Fraser Mackenzie Update
Allana Potash (AAA-TSXV $1.41)
Strong Buy (previously Market Perform)
Target $2.25
July 20 2011
SALES 416.955.0198 TRADING 416.955.0388
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Sell-Off Post Resource Update and Passing of Perceived Overhang Presents A Buying Opportunity
Upgrading to a STRONG BUY, Maintaining $2.25 Target Price
Following the release of an exceptional resource estimate on June 20, 2011, shares of Allana Potash saw a momentary spike to $2.27 before selling off nearly 40% over the past month. We attribute the weakness to the passing of a key catalyst, a likely quiet period in terms of news flow and a perceived overhang related to shares which came off of lock-up in early July. With the stock now finding a base and coupled with favourable valuation metrics an excellent opportunity is presented to purchase shares of one of the world's most promising junior potash plays. Accordingly, we are upgrading our rating to a STRONG BUY (from Market Perform) while maintaining our $2.25 target price offering a 61% potential rate of return.
To review, Allana's resource estimate grew to 1.27 billion tonnes (MI&I) with an average grade of 18.7% KCl from only 105 million tonnes (inferred) previously at an average grade of 20.8% KCl. This reflects an outstanding twelvefold increase in the resource, clearly an exploration success. Perhaps, equally impressive as the size of the resource was the upgrading of resource to the M+I category (representing more than half of the resource) and the reported grade within the Sylvinite (shallowest) zone at 30.7% KCl. Notably, the resource is based on only 40% of Allana's property and has potential to grow further with ongoing drilling and a focus on the previously unexplored eastern part of the property.
Catalysts to look forward to include more drilling results (several holes pending in the east), the signing of a strategic offtake agreement (could happen at any time), another updated resource later this year, a Preliminary Economic Assessment early next year and a feasibility study in about 12 months' time.
Please see the full note for full list of disclosures.
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