By Cecilia Jamasmie,
CANADIAN junior miner Allana Potash Corp. (TSX:AAA) has agreed to be acquired by fertilizer giant Israel Chemicals Ltd. (ICL) after it failed to raise the capital it needed to remain as a standalone company.
The market reacted positively to the news as the stock was trading almost 44% higher at 47.5 Canadian cents in Toronto at 11:18 am
The $109.50 million takeover(or Cdn$137M), aims to speed up development of Allana’s promising Danakil project in northeast Ethiopia.
“Considering the generally challenging financial environment for junior mining companies, we would expect the short and long-term financing needs of Allana to include potentially significant dilution to Allana’s current shareholders,” Allana chief executive, Farhad Abasov, said in the statement.
ICL already owns 16.4% of Allana’s shares and the deal is expected to close by August 17.
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President and CEO of Allana Resources, Farhad Abasov once said:
“Obviously it would make commercial sense [for Allana] to transport the material from Ethiopia across the border to Eritrea. It would be ideal if this could overcome any political tensions between the two countries [than exporting it through Djibouti, a thousand kilometer away] …”
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The Short Pain For Allana Potash Shareholders
> Israel Chemicals makes an offer to acquire all shares of Allana Potash at a 40% premium.
> As it didn’t look like Allana was able to secure construction financing anytime soon, this might be the best way out for Allana shareholders.
> I will either sell on the open market or tender my shares to Israel Chemicals and reinvest the cash elsewhere.
How it got into trouble
Allana Potash (OTCPK:ALLRF) has announced it has reached an agreement with major shareholder Israel Chemicals (NYSE:ICL), whereby the latter will acquire all outstanding shares of Allana Potash for C$0.50 per share in cash (with the exception of Liberty Metals and Mining which elected to receive the equivalent of that amount in shares of Israel Chemicals).
Securing financing for Danakhil took too long
In my previous PRO-article on Allana Potash last May, I was quite bullish on the company as the economics of its potash project looked extremely appealing. However, as the company clearly seemed to have been struggling to secure funding for the project (keep in mind the feasibility study was filed in March of 2013), I had to become more careful as something clearly wasn’t working out the way I expected it to be. In my most recent update on Allana, I was already getting impatient as a financing deal should have been reached shortly after the feasibility study. The golden rule in the mining sector is the longer it takes to secure funding, the more shareholders should be worried.
Is the offer fair?
In hindsight, this seems to be completely true. The offer of C$0.50 (US$0.40) per share might be a 50% premium to the last closing price, but the total value of US$130M is quite low compared to the official NPV of the project. The total value of the SOP operation in the most recent economic study was $1.6B and the MOP production had a net present value of $1.3B for a combined NPV of $2.9B.
This means the company gets sold for less than 5% of the Net Present Value of Danakhil. Granted, if Allana would have developed the projects by itself the dilution would have been sky high, but paying 4.5 cents on the dollar is quite low and it does look like Israel Chemicals is getting a very nice deal here.
I’m a little bit surprised the management is supporting a deal at this level and it might indicate it wasn’t even close to signing a financing deal to develop the project by itself. If that’s indeed the case, selling the company to Israel Chemicals might have been the best decision.
It has been more than two years since the feasibility study on the Danakhil potash project has been filed and no substantial progress has been made. I consider the takeover offer (at a premium of approximately 40% compared to the share price when I wrote my first article) from Israel Chemicals to be a good way to get out of Allana and I will either tender my shares to Israel Chemicals or I will sell them on the open market and deploy the cash elsewhere.
Editor’s Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.
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Ethiopia’s Crab Mentality on Eritrea – “If I can’t have it, Neither can you.”
Eritrean Rebels Warn Australian Firm Exploring Potash
By Ethiopian Security Agent,
AN ERITREAN rebel group on Saturday warned an Australian mines firm against potash, gas and other natural resource exploration in the Red Sea’s nation.
The Red Sea Afar Democratic Organisation (RSADO) rebel group accused the Australian South Boulder Mines Ltd of partnering with the Eritrean government to illegally exploit resources of the Afar’s region of Danakil, stressing it caused environmental damage on their traditional homeland.
The project “is forcibly removing the indigenous Afar community in Eritrea from their homeland and caused a devastating impact because their economic, social and cultural survival is deeply linked to their traditional land,” said a statement issued by a special committee delegated by RSADO to investigate the alleged humanitarian situation caused by South Boulder Mines.
“For the Red Sea Afar People, land is central to their cultural and social well-being,” the statement added.
The rebel group warned the company to stop its economic partnerships with the Eritrean government and leave the Afar Region (Dankalia) immediately.
Otherwise, the group threatened to launch retaliation attacks against the foreign company.
“Failure to refuse or ignore our call will result in detrimental action against your Project,” the rebels said in a statement also copied to Paul Donaldson, Chief Executive Officer and Managing Director of the Australian company in Eritrea.
The rebels said some foreign multinational corporations violate sanctions by the United Nations and the African Union on the Eritrean regime and sign mining exploration agreements with Asmara government which they accused of “systematically killing its people unlawfully and arbitrarily”.
They further accused the South Boulder Mines Company of disrespect for human rights laws and disgraces to the UNSC, AU, EU resolutions and the UN Universal Declaration of Human Rights, International Covenant on Economic, Social and Cultural Rights as well as the UN Declaration on the Rights of Indigenous Peoples.
In the past, RSADO has routinely alleged victories against government army in an on and off cross-border attacks it launches from Ethiopian borders where it operates.
But, Asmara repeatedly dismissed those allegations further accusing its long-time arch-foe Ethiopia of harbouring and supporting the exiled rebels.