Allana pumps up potash resource at Dallol

Toronto-based explorer Allana Potash (AAA-T) took a step closer to -releasing a bankable feasibility study on its  Dallol potash project in Ethiopia when it released an updated resource estimate to kick off May.

Allana’s new resource marks a 90% increase in the measured and indicated categories, which total 1.3 billion tonnes grading 19.3% potassium chloride (KCl), or 250 million tonnes of recoverable KCl. 

The update follows 11 months of infill and exploration drilling as the project moves towards development. As per the update, Dallol holds inferred resources equalling 588 million tonnes -grading 18.56% KCl.

“We are excited to see the large increase in total resources on the project,” says 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 owing 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.  

Dallol sits in a hot desert in the country’s northeast near the border with Eritrea. 

Under the current model Allana would operate a solution mine, which involves the dissolution of the recoverable material underground, followed by evaporation of a resulting saturated-brine solution. 

The company says solar evaporation system makes for attractive infrastructure and energy cost savings. 

Dallol’s relatively low price tag and expanding resource has fuelled speculation that Allana may be a prime candidate for a takeover 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 offtake agreement negotiations,” Dundee Capital Markets analyst Richard Kelertas writes 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 — 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 per share. 

Major potash players in the region include BHP Billiton (BHP-N), 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 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 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 capitalization of US$126 million.