Allana closes in on Ethiopian potash development 

Toronto-based junior Allana Potash (AAA-T) is viewing 2013 as a pivotal year for its wholly-owned Dallol potash project in Ethiopia's northeastern Danakil Depression, and with the filing of a final mining application in late April the company is certainly off to a good start.

Allana announced on Apr. 18 that it had filed its feasibility study on Dallol with the Ministry of Mines in Ethiopia, which fulfilled the last condition necessary for the company to receive its mining license. In addition, Allana is reaching the final approval stages on its environmental assessment report, which could see the company pass all of its permitting milestones later this year.

"[This] is the final document required to upgrade [our] exploration license to a mining license and represents a significant [step]," commented president and CEO Farhad Abasov. "The [environmental] evaluation is approaching completion and we are expecting a positive decision from the government by the end of April. [Our study] places this project as one of the lowest [capital] opportunities in the potash sector."

Allana released the results of its final feasibility study on Dallol in mid-February. The model outlined an operation that would produce roughly one million tonnes of a standard grade muriate of potash (MOP) annually over a 25 year mine life at a total cash cost of US$98.75 per tonne. Mining would involve solution-based extraction, with Ethiopia's dry climate allowing Allana to utilize solar evaporation ponds.

Assumptions were based on sylvinite reserves totalling 33 million proven tonnes grading 28% potassium chloride (KCl) and 61 million probable tonnes grading 29% KCl, which equates to roughly 23.7 million contained tonnes of MOP. The project holds an additional 212 million indicated tonnes grading 28.6% KCl, as well as 115 million measured tonnes averaging 28.6% KCl.

Total capital expenditures (CAPEX) at Dallol are pegged at roughly US$642 million, which includes US$579 million in mining and processing facilities along with US$63 million in port and logistical infrastructure. Assuming a potash price of US$430 per tonne Dallol would pay itself back in three years and carry a US$1.31 billion after-tax net present value and 33% internal rate of return at a 10% discount rate.

"Even with current potash market realities driving the lower potash price forecast, the favourable total [economics], make this project one of the lowest cost and potentially highest return greenfield potash projects worldwide," Abasov commented. "Similarly, the very competitive production [cost] is one of the lowest among greenfield potash projects currently under development."

The company reports "significant progress" in regards to debt financing, including letters of interest from several financial institutions including US$600 million in developmental loans. Infrastructure construction is already underway at the site, with road, rail and port facility upgrades on target for completion before mine production commences in early 2016.

Allana signed a memorandum of understanding with the Ethiopian Agricultural Transformation Agency in mid-February to promote potash use in the country's farming sector.

The initiative is aimed at Ethiopia's smallholder farm communities in a bid to aid them in realizing the full production and profit potential from their farming lands. Allana is joining up to demonstrate, through a series of systematic local balanced fertilizer field trails, the important role of potash fertilizer to farmers, in blends or as straight fertilizers. Ethiopia also intends to develop a series of local fertilizer blending plants, which will make an expanded range of soil nutrients available to farmers in field-level quantities, customized to their specific soil types, crops, and agro-ecologies.

"A strong agricultural economy is a critical step in creating a robust national economy, one that [we] considers vital to its future," Abasov stated. "The Government of Ethiopia has provided support and encouragement to the company during its developmental phase and, so, it is in this light that Allana happily partners with the [agency]."

Allana remains well funded with $28.5 million in cash on-hand at the end of January, which the company reports will see it through to its construction phase slated to start at the end of 2013. Allana has traded within a 52-week range of 35¢ and 74¢ per share, and closed at 36.5¢ at the time of writing with 276 million shares outstanding for a $103.5 million press-time market capitalization.