Allana Potash focuses on Ethiopia to meet changing demands
The potash market has seen its share of trials in recent months. Cartel dissolutions, soaring production costs and declining spot prices have created a challenging market. But Toronto-based Allana Potash Corp. is one company that has turned those challenges to its advantage.
Since 2009, Allana's primary focus has been on the acquisition and development of international potash assets. A cornerstone of its activities is the flagship Danakhil Potash Project in the Danakhil region of Ethiopia, which is on track to become the first functioning potash mine in Africa.
"Unlike major projects that have faced cancellations or significant delays due to declining potash prices, Allana has a number of unique advantages, including an extremely low capital expense/operating expense model and a growing number of investment partners," says Richard Kelertas, senior vice-president, corporate development, for the company. "What we have with Danakhil is a world-class, high-grade potash resource that we can access with cost-effective, proven mining methods."
This business model has attracted the attention of partners such as IFC, a member of the World Bank Group, and Liberty Metals and Mining Holding LLC. In January, Allana announced its most significant partnership yet with Israel Chemicals Ltd. (ICL), the fifth-largest potash producer in the world. Under the terms of the agreement, ICL is now a minority shareholder at 16.4%.
"For a large potash producer to work with a junior partner is a major validation of the project for us," says Farhad Abasov, Allana's chief executive officer. "While ICL has taken minority positions before, they have never remained as just a minor investor. They add value to the operation and management and usually expand their ownership over time as they become more comfortable with the jurisdiction and the process."
"They saw a great opportunity with this project," says Kelertas. "Not only is the economy growing, Ethiopia is the ideal location to cost-effectively service African, Asian and Middle Eastern markets."
There are three core components included in the ICL deal: financial support, a take-or-pay offtake for 80% of production, and technical cooperation. ICL's investment stands at $25-million, with the potential to reach $84 million, assuming full exercise of its warrants.
Production is planned to reach one million tonnes of muriate of potash
(MOP) annually. MOP is the standard grade of potash that is applied to staple crops such as corn, wheat and soy. The project also has the potential to produce sulphate of potash (SOP), which is applied to cash crops such as vegetables and orchards, as well as golf courses.
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