45.89 roubles. Uralkali, controlled by Russian billionaire Dmitry Rybolovlev, said on Monday its future could be in doubt if the government forces it to pay full damages for a 2006 mine flood for which it had earlier been cleared of blame. [ID:nLA727764]

 

"This is an opportunistic move to gain a foothold in that industry or take some assets," Uralsib strategist Chris Weafer said of the renewed investigation.

 

Uralkali, through its Belarus-based export agent, accounts for about one-third of global potash exports and more than tripled first-half profits this year as prices for the soil nutrient rocketed to all-time highs.

 

Investors fear that influential figures near the top of the government, widely suspected of expansionist ambitions in the natural resources sector, have also noticed the fat profit margins that have made Uralkali a darling of fund managers.

 

Senior figures in the Kremlin and the government have been silent on Uralkali since Friday's news.

 

Analysts point to a joint venture between state conglomerate Russian Technologies, led by Sergei Chemezov, another Putin ally, with Uralkali rival Silvinit SILV.RTS as evidence of state interest in the fertiliser business.

 

The Kama Mining joint venture won the largest of three potash deposits in the Ural mountains up for auction in March, outbidding Uralkali for a portion of the largest deposit of the mineral fertiliser oustide Canada's Saskatchewan province.

 

Silvinit's potash deliveries were disrupted by the sinkhole that opened up as a result of the flood at Uralkali's Mine-1, threatening a rail line and the nearby town of Berezniki.

 

Some investors see a parallel between the multi-billion dollar back-tax claims that destroyed the once mighty YUKOS oil company. They say Uralkali could face not only the cost of resettling some Berezniki residents and rebuilding a bypass rail line, but could also be penalised for lost potash supplies.

 

"Costs could potentially spiral if the government were to find Uralkali guilty of destroying potash ore," Citigroup said in a note downgrading the share from 'buy' to 'speculative hold' and halving its price target on increased equity risk.

 

The company declined to comment on Tuesday. A day earlier, it said it could face an "enormous financial burden" if forced to pay damages and that it believed there were no legal or moral grounds to make it responsible for the flood.