Allana Potash announces additional Water Resources from Nova Acquisition

Watercan EthiopiaOn December 11, Allana revealed the results of the drill holes from the Nova property, noting that the Nova acquisition has increased the potential to extend mineral resources beyond the core Allana license area. In November, Allana Potash Corp (‘Allana’, TSX: AAA) announced that it has acquired Nova Potash, which owned potash exploration license for a property adjacent to Allana’s Dallol Project in the Danakhil Depression, about 600 kilometers from capital Addis Ababa.

The former Nova exploration area uncovered a similar geology to drill holes from the original Allana property, showing 33.7% potassium chloride (KCl) content in the sylvinite zone. More significantly, however, is the fact that the Nova drill holes were all found to contain water; sufficient water to produce some three million tons of potash. The Nova property also has more holes to be explored near alluvial sands, which offers an additional guarantee for future water supply needs. The water supply, particularly in view of the fact that Allana will be using a solution mining approach to produce potash, has offered the Company a veritable strategic asset. Allana’s Dallol project will use solution mining and the test well, using water from a well located about five kilometers away in the western alluvial fan area, has been operational since last September.

The preliminary pump tests have already shown an average 70 cubic meter flow rate, sometimes reaching 150 cubic meters, confirming the presence of a fresh water aquifer in the alluvial fans along the western boundary of the Allana license area. One of the main advantages of the Dallol resource and most of the potash available in the Danakil region (which extends into Eritrea with similar mineralization) is that there is an extensive sylvinite mineralization at very shallow levels. Allana will continue to focus the development of the shallow region, though it has already drilled in the deeper areas to establish the presence of potash there as well.

Subscribe here to receive free daily InvestorIntel updates

Allana is “controlling most of the water” and the Company enjoys Preferential Status in Ethiopia as the potash producer of choice. Allana has emerged as a leader as it has absorbed some of the competition in the form of Nova; however, other projects in the Danakhil are finding it ever more difficult to compete. Ethiopian Potash has essentially been forced to stop activities due to financial difficulties. Across the border in Eritrea, though still geologically and geographically in the Danakhil plain, the South Boulder project is incurring ever more potential for nationalization as the Government in Asmara has raised its stake in the Project to 50% ownership, raising the risk that it could move toward full control, when and if production begins, leaving investors cold. Moreover, Yara International, one of the world’s largest mineral fertilizer producers, will likely have to enter some kind of deal with Allana, given that they are rumored to be planning production of Sulfate of Potash (SOP: so is Allana at a later stage in the project) rather than Muriate of Potash (MOP); SOP requires a far higher amount of water to produce and for the time being, Allana has a commanding lead in water resources.

Allana’s timetable will become rather dense as it edges ever closer to the production stage. Allana expects to present a bankable Feasibility Study next January and by the end of next summer the shovels should hit the ground, leading to the first ton of potash to be produced before the end of 2014 – if all technical aspects proceed according to plan. Initial production of about 1 million tons per year is expected to start in 2015 (or by the end of 2014), reaching peak levels (full production) approximately a year to 16 months later. Allana also has the potential to raise capacity to two or three million tons a year (MOP) and in addition have the ability to produce SOP.

The data from the former Nova drill holes will be included in Allana’s data for the preparation of the updated 43-101 mineral resource estimate to be issued alongside the Feasibility Study, which will also present an optimization and the Environmental, Social, and Health Impact Assessment (“ESHIA”) study by Environmental Resources Management (“ERM”) before submission for governmental approval.

As for financing, offtake agreements are in the works while Liberty Mines and Metals and the IFC have indicated a strong interest in participating in the project until completion. In short, a consortium of bank lenders has provided ‘soft’ commitments for USD$ 650 million for the project debt requirement. Thanks to commitments on the equity side by Liberty Metals & Mining Holdings (a wholly owned subsidiary of Liberty Mutual Group from Boston) and the International Finance Corporation (IFC, a member of the World Bank group), the Company should have little difficulty in raising the total project funds (USD 800 million). Allana will ship its potash through the Republic of Djibouti, where a new port is being built in Tadjoura.

Allana will have its own terminal with unloading and storage facilities at the new port. 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. The expansion of the Port of Tadjoura in Djibouti is being supported financially by the Arab Fund for Development and the Saudi Development Fund, providing about USD$ 100 million toward its completion and saving Allana 90% of that. The port includes new storage, logistical and port depth improvements such as to allow for the entry of larger ships (50,000 to 60,000 ton category). A combination of growing demand for food and mineral soil nutrients, especially in Africa, and increased political stability in Ethiopia over the past decade have helped to boost interest in the country’s strong potential for potash production. Allana is well poised to take advantage of projected continued high demand for fertilizer as farmers, especially in developing countries, want to take advantage of higher crop prices and as they adopt more advanced agricultural techniques, requiring the use of potash based fertilizers.


Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>