Dundee Capital Markets reiterated Tuesday its sector "top pick" for Allana Potash (TSE:AAA), after the junior potash explorer received non-binding indications of interest from potential lenders totaling more than $600 million, for funding the company's Dallol project in Ethiopia.
The announcement of initial discussions with potential lenders was
made on Monday, and interest was received for around 65 percent of the
total estimated capex for the project - which exceeds the amount of debt
financing Allana was originally planning to use.
Allana said it expects the technical and commercial commitments for
the project to be completed by late 2012, allowing for the closing of
the project debt financing and start of construction in early 2013.
In a research report, Dundee analysts Richard Kelertas and Liliana
Tzvetkova said: "We consider this announcement to be a positive
development in the company's financing activities as the expressions of
interest from potential lenders de-risk the project and further
highlight its potential."
"The above mentioned interest also
demonstrates the acceptance of the company's targeted capital structure
(65% debt/ 35% equity plus prorate shares financing from Liberty Metals
and Mining and IFC) by the potential lenders and Allana's ability to
access financing despite the world's tough economic conditions."
has a "buy" rating on Allana, with a 12-month target price of C$2.00.
The potash explorer is currently changing hands at around 72 cents.
already has financial support from two strategic investors, IFC, a
member of the World Bank Group, and Liberty Metals and Mining, and
recently announced the closing of a $20 million private placement
According to the Dundee report, upcoming share price
catalysts for Allana include an updated resource estimate expected for
the first or second quarter, formal debt financing agreements, a
bankable feasibility study and possible offtake agreements.
company expects to issue an updated estimate this month or next, which
will include its recent infill and exploration drilling results.
Given the positive results from these holes, Dundee said it expects
Ercosplan, Allana's technical consultant, to assign additional tonnage
to the measured and indicated categories from inferred, as well as
increase the total resource as a result of drilling on the eastern bloc.
Total measured and indicated resources now stand at 673 million
tonnes, with an average grade of 18.65% KCI, with total inferred mineral
resources of 596 million tonnes at a grade of 19.96% KCI.
with regards to formal debt financing, Dundee expects "several
international banks and sovereign wealth funds" will participate in the
debt financing round. Management mentioned the International Development
Bank and Export Development Canada (EDC) as some of the names that
might be interested in its debt financing, Dundee said.
bankable feasibility study for the project is expected around the end of
the third quarter, for the construction of a one to two million tonne
per year solution mine using solar evaporation - targeted for start up
by late 2014 or early 2015.
The study is a key milestone for the
project and will include details on all relevant resource/reserve data,
project capex/opex. marketing, logistic, port, and engineering plans.
Dundee also noted that Allana's management has reaffirmed that it is
"actively seeking" offtake agreements with multiple parties, including
China and India, for a sizeable portion of eventual production. This
would allow the potash company to raise the bulk of the equity financing
necessary to finance the project "with little or no additional capital
raises", Kelertas and Tzvetkova said.
"Compared to its peers, we believe it is a bargain," they concluded.
Last November, the company announced the results of the PEA for its
Dallol potash project for production of one million tonnes, with the
potential to expand output at the site to two million tonnes of muriate
of potash (MOP) product per year at a later stage.
The economic study, conducted by Ercosplan and based on solution
mining with a solar evaporation method, yielded, on an after-tax basis,
an internal rate of return (IRR) of 36.8 percent and a net present value
(NPV) of US$1.85 billion, based on a 12 percent discount rate.
The results exceeded management's expectations, said Abasov, with the
project having "one of the lowest capex and opex in the world" in the
potash industry, especially when compared to Saskatchewan players in
Solar evaporation of the saturated brine solution is possible at the
Dallol project due to the year-round hot temperatures and very little
rainfall, in contrast to Saskatchewan. The Ethiopia project also hosts
shallower deposits, which means the company is not required to drill
that deep, allowing for cost savings.
The ongoing feasibility study will consider additional MOP and sulphate of potash (SOP) output.
Dundee Capital Markets' valuation assumed a 13 percent discount rate,
a US$450/mt MOP price, and an eventual ramp up to 2.5 million tonnes
capacity by 2020.