First Tidal Acquisition Corp T.AAA

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Yara International ASA (YAR-OL 284.82kr)

Five Reasons We Think Yara Could Buy Allana

Potash

Ben Isaacson, MBA, CFA - [phone]

(Scotia Capital Inc. - Canada)

[e-mail]

Dean Groff - [phone]

(Scotia Capital Inc. - Canada)

Shawn Siddiqui, MBA - [phone]

(Scotia Capital Inc. - Canada)

Div. (NTM) 8.62kr

Div. (Curr.) 8.62kr

Yield (Curr.) 3.0%

Rating: Sector Perform Target 1-Yr: 315.00kr ROR 1-Yr: 13.6%

Risk Ranking: High

Valuation: 5.5x 2014E EBITDA, 10x 2014E EPS, DCF @ 12.4%, 55% RCN

Key Risks to Target: Fertilizer supply/demand, crop and energy prices, weather

Event

¦ We discuss five brief reasons why we think Yara could consider

acquiring Allana Potash Inc. (AAA:T; not covered).

Implications

¦ Yara is short up to 2.5M mt of potash annually.

¦ Yara + Allana effectively share the same property.

¦ Yara continues to show appetite for potash in Ethiopia.

¦ Yara has capital to spend, while Allana needs a financial partner.

¦ Yara has a solid distribution network already established in India.

Recommendation

¦ We don't cover the stock, have completed limited due diligence, and are

therefore unable to give a formal opinion on Allana. However, we have

tested Allana's Feasibility Study assumptions and agree with its NPV

math of $1.3B, or over $4.25/sh of long-term value.

¦ The more time we spend assessing Allana's project, including the real vs.

perceived geopolitical risk of investing in Ethiopia, as well as on Yara's

potash needs, the more it seems to us that Yara ultimately operates what

Allana has successfully developed to date. We are unaware as to whether

Yara has ever spoken with Allana.

Qtly Adj. EPS (FD) Q1 Q2 Q3 Q4 Year P/E

2011A 9.15kr A 7.82kr A 9.13kr A 8.82kr A 34.92kr 6.9x

2012A 8.36kr A 10.84kr A 9.05kr A 7.72kr A 35.99kr 7.6x

2013E 8.92kr 7.55kr 6.88kr 5.50kr 28.85kr 9.9x

2014E 7.49kr 6.47kr 6.49kr 5.76kr 26.21kr 10.9x

(FY-Dec.) 2010A 2011A 2012A 2013E 2014E

Adj Earnings/Share 20.69kr 34.92kr 35.99kr 28.85kr 26.21kr

Cash Flow/Share 30.48kr 43.00kr 41.02kr 39.69kr 36.88kr

Price/Earnings 16.3x 6.9x 7.6x 9.9x 10.9x

Relative P/E 0.9x 0.5x 0.5x 0.6x 0.7x

Revenues (M) 64,007kr 77,725kr 83,997kr 93,129kr 88,193kr

EBITDA (M) 15,244kr 18,114kr 16,957kr 14,585kr 13,666kr

Current Ratio 1.9x 2.5x 2.3x 2.0x 2.6x

EBITDA/Int. Exp 16.1x 22.1x 19.3x 17.6x 16.5x

BVPS13E 196.89kr

ROE13E 15.45%

Historical price multiple calculations use FYE prices. Source: Reuters; company reports; Scotiabank GBM estimates.

All values in NOK unless otherwise indicated.

Capitalization

Shares O/S (M) 280.6

Market Cap (M) 79,912kr

Float O/S (M) 179.0

Float Value (M) 50,975kr

ScotiaView Analyst Link

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Exhibit 1 – Yara + Allana Effectively Share the Same Property

Source: Allana Potash; Scotiabank GBM.

Five Brief Reasons We Think Yara Could Buy Allana Potash

¦ Yara is short up to 2.5M mt of potash annually. In fact,

we believe this number could grow to 3M mt over time, as

Yara continues to focus its investment capital on NPK

blends. Yara made a partial hedge to its potash deficit by

taking a $40M position in IC Potash for a 30% off-take in

ICP’s SOP project, not for traditional potash (MOP) that

Yara requires. Allana intends to produce 1M mt, with a

potential increase to 2M+ mt once rail capacity is in place.

¦ Yara + Allana effectively share the same property.

Exhibit 1 shows that Yara’s existing three potash properities

are either 100% within, or 75% surrounded by, Allana

Potash land. Note that Allana consolidated the Nova assets

in September 2012. In fact, if Yara plans to bring

infrastructure to its two concessions within Allana’s

property (especially water), some type of agreement or

partnership will likely be required.

¦ Yara continues to show appetite for potash in Ethiopia.

Despite global potash demand turbulence, especially from

India, Yara increased its ownership interest in the project to

51% from less than 17% in April 2012. Sainik Potash, a

subsidiary of India’s Sainik Coal, is Yara’s minority partner.

¦ Yara has capital to spend, while Allana needs a financial

partner. We don’t cover Allana, but we understand from

management that Allana has soft debt financing

commitments of $600M to $800M. Based on capex of

$795M, the equity component required to fund Allana’s

project could be in the $300M area. Yara’s Belle Plaine

nitrogen expansion in Canada is going to require $2B, and

its recent Bunge acquisition was $750M – so you can see

that a portion of the $300M of equity is more than “a drop in

the bucket” for Yara, but should not be a game changer.

$300M is about 10% of Yara’s annual EBITDA.

¦ Yara has a solid distribution network already established

in India. In addition to Yara’s relationship with Saintik,

Yara distributes more complex NPK fertilizer to India than

any other producer. So, the disbtribution channels already

exist for a combined project – especially considering that the

final product is likely going to the same place. Also on the

table are economies of scale in mine-to-port transportation,

as well as in other logistics.

¦ So what could Yara pay for Allana? We don’t cover the

stock, have completed limited due diligence, and are

therefore unable to give a formal opinion. However, we have

tested Allana’s Feasibility Study assumptions and agree with

its NPV math of $1.3B, or over $4.25/sh of long-term value.

¦ Bottom line. The more time we spend assessing Allana’s

project, including the real vs. perceived geopolitical risk of

investing in Ethiopia, as well as on Yara’s potash needs, the

more it seems to us that Yara ultimately operates what

Allana has successfully developed to date. We are unaware

as to whether Yara has ever spoken with Allana.

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