Danakil potash prospects see some exit and others double down

After buying out Nova-Ethio Potash, and the departure of BHP Billiton, Allana Potash is betting hard on the region.

The departure of BHP Billiton from its potash concession in the Danakil Depression in northern Ethiopia has been followed by consolidation between two other explorers in the area in September.

With 45°C heat in the shade and close to the tense buffer zone between Ethiopia and Eritrea, the Danakil is an inhospitable place to work.

Nonetheless, the Ethiopian government is keen to welcome miners lured by its rich potash deposits.

A spokesperson for BHP Billiton  said its concession in Ethiopia was "not expected to meet the company's investment criteria" and that its departure in July meant the company was relinquishing its leases.

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The Australian miner has been pulling back from expensive projects amid fears about the fall in commodity prices.

In early September, Toronto-listed Allana Potash, which also owns a concession in the Danakil, announced it was buying out its neighbour Nova-Ethio Potash.

Nova's lease has a large amount of water on it, important to the solution-mining process being used by Allana to extract the sylvinite resources that produce potash.

Joel Jackson, an analyst at BMO Capital Markets, says consolidation in the Danakil makes sense.

There are more than 80 potash projects in the world, says Jackson, and greenfield projects will be expensive to bring online.

"In Ethiopia, the geology is quite com- plex and the project sites are quite remote. There are some significant logistical challenges and financing hurdles," he explains.

Allana is completing a bankable feasibility study on its project, which has an indicated resource of 1.3bn tonnes of potash and could start producing by late 2014.

It plans to spend $800m on the project, including $130m on infrastructure and transportation.

"Our natural markets will be India, China and the Pacific Rim," says Richard Kelertas, Allana's senior vice president for corporate development.

Africa's demand for potash is also growing and it could become a significant buyer as production scales up in the next decade.

In September, Allana announced it had signed an MOU to the Djibouti Port and Free Zones authority to build a potash terminal at the Tadjourah port in Djibouti.