Allana closes in on Ethiopian potash development

VANCOUVER — Toronto-based junior Allana Potash (AAA-T) sees 2013 as a pivotal year for its wholly owned Dallol potash project in Ethiopia’s northeastern Danakil Depression, and since filing its last mining application in late April, the company is forging ahead.

Allana announced on April 18 that it had filed its feasibility study on Dallol with the Ministry of Mines in Ethiopia, which fulfilled the last condition necessary for the company to receive its mining licence. Allana is also reaching the final approval stages on its environmental assessment report, which could see the company pass all of its permitting milestones later this year.

“This is the final document required to upgrade our exploration licence to a mining licence, and it represents a significant step,” president and CEO Farhad Abasov says. “The [environmental] evaluation is approaching completion, and we are expecting a positive decision from the government by the end of April. Our study places this project as one of the lowest [capital] opportunities in the potash sector.”

Allana released the results of its final feasibility study on Dallol in mid-February. The model outlined an operation that would produce 1 million tonnes of a standard-grade muriate of potash (MOP) annually over a 25-year mine life at a total cash cost of US$98.75 per tonne. Mining would involve solution-based extraction, and because of Ethiopia’s dry climate, Allana can use solar evaporation ponds.

Assumptions were based on sylvinite reserves totalling 33 million proven tonnes grading 28% potassium chloride (KCl) and 61 million probable tonnes grading 29% KCl, which equates to roughly 23.7 million contained MOP tonnes. The project holds another 212 million indicated tonnes grading 28.6% KCl, as well as 115 million measured tonnes averaging 28.6% KCl.

Total capital expenditures at Dallol are pegged at US$642 million, which includes US$579 million in mining and processing facilities, along with US$63 million in port and logistical infrastructure. Assuming a potash price of US$430 per tonne, Dallol would pay itself back in three years and carry a US$1.3-billion after-tax net present value and 33% internal rate of return at a 10% discount rate.

“Even with current potash market realities driving the lower potash price forecast, the favourable total [economics], make this project one of the lowest-cost and potentially highest-return greenfield potash projects worldwide,” Abasov says. “Similarly, the competitive production [cost] is one of the lowest among greenfield potash projects currently under development.”

The company reports “significant progress” in debt financing, letters of interest from several financial institutions and US$600 million in developmental loans. Infrastructure construction is already underway at the site, with road, rail and port facility upgrades on target for completion before mine production begins in early 2016.

Allana signed a memorandum of understanding with the Ethiopian Agricultural Transformation Agency (ATA) in mid-February to promote using potash in the country’s farming sector.

The initiative is aimed at Ethiopia’s smallholder farm communities in a bid to help realize full production and profit potential from the farming lands. Allana and ATA will demonstrate — through local, balanced-fertilizer field trials — the important role of potash fertilizer to farmers, in blends or as straight fertilizers. Ethiopia also intends to develop local fertilizer blending plants, which will make soil nutrients available to farmers in field-level quantities, customized to their soil types, crops and agro-ecologies.

“A strong agricultural economy is a critical step in creating a robust national economy, one that we consider vital to its future,” Abasov says. “The government of Ethiopia has provided support and encouragement to the company during its developmental phase, and so it is in this light that Allana happily partners with the [agency].”

Allana remains well funded with $28.5 million in cash-on-hand at the end of January, which the company reports will see it through its construction phase at year-end. Allana has traded within a 52-week range of 35¢ to 74¢ per share, and closed at 36.5¢ with 276 million shares outstanding, for a $103.5-million press-time market capitalization.