Investment Thesis When you look at investing in a mining company you have to look at a number of factors: industry, geographic location, resource size and grade, management, production capability etc.
1) I think most on here or who look at this page are bullish on potash and fertilizer in the long run under the thesis that population growth will drive demand for years to come
2) The growth story in Ethiopia is real and the impoverished nation is taking large strides in attempts to attract foreign investment - If you look at the companies that have invested in the country you will understand. When the BRIC's (large contributors to world GDP growth) are heavily investing outside of their own country and are doing so for a reason - Africa is the future growth engine and Ethiopia is one of the continental leaders in that category.
Lets look at a few examples of foreign investment: 1) huajian group (China): $2 billion in show factory 2) Heinekin - purchase local breweries 3) India investment in textiles...........and of course some notable resource companies - Vale, Ethiopotash (Yara has over 10 billion market cap and a global leader in fertilizer industry) Africa Oil Corp. - I will acknowledge that BHP left Ethiopia but they have had a rough couple of years and like many other mining companies worldwide, have cut costs and are focusing its resources on other projects (ie Jansen)
No place is perfectly safe, and Ethiopia is no exception to that rule but the government has taken great strides to squash the rebels and have made the country foreign investor friendly. People have made comments about the pirates highjacking ships - there are a number of military bases off the port of Djbouti - not one of my concerns to say the least.
Allana is prime to serve both Ethiopia itself (which will be focusing its resources on developing its agriculture sector, along with the help of India) and other east Asian markets (india/China) - I can see them entering a JV with one of those companies. They are outside Canpotex jurisdiction so they have some flexibility when it comes to selling their potash (when the time comes & if Yara won't do it for them ;)
When the first resource estimate came out, I was a little disheartened because I thought that it would be bigger in terms of MOP reserves and it became pretty clear that the Eastern portion of their property didn't have the same fruit as the western portion. However, there IS enough potash to solution mine the MOP for years (as demonstrated by the FS) and this is just base case production POTENTIAL scenario. Have not even looked at SOP which they have a ton of, nor Carnalyte. We also still have Nova which we are working on. Also, with recent rail developments, the already attractive economics from an OPEX standpint can be enhanced dramatically!
I don't care what anyone says, management has been solid. They have made the right moves and have been clear on their strategy. They consistently update with developments (rare for a jr mining company) and have been pretty good with adhering to their own given timelines - 1 month or so delay is nothing. I, like many others on the board, was not happy with the PP at 80 cents. However, after speaking with one of my IB friends, he said "in this market, if you can get money, take it" - exactly what Farhad did and I applaud him for it. Rodinia was an interesting investment because they have a great resource in the Salta province of Argentina. Also, the investment was a preferred share with a 10+% yield on the potash stream - some people were confused about that one. Their biggest problem is a lack of cash as well despite their massive resource and literally 0 operating costs on a byproduct basis. Their 2nd problem is how long it would take for them to get to production vs. some of the other Greenfield Lithium projects. I will score that a C- on AAA's part. I actually owned Rodina for a long time as well but I am uncertain about the company's future given its financial position.
AAA\s stock price has gone down with the Venture. You cannot compare AAA's return with the TSX which is full of dividend yielding largecaps - the investment theme for the past couple of years - Take a look at the venture and tell me it is pretty. Then tell me how many companies will weather the storm as the moneywells have dried up and balance sheets are bleeding - It will be tough for companies to stay alive, let alone progress with their projects
With ~$25m in the bank, AAA will weather the storm. If you refer to their current cash burn rate, you must realize that FS is complete hence probably paid for, along with the environmental study, what is left other than defining a few holes and waiting on financing? On another note, not many companies can say they have large financial backers like IFC and Liberty - yes, having IFC is a big deal and AAA DOES have access to non-traditional funds given that they ARE located in a developing nation like Ethiopia - Unfortunately Canadian companies do not have that luxury.
Does the project have risks? Absolutely - you would be stupid to argue against that statement. However, I firmly believe this project WILL be a mine - it is the poster child for Ethiopia and the government will back this project 110% - AAA has shown great social responsibility and it is like a game of "you scratch my back, I'll scratch yours". The only way I don't see it being a mine is if they get bought out first - making it interesting as to how much premium they can get with current equity valuations. I believe we will see some positive news in the next few weeks which will act as catalysts for the SP, and who knows, maybe a summer takeover target? Lot going for the company, not much I can see going against it at the moment.
Anyway, this is my second post on this board and I don't like to take part in the senseless banter that goes on but decided to throw in a bit of analysis that doesn't require outrageous calculations. BTW, my previous post was back in July 2011 on the board of Peregrine metals (PGM-T) which was another grossly undervalued company (copper/gold) that had solid management, a great resource in a mining friendly jurisdiction. Do a little research on what happened to them
Not saying I will be right but I have a good feeling about this one.
As a disclosure, I am long the stock - but am for the above reasons :) Feel free to disagree, but if you do so, at least make it intellectual.
Cheers - Silky