BHP lights up the potash sector: Will juniors like Allana Potash benefit from the trend?
by Ubika Research on Aug 17, 2010
The major North American stock markets today opened on a high note buoyed by the news that Potash Corp. (TSX: POT) has received an unsolicited takeover bid from the world’s largest mining company BHP Billiton Ltd (NYSE: BHP). Potash Corp. shares surged 25 per cent after it said it had received a $130 per share or $38.6-billion (U.S.) offer from BHP Billiton Ltd. This bid was at a 25% premium to Potash Corp’s latest closing share price. Potash Corp labelled the offer grossly inadequate, rejected it and put in place a shareholder plan to prevent any shareholder from accumulating more than a 20-per-cent ownership stake.
This news has shaken the potash sector and already sent other fertilizer stocks higher. At the bell, CF Industries Holdings Inc. (NYSE: CF) rose 7.3 per cent and Agrium Inc. (TSX: AGU) rose 5 per cent.
Ubika Research views this development as very positive for the potash sector in general and for junior potash players such as Allana Potash Corp. (TSXV: AAA) and IC Potash Corp. (TSXV: ICP) in particular. In our research bulletin issued on February 1, 2010 available at http://www.smallcappower.com/microsite/allana_potash_corp_reports.html, we had specifically commented on the then purchase of Athabasca Potash by BHP Billiton for $341 million. We believe that BHP bought Athabasca due to the proximity of Athabasca property to its own properties. We had commented then that BHP’s strategy of going after its adjacent property bodes well for Allana as its properties are adjacent to BHP’s properties in Danakhil basin in Ethiopia. Allana’s potash property is located in the evaporite basin of the Danakhil Depression, Ethiopia, which holds significant potential. The region is attracting extensive interest lately from some major mining companies, including BHP Billiton and there is a potential for the development of a potash cluster in the region, which will benefit companies like Allana.
We believe that the demand for fertilizer is expected to continue its secular uptrend. This is bringing attention to potash deposits for large mining companies including BHP Billinton and Vale SA (NYSE:VALE) as these mining conglomerates scout for high quality potash assets worldwide. Today’s announcement only underscores Ubika Research's widely known view. We believe that as there are not many major potash producers and as the industry consolidates further, junior potash exploration companies with high potential asset and an ability to confirm sizable resource base will attract attention from potential suitors and a company like Allana Potash (TSXV:AAA) has the right characteristics in place to be a potential target.
We can’t help but notice that at the bell, both IC Potash Corp and Allana Potash Corp’s shares are up already by 10% on the news of these developments in the potash sector, which indicates that market participants are probably making similar assumptions about the potential related to junior potash exploration companies. We will keenly watch this story unfold in coming weeks and months and will update our visitors and readers of our research reports on these developments.

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