More Than Meets The Eye Both companies operate in Africa. AAA has a confirmed NI-101 Resource Estimate of 675m tons in the measured and indicated and within days of increasing that to over 1billion tons measured and indicated (3 times that of ELM). So, why are we getting a market cap of 40% compared to an African Peer without a Mineral Resource Estimate? Are they overpriced or is Allana underpriced? Twice the cash and twice the resource…you decide….hmmm
ELM: 243m sh / market cap $253m / Congo /Cash $40.5m / 362Mt Indicated
AAA: 220m sh / market cap $110m / Ethiopia /Cash $70.0m / 675Mt M + Indicated
The following table reveals some interesting facts with regards to cost per ton of production, operating cost per ton, internal rate of return till capex is paid off, estimated cost of total capex for mine build out, and method of mining. The data is gathered from various sources (ELM website, Dundee Report) and is a reference guide and not conclusive. I included the average shipping for Sask. projects at $36 per ton to compare apples to apples. Some projects do not appear to have estimates available on operating costs or IRR, but the average cost per ton based on initial capex is available as a bench mark to industry. The average Capex cost per ton average for the companies listed in the table is: $1026 per ton…
Interesting when you apply the estimated $1.7b for Allana to ramp up to 2m tons of KCL per year…the cost of capex per ton is $850p ton..still in the lower industry average…
Average Capex/Ton for Selected Publicly Traded Potash Producers / Developers
Average Saskatchewan cost per ton = $1,029 per ton capex.
Capex/Ton Opex/Ton IRR Capex KCL/Yr. Mine Method
1,529 BHP Jansen Project ---- $12.0b 8.00m tons per year Conventional
1,500 Agrium Expansion ----
1,178 Western Potash $ 98 22.7%IRR $3.3b for 2.80m tons / year Solution
1,113 Magindustries $125 ----
1,048 Karnalyte Resource $129 22.0%IRR $2.0b for 2.10m tons / year
1,047 BHP Burr Project ---- ---- $2.0b for 2.00m tons / year Conventional
1,040 Encanto Potash $104 24.0%IRR $2.4b for 2.50m tons / year Solution
996 K+S Germany Legacy $101 30.1%IRR $3.25b for 2.86m tons / year
930 Elemental Resources $ 99 ---- for 1.70m tons / year Conventional
900 Passport Potash ---- (pending drilling results)
837 IC Potash $147 26.0%IRR $706m for 0.80m tons / year Solution
796 Allana Potash $ 90 36.8%IRR $800m for 1.00m tons / year Solution
790 Verde Potash $ 273 23.7%IRR $654m for 0.60m tons / year Solution
667 Prospect Global Res. ---- 158m tons M+I Conventional
These costs become very relevant in due course as deals and investments are considered. I present a brief review of another African Potash Junior as an example of comparing the underlying value of Allana and to consider why our share price is at .50 cents per share?
Elemental Resources ELM has similar characteristics to Allana is many ways: Democratic Republic of Congo – west coast of Africa – Kola Deposit with 362m tons Indicated + 442m tons Inferred, (the Congo with the stable government), 256m shares outstanding with 40% in friendly hands, 40m cash on hand, resource at 275m deep, proposing a Conventional Mine with 1.7m tons of KCL per year and a 20 year mine life with Brazil as the planned market with first production in 2015. Pending 47 drill hole results from phase 2 drilling. Elemental has a current market cap over $250 million….
When you apply various valuation methods it becomes clear how undervalued AAA is or how overvalued ELM is…you decide which?
E/V – Enterprise Value: 362m tons ELM versus 673m tons AAA x KCL % = 108m tons ELM versus 134m tons AAA. $330 m market cap / 108m tons = $3.05 value per ton M+I for ELM and $170 m market cap / 134m tons = $1.27 value per ton M+I for AAA. When you apply the current market valuation of ELM per ton against AAA ($3.05 x 134m tons M+I = $408m / 220m shares = $1.85 per share for AAA. This does not include a premium for AAA having $130 less cost per ton in capex, $30m more in cash on hand, and 30m less shares outstanding.
In the latest Dundee Report (page 5 exibit 3) we can also see a further variance in the Price per m tons and for the Enterprise Value: AAA has a current $3.63/m tons for M+I versus ELM having $8.14/m tons for M+I. So, when by next week the calculation will change with the 50% increase in M+I tonnage. 134m tons current + 50% = 210m tons x $1.27 current market value for AAA tons = $255m / 220m shares = $1.16 per share AAA
When you apply the ELM current market value per ton it gets interesting…
210m tons x $3.05 = $640m / 220m shares = $2.91 per share AAA next week all things considered equal
Unless someone can show a logical or rationale explanation as to why AAA does not get the same value as ELM…I am convinced that in time the market has to respond…considering African apples to African apples… and with the pending catalysts and milestones we are going to achieve over the next few weeks, months and for 2012…Someone is going to ask “why is a company with $70m in the bank and operating costs under $100 per ton…with capex under $800 per ton and with an IRR which is the best in the industry at 36% trading at .50 pennies…am I missing something or is this the agricultural investment of 2012? Or do some BIG hands want the share price kept low for some reason?