Allana Potash grows resource at Dallol in Ethiopia

An updated resource estimate based on 40% of Allana Potash‘s (AAA-V, ALLRF-O) licensed land in Ethiopia is better than the company expected. 

The Dallol potash project in the Danakil depression, about 100 km from the Red Sea coast and 600 km via road from the deep water port of Djibouti, has measured and indicated resources of 673 million tonnes with an average grade of 18.65% potassium chloride (KCl) for 126 million tonnes contained KCl. Inferred resources add 596 million tonnes averaging 19.96% KCl for 119 million tonnes contained KCl.

The new resource figures were based on four potash-bearing beds: sylvinite, upper and lower carnallitite and kainitite.  

Mining in the Danakil depression has been carried out intermittently since the early 1900s, Allana says. Other companies working in the basin include BHP Billiton (BHP-N) and Sainik, a coal mining company based in India, which is developing the Musley deposit. 

Allana’s concessions cover part of the previously defined Musley potash deposit, which lies on the edge of the 1,000-sq.-km evaporite basin along northern Ethiopia’s portion of the East African rift.

The regional evaporate basin also extends onto the Allana concessions and makes up an area of 150 sq. km, the company says on its website.

The company plans to drill throughout the year to further expand Dallol’s resource.

Farhad Abasov, Allana’s president and chief executive, said the “substantial resource” will enable the company to proceed with a feasibility study this summer, and also “realistically consider a larger production facility after the initial production line.”

Abasov noted that with its “substantial kainitite resource,” the company has the potential for “significant premium product production,” adding that the shallow depth of the resource in the western part of the licensed area allows Allana to “seriously study the potential of open-pit mining.”

The junior’s share price dropped 38¢, or 18.27%, on the news to close at $1.70 per share, with 7.15 million shares changing hands.

Over the last year, Allana Potash has traded between a low of 32¢ per share (July 21, 2010) and a high of $2.43 per share (Feb. 9, 2011). The company has 193.2 million shares outstanding.

Michael Fowler, a mining analyst at Loewen/Ondaatje/McCutcheon, who described the resource as a “good result,” has a hold on the stock with a target price of $2 per share.

“As expected, the size of the deposit is large, yet this is only one determination of value,” he noted. “The real question remains the economics of the project, the method of mining, and in particular the rate of potential production . . . We are currently modelling two million tonnes of MOP (KCl) per annum in our valuation using a solution mining scenario.”