VANCOUVER — Toronto-based explorer Allana Potash (AAA-T) took a step closer to releasing a bankable feasibility study on its Ethiopia-based Dallol potash project when it released an updated resource estimate to kick-off May.
Allana’s new resource marks a 90% increased in the measured and indicated categories, which now total 1.3 billion tonnes grading 19.3% potassium chloride (KCl) or 250 million tonnes of recoverable KCl.
The update follows 11 months of in-fill and exploration drilling as the project moves towards development. As per the update, Dallol now holds additional inferred resources equalling 588 million tonnes grading 18.56% KCl.
"We are excited to see the large increase in total resources on the project,” said President and CEO Farhad Abasov. “The exploration drill campaign accomplished its twin goals of converting inferred mineral resources and adding significantly to the total project resource base.”
Allana has an interesting asset in Dallol due to its relatively low capital expenditure (capex) projections. According to a current economic study, development at Dallol would carry a US$796 million price tag. When compared to advanced-stage potash assets in Canada — Western Potash (WPX-T) estimates a US$2.5 billion build-out at its Milestone project, while Encanto Potash (EPO-V) reports a US$2.4 billion capex on its Muskowekwan project — the development costs at Dallol appear downright affordable.
Allana benefits from a set of operating conditions unique to company’s working in arid landscapes — Dallol sits in a desert-like area in northeastern Ethiopia near the border to Eritrea. Under the current model Allana would operate a solution mine, which involves the dissolution of the recoverable potash-material underground, followed by evaporation of a resulting saturated-brine solution.
The company has the luxury of modelling a solar evaporation system due to the year-round high temperatures and low rainfall rates in Ethiopia, making for attractive infrastructure-and-energy cost savings.
Dallol’s thrifty price tag and expanding resource has fueled speculation that Allana may be a prime candidate for a take-over bid from a larger company interested in increasing its exposure to the potash market,
“The company is going full speed ahead with its mine development plan and off-take agreement negotiations,” wrote Dundee Capital Markets analyst Richard Kelertas in a March report to clients. “Though we are also of the opinion that with the project's low cost status, ‘first-to-production’ likelihood, solid partnerships and capability of producing higher-value and low-chlorine fertilizer, that potash players in the region and large potash governmental buying-distribution groups will be very interested in taking a partial or complete stake in the company.”
Kelertas maintains a “buy” recommendation on Allana with a 12-month price target of $2.00 per share. Major potash players in the region include BHP Billiton (BHP-N, BHP-A), Norwegian fertilizer group Yara International, and India’s Sainik Potash.
Allana announced in early March that initial discussions with prospective lenders had garnered “significant interest”, with the company receiving non-binding indications totalling over US$600 million. Dundee believes “several international banks and sovereign wealth funds will participate in the debt financing round,” with Allana management mentioning the International Development Bank and Export Development Canada as potential debt-financing suitors.
Allana's shares jumped roughly 10% or 5¢ following the resource announcement on May 1. The company traded well above typical share volumes, with 1.6 million units changing hands en route to a 56¢ close. Allana solidified a US$20 million bought-deal financing to start the year and reported roughly US$64 million in cash at the end of April, which should see the company through the feasibility report expected during the fourth quarter. Allana has 229 million shares outstanding with a presstime market capitalisation of US$126 million.
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