RE: RE: RE: BashersUBIKA RESEARCH
Page 4
Valuation
The preliminary NI 43-101 resource estimate study was done by ERCOSPLAN (a Germany based consulting company). We perform a valuation study using Share Value per Attributable Resource (in-situ value) valuation.
Share Value per Attributable Resource: A good data point was recently offered by the acquisition of the remaining 25% stake of Anglo Potash (AGO-T) by BHP Billiton in April 2008. This deal brought some clarity to the junior potash exploration companies as it is usually the end goal of a junior to be bought by a major. This deal, where BHP paid $284 million for the 25% stake, roughly valued extractable potash in situ at
.77 per tonne for Measured and Indicated (M&I) plus inferred resource.
Assuming that 50% of this value is awarded to Allana’s inferred resource estimate, we calculate Allana’s current in-situ value as (105.2 million x 50% x
.77/tonne) to be
.70 per share, which indicates that the stock is really undervalued at this level.
In the next year, Allana is planning to improve on the current resource estimate through additional drilling and confirming the existing resource base, using a capex program of US$3 million. ERCOSPLAN estimates in its study that the historical data justify this expenditure to increase the resource estimate and to develop a NI 43-101 compliant M&I resource. They further noted that the potential exists to increase the Inferred resource by at least 10 times.
During the course of next 12 months, we expect conservatively that the capex program would be able to at least double the resource estimates. This gives a result of 210 million tonnes of extractable potash, which is equal to $1.02 per share. This calculation is based on our assumption of
.77 per tonne for inferred resource and a discount factor of 50% to account for the inferred status of the resource and the broader geopolitical risks associated with the project. We are also assuming that during the next 12 months the company will access the capital markets to raise US$3 million, which will result in issuance of new shares. Valuation typeMethodologyValue12-Month Value$1.02Share Value per Attributable ResourceShare Value per Attributable ResourceVALUATION SUMMARYCurrent Value
.70
Peer Group Analysis
For early stage exploration companies, the most important indicator is the in-place resource tonnage and the grading of the resources. Having NI 43-101 compliant resource estimate is an important step forward for junior exploration companies. We compared the NI 43-101 resource estimates of Allana and NI 43-101 compliant resource estimates of a group of other companies that are similar to Allana.
UBIKA RESEARCH
Page 5
Most junior potash exploration companies in the table below are still working towards obtaining NI 43-101 compliant resource estimates, an expensive and time taking process. We believe that having a sizable NI 43-101 compliant resource base gives Allana a head-start in pursuing extensive drilling programs to further extend and expand the current resource base.
Risk Factors to Our Valuation
Allana Resources Inc. is exposed to most of the normal risks faced by early-stage exploration companies in general. Some of these risks could be mitigated by management experience and through access to financial sources.
Future Production: As with other mining ventures, there is always the possibility of future drilling results not matching the anticipated estimates.
Unknown Environmental Risk: Unanticipated environmental hazards may exist on the properties in which Allana holds interests.
Commodity Price Risk: Volatility in potash prices will impact the value of the metal in the ground and therefore the fair value of the company.
Capital Raising: Allana will need additional capital for its expenditure program planned for 2009 and beyond. A tight capital market can make it very challenging to find new sources of financing.
Geopolitical and Regulatory Risk: Allana’s main property is in Ethiopia, Africa. Although generally stable and calm at the moment, the region has been known to face social and geopolitical risks.
Personnel Risk: Finding experienced and well trained personnel in Ethiopia to work on the drilling programs could be specially challenging and time-consuming.
The Outlook for Potash
Potash is one of the three key nutrients for plant growth. There are no substitutes for potassium as an essential plant nutrient. Over 90% of world potash production is consumed by the fertilizer industry. In the key growing regions of China and India, food remains a top priority and governments actively subsidize fertilizer prices to provide incentives to farmers to use fertilizers such as potash to raise food production. This trend is likely to continue in the future which bodes very well for potash. For a long time in the past, the potash industry suffered from chronic oversupply. Now, demand has finally caught up to supply. The global potash Peer Comparison AnalysisPotash North (PON.V)Western Potash (WPX.V)Raytec Metals Corp. (RAY.V)Athabasca Potash Inc. (API.T)Ringbolt Ventures (RBV.V)Spure Ventures (SVU.T)Allana Resources (AAA.V)Financial Date (Last reported31-Oct-0830-Sep-0831-Jul-0830-Sep-0830-Nov-0830-Sep-0831-Oct-08Share price (Feb 26, 09)
.40
.27
.23$1.88
.09
.22
.15Shares O/s65,745,002 99,121,533 69,196,204 36,903,083 17,645,031 60,407,187 57,691,280 Market Cap (M Cap)$26,298,001$26,762,814$15,915,127$69,377,796$1,588,053$12,987,545$8,653,692NI 43-101 Compliant Resources Measured & Indicated (Million Tonnes)NilNil101.67241.20NilNilNilInferred (Million Tonnes)NilNil162.97222.40NilNil105.20Total (Million Tonnes)0.000.00264.64463.600.000.00105.20