Dundee Securities "encouraged" by Allana Potash's grades at Dallol

Dundee Securities issued a research note on Allana Potash (TSX:AAA) following a drilling update that indicated "strong continuity and strength" of Allana's mineralized deposits.
The international potash company is currently developing the previously-explored Dallol potash project in Ethiopia.
Total measured and indicated resources now stand at 673 million tonnes, with an average grade of 18.65% potassium chloride (KCl), with total inferred mineral resources of 596 million tonnes at a grade of 19.96% KCl.
Dundee continues to rate Allana Potash a "buy" - the stock is a top pick in the small cap space - with a 12-month target price of $2.00.
Monday, Allana said it intersected two zones of strong potash mineralization southeast of its Musley Deposit in Ethiopia.
Allana said Hole 34 intersected 3 metres of 38.4% potassium chloride (KCl) in the Sylvinite Zone and 7.9 metres of 22.9% KCl in the Kainitite Zone. Hole 33 intersected 1.5 metres of 30.1% KCl in the Sylvinite Zone and 6 metres of 23.9% KCl in the Kainitite Zone.
Hole 32 intersected a Sylvinite Zone 1.4 metres wide of 29.6% KCl within a zone 3.2 metres thick of sylvinite and carnallite. Hole 32 intersected the Kainitite Zone at a depth of 203.2 metres and returned 3.3 metres of 15.4% KCl.
"The high grades, thickness and relatively shallow depths indicated in the drill results are favorable conditions for solution mining with the solar evaporation recovery method that Allana will employ. Mining the kainitite will add more tonnes to the output at very little extra cost per tonne," Dundee Securities senior analyst Richard Kelertas wrote.
"We continue to be encouraged by the grades demonstrated in the kainitite zone."
For the year ahead, an updated resource estimate, including the recent drilling results, is due by the end of the second quarter, which may yield additional tonnage for Allana.
The company is also advancing its mine towards a bankable feasability study, due around September.
Dundee's Kelertas said that Allana's management reaffirmed that it is actively seeking offtake agreements with multiple parties for a sizeable portion of its eventual production.
When such a deal is signed, this would allow Allana to virtually raise the bulk of the equity financing necessary to finance the project "with little or no additional capital raises".
In a recent financing deal, strategic shareholder Liberty Metals & Mining, a subsidiary of Liberty Mutual Insurance, and International Finance Corp, a member of the World Bank Group, chose to exercise their participation rights in a $20 million bought deal financing.
The preliminary stages of port construction are also underway in the Republic of Djibtouti where Allana will continue to work with authorities to integrate its required potash storage and handling facilities into plans for the new port.
Kelertas also penned a note on the global potash sector following a recent supply agreement that was reached between potash marketing body Canpotex and China's largest agricultural company, Sinofert Holdings, for the supply of 500 thousand tonnes of potash at a price of $470 per tonne.
Implications for the deal are positive for the potash industry as the agreed prices show no erosion from the last contract despite weaker demand and higher potash inventories compared to last year, Kelertas wrote.
In the industry, all eyes will now be on India as the nation - the world's second-largest consumer of potash - has yet to successfully negotiate this year's supply deal.
Kelertas added: "We expect short-term potash demand pull-back will likely continue until mid Q2 2012 when we expect inventory restocking and a strong spring season to strengthen the nutrient markets."
The Dundee Securities analyst's long-term investment thesis remains unchanged as the issue of food security and crop yield management will remain a key political and economic goal for most countries, providing strong nutrient demand visibility.