A constant 40 degrees Celsius, 120 meters below sea level; Allana Potash’s (T.AAA) Ethiopian project is a study in extremes. On October 9th the company announced that it had received its Mining Licence from the Ethiopian Ministry of Mines. As Farhad Abasov, Allana’s CEO explained from London, “this opens the door to construction”.
With a measured and indicated potash resource of 2,446 million tons, Allana’s prospects are deeply attractive. And with the grant of the licence, Allana can get on with the task of planning, financing and building its mine.
At the same time, Allana is expanding its resource with the October 28, 2013 announcement of drill results from its Nova license adjacent to the Allana property. Drill results indicate the extension of Sylvinite and Kainitite mineralization south and west of the original Allana license.
“We’re a small company” said Abasov, “We now have two years to build our team and secure a combination of debt and equity financing. The licence was a pre-condition to financing.”
It is a daunting project with significant infrastructure issues, “Five years ago there were no roads. But now the Government of Ethiopia has built access roads from scratch and there is work on the 500 kilometre road to the port at Djibouti.” said Abasov.
As the infrastructure is being built, the sheer size and location of the potash deposit has led to a number of parties expressing interest in off-take agreements. And Abasov is quick to point out that Allana has enjoyed “Strong support from our shareholders and our lenders.”
The Danakil Depression in Ethiopia’s northeast is, as Abasov puts it, “Not a great place to live but a great place to mine. There is almost no population and virtually no flora or fauna.”
The major technical risk was whether there would be sufficient water for the proposed solution mining, solar evaporation cycle Allana plans to use to extract the potash. “We drilled over twenty wells all of which had water. We also undertook a full hydrological study. We knew there were aquifers but the question was how big.”
Big enough it appears. The hydrologists identified four large aquifers with a total capacity of 160 million cubic meters and an annual recharge rate of 35-50 million cubic meters.
“At full production Allana will need roughly 20 million cubic meters annually.” said Abasov. Which means that the water resource should be more than sufficient.
With solution mining and solar evaporation, power requirements for the project are minimal. However the Ethiopian national power grid is 124 kilometers away so Allana has had to look at alternatives. “We’ve looked at various power options,” said Abasov “A combination of solar and fuel oil may not be cheaper but it is better for the CAPEX. And we can start immediately.”
With the Mining Licence in place, the path to production looks to be about two and a half years. October 17, Allana provided an update on its progress which outlined the progress to date and provided a roadmap for the next steps.
What the press releases do not discuss is the unique positioning of Allana’s Ethiopian deposit. With the world’s potash markets in some turmoil, having a few years to come into production is not such a bad thing. However, discussing the potash market with Abasov, another major factor comes to the fore.
Africa is at the beginning of an agricultural revolution. A revolution which is seeing modern farming methods brought to bear on millions of acres of land. At the moment, potash use in Africa is a tiny fraction of its use in more modern farming economies. Abasov is quick to point out that, in the world potash market, Africa barely matters. A fact which will change and change quickly.
One of the critical features of Allana’s Ethiopian project is that Allana is well on the way to securing a facilities agreement with Djibouti Ports. Combined with other required infrastructure, this will give Allana a potash terminal on the east coast of Africa relatively close to India, China and, of course the growing farm economies of Africa itself.
Allana, at time of writing has cash on hand of over 20 million dollars and the shares are trading at $0.38 for a market capitalization of 105 million dollars.