The decision by Norwegian fertiliser group Yara International last week to up its stake in Ethiopian potash company Ethiopotash BV to 51% from 16.67% is being perceived by companies such as exploration group Allana Potash as a positive indicator for the potash sector as a whole.
Allana, a junior focusing on developing potash mineral properties in Ethiopia and Argentina, is developing its Dallol resource in the Danakil Depression of Ethiopia, directly adjacent to Ethiopotash’s prospect.
The potash mineralisation in the Danakil Depression is well known, with small-scale potash mining having been carried out there intermittently since the early 1900s.
“Estimated capacity for the Dallol project is between 1-million tons a year and 1.5-million tons a year, with resources of more than 30 years of mining,” a Yara spokesperson said in a statement last week.
Yara’s move to increase its stake in the area is being seen by Allana as an indica- tion that Ethiopia’s Danakil basin will develop into a significant source of potash, with the company strategically positioned to benefit.
Earlier this month, Allana announced a boost in mineral resource estimates at its Dallol project, increasing measured and indicated resources by more than 90% and confirming the measured and indicated mineral resource estimate at 1.3-billion tons with an average grade of 19.32% potassium chloride (KCl), which represents around 250-million tons of KCl.
Exploration drilling continues in the northern part of Allana’s property as part of its programme to expand the mineral resources and in-fill gaps in the drilling pattern, with technical studies in support of a feasibility study also in progress.
In November, the company announced the results of the preliminary economic assessment for its Dallol potash project which yielded, on an after-tax basis, an internal rate of return of 36.8% and a net present value of $1.85-billion, based on a 12% discount rate.
The results exceeded management’s expectations, with the project having “one of the lowest capital expenditure and ope- rational expenditure in the world” in the potash industry, especially when compared with players in Saskatchewan, Canada.
As for the industry as a whole, the head of the world’s biggest potash supplier believes that, after an unsteady start to 2012, there is reason to believe the market is picking up.
Last week, PotashCorp CEO Bill Doyle predicted that global potash consumption would hit a record in 2012, with shipments of between 53-million tons and 56-million tons, implying a huge rebound after a weak first quarter.
Meanwhile, Allana has secured financial backing from two significant strategic investors; the World Bank’s private sector investment arm, the International Finance Corporation, and Liberty Metals & Mining Holdings, a subsidiary of Liberty Mutual Group.
Analysts believe that Allana’s presence in Ethiopia gives it access to funding from sources to which other resource companies may not have access.