Raymond James starts Allana Potash at "market perform" with $1 target price

Capital markets firm Raymond James recently initiatied coverage on Allana Potash (TSE:AAA) at "market perform" with a $1 target price.
Allana Potash is a junior mineral exploration company focused on developing potash mineral properties in Ethiopia and Argentina. It has a 100 percent interest in the "very well advanced" Danakhil Potash Deposit, located in the Danakhil Depression in northern Ethiopia.

A definitive feasibility study for the deposit is due by the end of the year.

In addition to Danakhil, the company is also engaged in early stage potash exploration in Argentina, with its property concession adjacent to Vale’s construction-stage Rio Colorado project.

"On paper, Allana's Danakhil potash project boasts a series of positive attributes that position it well versus other greenfield
assets around the globe," Raymond James analyst Steve Hansen said in a note.

Raymond James' Hansen said Allana's balance sheet was "very healthy" with $45.2 million in cash as at January 31 and the potash explorer recently closed a bought deal financing for an additional $25 million, all of which is expected to be sufficient for further de-risking initiatives at the Danakhil Potash Deposit.

Hansen added that the recent move to hire global bank BNP Paribas to find financing partners provides a "strong indication" that project financing will ultimately be realized.

Allana’s solution mining process carries a $796 million capex price-tag which is "one of the lowest" for a pure-play greenfield potash project amongst its junior developer peer group and considerably lower than Saskatchewan-based projects, the Raymond James analyst said, making this "an attractive feature" for potential acquirers or strategic partners.

With the Danakhil project's close proximity to the Asian markets, Raymond James' Hansen reckons Allana could "successfully engage" an offtake agreement with parties from Asia.

"We note that Chinese and Indian parties have been rumored to be interested in the project as well as this sort of arrangement...the acquisition of Allana by a Chinese entity is a distinct possibility, in our view." 

He added that Allana’s location in Ethiopia will continue to serve as a "counterintuitive advantage" giving it access to financing
from non-traditional sources of funding such as international development organizations such as the World Bank's IFC.

Such organizations are not typically available to developers working in developed markets such as Saskatchewan.

Looking longer-term at the industry as a whole, Hansen believes the outlook for global agri-products, including fertilizers, "was robust".