Allana Feasibility Study: One of best Greenfield Potash Plays in the World
Allana Potash (TSX: AAA) has issued an independent Feasibility Study (FS) for its Dallol project in Ethiopia’s Danakhil region, having reserves of over 1.3 billion tons of potash and capable of producing 1 million tons/year at an average grade of 19.32% potassium chloride (KCl). The FS and the context in which the Project is proceeding make Allana one of the most promising greenfield potash projects in the world. Allana’s Dallol project can be summarized as offering three general advantages:
- Allana has one of the lowest CAPEX and OPEX costs of any greenfield potash project
- Allana has some of the best economies of any of the emerging junior potash plays.
- Allana is operating in what might be one of the most advantageous mining jurisdictions in the world and certainly the best in Africa.
At USD 579 million, and port and transportation investments of USD 63 million, Allana has one of the lowest capital expenditures (CAPEX) costs of any new potash project (if not the lowest). It also has some of the lowest operating expenditures both in Production: USD 69.25/ton and FOB vessel transportation: USD 29.50/ton for a total production OPEX of USD 98.75/ton based on an annual production of 1 million tons/year of muriate of potash (MOP). While potash prices have not kept up with the record highs seen in 2008-2009, the recent Uralkali contract with India, whose government has decided not to subsidize potash, at USD 427/ton, suggests that the price floor for the foreseeable future will be above USD 400/ton. Recently, Germany’s Potash producer, K+S suggested that potash was still being sold at some USD 465/ton in smaller Asian markets such as Indonesia (where potash demand is increasing) which buy lower volumes than India or China (the largest potash importers).
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Project financing should be completed by mid-2013 in order to begin construction by the fall (or late) of 2013. 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. Today’s water announcement validates the ambitious production targets and schedule, bringing both further within reach.
Allana, set to become one of the first to market and largest potash producers in Africa, said has targeted initial production at Dallol to be about 1 million metric tons of MOP per year starting in late 2014 or early 2015 then reaching peak levels (full production) approximately a year to 16 months after later. The Dallol deposit has a strong record of historical exploration and features an extensive sylvinite mineralization at very shallow levels. The confirmed and plentiful availability of water confirms that the Dallol project is proceeding on schedule. The fact that the water resources that are both environmentally and commercially sustainable marks an important milestone in Allana’s timetable 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.
Allana has benefited from Ethiopian pro-investment policies, which have enabled the country to record one of the highest economic growth rates in the world (10%, expected to continue until 2015). In 2011/12, the agriculture sector grew by 4.9 %. Ethiopia has invested in infrastructure, promoting industry and doubling agricultural production. One of the most significant infrastructure improvements is the ‘Grand Renaissance’ power station, which upon completion, will generate 6,000 MW and will be the largest hydropower project in Africa, accounting for a fourfold increase in Ethiopia’s power generation capacity. The country is facing a growing demand for electricity close to 10 per cent per annum. With a production of hydropower potential estimated at 35,000 MW, Ethiopia aims to become a key player in energy production for the Africa itself.
The International Monetary Fund has included Ethiopia as one of the fastest growing economies in sub-Saharan Africa thanks to the valuable mining resources, such as potash, that it can produce. Agriculture has experienced a major revival in Africa, vastly increasing potash demand in the Continent. Nigeria, for instance, once solely preoccupied with oil production, has embarked on a vast scale agricultural expansion program, investing heavily in improving soil yields and studying ways to increase productivity. Moreover, the Ethiopian ‘Metal and Engineering Corporation’ (METEC), a government engineering company, is in advanced stages of completing eight fertilizer producing factories, five of which will be producing Diammonium Phosphate DAP and three for Urea and Ethiopia is targeting reaching production stage by the 2013/14 cropping season.
Ethiopia’s own agricultural output has been increasing steadily and farmers harvested some 21.8 million tons of crops in 2012 – an increase over the 20.5 million tons of 2011, including maize, sorghum, wheat and oil seeds. Current productivity levels are below the international standards under which a country can claim food self sufficiency; however, Ethiopia is aiming to reach that target (250 kilos of crops per year per person). Agriculture is still the largest sector of the Ethiopian economy and fertilizer consumption is increasing, meaning that Allana will have direct access to this growing domestic market.