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.

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Israel Chemicals Takes A Long-Term Potash Call Option

Seeking Alpha: Allana Potash Continues To Drift Amidst Ag Malaise

The bloom is definitely off of the ag bull market, as lower crop prices have soured investors on seed, ag equipment, and fertilizer companies. None of that is positive for Allana Potash (OTCPK:OTCPK:ALLRF, (AAA.TO)), nor is the fact that potash pricing remains stuck around $350 per ton. These shares have continued to weaken since the company announced a major tie-up with Israel Chemicals (OTCPK:ISCHY) and since my last piece. While the Global X Fertilizers/Potash ETF (NYSEARCA:SOIL) is down about 2% since my mid-March update on Allana, the company's shares themselves are down another 20% or so.

Granting that investors were disappointed in the terms of alliance with ICL, and granting that there is still more dilution likely on the way (as the company still needs to raise debt, and probably equity, to fund its Danakhil project), I continue to believe these shares are undervalued. By no means is Allana anything other than a high-risk investment, but ICL appears committed to the project, and I believe the current price doesn't give much credit to the value of the project.

While I generally recommend avoiding "F-type" ADRs and buying shares on local exchanges when possible, Allana's ADRs are more liquid than most unsponsored ADRs. Even so, I'd advise owning the Toronto-listed shares when/where that is an option.

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Allana Potash Continues To Drift Amidst Ag Malaise

Seeking Alpha: Allana Potash In Better Shape, But Nobody Cares

You would think that a significant strategic alliance that meaningfully lowers the long-term execution and financing risk for a junior mining company would mean big things for the stock of the junior miner in question. Unfortunately, that is not the case with Allana Potash (OTCPK:ALLRF) (AAA.TO), as these shares have gone nowhere on a net basis since I first wrote on them in January ("Allana Potash Offers Substantial Potential Rewards For Significant Risk").

Allana still offers a very high level of risk, but also a high potential reward should its Dallol potash mine move into production and live up to expectations. While the strategic alliance is definitely dilutive to shareholders, reduced risk offsets some of that, leaving an attractive fair value estimate of around C$0.85.

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Allana Potash In Better Shape, But Nobody Cares

Investopedia: At The Right Price, Albemarle Would Be A Great Idea

There's a big difference between commodity chemical companies and specialty chemical companies - both can make you money, but companies with more of a commodity orientation have to be sold more nimbly. That's not to say, however, that investors can just buy a company like Albemarle (NYSE:ALB) whenever they may like. While this is a very interesting and well-run chemical company, today's valuation doesn't offer much discount despite multiple challenges to the business.

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http://www.investopedia.com/stock-analysis/2012/At-The-Right-Price-Albemarle-Would-Be-A-Great-Idea-ALB-CHMT-GRA-RDS-A-AAPL1002.aspx