Junior miner Allana Potash Corp. has agreed to be bought by fertilizer giant Israel Chemicals Ltd. after it struggled to raise the capital it needed as a standalone company.
The deal is worth $137-million in cash, or 50¢ a share. That is a 51.5% premium to Toronto-based Allana’s closing price on Thursday, but is far below the stock’s high of $2.30 a share in 2011.
Acquiring Allana gives Israel Chemicals (ICL) the Danakil potash project in Ethiopia. The US$642-million project is very promising, but Allana chief executive Farhad Abasov acknowledged that raising the money to build it was a very difficult task in tough market conditions.
“Considering the generally challenging financial environment for junior mining companies, we would expect the short and long-term financing needs of Allana to include potentially significant dilution to Allana’s current shareholders,” he said in a statement.
“We believe that this transaction provides the best liquidity opportunity for shareholders and firmly validates the efforts of the last six years of development by the Allana team.”
ICL already owns 16.4% of Allana’s shares.
Raymond James analyst Steve Hansen agreed that this deal represents the “best practical outcome” for shareholders given the challenging market environment.
“We don’t view going it alone as a viable option, at least not without massive dilution, and we don’t expect another strategic party to surface given ICL’s existing ownership position and previously secured offtake agreement,” he said in a note.
From ICL’s perspective, the company diversifies its asset base and obtains an advanced-stage project. Danakil is expected to produce up to one million tonnes of potash a year for 25 years, ICL said. The construction cost is significantly lower than Saskatchewan potash projects, and the project is closer to customers in Asia and Africa.
ICL currently produces potash from operations in Israel, Spain and the United Kingdom. It sold over five million tonnes of the crop nutrient last year.
Potash Corp. of Saskatchewan Inc. tried to buy ICL two years ago, but abandoned that plan after it ran into political opposition in Israel.