Reviewed potash prices add US$2.8 to our URKA TP and
US$250 to our SILV TP. Where is the end of the potash
rally? Is SILV attractive despite risks? We suggest BUYing
ICL (more diversified production, no Russia-specific risks).
Chemicals
Ratings and target prices
Rating New TP Old TP
Uralkali (GDR) BUY US$66.4 US$46.0
ICL BUY NIS76.1 NA
Silvinit (ords) SELL US$1,355.3US$709.0
Silvinit (prefs) SELL US$822.3US$421.0
Upsides and div yields (2008F)
URKA
(GDR,
US$)
ICL
(NIS)
SILV
(US$)
SILVp
(US$)
Price (22/5/08) 57.5 65.6 1,600 910
12m TP 66.4 76.1 1,355 822
Upside to TP (%) 15.5 16.0 -15.3 -9.6
Div yield (%) 4.3 5.4 1.0 4.1
Tot. exp 12m rt (%) 19.8 21.4 -14.3 -5.5
Potash prices have been very strong and appear well
underpinned in the short to medium term. Strong spot potash
prices and new contracts signed with China and India make us review our
short to medium-term forecast. We review our DCFs for URKA and SILV
accordingly, building in new potash prices for 2008-12F.
However, spot prices are well above what we consider
justifiable long term. Announced capacity increases present longer term
downward price risk: we forecast prices to correct downward in 2012F. We
see a strong correlation between potash prices and the potash companies’
performance and suggest investors remain vigilant of any price weakness.
Our top pick is URKA. We raise our DCF-based value by 44% to
US$66.4 per GDR. We like its pure potash exposure to lucrative industry
fundamentals, coupled with strong management and cost savings.
We initiate on ICL with a BUY. Our TP of NIS 76.1 implies 21% upside
including a 5.4% dividend yield. The fertiliser business should ensure its
short-term growth, while other businesses will support it long term.
We reiterate our negative view on SILV. We reiterate our SELL for
both ords and prefs. We consider transparency and liquidity risks as too high
for the company. Different scenarios are tested for the Polovodovsky reserve.
Key risks are potash prices, macro risks (ie, inflation in Russia, currency in
Israel) and regulatory (particularly Russia). Longer term, we see more
capacity coming on stream globally.

Contents
Russian/Israeli fertilisers 1
Investment case 2
Valuation summary 6
Industry update 8
Potash 13
Phosphates 17
Companies 21
Israel Chemicals......................................................................................................23
Uralkali ....................................................................................................................43
Silvinit ......................................................................................................................51
Disclosures Appendix 59