Yara Sees Purchases Within Months to Boost Fertilizer Sales

Compiled by Cam Read

 

Bloomberg Source Article: 

http://www.bloomberg.com/news/2013-02-12/yara-targets-purchases-within-months-to-boost-fertilizer-volumes.html

 

Yara International ASA, the largest publicly traded nitrogen-fertilizer maker, aims to complete asset purchases within the coming months as it pursues a 33 percent production increase in four years from 2010 levels.

“We are working on several growth opportunities,” Yara Chief Executive Officer and President Joergen Ole Haslestad said in an interview in Oslo today. “We do believe that we will be able to close some of them in the next months to come.”

Yara is among fertilizer producers seeking acquisitions as the cost of raw materials climbs and higher food prices spur farmers to increase plantings, boosting consumption of crop nutrients. World fertilizer demand is poised to rise 2.4 percent to a record in the 2013-14 season, the International Fertilizer Industry Association forecast in November.

Yara International

Yara International (Photo credit: Wikipedia)

Yara, which in December bought Bunge Ltd. operations in Brazil for $750 million, plans an 8 million metric ton increase in sales of its own and joint venture production between 2010 and 2016 from 24.5 million tons. The Oslo-based company’s growth plans include “significant” merger and acquisition activity, the company said in December.

“We are concentrating more on areas outside North America, due to the fact that North America is so difficult to buy something at an acceptable price,” Haslestad said.

Yara may buy the remaining stake in an Australian ammonia plant from U.S. energy producer Apache Corp (APA)., Haslestad said.

Quarterly Earnings

“Apache have signaled that they would like to sell their shares and we will be asked about it,” he said. Yara is “interested,” he said.

Yara posted net income of 2.17 billion kroner ($395 million) for the fourth quarter, down from 3.39 billion kroner a year earlier, it said in a statement today. That beat the 2.09 billion-krone average of 16 analyst estimates compiled by Bloomberg. Sales rose 6 percent to 20.9 billion kroner.

The stock closed 0.5 percent lower at 295.5 kroner in Oslo, having earlier gained as much as 1.3 percent, and giving Yara a market value of 85 billion kroner. More than 1.9 million shares changed hands, double the three-month average daily volume.

Yara, whose global fertilizer deliveries increased 19 percent in the fourth quarter from a year earlier, proposed a dividend of 13 kroner a share, compared with 7 kroner in 2011.

Proximity Play With Superior Potash And Water Resource Would Put Allana Potash Firmly In Yara’s Sights

Recent Supportive Analysis:

ScotiaBank Intra Day Flash Report Feb.20, 2013

Five Reasons We Think Yara Could Buy Allana Potash 

Event
We discuss five brief reasons why we think Yara could consider acquiring Allana Potash.

Inc. (AAA:T; not covered).
Implications

Yara is short up to 2.5M mt of potash annually.

Yara + Allana effectively share the same property.

Yara continues to show appetite for potash in Ethiopia.

Yara has capital to spend, while Allana needs a financial partner.

Yara has a solid distribution network already established in India.

Recommendation

We don’t cover the stock, have completed limited due diligence, and are therefore unable to give a formal opinion on Allana. However, we have tested Allana’s Feasibility Study assumptions and agree with its NPV math of $1.3B, or over $4.25/sh of long-term value.

The more time we spend assessing Allana’s project, including the real vs. perceived geopolitical risk of investing in Ethiopia, as well as on Yara’s potash needs, the more it seems to us that Yara ultimately operates what Allana has successfully developed to date. We are unaware as to whether Yara has ever spoken with Allana.

Five Brief Reasons We Think Yara Could Buy Allana Potash

Yara is short up to 2.5M mt of potash annually.
In fact, we believe this number could grow to 3M mt over time, as
Yara continues to focus its investment capital on NPK
blends. Yara made a partial hedge to its potash deficit by
taking a $40M position in IC Potash for a 30% off-take in
ICP’s SOP project, not for traditional potash (MOP) that
Yara requires. Allana intends to produce 1M mt, with a
potential increase to 2M+ mt once rail capacity is in place.

Yara + Allana effectively share the same property.
Exhibit 1 shows that Yara’s existing three potash properties
are either 100% within, or 75% surrounded by, Allana
Potash land. Note that Allana consolidated the Nova assets
in September 2012. In fact, if Yara plans to bring
infrastructure to its two concessions within Allana’s
property (especially water), some type of agreement or
partnership will likely be required.

Yara continues to show appetite for potash in Ethiopia.
Despite global potash demand turbulence, especially from
India, Yara increased its ownership interest in the project to
51% from less than 17% in April 2012. Sainik Potash, a
subsidiary of India’s Sainik Coal, is Yara’s minority partner.

Yara has capital to spend, while Allana needs a financial
partner. We don’t cover Allana, but we understand from
management that Allana has soft debt financing
commitments of $600M to $800M. Based on capex of
$795M, the equity component required to fund Allana’s
project could be in the $300M area. Yara’s Belle Plaine
nitrogen expansion in Canada is going to require $2B, and
its recent Bunge acquisition was $750M – so you can see
that a portion of the $300M of equity is more than “a drop in
the bucket” for Yara, but should not be a game changer.
$300M is about 10% of Yara’s annual EBITDA.

Yara has a solid distribution network already established
in India. In addition to Yara’s relationship with Sainik,
Yara distributes more complex NPK fertilizer to India than
any other producer. So, the distribution channels already
exist for a combined project – especially considering that the
final product is likely going to the same place. Also on the
table are economies of scale in mine-to-port transportation,
as well as in other logistics.

So what could Yara pay for Allana? We don’t cover the
stock, have completed limited due diligence, and are
therefore unable to give a formal opinion. However, we have
tested Allana’s Feasibility Study assumptions and agree with
its NPV math of $1.3B, or over $4.25/sh of long-term value.

Bottom line. The more time we spend assessing Allana’s
project, including the real vs. perceived geopolitical risk of
investing in Ethiopia, as well as on Yara’s potash needs, the
more it seems to us that Yara ultimately operates what
Allana has successfully developed to date. We are unaware
as to whether Yara has ever spoken with Allana.

Further Synergetic Evidence:

http://seekingalpha.com/instablog/485861-proactive-investor/571041-yara-s-ethiopia-deal-implies-strong-prospects-for-potash-companies-like-allana

http://transformingethiopia.wordpress.com/2012/10/02/yara-norwegian-company-takes-over-ethiopotash/#more-10134

http://www.legalera.in/news-deals/within-the-circle/item/6214-amarchand-acted-as-a-general-corporate-advisory-to-xlr-capital-cyprus-limited

http://www.capitalethiopia.com/index.php?option=com_content&view=article&id=1733:yara-takes-over-ethiopotash-&catid=54:news&Itemid=27

In Conclusion: Speculative Musings From Your Humble Scribe

As evidenced by analysis of the scant information we are able to collect on Ethiopotash BV indicates a takeover or JV of Allana Potash by Yara’s private subsidiary would be highly beneficial to Yara’s African aspirations and highly complimentary to their portfolio on various levels. In light of the fact Yara is targeting through solution mining SOP production of 1-1.5 mtpa from it’s current prospect within Allana Potash’s surrounding concessions, the current 2.5 mtpa MOP deficit Yara experiences will not be satisfied through their involvement in Ethiopia. Furthermore, Allana controls virtually all significant water resources west of their prospects through first uptake of west /east alluvial flows from the highlands, and the significant reservoirs lie directly under Allana ground, effectively limiting Ethiopotash’s productive capacity should any other partner or financing see fit to enable Allana Potash in their initial  1  mtpa MOP operation outlined in a Feb.4 2013 FS prepared by Ercosplan, which features an after tax IRR of 33%, $1.3 billion NPV, 3.1 year payback, and $4.25/share at production based on the sylvinite reserve alone, which represents a minority of total potentially recoverable resource, the vast majority of which remain  as yet not monetized in the carnallitite and kainitite mineralization. Work is ongoing with respect to dissolution and flotation testing regarding the inclusion to reserve status of these substantial resources, and the NPV of the subsequent resource inclusion will add exponential value when included, making a deal at this juncture a very favorable consideration highly accretive from Yara’s perspective one could surmise. Allana’s strong strategic partners in IFC and LMM, healthy $35 million cash position, and over $600 million of soft commitments on a world beating $642 million Capex, $98.75 Opex per tonne FOB Djibouti puts them on a firm footing in any case to keep the initial 2016 production schedule intact until the right partner is chosen. Meanwhile, development and inroads to the domestic market are ongoing as evidenced by the recent collaboration and commitments made in concert with the Ethiopian Agricultural Transformation Agency and Ministry of Agriculture.

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