Allana Potash Corp agrees to $137-million takeover bid from Israel Chemicals – by Peter Koven (National Post – March 28, 2015)

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Allana Potash Corp. agreed to a $137-million takeover bid from Israel Chemicals Ltd. because its chief executive said there was no other way to avoid massive dilution of shareholders.

Toronto-based Allana is in the same position as many other junior mining firms: it has a great project but no easy way to finance it in the current rough market conditions. The company’s Danakil project in Ethiopia is expected to cost US$642 million; by comparison, Allana had less than $8 million on its balance sheet at the end of January.

“Even if we could raise half of the money through debt, which is uncertain, we would still have to raise substantial amounts through equity,” Allana CEO Farhad Abasov said in an interview. “And that equity would come at a substantial discount to the current price.”

Allana did have options apart from an outright takeover. According to a source, the company was in negotiations to sell a large stake in itself to a state-owned Chinese construction firm that could finance the project. The source said the premium was very significant. But Mr. Abasov argued the Chinese option would be punitive for shareholders.

“It would be close to 100%, if not more, dilution for shareholders,” he said.

The all-cash bid from fertilizer heavyweight Israel Chemicals (ICL) is worth 50¢ a share. That is a healthy 51.5% premium to Allana’s closing price on Thursday, but is far below the high of $2.30 in 2011.

Regardless, analysts said accepting the offer made sense.

“We’re inclined to believe this deal represents the best practical outcome for investors given the challenged market environment for junior potash companies,” Raymond James analyst Steve Hansen said in a note. “In short, we don’t view going it alone as a viable option.”

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