Monday 1st June 2020

Resource Clips

Allana increases Ethiopia Dallol Potash Resource Estimate

Resource Clips - essential news on junior gold mining and junior silver miningAllana Potash Corp TSX:AAA announced an updated NI 43-101 mineral resource estimate for its Dallol Potash Project in the Danakil Depression, northeast Ethiopia. The project now has measured and indicated resources of 1.29 billion tonnes at an average grade of 19.32% KCI (potassium chloride), representing approximately 250 million tonnes of contained KCI. The project has inferred resources of 588.15 million tonnes grading 18.56% KCI, representing approximately 109.2 million tonnes KCI.

Senior VP Strategic Projects Jack Scott tells, “The region has been known as a potential potash production area since the early 1900s. The Italians first started developing it then, and over the years it’s been off and on. In the 1950s and 1960s the Ralph M Parsons Company did extensive exploration and brought some production into operation to serve the North American market at the same time as the Saskatchewan Basin came into extensive production. Parsons sort of packed up at that point—in the late 1960s—and various people have looked at it off and on. Ethiopia and that region has been stable for the last 15 years or so, so in the mid-2000s a number of companies went in to start development in the region.

We’re looking for strategic off-takers. That’s part of the work program through the summer this year. We’re in discussion with a number of players—Jack Scott

“Allana has been working in the region since 2008 on the option properties there and we’ve fulfilled the options and now the license is consolidated under our company. We began exploration in early 2010 after raising our first substantial amount of capital in the markets. We began a drilling program and came through with a first resource estimate in June of last year. We’ve continued drilling, both infill drilling and step-out drilling to confirm the resource and more so to move it from inferred to the indicated category. In the back half of 2011, we started a feasibility study. Basically, we knew the resource was good enough and shallow enough so rather than doing the prefeasibility we went straight to full feasibility and that’s ongoing right now.”

Scott notes that the new estimate represents a 90% increase to the measured and indicated resource, “And an overall expansion of the total resource as well. We want to move as much as possible into measured and indicated, so as we go through the feasibility study we can roll that into potential reserves. Our exploration has been predominantly in the shallow, western region of the property.

“We know that potash extends across the basin. We did seismic work early in our exploration just to get a profile of the basin, and we’ve done some drilling from the eastern to the western edge. The centre part of the basin is a bit deeper, so we know there is potash there, but that’s for later production. We’ll focus on the shallow regions—where, with this new resource estimate, we’ve proven we have a long-term resource—so that when the feasibility study comes out we’ll have an appreciation of the economics.

“Right now our timeline is focused on continuing the feasibility study and some pilot work. Pilot solution wells, pilot evaporation ponds—pre-production analysis due for completion at the end of this year. So the feasibility study, including all that pilot work, is due for completion at the end of this calendar year. We’re doing our environmental and social impact assessment work in concert with one of our major shareholders, the International Finance Corporation, and that’s proceeding and due for completion at the end of this year as well. In parallel with all that work, we’re working through BNP Paribas, our financial advisor, to bring our lenders along through that technical and environmental and social evaluation process so we’re ready to work towards an accelerated close on the project at the end of this year.”

Allana intends to take the Dallol Project to production. Scott adds, “We’re looking for strategic off-takers. That’s part of the work program through the summer this year. We’re in discussion with a number of players, people that bring access to market demand for potash. Those are our targets for strategic partners. People that, perhaps, can bring some operating expertise as well.

“Ethiopia is very stable and has been stable for quite a number of years,” he continues. “They’ve been focused since the early 1990s on creating and refining a well-understood, stable, legal and regulatory infrastructure for mine development. So the mining laws are well defined, and we know the financial implications of all of our developments [in terms of] royalty, tax, duty and customs access. All of those elements are clearly defined. From the perspective of infrastructure, the country sees this potash region as being strategic. They’ve been very progressive in terms of building infrastructure. When we first started our exploration the government built gravel access roads of very high quality so we could get truck access. They are now in the midst of upgrading the road infrastructure to paved highways sufficient for our production plans. That is ongoing and due for completion, likely in the middle to end of next year.”

Allana has raised approximately $75 million over the last two years. “We’ve got somewhere north of $60 million in the bank still, and we’ll need about half of that to complete all of our feasibility, environmental, pre-financial close work. So we’ll have some capital available to ramp up into construction, to fund deposits on long-lead equipments, to scale up some of our pilot work into pre-production, then move—on financial close—into the full construction process.

“We had a preliminary economic assessment done by our technical consultants back in November of last year that put a valuation on the project north of $1.5 billion dollars. Right now, our shares are trading at basically twice cash-value; we have a market cap of somewhere around $150 million with $60-plus million in the bank. So we’re getting a valuation on the project now somewhere around $90 million to $100 million when the thing is worth 10 times that.

“There is a high demand for potash. It’s the underused element of fertilizer applications. It’s critical for some of the larger cash-crops in the world. If you look at the growth in India and China and Southeast Asia—markets that our resource is close to geographically—the demand is increasing. You’ve got three major elements of fertilizer: nitrogen, phosphorous and potassium. The potassium element is growing at a bit faster rate than the other two because it has been traditionally underapplied in balance with the other two elements.”

Scott concludes, “The resource has been well-defined now. And with this most recent resource estimate, we clearly have something of extent and depth from a duration perspective. I think it validates that whole region as a very good global-potash asset. From our perspective, we’ve managed to move the technical side of things, now looking at the development of our production processes. We’ve been very successful in terms of securing infrastructure—port and road and looking now to accelerate the development of Ethiopian rail in support of the project. So I think, all in all, we see this as being a well-advanced project in a strategic part of the world, serving some strategic markets which are in very close proximity.”

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Farhad Abasov

by Ted Niles

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