Allana may finish more than two years of exploration work in the next few months and start building a mine at a cost of as much as $795 million, including port facilities, at the end of next year, said Richard Kelertas, senior vice president of corporate development at the Toronto-based company.
“We could start breaking ground as early as the end of 2013,” he said July 3 by telephone from Montreal. “We would probably be starting to produce our first ton of potash likely 12 months thereafter.”
The Horn of Africa nation, which relies on coffee for around a third of export earnings, is encouraging foreign mining investment to diversify its economy away from agriculture. Allana’s will be Ethiopia’s first commercial potash mine, Kelertas said.
The company has “soft commitments” for $650 million of funding from a group of international lenders and is exploring options including equity financing, off-take agreements with partners or a joint venture, he said.
Allana’s Dallol Potash Project in Ethiopia’s northeastern Afar region may contain 1.2 billion metric tons of the fertilizer ingredient that will cost less than $70 a ton to extract by injecting water into the deposit using a technique called solution mining, he said.
“We will be one of the lowest-cost producers in the world,” he said. “We are nearest to the potash-deficit regions of Africa, the Middle East and Asia.”
Amid growing demand for food, the price of potash will rise by 32 percent to $560 a ton in 2015, Moscow-based investment bank VTB Capital analyst Elena Saknhova said in a telephone interview yesterday.
Allana’s mine, which will be close to the Eritrean border, could produce a half-million tons of potash in the last six months of 2015 and 2 million tons a year by 2018, Kelertas said.
Shares of Allana have lost 37 percent this year and fell by 1.9 percent to 52 Canadian cents in Toronto yesterday.
Until a rail link is established, the industrial mineral will be transported 600 kilometers (373 miles) by road to a new port in Tadjourah, which is being built in the north of the neighboring country of Djibouti, he said.
A rail line from the Danakil mine site connecting to a proposed main line going to the port being considered by Ethiopia’s government could materialize in 2017, although the company’s costs are based on road transport, he said.
State-owned Ethiopian Railway Corporation signed two deals last month worth $3.2 billion with Turkish and Chinese companies to construct a railway from the northern city of Mekele to Awash, connecting to a line from the capital, Addis Ababa, to Djibouti’s main port.
Canada’s Ethiopian Potash Corp. and Sainik Potash Plc of India are also prospecting for the food nutrient in Afar, in Ethiopia’s northeast.
Ethiopia’s government levies a 30 percent tax on mining revenues, collects royalties of 4 percent and takes a 5 percent stake in the operations for which it does not pay, Kelertas said. Allana will not pay income tax until a minimum of five years after it begins sales, he said.