It is hard to imagine building a mine in one of the hottest places in the world, but for Canadian exploration and development company Allana Potash, the desert-like conditions of the Afar region in north-eastern Ethiopia provide significant advantages for its $645-million potash project.

The year-round hot temperatures in Dallol, where the mercury hardly ever strays far from 34 ºC, and the region’s limited rainfall, will allow the Toronto-headquartered company to use a solar evaporation-based solution mining process for the Danakhil project, which will make it a low-cost operation with a low-impact environmental footprint.

Once operational, the one-million-tonne-a-year Danakhil project will catapult Allana into the ranks of a midsized producer with “some of the best project economics anywhere”, says CEO Farhard Abasov.

Last year, Allana released a positive feasibility study on its Danakhil project, which had put an after tax net asset value of $1.32-billion on the project, with an internal rate of return of 33%. The study estimated operational expendi- ture of $98.75/t of muriate of potash (MOP) delivered to the port.

Allana received a mining licence from the Ethiopian government in October, allowing it to proceed to contracting, construction and operations at its project. Abasov reports that it is actively pursuing debt and equity funding to advance the project. It is also in the process of selecting the main engineering project contractor and, should it complete its financing arrangements, it could break ground at Danakhil in the second or third quarter of 2014.

“First production will then occur approximately 16 to 18 months later, with ramp-up to full production expected by late 2016 or early 2017,” he says in an interview with Mining Weekly.

The company will process the salts harvested from the solar evaporation ponds to create a MOP product. At a later stage, it could also expand into producing sulphate of potash, but that will be subject to financing and feasibility studies. Abasov reports that there is sufficient water for Allana to use the proposed solar evaporation-based solution mining process.

Initially, the project will be powered by diesel generators, but the company is investigating the possibility of tapping into the country’s hydro-electric grid in the future. Road and rail transport networks are also under construction and Djibouti Ports is building the Tadioura potash terminal, from where Allana will export its potash.

“All necessary transportation infrastructure should be complete and ready by the time we start production and first shipments in 2015.”

Allana plans to fund the $645-million project with a combination of debt (60% to 65%) and equity (30% to 35%). It is working with a group of export credit agencies and development finance institutions for the debt portion and is in negotiations with several strategic offtake investors for the equity portion.

“It has certainly been a challenge for junior miners in general, and junior potash players in particular, to access the various financial markets over the last few years. However, it is a testament to the quality and superior economics of our project, as well as our dedicated staff and board of directors, that we have been able to progress our funding process this far over a relatively short period of time,” says Abasov.

Allana hopes to export the bulk of its production to key markets in India, China and the Pacific Rim, with the balance likely to service local markets in Ethiopia and the rest of East Africa.