Remember this JR? Nov 04, 2009
Allana Resources Announces $2 Million Private Placement And A Strategic Off-Take/ Financing Deal With A Chinese Mining Group
Toronto, Ontario, November 4, 2009 - Allana Resources Inc. (TSX-V: AAA) ("Allana" or the "Company"), is pleased to announce that following the review of several proposals to participate in Allana's potash project in Ethiopia (the "Project") (See News Release dated October 28, 2009), Allana has decided to enter into a strategic offtake/financing agreement (the "Offtake/Financing Agreement") with China Mineral United Management Ltd ("China Mineral") and announces an initial $2 million private placement financing with China Mineral (the "Strategic Investment").
The Strategic Investment will be by way of a non-brokered private placement for gross proceeds of $2,000,000 based on the issuance of 8,000,000 common shares at a price of $0.25 per common share.
Closing of the initial $2 million Strategic Investment is anticipated to occur on or about November 5, 2009 or as soon thereafter as practicable (the "Closing Date") and is subject to the receipt of applicable regulatory approvals including approval of the TSX Venture Exchange. The common shares issuable will be subject to resale restrictions for a period of four months plus one day from the Closing Date.
In addition, based upon management's review and recommendation, Allana has agreed to negotiate the Offtake/Financing Agreement with China Mineral, a Chinese mining investment group closely associated with one of the largest fertilizer companies in China.
Pursuant to the proposed Off-take/Financing Agreement, China Mineral would acquire 20% of the Project's total potash production at a price discounted to the market price and equal to Allana's full operating and shipping costs plus a profit margin for Allana. This potash pricing structure will continue until China Mineral completely recovers its initial investment of the Construction Costs described below. Once China Mineral recovers its initial investment, it is proposed that the pricing will then be negotiated in good faith, based on international potash market price benchmarks. As consideration for the Offtake/Financing Agreement, it is proposed that China Mineral will commit to finance 35% of the Project's required construction costs, which, based on current estimates are expected to be approximately US$280,000,000 (the "Construction Costs"). Allana also believes that its strategic relationship with China Mineral positions the Company well to attract debt financing in the future as required, which will further enhance the Project's return on equity.
Allana management believes that the Project is a significant potash asset that is undervalued based on Allana's current market capitalization, partially due to the financing risk associated with advancing the Project to commercial operations. Allana management also believes that any potential transaction whereby direct or indirect economic control of the Project changes hands at this early stage of the Project's development, is not in the best interests of Allana's shareholders. As such, management's primary objectives in negotiating a transaction structure were: (i) to significantly reduce the financing risks associated with the Project; and (ii) to allow Allana to retain full economic control of the Project in order to maximize value for Allana shareholders in the future, including being paid a change of control premium for the Project. The Offtake/Financing Agreement and Strategic Investment, in Allana's view, fulfill both of these objectives. Furthermore, Allana remains strategically positioned to freely continue discussions with any strategic counterparty, including ChinaCo. (see News Releases dated July 20, 2009 & September 15, 2009), and can pursue other mutually beneficial transactions.
Farhad Abasov, Allana's President and CEO, stated "We are delighted to be forming a strategic relationship with China Mineral as this marks an important milestone in the development of our potash project. We believe that this approach will result in near-term value creation for Allana shareholders while at the same time, preserve long-term shareholder value going forward. China Mineral is a strong mining group and we were particularly impressed with the professionalism, enthusiasm and speed with which they pursued and concluded negotiations. We look forward to working with China Mineral in developing this outstanding potash project."
The net proceeds of the Strategic Investment will be used to fund exploration and development of the Project and for general corporate and working capital purposes.
Allana has agreed to pay a commission in the amount 6% cash in connection with the Strategic Investment.