RE:RE:Allana - ICL Key points
Great post edx. You seem unimpressed with Allana's management. I agree with a lot of these points you made the other day. You wrote:
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In my opinion, on the surface this was a great deal for ICL, not so much for AAA. I totally understand the PP price. The potash market is what it is right now. I'm a bit insulted that they pretended the PP was a "premium" to market price... based on the day that Allana started exclusive negotiations with ICL. Clearly this was throwing ICL a bone. I get that, given the market conditions. Regardless, here are my real issues with the deal, on the surface. First, the warrants are _way_ too cheap. And we're not talking about a few million warrants here - I could totally overlook that. Or 1 year, pre-production warrants. Again, I'd be fine with that. But this goes well beyond that. Second, we don't actually need ICL's marketing and distribution. The idea that this will save Allana some serious cash for marketing is rubbish. We are the lowest cost supplier based on customer transportation costs alone to anyone in Africa and to India. Full stop. Even ICL has to pay canal fees and extra distance costs that we don't carry. Those markets will easily consume every pound of potash this company could conceivably produce, ever, given the water supplies available. Allana will never, ever have problems selling its entire output at spot. But of course 80% will be sold at discount to spot to ICL. Which leads to the third issue - the offtake agreement sucks for one reason alone - no publicly stated commitment to financing. I get giving up an off-take agreement... even though we would make more selling at spot, this gives creditors confidence, but we did not get financing out of it based on current disclosure. The pros here based on current disclosure? ICL is certainly the only major out there with experience building these kinds of mines, which I'm sure will be helpful. And ICL on board will assist with obtaining debt financing from development banks - of that I have no doubt. I still strongly believe Allana will produce. Barring that, someone that buys Allana will. The resource is too strategic and too high value for it not to be extracted. Sasksatchewan juniors are facing natural gas (35-40% of opex headwinds) and a massively oversupplied market with huge capex costs. Canpotex, which precipiated this potash collapse, is cutting production and has obscenely low utilization. Saskatchewan juniors are done (which is not a bad thing for Allana). But... and here is my (maybe wishful) thinking... I've written off Richard Kelteras of Sino-Forest fame. He's a waste of shareholder resources as far as I'm concerned. But I haven't written off Farhad yet. He's always been the crafty type who can deliver where others can't. To go along with this thinking is one, pertinent fact: ICL raised $275 million in debentures in November. The Allana PP investment is a tiny fraction of that, which means ICL is sitting on piles of cash. ICL has a publicly stated strategic plan. And aside from other Ethiopian potash plays (none of which fit their profile), I do not see any other potash project, in-development or in-production, that they would be interested in plowing that cash into.... so perhaps (and just perhaps), ICL will provide most of the balance of its debenture raise to Allana at below market interest rates in the form of debt with development banks financing teh balance. This, combined with the Allana's already publicly disclosed equity raise (PP + warrants) and the off-take will be sufficient to build the mine. The bonus here is that ICL _will_ buyout Allana after it reaches production and proves to be viable for a year. Let's call this plan (from ICL's point of view) a hedge against consturction risk. If (and again, this is an IF I presently rate less likely than more likely) this is the case, I will take back this entire post and say that given the market circumstances, this WAS a good deal and Farhad has once again delivered. If we get diluted heavily again to reach productiojn, then I'll accept that I took high-risk investing in a juinor resource stock for a significant number of years for what ultimately amounted to a nice return (better than DJIA, I expect) but something that wasn't worth the amount of risk I took on when I entered. Either way, I expect to make money here. But whether I make the returns worth the risk or not depend entirely on if we are diluted heavily again.