Possibility of complete flood at Solikamsk-2 “remains high”

By James Sean Dickson
Published: Wednesday, 31 December 2014

Although efforts to save mine are “ongoing”, Uralkali has said that a complete write-off of the Solikamsk mine is possible, resulting in 35% drop in the company's share price.

The recovery operation at Russia-based potash producer Uralkali OAO’s Solikamsk-2 mine continues, although industry experts believe that a complete shut down of the mine is more than likely.

The company suspended all work at the Solikamsk-2 potash mine in the Perm region of Russia in November, following the detection of higher levels of brine inflow.

Following the suspension, images appeared of a substantially-sized sinkhole at the east of the production site. Originally estimated at 30-40 metres in diameter, it grew to 50 by 80 metres. The accommodation located near to the sinkhole is a currently unoccupied summer cottage village.

Alexander Baryakh, director of the Mining Institute of the Urals branch of the Russian Academy of Science said that the risk of a complete mine shutdown, despite rescue effort, remains: 

"We are taking all necessary measures to save [the] Solikamsk-2 mine and minimise the consequences of the accident, fully complying with Federal Service for Ecological, Technological, and Nuclear Inspectorate (Rostekhnadzor) requirements and recommendations of leading Russian and international specialists," Yevgeny Kotlyar, Uralkali’s chief engineer said.

With the assistance of mine rescue specialists, Uralkali’s employees are pumping brine from the inflow area east of the mine field to the western part of the minefield, to prevent flooding in the shaft area.

"We now understand the factors that caused the accident. We are employing a wide range of instruments to analyse, forecast and prevent negative consequences," Baryakh said.

Further to the pumping operations, a brine diversion channel is under construction. The concrete cut-off walls between Solikamsk-1 — an adjacent and as yet unaffected potash mine — and Solikamsk-2 are being strengthened, backfilling to strengthen the mine structure, and preparatory works for the plugging of the brine inflow channels are being carried out, the company said.

"Our team continues to analyse various scenarios and assess our possible future actions. The safety of our employees and other specialists involved remains our top priority," Kotlyar added.


A large sinkhole opened up to the east of Solikamsk-2 in November
as brine inflow levels increased.  
Source: Uralkali OAO public relations 

Potash industry significance

The flooding of a mine is a serious occurrence in any industry, but for salts like potash, the importance of unwanted water flow is magnified by the solubility of the mineral group, which can lead to supportive columns and other structural mine components effectively being dissolved away. 

A complete mine write-off is therefore a sobering prospect for Uralkali.

Solikamsk-2 represents around a fifth of Uralkali’s annual potash capacity, according to Sakhnova and Gazprombank OAO senior fertiliser and transport analyst, Mikhail Ganelin. 

The mine forms 3% of global production capacity according to Fitch Ratings Inc.; the temporary, possibly permanent reduction in output at Solikamsk-2 has caused knock-on effects in the bargaining of pricing contracts in the short term.

Because the long term effects of the mine problems are still unknown, the industry is cautious about basing decisions on an assumption of the outcome. 

Uralkali’s share price, which saw a 19% fall the day after the news at Solikamsk-2 broke, has continued to slide, falling 36% in total since 17 November 2014, partially driven by a fear that events will play out similarly to those of Uralkali Mine 1, which was forced to close after 10 days of rescue efforts that followed increased brine inflow levels in 2006. 

The company has considered bringing forward the development and opening of its Ust-Yayvinsky and Polovodovsky projects to make up for potential Solikamsk-2 capacity losses.

Other Russian fertiliser companies saw substantial share price rises between 17 November and 10 December, as the fall in the Russian rouble against the US dollar reduces domestic production costs, which are then realised in dollar export revenues.

Uralkali may see a positive effect from the currency factor in its upcoming finances release in its EBITDA* figures, despite the company’s current Solikamsk-2 troubles and the likely drop in associated sales volumes and revenue.

Monitoring activities

Uralkali confirmed that the average level of brine flow measured between 18 November, the date of the first detection of elevated brine flow levels, and 10 December, was more than 700 cubic metres per hour.

Water inflow is being recordedthrough brine level checks, additional water monitoring wells are being drilled, the air is being continuously observed for escaping mine gasses, while the sinkhole associated with the flooding is being surveyed by drones and seismic monitoring of the sinkhole area has intensified, the company said.

Raised production volumes

Potash Corp. of Saskatchewan (PotashCorp.)’s CEO, Jochen Tilk, suggested to delegates at the Citigroup Inc. Basic Materials conference in New York in December that the accident could be linked to Uralkali’s increased 2014 production volumes.

"As a mining engineer, I’m not surprised [by the occurrence of the problems] — I can tell you every time you crank up your operations to a higher limit you will encounter issues," Tilk said.

"Whether it’s a breakdown in equipment, whether it’s due to technical failure: this is what we live by. This is what we have management systems in place for to prevent," he added.

Uralkali said that the 1,266 mine and associated plant employees — of which 771 are mine workers — who are not involved in the rescue efforts are on leave until 15 January 2015, and are being paid two thirds of their average salary. The company is seeking to employ them at the other facilities that it owns.

*Earnings before interest, taxes, debt and amortisation