Uralkali 'not responsible' for Berezniki mine flood

Author: Carl Roache

2008/11/13

LONDON (ICIS news)--Russian potash producer Uralkali is not responsible for the Berezniki mine flooding and is ‘at a loss’ to understand why an investigation has been re-opened, it said on Thursday.

Uralkali’s Mine 1 flooded in October 2006, forcing the resettlement of local residents and the construction of a railroad bypass to ensure continued potash supply.

Russia’s Deputy Prime Minister Igor Sechin has asked the Federal Service for Environment, Technological and Nuclear Supervision (Rostekhnadzor) to review the causes of the flood.

The company’s share value has declined sharply since the news.

“We are at loss to understand why two years after the accident a decision was taken to re-examine the causes of the investigation,” said Uralkali’s press service.

“We believe there are no legal or moral grounds for making Uralkali responsible for the accident at Mine 1.”

The investigation will attempt to find the causes of the flood and determine if any damages are due to the state or third party companies.

It is understood that any resulting compensation could be several hundred million dollars.

“Mine flooding can be compared to an earthquake or a hurricane, as a natural event that is impossible to prevent and can cause huge material losses,” said Uralkali.

“The flooded mine itself is not the major problem – over the last hundred years this has happened dozens of times in different countries. The main problem is that a city with a population of hundreds of thousands was above the mine.

"In many countries such a situation would not have come to pass, but the decision to build the city was taken in the Soviet Union in the 1930s,” added Uralkali.

Results from the new investigation will be presented to the government next month.

A previous investigation launched in 2006 by the Rostekhnadzor found that the primary cause was a ‘previously unknown anomaly of geological structure’, with ‘extraordinary and unavoidable’ events leading up to the flood.

Mine 1 remains non-operational. Uralkali’s production complex at Berezniki consists of four mining divisions. Mine 3 flooded in 1986 and is also not operational.

On Tuesday, Citigroup downgraded the shares of Uralkali to ‘speculative’, from ‘medium risk’, on the back of the renewed government investigation and Uralkali’s global depositary receipts were down 22.92% at $5.01 on the London Stock Exchange.

 

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