Israel Chemicals is close to signing a deal to help Canada’s Allana Potash Corp. to develop a potash mine in Ethiopia, Bloomberg News has reported. Allana has a permit from the Ethiopian government to extract the mineral, which is widely used in fertilizer, from a site in the country’s northeastern Danakil Depression.
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ICL has been stepping up efforts to broaden its sources for potash. One motivation is concern that an Israeli government panel that is reviewing the state’s natural resource policies could recommend hiking the royalty fees the company pays to extract potash from the Dead Sea. ICL’s Dead Sea mining operations are its main source of profits. The Israeli government has been taking an increasingly large portion of these profits, however. In addition, ICL’s Dead Sea license expires in 2030.
Shares of Allana Potash rose 4.5% on the Toronto Stock Exchange on Friday and have nearly doubled in value since the middle of December, Bloomberg reported.
ICL, a subsidiary of the Israel Corporation and the world’s sixth largest potash producer, declined to confirm the reports but said it routinely considers international opportunities that often begin with providing technical assistance. The company did say it intends to broaden its sources of production.
Allana has said that it is planning to wrap up talks with a strategic partner and with a customer for the potash in the first quarter of this year, adding that it plans to secure financing by the end of 2014. The mine is projected to be in operation during the first half of 2016. Allana needs ICL’s technical expertise as well as the company’s cash resources. As of the end of July of 2013, the Canadian firm had $16 million on hand and was burning through cash at an annual rate of $6 million. It would therefore not be expected to carry out the venture in Ethiopian without outside funding.
The projected cost of annual production of a million tons of potash from the Ethiopian mine is $125 per ton, including extraction, ground transportation to an Indian Ocean port, loading fees and maintenance costs. Although there would also be royalties to be paid to the Ethiopian government, the current minimum prevailing international price for major potash supply contracts is $305 per ton. The Canadian company’s license is for 20 years, renewable for another 10.