Allana Potash (TSE:AAA) received a "buy" recommendation and 12-month target price of $1.20 Tuesday from equity research firm Salman Partners, saying the potash explorer has a "first mover advantage" in Ethiopia.
advancing the Dallol potash project toward a full feasibility study for
the construction of a one to two million tonne per year solution mine
using solar evaporation, with first production targeted for the end of
The Dallol potash deposit, Allana’s principal project, is
located in the Danakhil Depression, a desert area in northeast Ethiopia,
south of the border of Eritrea. The deposit lies at the northern end of
the Ethiopian Afar State, approximately 100 kilometres from the
Eritrean Red Sea coast and 600 kilometres by road from the deep-water
port of Djibouti.
Salman analyst Andrea Rubakovic said the hot
Danakil climate is "ideal" for these mining and processing methods, as
it "significantly reduces the high capital and operating costs that
accompany most potash mining operations".
Last November, the
company announced the results of the preliminary economic assessment for
its Dallol potash project. The economic study, conducted by Ercosplan,
yielded, on an after-tax basis, an internal rate of return (IRR) of 36.8
percent and a net present value (NPV) of US$1.85 billion, based on a 12
percent discount rate.
The results exceeded management's
expectations, with the project having "one of the lowest capex and opex
in the world" in the potash industry, especially when compared to
Saskatchewan players in Canada.
Solar evaporation of the
saturated brine solution is possible at the Dallol project due to the
year-round hot temperatures and very little rainfall, in contrast to
Saskatchewan. Solar evaporation methods avoid the use of costly natural
gas-based heating to evaporate water (energy accounts for approximately
30-40 percent of a conventional solution potash mine’s costs).
from the low cost potential, Salman also noted in its report Allana's
large and growing resource. The company's holdings contain "significant
historic exploration data", Rubakovic said, and Allana is conducting its
own exploraiton program to upgrade the already "sizeable" NI 43-101
compliant in-situ potash resource of 244.5 million tonnes at a grade of
"Allana's substantial resource will now allow it to
proceed with a feasibility study this summer, and to realistically
consider multiple million tonnes per annum production phases," Salman
The Dallol project also has a range of strategic benefits,
the capital markets firm said, as it is "uniquely situated to appeal to
key import markets of India and China."
Allana has secured
financial support from two significant strategic investors: IFC, a
member of the World Bank Group, and Liberty Metals and Mining Holdings.
company is currently in discussions with multiple strategic partners,
the research report noted, which may result in further investment and
Catalysts for the miner's stock price in the
next 12 months include a revised NI 43-101 compliant resource estimate
in the second quarter, off-take and debt financing agreements in the
second quarter, a bankable feasibility study in the fourth quarter, and
finally initial production in late 2014.
have a size of approximately 158 square kilometres and are bounded to
all sides by properties of other owners, Salman said.
Notable neighbours in the potash basin include the world’s largest mining company, BHP Billiton (NYSE:BHP) and Sainik Coal Mining, an Indian-based coal mining company.
deposit is relatively shallow, with mineralization in some portions of
the property at a depth of less than 200 metres. As a comparison, the
solution mines in Saskatchewan are generally targeting mineralization at
1,500 metres depth or greater, the report noted.
the current share price represents a good entry point into the stock in
light of the 40% drop in share price since the beginning of the year,"
concludes Salman's Rubakovic.
Salman's report estimated Allana’s
current cash balance at approximately C$65 million, which in the firm's
view, is "sufficient to carry the company through the release of its
bankable feasibility study expected in Q4 2012, while also providing
flexibility to pursue various strategic alternatives that may arise."
this month, Allana announced it had intersected strong potash
mineralization in three holes at Dallol, prompting it to extend its
drill program in the southern boundary of Ethiopia.
intersected 5.7 metres of 31.3% potassium chloride (KCl) in the
sylvinite zone and included a higher grade interval of three metres of
39.1% KCl. The hole also intersected 7.5 metres of 20.3% KCl in the
underlying kainitite zone.
Allana Potash was changing hands at around 51 cents Tuesday Morning, up roughly three percent.