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Allana Potash intersects strong potash at Dallol, feasibility on track

Allana Potash Corp. (TSE:AAA) (OTCQX:ALLRF) said Monday it has intersected two zones of strong potash mineralization at its Dallol potash project in Ethiopia.

Hole DK-11-29 is located in the western portion of the concession block, and was targeted to test potash mineralization west of hole 9.

Hole 29 intersected a strong Sylvinite Zone at a depth of 124.50 metres, which yielded 20.51% KCl over 6.80 metres, including a high grade section of 2.5 metres grading 33.84% KCl.

The Kainitite Zone was also intersected deeper in the hole, at a depth of 227.30 metres and returned 21.35% KCl over 9.00 metres.

Meanwhile, DK-11-31 hit the Sylvinite Zone with 18% KCl over 1.70 metres starting at a depth of 73.50 metres, and the Kainitite Zone at 21.41% KCl over 6.10 metres starting at a depth of 82.30 metres.

Hole 31 is located at the central-west portion of the project area, around 1,200 metres north of hole 16, the company said, and was positioned to target the extension of the Musley deposit south of historic drilling.

The presence of sylvinite and kainitite in this region suggest the continuity of the potash mineralization extends south from the Musley deposit as defined by previous historical work, and towards hole 16, Allana said.

"Allana continues to be encouraged by the continuity and strength of potash mineralization in the western portion of the property as exhibited by the results of Holes 29 and 31," said president and CEO, Farhad Abasov.

"This area continues to yield high grade potash in the Sylvinite and Kainitite zones which management believes will allow Allana to upgrade mineral resources from Inferred to Measured and Indicated categories as well as add to the Inferred category.

"The relatively shallow and high grade nature of the Sylvinite Zone make this area ideal for solution mining with recovery through solar evaporation. Pilot studies for the Feasibility Study are well underway and Allana has made significant progress on road, port and rail infrastructure planning."

Holes 29 and 31 are part of an infill drilling program in the west, designed to test the extension of the potash mineralization associated with the historic Musley deposit, and also to upgrade the resource to the measured and indicated categories.

With a recently-completed, positive preliminary economic assessment (PEA) under its belt for Dallol, Allana Potash is expecting a host of developments in 2012, including a feasibility study later this year.

Last November, the company announced the results of the PEA for its Dallol potash project for production of one million tonnes, with the potential to expand output at the site to two million tonnes of muriate of potash (MOP) product per year at a later stage.

The economic study, conducted by Ercosplan and based on solution mining with a solar evaporation method, 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, said Abasov, 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. Salts harvested from the ponds at Dallol will be processed by standard flotation to create an MOP product.

The Ethiopia project also hosts shallower deposits, which means the company is not required to drill that deep, allowing for cost savings, Abasov told Proactiveinvestors in December.

The ongoing feasibility study, which will consider additional MOP and sulphate of potash (SOP) output, is due out in the third quarter of 2012.

In addition to exploration drilling, Allana said Monday it has completed two geotechnical holes to provide large diameter core for rock mechanic testwork. Two holes remain to be completed in the geotechnical drilling program.

Meanwhile, pilot evaporation pond testwork, hydrogeological studies and solution mining testwork are underway as the company's feasibility study advances. Heavy machinery to construct the ponds is on site, and engineering work and earthworks are in progress, Allana added.

An update to the NI 43-101 compliant technical report is also expected by the end of the first quarter of 2012, with Abasov expecting substantial additions to resources on the eastern side, and an upgrade to the measured and indicated category on the western side.

Exploration drilling has now shifted to the far eastern part of the property as part of the program designed to add mineral resources. Samples from holes 32-43 are undergoing analysis, the company said.

Allana Potash already has financial support from two strategic investors, IFC, a member of the World Bank Group, and Liberty Metals and Mining, and recently announced the closing of a $20 million private placement financing.

Total measured and indicated resources now stand at 673 million tonnes, with an average grade of 18.65% KCI, with total inferred mineral resources of 596 million tonnes at a grade of 19.96% KCI.

The company is planning to start production at Dallol with one million tonnes at the initial stage by 2015, to reach peak production by year 2017. Start of construction at the project is anticipated as early as late 2012, with minimal output expected by the end of 2014.

With regards to infrastructure, highway construction by Ethiopian government contractors is actively proceeding to connect the project area with paved roads both to the company's project development staging facilities in Mekele, and to the southern highway access to ports in Djibouti.

Discussions are also progressing with government departments and private sector operators regarding expansions of existing port operations and development of new port and rail facilities, the company said.