Allana Potash fka AAA

[justin_a_lyesse]

Ogi, I will try to answer as many of your questions as I can, some answers will be my opinion and some will be based on what was said at the meeting and what due diligence I have done in the past. Your questions I will convert to italic and my answers will be be in bold. Some of my answers will be questions I have for you.



Ogi: Justin, correct, I didn't know that 30% decrease taking place. That worries me.

Justin: Why does this worry you? The way I look at this is that management 1) is responding to investors' concerns about their pay vs. the share price performance. 2) are lowering their cash burn rate just in case the financing gets delayed AGAIN (I certainly hope it will not) and 3) maybe they know or expect that within a few month's time the shares in Allana will be worth much more than they are now.

Ogi: Also I was not at the meeting because I do not live in Canada or USA and at moment Shanghai is city where I live. Also I am not coming from English talking area so excuse me that occasionally in my posts I can't use appropriate words to express feelings behind it but this time it looks like my feelings were described well.

Justin: Fair enough. I wouldn't expect someone living on the other side of the world to come attend the meeting. Since you did not attend, please contact me on that other site so that I can send you the recording of the meeting.

Ogi: Yes I am disappointed.

Justin: We are all disappointed. I AM DISAPPOINTED. But I am also patient. As I have stated before, building a mine takes time. Permitting, water, infrastructure and other documentation and work needs to be done. (see Afreximbank's requirements link below)

Ogi: Not have intentions to sell my shares but thinking to add more on present prices to average down.

Justin: I note here that you say you have no intention to sell and may buy more to average down.

Ogi: Honestly speaking afraid to do so due to recent developments,

Justin: What recent developments is making you afraid?

Ogi: due to Farhad has promised so much but not much has come.

Justin: Farhad has made “promises” as you call it, and they have mostly come to be true. Where Farhad erred is in the timelines of those “promises”. And I wouldn't exactly call them promises. Farhad has stated where he sees the company headed, his vision of Allana Potash being a producer of Potash in Africa. And just for the record, I don't remember Farhad ever “promising” anything. He has never “promised” X, Y or Z will happen. He has always said that Allana was working towards certain goals.

Ogi: What has happened with London listing for example?

Justin: I actually personally asked that question at the AGM. Farhad answered that the AIM listing is on hold due to the fact they have several things going on, and depending on how the funding works out they may decide to go on AIM again or even the LSE. This would be done once they are far along in the construction phase or even actually in production because UK based investors are much more familiar with Africa than North American investors and the ideal point is close to or the production point.

Ogi: Would like to let you know, I have master's in engineering and at moment one of engineering site leads for a multi billion project in China so very well aware what it means to suspend a FEED study.

Justin: OK, so you are an engineer. And you know what it means to suspend a FEED study. Now would it be smarter to suspend an ongoing FEED study on MOP and resume it once the PEA on SOP is published or would it be better to complete (and pay for) the FEED on MOP and then have to start all over with another FEED study for the SOP (and pay for that too)?

Ogi: Also to come with SOP part of project at this stage of MOP project is if nothing else unprofessional.

Justin: What do you mean “at this stage of MOP project”? We have not started building a mine, we don't even have financing signed yet.

Ogi: It implies that management was not aware of SOP possibilities till now??

Justin: Of course they were aware of the SOP possibilities. They have know about the Kainitite since they were in the drilling program years ago. And they know that they have a HUGE Kainitite deposit. Over 1.1 BILLION tons at ~19% which translates to a bit over 220 million tons of SOP. SOP is currently selling for ~700 a ton. Do the math.

Ogi: I doubt it but if that's the case we should sell our shares immediately.

Justin: It's not the case. Selling your shares is your decision. I would also note that previously you said you wanted to buy more shares in order to average down

Ogi: Think that SOP part is a spin that Farhad using for unknown reason to us. Hope it is not in order to buy patience.

Justin: The SOP is not just a “spin” in order to buy time. Allana's plan (if the PEA is positive) is to become the largest SOP producer in the world. They should be able to produce 2 to 3 million tons per year.

Ogi: What I believe is that infrastructure is not ready yet for a project,

Justin: The infrastructure is being put in place and will be ready (for the most part) by the time Allana will be rady to produce MOP. The government is awarding road building contacts in the next few months and there is a rail being built to service the Afar region.
(link to rail article : http://mobile.reuters.com/article/idUSL6N0V74Z920150128?irpc=932 )



Ogi:Ethiopian market is not ready yet for MOP or SOP,

Justin: First of all we have an offtake with ICL for 80% of our potash. Where they sell it is their business. But to answer your concern, Allana and ICL are actually developing programs to educate farmers and to market Potash in Ethiopia and by extension on the African continent.


Ogi: potash price is still in long term bear trend

Justin: Actually, it is no longer in a bear trend. The price of potash is rebounding, but not to where it was before the russian cartel fiasco. Also there is a mine in Russia that recently flooded and nay never come back online.


Ogi: supply exceeding demand

Justin: That is true for MOP, but as we have an offtake agreement, why should Allana care that much? SOP on the other hand is in tight supply. Demand is 6 million tons per year and is likely to increase (Source: www.academia.edu/4783324/Global_Sulfate_of_Potash_SOP_Fertilizer_Market_Trends_and_Opportunities_2013-2018_New_Report_by_Daedal_Research)


Ogi: and IMO not many institutions will agree to finance the project soon.

Justin: That is incorrect. But that is your opinion. I believe Afreximbank will be the major financier and we will get some financing from European banks as well. Farhad also mentioned that there will be some funds coming from royalty financing groups .Here is the reason for the delay in financing: the primary lender (Afreximbank) has certain eligibility requirements and documentation requirements. Below are just a few of the overall requirements for a loan. The other reason for the most recent delays is the fact that that the banks wanted more testing on the aquifer recharge rate and they wanted cavern optimization testing. This has pushed back financing for almost a year. The reason they wanted this extra testing (and this is just my opinion) is that ICL has been saying that they want to expand MOP production to 1.5 to 2.0 million tons per year. So if ICL wants to produce more MOP than what is in the feasibility study, it would be understandable that the lending banks would want certain tests to prove that the extra tonnage is actually feasible.

Sources:
Afreximbank gives green light to loan: http://www.thereporterethiopia.com/index.php/news-headlines/item/642-allana-receives-green-light-for-11-bln-birr-loan

Afreximbank requirements: http://afreximbank.com/programs-facilities/project-export-development/project-related-financing-programme/

Excerpt from Afreximbank requirements:

Eligibility requirements:
The Bank also operates certain procurement rules, key aspects of which include:
The procurement of Second Hand or Used Equipment is not encouraged;

Procurement procedure must be conducted in a manner that involves competitive bids and multiple quotes;

Cash disbursements are not made to parties other than suppliers;

Additional funding requirements are to be warehoused with Afreximbank or participating banks. Alternatively, project promoters should show evidence that arrangements to meet additional funding requirements are in place;

Down-payments must be supported with acceptable performance bonds from suppliers;

Raw material and critical input plan must be provided;

Promoters or their Managers to show evidence of considerable previous experience in developing and managing project type;

All corporate and Governmental approvals are to be in place; and
Suitable suppliers’ warranty must protect Bank and promoter against deviations of equipment from order.

The distinguishing feature is that the promoters must be experienced entities with good market knowledge and ability to successfully run the projects or where the promoters are not experienced, they will be required to enter into operating arrangements with reputable entities. Under this Programme, the Bank also provides Bridge Loans to projects in cases where delays occur in disbursement of funds from credible multilateral lenders or commercial banks but where all lending conditions had been met and security in place. This is intended to reduce the cost a delay in loan disbursement may add to the beneficiary project.

Documentation:
Appropriate Loan and Guarantee Agreements, Sales Contract, Assignment Deed, Project Contracts, Support Documents, Security Documents, and Expert Opinions, etc.


Ogi: All that is very favourable to ICL and not favourable to us. Knowing all what I have mention and buying shares a year ago sounds contradictory. I decided to buy once Farhad stated will go for financing (stated in final stage at that time) and construction in parallel with developing market in Ethiopia and once infrastructure finished Allana will be already ready for production.

Justin: I agree that the deal was favourable to ICL.

Ogi: Usually buying just before financing is best entry point. It was stated if remember well that construction will be completed mid 2016.

Justin: I agree with that also. Unfortunately financing has been delayed so I can see why investors are upset. Please remember your own advice: “Usually buying just before financing is best entry point”.

Ogi: One of the reasons to buy Allana shares was low cost of potash. Sounds strange but my logic behind was that only Allana can be profitable project with such low potash prices. Sometime less is more.

Justin: Agreed. Allana can be profitable with the MOP production alone. Allana can be VERY profitable with SOP production.

Ogi: To say one more time, IMO project is great but mngmnt not with the huge accent on Farhad. Every few months he announce bombastic news and than nothing happens.

Justin: Farhad is a very smart man. Don't underestimate him. I think what he did to sign an offtake with ICL for MOP only was smart considering how much the SOP is worth.


Ogi: Very unprofessional IMO. Also for me very unlogic how you as investor can cheer and support recent mngmnt moves.

Justin: The Allana story is not over by any means. It is just starting really. All the preparatory work has been done and now the fun starts. Will ICL bid for Allana? Will anyone else bid a higher price? Will Allana sell? I support management as I believe they will make the company successful.

Ogi: At the end what is your opinion regarding possible buyout by ICL? Would they possibly offer 0.7usd per share (close to 0.9 cad) or that price is to optimistic?

Justin: ICL will probably make a bid for Allana at some point. I do not like to make predictions. Right now, there are too many variables. I would much prefer that Allana does NOT get bought out and starts producing MOP and eventually SOP which will produce earnings. That is when Allana will be at full value.

Ogi: Also ICL stated that CAPEX will be considerably higher than originally planed, if I remember well and that they will stick with of take agreement only?

Justin: ICL has since apologized for making that statement. There is no public record of the apology, however this was stated by Richard Kelertas when an investor pointed out that ICL has said this statement. ICL made that statement based on the fact that they were looking a the mine producing 1.5 to 2.0 millions tons per year. The feasibility study was based om 1 million tons per year. Obvious a mine that was to produce 1.5 to 2 times as much potash as the feasibility study would require a higher CAPEX.



Ogi; Thanks in advance for comments

Justin: You are welcome.


Disclaimer: I am not an employee of Allana potash or ICL nor am I associated in any way with either company. I am not paid by anyone to promote Allana potash in any way. I am not paid to post anything on any message board. I am an investor in Allana potash and that is the totalling of my involvement.

PS. I STRONGLY suggest you contact me for a link to the recording of the AGM Many questions were asked and answered at the meeting and frankly I do not feel like transcribing the whole thing.