Patience and ProfitFranky, your post with the Agricultural Report is 5 years old...the projected world demand is already at 55 million tons of potash per year....and majors are selling out of product on hand....and the demand is expected to rise to 63 million tons per year by 2015...according to Potash Corporation..
The real question that needs to be asked and answered is where is the additional 8 million tons of Potash going to come from in the next 4 years?
Reports have already said that Potash Corp. is the only company with the ability to increase its existing mines to respond to the increased demand...but it can not increase 8 million tons from existing mines...by 2015 Potash Corp expects much higher production of Potash from new mines in Sask.....but Allana will be in production in 2014 and should have signed Offtake Agreements with India or China or both long before we go into production....and always remember...India and China do not like either of the Cartels in Canada or Russia....
We have been told that our potash is destined for India and China...makes sense...as both of these countries require increased amounts of both MOP and SOP...and we will produce both...
The first signed Offtake Agreement will be a catalyst for those that have doubts that Allana is going into production.
And with Farhad looking at 60% Debt Financing and 40% Financing from Offtake Agreement/IFC + Liberty Metals + Share Offer
Projected from Dundee $900 million capex for Mine and Processing Plant for up to 2 million tons of KCL per year =
60% long term debt = $540 million at 10% interest rate = $54 million interest + $27 million principal = ($81 million / year)
40% ($120 million from IFC and Liberty Metals financing = ($18 million dollars debt / year) + $120 million from Offtake Agreement for reduced price of KCL + $120 million dollar Share Offer ($4.00 per share x 30 million shares = $120 million)
Total Debt as proposed above will be $100 million dollars per year and Allana will have 230 million shares outstanding
Farhad has said that the mine will ramp up from 1 million tons....and with the processing plant being able to handle 2 million tons of KCL production at full operations.
2 million tons of KCL mined through the conservative model of Solution Mining x ($500 - $150 = $350 net per ton) = $700 million dollars Net Operation Income / 230 million shares =
$3.04 per share x 13 times forward earnings =
$39.50 per AAA Share
If KCL is selling at $600 per tonne in 2014 then =
$47.50 per AAA share
If Allana's Bankable Feasibility Study determines Open Pit Mining....then add 25% to the share price as we move from a 35% extraction rate to over 60% extraction rate...using Dundee's discounted extraction rate.
Using the Free Cash Flow Model of valuation:
$700 million net operation income - $100 million per year for debt servicing = $600 million free cash flow / 230 million shares = $3.00 per share x 20 times forward earnings (using Intrepid Potash current ratio) =
$60.00 per AAA Share...
If you have a 3 year investing horizon...then tell me where else you can see a multiple of 20 times current share price...and this is not wishful thinking...this is logical and achievable based on the milestones Farhad and management have before them over the next year....look at where we were 1 year ago...then imagine what this team can deliver over the next year....
Karma
