Allana has the right strategy to benefit from Africa’s agricultural revolution

ICL-AllanaAllana Potash (‘Allana’, TSX: AAA | OTCQX: ALLRF) and its partner ICL will be working directly with the Ethiopian Agricultural Transformation Agency (ATA – an Ethiopian Government agency) to support the use of mineral fertilizers to improve agricultural yields and communities. Allana, ICL and ATA have signed a Memorandum of Understanding (MoU), contributing USD$ 590,000 to perform 600 field trials and demonstrations in 30 Ethiopian ‘woredas’  (or districts) received to determine the ideal nutrient for Ethiopian agricultural land. The program will also help Ethiopia develop a more effective agricultural growth strategy for Ethiopia thanks to a better understanding of what determines soil fertility levels. Cooperation should also serve to reinforce the agricultural research capacity in Ethiopia in soil fertility and nutrient management and the use of state-approved fertilizers.

The program will also be used to sponsor the training of graduate students in how Ethiopia’s soil can benefit from potash fertilizers in the cultivation of crops. The sustainability of agricultural systems depends to a large part on the improvement of soil fertility to secure sustainable food production. Potassium based fertilizers such as potash have an important role in improving the quality and scope of crop yields, which then contributes to the improvement of public welfare in farming communities

This is not the first time Allana has supported the ATA’s efforts; since February 2013, it has contributed some USD$ 200,000 in the form of funds or future potash supplies – once production commences at the Danakil project. From a business perspective, Allana’s strategy is to help develop and expand the mineral fertilizer market in Ethiopia and Africa in general – even if the initial focus will be East Africa. The African continent presents tremendous market potential for mineral fertilizers and potash in particular. Agriculture is Ethiopia’s largest and most important economic sector and has significant growth opportunities with its 16 million hectares of agricultural land.

Africa is surely one the most important markets for mineral fertilizers. Africa has the potential to increase the value of its annual agricultural output of $ 280 billion in 2010 to $ 500 billion by 2020 according to the African Development Bank (ADB). Moreover, Africa has the potential to attract 880 billion dollars of investment in agriculture by 2030, which will drive demand for products such as fertilizers, seeds, pesticides and machinery as Africa develops its own production of biofuel, grain refinement and food. Allana and ICL’s strategy to cooperate with the ATA in Ethiopia fits squarely within ADB recommendations to start building new institutional arrangements between the private and public sectors that promote private sector development without leaving small holder farmers isolated. Moreover, such strategies create great opportunities investments still exist for sustainable agriculture and infrastructure development across the agricultural value chain. Africa still has considerable untapped value in its agricultural industry and it needs regulatory improvements to facilitate more investment, encouraging market-oriented rural employment, technology transfers (of which potash use is a part) and provide the sound basis for sustainability and long-term transformation.  The prospects for agricultural growth in Africa are excellent, especially if small farmers are helped to specialize and add value.

The rise in food prices in 2008 and their continued volatility have created a unique opportunity for Africa to increase its investments in agriculture to ensure food security and stability price. Meanwhile, and not surprisingly, China plans to dramatically expand its already leading trading position in Africa in the coming years. Last Monday, Chinese Prime Minister Li Keqiang announced, in the Ethiopian capital Addis Ababa as it happens to double its trade volume with Africa, one of the fastest growing regions in the world.

Discipline returns to the potash market

disciplineLast month, one of North America’s most influential banks, Toronto Dominion (TD) published a bearish report on the state of the potash market. The report noted that potash prices fell sharply last year and largely because the Russian potash company Uralkali announced it would no longer export through Belarusian-Russian Potash marketing mechanism (BPC) in a joint venture with the Belarusian company Belaruskali. TD’s report predicted that international potash prices will remain similar on average than those currently in force, U.S. $ 305 to U.S. $ 320 per ton, over the next two years. The bank believes, however, that prices are unstable, which means they could drop at anytime. The BPC producers (Russian and Belarusian) were responsible for approximately 42% of global potash exports before the breakup of the venture, which has dragged prices to their lowest levels in four years. The expectation was that major buyers such as China and India would wait to see how far prices would fall.

However, in early January, China signed a potash contract with CANPOTEX (including PotashCorp, Mosaic and Agrium) and Uralkali at about USD$ 305 per ton, which has established a floor price. Yet, Uralkali announced yesterday (April 1) that it has signed a potash contract with India at the price of USD$ 322/ton – higher than TD’s predictions from just a few weeks ago. Surely, this is lower than the 2013 contract of USD$ 427/ton, but it is higher than expected, considering the ‘gloom & doom’ potash price predictions in the Street. No doubt, CANPOTEX will match the Uralkali price. One more reason for optimism comes from the fact that Indian potash demand has been weak due to the Indian government’s cut of potash subsidies in favor of nitrogen.

There were other signs of optimism or of a gradual return to order in the potash and mineral fertilizer market in general during the course of March. There was in fact a strong recovery in demand for phosphate. Already by the end of February, exports from Morocco’s OCP – the world’s largest supplier by far – had increased nearly 8 % over the same period of 2013. And the trend would have been even stronger had the port of Jorf Lasfar had not been shut down for 30 days due to bad weather. Granted the exports were not of pure, rock phosphate, rather derivative value added products; however, this reflects a deliberate change in OCP’s strategy of prioritizing high value added products rather than rock phosphate. The demand for phosphate and relative price stability also shows that fears of the Ma’aden effect (the Saudi company producing and exporting phosphate) were exaggerated, especially as global demand for fertilizers, according to OCP, ha increased 3% in 2013. In fact, the OCP group has confirmed that it expects 2014 to be even better. OCP wants to capture half of the global demand for phosphate and derivative (DAP/ ammonia) fertilizer.

Meanwhile, Allana Potash Corp. (‘Allana’, TSX: AAA | OTCQX: ALLRF) announced that ICL, the world’s sixth largest potash producer, has already completed the second tranche of its investment in the Company amounting to a total of $ 14.4 million. The placement of the second tranche is part of the strategic alliance of the company with ICL as signed on 12 February 2014.  The alliance with ICL will raise Allana to its potential as it is a recognized world leader in the production, sales and research of potash. ICLs project evaluation and technical support, included in the agreement, has also further improved Allana’s risk profile and it should increase investors’ confidence.  After the completion of the placement of the second tranche ICL holds approximately 16.38 % of the non-diluted issued and outstanding ordinary share capital of Allana.

IC Potash (‘ICP’, TSX: ICP | OTCQX: ICPTF), meanwhile, announced on yesterday that construction at its planned $1 billion sulfate of potash mine in southeastern New Mexico could begin as early as next summer. ICP believes that the final regulatory steps could be concluded in the next few months, leaving it ready to secure financial support and the start of operations. In March, ICP announced that it concluded the final environmental impact statement for the project and the US Environmental Protection Agency (EPA) is expected to deliver its decision shortly. IC Potash filed its NI 43-101 Feasibility Study (FS) for the Ochoa Sulfate of Potash (SOP) Project in 2013 and delivered a very optimistic report of the outlook for sulfate of potash (SOP or K2O). ICP intends to produce high quality SOP while greatly reducing production costs.

Finally, Rio Tinto, one of the world’s largest mining conglomerates is rumored to be interested in entering the Saskatchewan potash game. The Australian newspaper ‘The Australian’ published a story suggesting that Rio Tinto plans to make a bid to take over Western Potash (TSX: WPX), whose investors will be very happy, considering Chinese companies have also expressed interest. Should the rumors be true, the Chinese would not give up its strategic position in the event of a takeover bid by Rio Tinto, making Western Potash investors very happy. Rio Tinto’s potential entry in the potash market also suggests that the sector has reached a more optimistic atmosphere.