Ready Or Not here she comes...Thank you aklto for posting the recent frasermackenzie research report on “Exploring The World of Potash.” Since it is that time of year for reflections…I take this opportunity to put a few points into perspective and to show clarity.
There are a few points raised in the report that I think some reflection would benefit long term Allana investors. Those long on Allana know that long term shares are going to be worth a lot more than $1.60 per share…and I know that Farhad really does know the value of his company…and he has no intention of selling “us”out early…why would he?
From Feb 11 – Aug 11 or (7 months) shareholders could have sold for $1.60+ per share if we were interested in “that” amount…if frasermackenzie thinks that anyone should be satisfied with an 84% increase from where we are today…they should think again!!!
With a revised NI Resource Estimate within 3 months time…and the potential to double our resource…maybe frasermackenzie will double their estimate to $3.20…and a revised NAV from $3.17 to $6.34 per share…
Merry Christmas Allana, and may 2012 be your year…and a year to remember!!
Karma
First, Farhad does “not’ have a for sale sign out…not now…not ever likely!
Second, we are only one of a select few that are likely to “get to production” under our own steam…even with Dundee and FraserMackenzie predicting up to 40 million new tons of production…,and for those that think everyone is going to spend all those Billions of Dollars…they might think again…there is life outside of Sask..and a whole lot cheaper.. “the Jansen project has yet to be sanctioned internally by BHP’s board and many are sceptical of it ever coming into production.”
Third, based on the recent 2 potash juniors that sold and relevant comparative others as potash is in Global Economy…just ask China and India....Using the more conservative sale of Athabasca Potash..and a deal that gave a valuation of $15.50 per ton saleable....Remember, within 3 months we can expect our revised NI Resource Estimate. From the conference call we heard that the existing NI Resource Estimate was based on 19 holes. We are now on hole #36 and Farhad said that there will be more drilling in the Eastern Area…so we can expect at least 19 holes to qualify for the pending revised NI Resource Estimate. Assuming continued grades of KCL from the phase 2 drill program I estimate that AAA will double the Measured and Indicated Resources and thus end up with 250 million tons of KCL or 250 m tons x 35% extraction rate = 87 m tons sellable.:...Athabasca Example: $15.50 x 87 m tons = $1.349 billion cap rate value / 200 m shares
= $6.75 per share of AAA with revised NI Resource Estimate
So, frasermackenzie will be close with a double of their NAV or $6.34
$6.75 is for a “take out offer” for “pounds in the ground” and based on the last junior company sales.
Forth, never forget or underestimate the value of Farhad having a “pre-emptive rights” provision from the IFC…and Liberty wanting to go all the way to production.
Reference: Athabasca Potash: Bought by BHP in Jan 2010.
Purchase Price: $341 million with KCL priced at $350 per ton
$350 per ton plus 50% = $525 per ton
$341 million + 50% = $511 million in 2011 dollars
425 m tons in the Measured and Indicated categories @ 22%KCL = 94 m tons of KCL x 35% extraction rate = 33 m tons sellable KCL
$511m / 33m/tons = $15.50 per ton Saleable of Measured + Indicated (Proven + Probable) KCL in the ground.
Mine Capex and Infrastructures estimated at: $2.5 Billion Dollars
Reference: Potash One: Bought by K+S Germany in Nov 2010
Purchase Price: $434 million with KCL priced at $350 per ton:
$350 per ton plus 50% = $525 per ton
$434 million + 50% = $651 million in 2011 dollars
251 m tons in the Measured and Indicated categories @ 26%KCL = 65 m tons of KCL x 35% extraction rate = 23 m tons sellable KCL
$651m / 23 m/tons = $28.30 per ton Saleable of Measured + Indicated (Proven + Probable) KCL in the ground
www.scotiacapital.com/English/bns_econ/bnscomod.pdf Nov 24th, 2011
2 to 3 years top pick – Allana Potash:
No other junior has the financial backing that Allana has and almost guarantees that they will be completing a mine in 2 to 3 years time.I just don't see them being take out before they start production given the investment from the World Bank. By the time they start production (2 to 3 years from now), Allana will be worth North of $1.5 billion meaning we should see their share price between $8 to $10. After they start production, they can then sell themselves to BHP or someone else for north of $15 per share (approximately $4 billion) in 4 years time if they choose to.
And do not forget that the IFC has the right to increase its position "if" an outside offer comes in to take AAA out....we may have our "white knight"…if required!
In connection with the Offering, IFC shall have certain rights, including without limitation, information, policy and pre-emptive rights. -The World Bank, an agency of the UN, has the mandate to help development in impoverished countries, and should the buyout entity's goal be not compatible with the mandate, it could exercise its preemptive rights.
https://www.frasermackenzie.com/newresearch/POTASH_COMPENDIUM/FINAL_RPT_POTASH_Prattas_191211.pdf
We have a Strong Buy rating and a C$1.60 per share target price
We estimate a NAV of C$3.17/share suggesting that Allana shares are currently trading at less than 0.3x P/NAV while our target is based on a 0.5x multiple.
We believe an off take agreement alongside a meaningful investment in Allana would de-risk the project materially. The signing of such an agreement could conceivably happen at any time although the conversations have likely become more in depth following the recent release of a preliminary economic assessment.
A takeout of the company remains a possibility with BHP and entities from China and India being prime suitors. BHP’s bid for Potash Corp in 2010 highlights both its desire to establish a large footprint in the potash sector and China’s growing concern regarding access to potash supply. As one of the biggest importers of potash, China does not want to see more concentration in the market and the same could apply to India, which relies on imports for virtually all of its potash consumption. Potash buyers currently face a duopoly dominated by two companies. Canpotex and Belarusian Potash Company combined control about 70% of global potash exports. We believe that industry consolidation increases the incentive for countries like China to invest in greenfield projects like Allana’s.
Accordingly, it is conceivable that the project could be sold within one year at a significant premium to the share price. While BHP failed to acquire PotashCorp, consolidation is moving ahead. At the same time, Allana is aggressively moving to advance through feasibility and fast track the start of production. With only a select number of quality greenfield opportunities available and a growing eagerness to secure resources, we believe the Dallol potash project could be sold sooner rather than later. We expect a ‘takeout value” would be in-line or greater than our current target price which implies a 84% potential return versus the current share price.
The nation plans to construct 5,000 kilometres of rail with extensions to Djibouti, which accounts for roughly 95% of Ethiopia’s trade. An advisor to the Prime Minister has made specific mention of the Dallol project as being“one of the main strategic projects of the country within the coming five years”.
We have identified projects among five majors that suggest an additional 30 million tonnes of capacity within the next 12 years. This includes:
Uralkali (8 mtpa expansion through 2021),
BHP’s Jansen Project (2015 with an initial 2 mtpa phase ramping up to 8 mtpa within 10 years), PotashCorp (6 mtpa expansion through 2015),
Mosaic (4.6 mtpa expansion by 2019)
K+S’ Legacy’s Project (ramping to 2.86 mtpa of capacity by 2023).
The eight leading junior projects we include in this report could add in excess of 10 million tonnes of capacity within this timeframe. This increase adds up to around 40 mtpa of additional capacity versus an increase in demand of 26 mtpa (assuming a 3% CAGR) to 48 mtpa (assuming a 5% CAGR) over this time horizon. This forecast suggests there is a risk of over-capacity and a possibility for pricing pressure. However, we believe many of these projects are unlikely to proceed entirely as planned. For example, the Jansen project has yet to be sanctioned internally by BHP’s board and many are sceptical of it ever coming into production. The majors are also motivated to overstate their plans in order to dissuade others from entering the market.