Small companies with big projects need and welcome major players in their sector. February 12, 2014 Allana Potash (T.AAA) announced a strategic partnership with Israel Chemicals Limited, ICL, one of the world’s largest fertilizer producers.
Making the announcement Farhad Abasov, President and CEO of Allana, commented, “We are pleased about our strategic alliance with ICL. This is a significant and defining milestone in our Company’s history, paving the path towards the transformation of Allana into a major, global potash producer. This strategic alliance is comprehensive and encompasses three major aspects that are critical to the success of a new potash project: 1) financial support; 2) a take-or-pay off take; and 3) technical cooperation.”
We spoke to Abasov on February 18.
“The most important thing about the strategic partnership is that it validates our Ethiopian project’s financial and technical aspects.” said Abasov.
We reported on Allana’s Danakhil project in November. Key to the project is the fact Allana has received its mining licence for the measured and indicated potash resource of 2,446 million tons. The licence was key to being able to attract the partners and financing this project requires.
In our earlier interview, Abasov noted that Allana was a “small company”. The agreement with ICL goes a distance towards offsetting the difficulties of being small. “ICL is interested in helping us get to production as quickly as possible.” said Abasov.
Technical help here may include selecting a construction company and optimizing the design of the mine. In particular, ICL has developed expertise in various potash production technologies through its Dead Sea Works which can be deployed in Ethiopia.
For Allana, bringing on a major fertilizer company as an equity partner and concluding a take or pay off take agreement means that the next steps towards a mine become more straightforward.
The general provisions of the off take agreement were detailed in the February 12 press release and, critically, ICL has agreed to take the entire production of the mine up to 1 million tons per annum on a take or pay basis for a minimum of 80% of the total mine output.
“We’re anticipating financing 60-65% of the CAPEX using debt .” said Abasov. The off take agreement means that, effectively, 80% of Allana’s revenue when the mine is built is guaranteed. Which, in turn, makes funding the debt component of Allana’s financing much easier.
At the same time, ICL has taken a 25 million dollar equity position in Allana which, if warrants are exercised, could become a total investment of 84 million dollars. “We are working on the equity component of the CAPEX.” said Abasov, “Our major shareholders want more of the equity and we want to avoid dilution.”
Stefan Borgas, President and CEO of ICL, said, “We are pleased to enter into a strategic alliance with Allana to develop its Danakhil potash project in Ethiopia which will provide potash for Ethiopia and Africa – the market with the highest growth potential in the fertilizer world.”
Having the deposit within a few hundred kilometers of an Indian Ocean port means that Allana’s potash can be transported to the rapidly growing fertilizer markets of India and South East Asia as well as Africa. ICL has the reach and marketing capacity to service those markets.
In our earlier conversation Abasov pointed out that the potash consumption of Africa was currently so low that it barely registered in the trade statistics on potash. But there is an agricultural revolution occurring in Africa with large quantities of land being farmed using modern, more fertilizer intensive, methods. Allana and ICL have positioned themselves to respond to the growth in African demand for potash.
With ICL in place, Allana is pushing ahead with the optimization of its mine plan, further infrastructure and water related work and the assembly of a debt/equity financing package.
“The strategic alliance with ICL is a tremendous step forward for Allana.” concluded Abasov.
At time of writing Allana was trading at $0.415 and had a market capitalization of 121.8 million dollars.