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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