Allana is unique and so is Mylair
Potash, a form of potassium and one of three essential crop nutrients, is applied to plants to help them strengthen their root systems and resist drought. Photographer: Ariel Jerozolimski/Bloomberg
Allana Potash Corp. (AAA), the Canadian developer of a $642 million potash mine in Ethiopia, says predictions of a global oversupply of the crop nutrient are overblown because competing projects are being put on hold.
World potash production capacity will rise 38 percent to 96.5 million metric tons by 2017, while demand will increase 26 percent to 66 million tons, according to Green Markets, a fertilizer industry information provider.
Supply forecasts include mines that aren’t yet in production and may be shelved or canceled because of rising construction costs, said Farhad Abasov, Toronto-based Allana’s chief executive officer.
“On paper it seems like there is quite a bit of supply coming on line,” Abasov said in a May 28 telephone interview from London. “In reality only a handful of them will hit production.”
Soaring expenses are beginning to exact a toll on proposed potash mines around the world. Vale SA, the third-largest mining company, in March suspended its Rio Colorado project in Argentina after the estimated cost almost doubled to about $11 billion. Last month, U.S. producer Mosaic Co. (MOS) deferred a capacity expansion in the Canadian province of Saskatchewan and JPMorgan Chase & Co. analysts said BHP Billiton Ltd. (BHP) is likely to shelve its Jansen potash project.
Rising Costs
It’s only a matter of time before more developments, some with a price tag of more than $1 billion, are hobbled by complex geology, a lack of committed financing, and rising costs, said Spencer Churchill, a Toronto-based analyst at Paradigm Capital Inc.
“Allana is unique because it has found a large, high-grade potash deposit that is near-surface and faces fewer challenges than the traditional greenfield projects,” Churchill, who has a buy rating on Allana, said in a May 23 note.
Allana fell 3.9 percent to 50 cents at 9:59 a.m. in Toronto. The shares have advanced 6.4 percent in Toronto this year, the fifth-best performer on an index of 37 fertilizer stocks compiled by Bloomberg Industries.
Allana posted a net loss of C$3.86 million ($3.78 million) and no revenue in the quarter ended Jan. 31. It had C$28.6 million of cash at the end of the period, according to data compiled by Bloomberg.
BHP Review
Potash, a form of potassium and one of three essential crop nutrients, is applied to plants to help them strengthen their root systems and resist drought.
Abasov isn’t alone in regarding industry concerns about excess supply as exaggerated, Peter Prattas, a Toronto-based analyst at Cantor Fitzgerald LP, said May 30 in a telephone interview.
“We share the view,” said Prattas, who rates Allana a buy with a C$1.25 price target. “The fears come from the fact that there is overcapacity, but there certainly isn’t oversupply.”
Jansen, which is located in Saskatchewan, is under review at Melbourne-based BHP. The project may eventually cost close to $15 billion, Bank of of America Merrill Lynch analysts said in a June 4 note.
BHP Chief Executive Officer Andrew Mackenzie, who is slashing capital spending after a decline in commodity prices, said June 6 that potash “is a great option but it’s just an option” and that Jansen must meet certain criteria if it’s to proceed.