OREANDA-NEWS. Fitch Ratings says it will continue to assess the rating implications for Russian potash producer Uralkali (BBB-/Stable) of the inflow of brine into its Solikamsk-2 underground mine. The Solikamsk-2 mine has an annual capacity of 2.3 million tonnes (mt), around 18% of Uralkali's total end-2013 capacity. Uralkali has implemented an emergency plan for the mine including the suspension of all work and continues to monitor the inflow of brine.

Fitch expect the company to provide further information on the accident and its implications within the next two weeks and will issue further updates as appropriate.

Fitch consider two possible scenarios. The first is that Uralkali is able to avoid a significant drop in production in 2015 and a sharp deterioration in its credit profile. This case assumes no recovery of Solikamsk-2 mining operations, resulting in a drop in assumed 2015 output to around 11mt, from above 12mt under our previous rating case. Full capacity utilisation at other mines would allow Uralkali to keep production stable; 2014 output guidance is also for around 11mt. Given significant 2H14 rouble depreciation and additional single-digit potash price increase triggered by significant capacity loss (3% of global), Fitch forecast is for flat EBITDA in 2015. This scenario implies a revised funds-from-operations (FFO) adjusted net leverage of 2.3x for 2015, versus 2.0x under our previous rating case, but still within our rating guidance for the 'BBB-' rating.

A more negative scenario is that Uralkali is unable to prevent a significant production decline in 2015 due to the flood accident spreading to the adjacent 1mt Solikamsk-1 mine. Under this scenario Uralkali may increase expansion capex to replace lost mining capacity. The company could also face regulatory risks associated with the accident. This scenario may create additional pressure on the company's free cash flow, further stretching its deleveraging plans and resulting in a negative rating action.