TSXV:AAA.P - Post by User
Post by
Karmanowon Apr 16, 2011 11:36pm
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Post# 18442407
RE: The worst thing that could happen
RE: The worst thing that could happenmeichan you raise a valid question for the board as all long term investors of AAA should understand what the Biggest Risk is for Allana? All companies have risks...its how they risk manage them that is important...and sometimes timing is everything..."a bird in the hand is worth two in the bush"...could not be more true for Allana.
I listened to two exceptional Economists the other evening on the Knowledge Network...they were speaking because of their track records...they both had predicted the Dot Com Bubble and the Mortgage Bubble...they also predict the Stimulus Bubble that they say will be the next bubble to burst..
A long story short..they encourage investors to not be naive about the $14 Trillion Dollar Debt the USA currently has.
They believe that no american politician that wants to be re-elected will propose the 14% increase in Sales and Payroll Tax required to even make a "real" dent into the debt and accruing interest. America can not Stimulate itself our of this debt. They also caution investors to only be invested in companies that are going to produce what the world needs to SURVIVE and not to thrive...The choice for food is not an option...the choice of increasing production is also not a choice but a requirement for those countries where their populations are increasing by millions per year. So, what to do with this? I think Allana is in the right place at the right time and going to sell the real stuff that countries are going to need. With a Stimulus Bubble Burst...we should expect to see a FREEZE of capital and money lending similar to the last bubble burst in 2008. That is the real risk that faces Allana and any junior that has not secured and locked away financing for the development of their mines... By the time you read to the end of this post..you can understand why Allana is in a very fortunate position compared to other junior miners...This post may seem long, but I have spent some time to address the Major Risk for Allana and identified the three methods of financing going forward...the sooner the better we get something in writing....I think between the Resource Estimate and the Bankable Feasibility Study Farhad will play his financing card...
Karma
It's an interesting development for Allana because it provides credibility. In other words, it's not just an analyst saying it's a good project—it's a sophisticated investor saying it's a good project.
And, it also helps to mitigate finance risk. All of these junior fertilizer companies have to raise a tremendous amount of capital; for example, we believe Allana has to raise somewhere in the neighborhood of $800–$900 million (all in) for the total project. So, you want to be able to secure financing over time to make sure that it gets built.
Allana does not need or want a buy out offer ...we plan to go to production because we can and should...and if we have a hostile offer from a major...and the Management of AAA and major shareholders do not support the offer...and us retail shareholders are not prepared to sell...then the offer will die. You can only buy what someone is willing to sell.
As I see it, Allana has 3 choices to finance our mine(s)...Offtake Agreements, Share Offerings or Long Term Debt.
And implications for Allana with each option...Securing is the key here...totally binding and money secured in a mutally agreed upon bank vault....may sound like over kill but when there is a freeze to lending...you do not want to have discussions about ...he said you said...and well I can not over stress the importance of having real access to the money or the terms for offtake agreements that can not be backed out of....thats where the Forbes Manhattan Lawyers come in and see to the terms. I offer the three
OFFTAKE AGREEMENTS:
We know that we a memo of understanding with China Minerals for 35% ($280 million) of the Capex for the mine and offer 20% of production at a $100 discount per tonne until the debt is repaid in full....The details have been finalized and only require to be signed off by Allana. So, that leaves AAA needing to raise $520 million to complete the mine and infrastructures.
If Allana chooses similar terms as the first Offtake Agreement to finance the $520 million it can be done by offering the balance of the Capex, 65% and offer a further 40% of production at a $100 discount per tonne until the debt is repaid.
So, With this option, Allana ends up with 180 million shares outstanding. 60% of production of KCL at a $100 per tonne discount for 4.5 years and No Long Term Debt.
SHARE OFFERING:
Allana may choose to offer shares to finance the $800 million needed for their portion of Capex.
I suspect that shares would not be offered at less than $3 per share...and potentially as soon as the NI Resource Estimate is completed in May. $800 million / $3 share offering = 266 million shares offered. Allana would then have near abouts 180 million shares + 266 million shares = 446 million shares outstanding.
With this option, Allana ends up with 466 million shares, full price of production of KCL and No Long Term Debt.
LONG TERM DEBT FINANCING:
Allana may choose to secure financing to secure the $520 million of capex. Assume 10% interest rates over the term of 20 years. Thats $52 million dollars of interest paid per year plus $26 million repayment of the principal loan of $520 million over 20 years.
With this option, Allana ends up with 180 million shares outstanding, full price of production of KCL and $78 million dollars of Debt Payments Per Year.
If we assume Allana will produce 2 million tonnes of KCL per year, and assume $450 per tonne. Plus a 40% premium for SOP for half of our production. Assume $130 Opex Costs. Run the numbers against each of the models above:
Offtake Agreements Option:
2 million tonnes KCL per year. (1.2 million tonnes = 60% offtake at $100 discount for 4.5 years)
0.6 million tonnes x ($450 per tonne + $90 for SOP - $130 opex) = $410 net per tonne = $246 million net per year
1.2 million tonnes x( $350 per tonne + $90 for SOP - $130 opex) = $310 net per tonne = $372 million net per year
$618 million net per year / 180 million shares = $3.43 EPS x 19 times = $65.20 per share
Share Offering Option:
2 million tonnes of KCL per year x ( $450 per tonne + $90 for SOP - $130 opex) = $410 net per tonne
2 million x $410 p tonne = $820 million / 446 million shares fully diluted = $1.83 EPS x 19 times = $34.90 per share
Financing Long Term Debt Option:
2 million tonnes of KCL per year x ( $450 per tonne + $90 for SOP - $130 opex) = $410 net per tonne
2 million x $410 p tonne = $820 million - $78 million Interest and Principal = $742 / 180 million shares =
$4.12 EPS x 19 times = $78.30 per share
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Goldman Sachs updates estimate for Intrepid Potash IPI today: Intrepid was trading at $33 per share Friday.
Our 12 month price target remains the same at $36.00 per share
2011 $1.33 EPS
2012 $1.87 EPS
2013 $2.17 EPS
So, comparing Intrepid Potash to Allana Potash is a fair comparison. In 2 years, when Allana is ready to produce..it should be compared to Intrepid that produces SOP.
$1.87EPS x 19 times = $35.53 per share
Interesting, Goldman Sachs has a target of Earnings Per Share in 2013 at $2.17....a 40% increase for the price of SOP from the current price.