Israel Chemicals has been in talks recently with a Canadian listed company Allana Potash about opening a potash mine in Ethiopia.
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Allana Potash CEO Farhad Abasov met with ICL senior management in Tel Aviv three weeks ago to seek ICL's participation in the construction of a mine at the Dallol site in Ethiopia's Danakhil Valley, located in the country's northeast.
Allana has already raised $85 million from investors to build the mine, which is expected to yield a million tons of potash annually. The mine site has 182 million tons of proven potash reserves and potential reserves as high as 438 million tons. The mining project will be based on technology in which ICL has particular expertise from its Dead Sea Works, pumping and evaporating brine to extract potash.
ICL commented it regularly examines opportunities for international projects and was seeking to expand its current potash production capacity. However, it cautioned that recent circumstances in the potash market were making new mining projects challenging.
Allana estimates that investment in the mine will reach $642 million, a figure which includes both the mining operation and building the transportation infrastructure to carry the potash from Dankil to the Indian Ocean port of Tadjoura, located in next-door Djibouti. The production costs including haulage to port, are expected to reach $98 per ton, with annual maintenance costs of $26 per ton. (These costs compare with averaging mining costs of $100-$150 million per ton.)
Acquiring either full or partial ownership of the mine in Ethiopia would present several advantages to ICL, which is looking to expand its production capacity in core areas such as potash. The company will be required to return its Dead Sea potash concession to the state in 2030, which will leave the company scrambling to find a replacement for 4 million tons of production capacity for a mineral that provided 63% of its operating profit in 2012.
ICL already holds a 640 square kilometer potash mining concession in Spain's Catalan region. Currently, the company exploits only 64 square kilometers of that concession, but estimates that the site has reserves that would support production of up to 10 million tons of potash per year. However, Ethiopia is closer to two key markets for ICL, China and India. Moreover, the demand for potash in the local African market, which is currently 1 million tons per year, is expected to reach between 5 million and 7 million tons per year by 2020.
The Dallol project has already completed the prospecting stage and pilot production. It also completed a series of operational tests conducted in February 2013 to determine the cost of establishing and operating the mine and to receive the approval of Ethiopia's environmental ministry. Allana has submitted a formal request to the Ethiopian authorities for a mining permit.
The Ethiopian government has also paved most of the highway leading from the Dallol site to the port in Tadjoura, which although belonging to Djibouti, serves as Ethiopia's main Indian Ocean port.