ICL announced that it has entered into a strategic alliance with Allana Potash, a potash mining company whose shares are traded on the Toronto Stock Exchange. ICL will support Allana in its development of the Danakhil potash project located in the Dallol region of the Afar province of northeast Ethiopia. The feasibility study for the proposed mine indicates that it will produce approximately one million tons of potash annually within a period of five years from now.
ICL’s strategic alliance with Allana comprises an investment by ICL in the amount of approximately US$23 million in units of Allana (“Units”) at a price of approximately US$0.43 per Unit. Following the completion of its initial investment in Allana, ICL will hold approximately 16% of Allana’s regular shares on a non-diluted basis, and the Company may increase its holding in Allana to approximately 37% upon its exercise of warrants that are part of the Units. Proceeds of the investment will be used by Allana to develop and advance the Danakhil mine project.
The alliance also includes a offtake agreement between the parties with respect to the Danakhil mine in which ICL will purchase and market the output of the mine. ICL will also provide technical assistance to Allana to develop and operate the Danakhil mine.
The alliance with Allana is in line with ICL’s “Next Step Forward” strategy to broaden its sources of raw materials globally while reducing its production costs and focusing on growth-generating emerging markets which will lead the Company to significant growth over the next decade. ICL is a global producer and marketer of potash with potash mines in Israel, Spain and the UK. In 2013, the Company sold over 5 million tons of potash worldwide.
ICL views its investment in the development of attractive sources of raw materials worldwide as an important strategic objective, especially in light of its need to ensure additional alternatives when the time comes to extend the franchise to produce potash from the Dead Sea, which expires in 2030, and in light of the uncertainty regarding the business and regulatory environment in Israel. The planning and development process for industry, in general, and the potash industry, in particular, requires around 10 years and therefore ICL has begun to evaluate and develop alternatives.
Commenting on the transaction, Stefan Borgas, President and CEO of ICL, said, “We are pleased to enter into a strategic alliance with Allana to help develop its Danakhil potash project in Ethiopia. During our extensive due diligence, we were impressed by Ethiopia’s people and the support of the Ethiopian government and its local authorities. The Danakhil mine will provide potash for Ethiopia and Africa, and, combined with ICL's agronomics fertilization know-how, will enable local farmers to increase agricultural output and food for the region. Our cooperation with Allana delivers a step in our previously announced “Next Step Forward” strategy to broaden our sources of raw materials worldwide, as well as our intention to deepen and significantly increase our activities in emerging markets such as the African continent. The agricultural fertilizers market in Africa is evolving into one with the highest growth potential in the world. In addition, the location of the Danakhil mine will provide us with fast and easy access to the Indian Ocean which will enable us to even better serve our customers in India and South East Asia and their appetite to grow”.
Farhad Abasov, President and CEO of Allana, added, “ICL possesses broad experience in, and knowledge of, the global potash market, as well as in the development of large scale potash projects. Likewise, Allana will benefit from ICL’s existing global and regional marketing and distribution networks. Both Allana and ICL are committed to expanding fertilizer supply within Africa in support of the farming renaissance that is occurring on the continent. The strategic alliance with ICL is comprehensive and encompasses three major aspects that are critical to the success of a new potash project: financial support; a sales agreement; and technical cooperation.
Mr. Abasov concluded by saying, “We thank the people and governments of Ethiopia and Djibouti for having the foresight to work tirelessly towards this goal. We look forward to working with ICL and developing a world-class project that will supply potash to the fast growing African markets for many years to come. Danakhil is expected to be one of the world’s lowest cost potash mines, and I am confident that our alliance with ICL will allow Allana to successfully achieve its operational and commercial targets.”
The parties have entered into a definitive Share Purchase Agreement which calls for ICL’s investment to be completed in two tranches, the first of which was closed as of today’s date, and a second tranche which is subject to the receipt of approval by Allana’s shareholders and other standard closing conditions. Each Unit issued to ICL consists of a common share of Allana, one and one half Series A Common Share purchase warrants, and one half of one Series B Common Share purchase warrant. Each warrant is exercisable into one Common Share for a period of 36 months from the date of issuance of the Warrant. The Series A Warrant is exercisable for a price of approximately US$0.50 per Common Share, and the Series B Warrant is exercisable for a price of approximately US$0.55 per Common Share.
In connection with its investment in Allana, ICL has appointed Yoram Cohen, General Manager of ICL Africa and a member of ICL Fertilizers’ management team, to the Board of Directors of Allana. Mr. Cohen has served in several global level positions at ICL, including as Senior VP and CFO of ICL Specialty Fertilizers, and as VP, Business Development, of ICL’s Fertilizers and Chemicals business unit. ICL may nominate a second director to Allana’s board subject to its additional investment in Allana.