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
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
"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.
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
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
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
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.