A Conversation with Richard Kelertas on the Allana Potash Project in Ethiopia

Allana Potash (TSX: AAA) is one of the emerging Potash players with the greatest potential. The project is based in Africa, a continent, which we have already identified as the next potash frontier. Ethiopia has one of the best business environments in Africa and its recent political transition, one of the smoothest in African history, suggests the country will enjoy continued political stability until the next election in 2015. Over the past decade the Ethiopian government has adopted policies to attract foreign investment such that the country has recorded one of the highest economic growth rates in the world (11%, expected to continue until 2014). In 2010, Ethiopia adopted new laws for the mining sector, exempting companies from custom duties and accelerated depreciation among other incentives. The new prime minister, who was confirmed officially on September 16, Hailemariam Desalegn, represents a new kind of African leader. He was very close to his predecessor, Meles Zenawi, who led the struggle against the military junta in the 1980’s and early 90’s, and has emerged as an efficient technocrat with a string belief in a practical and market approach in the pursuit of his country’s development.

Moreover, Ethiopia’s capital, Addis Abeba, says Richard Kelertas, Allana’s Head of Corporate Development, “has more construction cranes than Toronto”. The city is home to the new African Union headquarters, in Africa’s tallest building, testifying to the country’s international outlook and positioning as one of the leading powers in East Africa.

Mr. Kelertas was an analyst at Dundee Capital Markets and one of the first to notice the value of Allana’s potash project in Ethiopia. He was so enthusiastic that, to paraphrase an old commercial from the 1980’s, “he joined the Company”. Mr. Kelertas spoke to us about the unique promise of the project, which is based in the Dallol region of the Danakil desert, characterized by lava, salt, geysers, dust and geothermal phenomena because of the presence of volcanoes and re-ancient re-emerged marine environments, which conceal a vast potash deposit in their surroundings.  In the early 1900’s, when Ethiopia was partly under Italian rule, the colonizers, in fact two brothers, Adriano and Tullio Pastori, discovered a very rich potash resource. At that time, most of the world’s potassium was produced in the German province of Prussia and its use, was more military (the production of munitions) than agricultural. Kelertas has good reason to be enthusiastic about the Allana project. Potash is the most widely used, or universal, of mineral fertilizers and it helps in improving soil productivity and plants’ resistance to disease. The price of potash has been rising (its price is now hovering around USD$ 600/ton) and there has been a veritable potash race around the world to find and develop new resources. This is because consumers in China and India are changing their food consumption patterns, adding more carbohydrates and meat to their diet, requiring more productive soils. The reduction of arable land worldwide suggests that potash, despite the various market fluctuations, should continue to prop up prices of this valuable commodity.

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An American mining company pursued the initial Italian efforts after the Second World War, only to be interrupted by a series of political problems and shifting alliances in the context of the Cold War and the coming on line of potash from Saskatchewan. These tensions are part of history now, and Ethiopia is a very different country than it was in the 1970’s and 80’s. The potash resource itself is at shallow depths, not 100 meters from the surface in one of the deepest land depressions on Earth. Allana’s geologists have now uncovered a deposit, exceeding all expectations with its estimated 1.3 billion ton capacity at an average grade of 19.32% KCl (potassium chloride). Kelertas noted that one of Allana’s advantages is that its project would be among the most economical, if not ‘the most economical’, potash projects in the world with a number of potential alliances and offtake agreements with major world players in the fertilizer industry such as Yara International. Unlike other competitors, developing potash in the Danakil region (both within and beyond the Ethiopian border), Allana has already resolved its water rights and supply situation, a crucial factor considering that the project intends to use a solution mining technique for development of the resource.  Finally, I asked Kelertas about Allana’s plans to contribute to the community and its overall sustainability strategy. This is no superficial matter for the benefit of public relations. Sustainability is important for the long term success of the business. Allana will offer free clinics, education for families of the workers, establish a technical mining school, aiming to raise the local people’s technical expertise.

Allana has announced the discovery of high sylvinite (potash ore) mineralization in 60 holes around the Musley deposit at Dallol and thanks to the validity of its project and its sustainability aspects, the Company has managed to secure interest from private lenders and international institutions such as the African Development Bank and the International Finance Corporation (IFC, a member of the World Bank group), which exceeds the company’s initial debt financing projections. Allana should conclude the project debt financing for the project by late 2012 in order to begin construction in 2013. Initial production of about 1 million tons is expected to start in 2015, reaching peak levels in 2017.  Allana will ship its potash through the tiny Republic of Djibouti, where a new port is being built in Tadjoura and where Allana will have its own terminal with unloading and storage facilities. The potash will be delivered to the port by truck along a new highway linking the Dallol project with the port, which is already under construction.

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  1. Excellent piece Alessandro, and to further add a last point, logistically they will have the shortest route of potash suppliers to key markets in Asia, including India, where future demand predictions continue to rise

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