analyst increases ICP target to $2.50 IC Potash Announces Strategic Investment from Yara International along with an Off-take Agreement Key De-risking Event Leads to Target Price Increase to $2.50
· On Friday, March 30th following the market-close, IC Potash announced that Yara International (YAR:NO) has agreed to make a $40 million strategic investment in ICP at a price of $1.32 per share (a 48% premium to Friday’s close) and has entered into a committed off-take agreement for the purchase of 30% of all products produced by the Ochoa Project. Yara will have a 19.9% interest in ICP post-transaction.
· We foreshadowed this opportunity in our note dated February 23rd and believe it is a very big positive for the stock. Yara is the number one global supplier of mineral fertilizers. Hence this announcement has many positives including:
o An endorsement from a highly credible industry major thus greatly reducing any perceived technical risk associated with the project.
o A financial partner likely committed to maintaining its 20% pro-rata interest in the company over the long-term thus reducing the financial risk associated with funding project construction.
o A greater likelihood of maximizing the proportion of debt to equity now that an off-take agreement is in place thus providing an opportunity to maximize return for shareholders.
o The possibility of expanding the scope of the project (adding 50% to production) thus increasing its net present value.
o The potential to be acquired by Yara at a substantial premium now that it has a 20% foothold in the project.
· We reiterate our STRONG BUY rating with a revised target price of C$2.50 (from $2.00). We base our target on a 0.5x multiple applied to our NAV calculation using an 11% discount rate (previously 12%). We expect upside to our target as the project is de-risked through the completion of feasibility. We see the potential for a $5.00 to $10.00 share price in the long term.