Wednesday, April 1, 2015

Seeking Alpha: Israel Chemicals Takes A Long-Term Potash Call Option

Friday's news that investment and marketing partner Israel Chemicals (NYSE:ICL) was bidding for the remainder of the shares of Canadian junior potash producer Allana Potash (OTCPK:ALLRF) shouldn't have come as a major surprise, though the 40%-plus move in Allana's shares certainly reflected the skepticism that had been worked into that company's share price. In many ways this is a marriage of convenience if not necessity - Allana was going to struggle to get its operations in Ethiopia into production on its own and Israel Chemicals increasingly needs to think beyond its home base of Israel if it wants to ensure its long-term future.

I had been bullish on Allana for some time (having written about it here, here, and here) and this buyout is a somewhat bittersweet endpoint. If the deal goes through, it will be at a price more than a quarter above where I first started writing on the stock … but I don't think investors should celebrate a 25%'ish return on such a risky name. On the other hand, fundamentals in the potash market have been getting worse and follow-up due diligence on Allana's Ethiopia project prominently includes words like "inhospitable", "unwelcoming", "difficult", and "challenging".

For Israel Chemicals, this is, at best, a long-term answer to a growing problem. The Israeli government is looking to take a bigger cut of the profits that the company generates from within Israel and labor difficulties are creating additional challenges. Buying Allana doesn't exactly make ICL a global conglomerate with a greater specialty chemical focus (something I think needs to happen eventually), but it does at least add a potential viable source of potash outside of Israel.

Read more here:
Israel Chemicals Takes A Long-Term Potash Call Option

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