Allana Potash focuses on Ethiopia to meet changing demands
The take-or-pay offtake is unique for ICL and the industry as a whole.
In a traditional offtake agreement, a company will commit to taking a certain amount of production at a discounted price. If the product cannot be sold, the producer is responsible for the inventory storage.
In the take-or-pay agreement, ICL will pay for its percentage of output, whether it has been sold or not. "That almost guarantees a large bulk of cash flow for Allana because 80% of our output will be paid for regardless," Kelertas explains. "That's a tremendous advantage no one else in this industry has, and provides major comfort for banks providing debt financing because it shows we will be able to service our debts."
"Nobody in this sector has done anything like this. But ICL saw a lot of potential and synergies," Abasov says.
ICL also has invaluable expertise in the infrastructure needed for solar evaporation. This is a commonly used process in which water is utilized to extract and convey potash deposits close to the surface and deposited in solar evaporation ponds. ICL manages one of the world's largest solar evaporation pond systems near the Dead Sea. In the case of the Danakhil project, water-soluble potash deposits will be flushed with brine from a natural aquifer and the liquid pumped to surface evaporation ponds. There the high temperatures will accelerate the process for more efficient production.
"ICL knows everything there is to know about solution mining, transportation, construction and logistics," Kelertas says. "Without that we would have had to hire the expertise to bring the project into production."
In fact, capex costs for the project are estimated to reach only US$642-million, with total opex at $125 per tonne (delivered on ship, including sustaining capex and transportation from the site). This pales in comparison to the multi-billion-dollar projects that have been abandoned or postponed due to declining potash prices in the face of rising production costs.
With Allana's low capex numbers, Kelertas says it can continue to deliver a high rate of return once the mine is at its full capacity of one million tonnes per year. "The very low cost structure means that we can be profitable even at a US$300 to $350 spot price. Other projects won't get off the ground unless the price is $500 or higher, so many of them are looking at 2020 or beyond before they might get back on the drawing board."
Unlike other parts of Africa, Kelertas says, Ethiopia is a geopolitically stable and rapidly growing economy and a mining-friendly jurisdiction. "There's a tremendous amount of infrastructure money flowing into Africa as we speak, especially on the agricultural side.
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