Some info...
Allana Potash Corp.
March 2013 issue
by Kasia Patel
Canadian exploration and development company Allana Potash Corp. (Allana) focuses on the acquisition and development of potash assets, with a flagship project underway at the Dallol potash site in the Danakil depression, Ethiopia
As Ethiopia’s potential as a source of industrial minerals is beginning to be realised (see IM February 2013, p13), a growing number of exploration and mining projects are underway amid rapidly increasing foreign investment. Potash has become the focus of much of the attention in Ethiopia’s industrial minerals sector, with 18 exploration projects in progress, and one of the most advanced is Allana’s project.
The company released the results of its feasibility study (FS) for the Danakhil Potash Project in February, which confirmed an after-tax net present value of $1.32bn for the venture.
“What we’ve essentially accomplished is the de-risking of the project in terms of resource - in terms of the Opex and Capex costs, we’ve now got them settled down at an area that we’ve very confident that this project is going to be financed and get off the ground,” Richard Kelertas, Allana senior vice president corporate development, told IM.
The FS took into account a lower potash price forecast of $430/tonne, and was based on commercial production of 1m tpa muriate of potash (MOP) for an estimated operating life of 25 years.
“Even with current potash market realities driving the lower potash price forecast of $430/tonne in the FS, the favourable total production Capex of about $579m and port and transport Capex of $63m, make this project one of the lowest-cost and potentially highest-return greenfield potash projects worldwide,” Farhad Abasov, Allana CEO, said.
The project will need over $640m, covering $579m for production costs, $29m for transportation costs and $34m for port facilities in Djibouti.
Production costs for Danakhil will include expenditures associated with cavern development, solar evaporation ponds, brine processing and infrastructure.
“We’ve done a lot more work on process - the solution mining process, which is technically on the surface; once you get underground it becomes more complicated. We have done all the pilot testing, and have determined that from a commercial standpoint, we can produce 1m tpa at a certain cost, and at a certain quality,” Kelertas told IM.
Kelertas added that the company hopes financing will be completed this year.
“All [this work] will bring us to financing this year. We hope to have everything on the debt side this year by the end of June, and the equity around the same time,” he said.
“The project will need over $630m and 15% contingency, so we’ve covered what we need for overrun. In terms of sustaining Capex during operations, what we need is estimated at $23-24m/year as we get things geared up to 1m tpa.”
“ In early autumn [we] hope to break ground, and construction will take a full year to get all the ponds and caverns up and running. So we hope to be able to start our first production by the beginning of 2015, and ramp up to full production by the end of 2017,” he added.
The company also has a potash deposit in Argentina. Exploration is, so far, at a very early stage.
“We have applied for licences, but we haven’t done anything with them. We’ve done very perfunctory work on them, but we’re concentrating on Ethiopia because that’s our flagship project right now,” Kelertas said.
Kelertas told IM that Allana’s plan is to wait until its Ethiopian project is in production before it decides whether to go forward with the project, sell it, or modify it.
Supplying Asia and Africa
Allana is well suited to target the Asian market, due to the deposit’s strategic location, Kelertas told IM.
“We’re very close to Djibouti, which is is only 600 km away, so we’d be targeting India, China and Indonesia, but we also have an excellent opportunity to supply the African market,” he said.
Allana signed a memorandum of understanding (MOU) with the Ethiopian Agricultural Transformation Agency (ATA) in February 2013 to promote the use of potash fertiliser as a soil nutrient in Ethiopia to prevent native soil fertility issues in the future.
Traditional Ethiopian farming methods utilise only two fertilisers to supplement soil nutrient content - diammonium phosphate (DAP) and urea - neglecting potash fertiliser application. This is a situation Kelertas attributes to both a lack of potash supply and a lack of education about good soil practices.
“The African market is underserviced by the potash market right now. So we’ve signed a memorandum of understanding to demonstrate the use of potash in Ethiopian agriculture. But, of course, that will probably spread within eastern Africa where they’re not using potash as well,” he added.
Africa is anticipated to become a major agricultural power house with investment from the Middle East, from China and Russia, he said.
“The whole continent of Africa today consumes about 800,000 tonnes potash a year when they should be applying close to 4-5m tonnes to bring crop yields up to standard in terms of health and yield,” he added.
“There’s no doubt in my mind that that 800,000 tonnes can increase up to 8m tonnes in 10 to 12 years if intensive farming and this education programme is going to be widespread in Africa,” he said.
Demanding a different diet
Kerletas told IM that Allana is not overly concerned about a potential potash oversupply as the company remains confident in its own resource.
“We’re at the right size for 1m tonnes and a lowest cost/tonne, lowest cost of establishment/tonne, and I think that when you see our two strategic partners - Liberty Metals and Mining and the International Finance Corp., part of the World Bank Group - we’ve already made a lot of headway,” Kelertas added.
He believes that potash demand will grow in part due to recent crop failures caused by climate change.
“Yields have to rise, and plant health has to improve because the rest of the world is going through climate change and will not be able to deliver the kind of yields that they have had in the past,” he told IM.
Although climate change is an accentuating driver behind potash demand, Kelertas believes the main stimulus for demand during the next few years will be population growth.
“There is a demand for not only more food, more calorie intake per capita, but also for more meat, fish, poultry and so forth, which requires a tremendous amount of feed,” he said.
“That will fluctuate as prices fluctuate, yet at the same time, overall numbers are growing at such a rate that even if we take into account bodies on the planet that need to be fed, and take away the middle class movement, I believe demand for food and fertiliser is still going to grow anywhere between 3-4% a year,” he added.
*Accounts for losses in the caverns as well as in pillar material between caverns.