Private and non-government partnerships nurturing Ethiopian mining industry.
Having recently achieved several key milestones including the strategic alliance with Israel Chemicals Ltd (ICL) for your flagship Danakhil Potash Project in Ethiopia, can you provide us with a brief overview of your current operations?
Farhad Abasov (FA): Allana Potash is focused on identifying and developing potash projects. Our flagship project in the Danakhil depression is in the northeastern part of Ethiopia and we started with this project about four years ago. The Danakhil Potash Project is one of the most advanced greenfield potash projects in the world. It has a very large resource base and is one of the world’s lowest cost projects, partly due to a shallow potash deposit and the hot climate from this part of Ethiopia.
We finished the feasibility study on the project last year and secured the full mining permit in October 2013. Since then one of the major milestones that we achieved was a strategic partnership with one of the largest potash producers in the world, ICL, to develop it.
What was Allana Potash’s rational for forming this strategic alliance with global potash producer, ICL?
FA: Although our project is one of the lowest capital expenditure potash projects in the world, potash projects have high capital expenditure. Therefore our strategic partnership was three-fold. First, we wanted a strong partner that could support us financially. Second, we needed a partner that could sell our product and guarantee revenues. Third, we needed a partner to help us technically to develop and operate this project. As a junior company, it is important to have that type of backing.
Furthermore, ICL has a project in Israel that is similar to what we envision for Africa. It uses evaporation plants, which is a type of processing that is very similar way to what we will be doing in Ethiopia. Moreover, they use trucking for transportation, which will be important, as we do not have access to railway right now. From a technical perspective, ICL’s decades-long experience will provide us with sold support.
On the marketing side, we have signed an offtake agreement with ICL. This means that 80% our product throughout the production is guaranteed by ICL and enables us to service our debt. On the financing side, they invested $25 million. All together we believe this is one of the best strategic partnerships in the sector. In fact this is the first time a potash producer has become a strategic partner with a junior.
What financial development programs are in place to secure full project financing?
FA: We have been working with a number of different parties to ensure project financing. In the past, on the equity side we signed agreements with two large shareholders, a private equity group out of Boston. Allana Potash was also the only potash company the International Finance Corporation (IFC) invested in. Due to our existing shareholders we believe that we will get a substantial infusion of equity capital in the future. However, the project is also profitable at high margins and we can take on large debt. We have been working closely with a French bank to put together project financing for our project in Ethiopia and so far we have signed mandate letters with some of the largest development financing instructions and banks in the world mostly from Canada, Europe and Africa. Now the terms and the amounts of debt total about 60 percent to 65 percent of the entire capital expenditure, and the rest will come from equity. We have a clear visibility of the project finance moving forward.
The mining industry in Ethiopia is still in its infancy, do you believe that international investors are aware of the opportunities available in country?
FA: The awareness of international investors to the opportunities in Ethiopia varies in the different jurisdictions. For instance, London-based investors are more aware. In Canada it has taken a lot of effort over the past four years to educate investors, but they now have a full awareness of the project and what is happening in the country. Allana Potash has brought the Ethiopian Minister of Mines to Canada on many occasions to speak to investors. We are still doing quite a lot of work to increase awareness of Ethiopia as a mining investment destination in the United States, but the situation is dramatically better.
Although Ethiopia is not on the map yet and does not have the visibility of some other jurisdictions, I remain very optimistic about the potential in the country.
Adequate infrastructure remains a significant challenge in East Africa. What are you doing to tackle the infrastructure challenges?
FA: Infrastructure has been challenging right from the beginning because we are in the middle of the desert. When we started there were no roads near the site, but the government has been extremely supportive, and we now have access to main roads from the center of the country directly to the project. They are also gearing up to finish the highway, which will take us all the way to the port. The governments of both Ethiopia and Djibouti have been very supportive and spending money to build this infrastructure, which is so important to a small company like ours.
They have also already started the construction of one railway line that will connect Djibouti to Addis Ababa and another one that will come about 300 kilometers away from our project. We are hoping that in the next five to seven years the infrastructure situation will change dramatically.
What efforts are being made to increase the levels of skilled Ethiopians in the rural areas in which you operate?
FA: Allana Potash is the largest employer in the northeastern region. It has always been our objective to hire as many Ethiopians as possible. As a result we have only a handful of expatriates. In addition to large employment opportunities, we also have other programs, such as free medical services, funding of schools, and support for local soccer clubs. We also employ successful programs to train local Ethiopians and will train as many locals as possible for all aspects of our production.
In terms of community relations we have also been helped by the IFC, which was an integral part of our environmental assessments.
If we progress at the same pace, we will see tremendous development in the community and country. In three to four years, we will produce one million metric tons (mt) and hopefully by that time we will have access to railway and therefore increase production to two or three million mt.
This interview was part of the research being conducted by GBR for its upcoming Mining in Africa Country Investment Guide (MACIG) 2015. To participate in this report, please contact Sharon Saylor at email@example.com.