Allana Potash (CVE:AAA, OTCQX:AALRF) has an option to acquire 100% interest in a 160 km² land package including portions of the world class Dallol Potash deposit located in Ethiopia. The northwest portion of Allana’s licenses hosts a historic Inferred Mineral Resource of 73.9 million tonnes grading 61.7% kainite, and 31.3 million tonnes grading 25.4% sylvinite on only 8 % of Allana’s land package. Kainite is a mineral salt that consists of potassium chloride and magnesium sulfate, and sylvinite is a mechanical mixture of sylvite (potassium chloride) and halite (sodium chloride).
With over 90% of the resource potential of the property remaining to be tested, evaluated and quantified, ERCOSPLAN and North Rim Exploration, internationally recognized as experts in potash exploration, completed an initial technical report in 2008 utilizing historical data from 38 drill holes along with metallurgical and economic studies. Their official NI 43‑101 report concludes that in this area, the two minerals combine for a total resource of 105,200,000 tonnes, with a composite grade of 20.8% potassium chloride or KCI at shallow depths.
Allana’s Dallol Potash Project is located in northern Ethiopia, and covers approximately 160 km2 of prime exploration acreage within the Danakil Depression or evaporite basin. Dallol is 100 kilometers from the Red Sea Port of Mersa Fatma, and 600 kilometers by road from the deep water Port of Djibouti. Government authorities are very supportive of development of Dallol, and are already dealing with lack of local infrastructure by upgrading a road to service development of the project and have initiated studies for the development of a rail network linking the area and other regions of the country.
The potash mineralization at Dallol was originally explored and drilled by the US company, Ralph M. Parsons, from 1958 to 1967 and resulted in the partial definition of the Crescent and Musley Deposits, which extend into the concessions held by Allana at depths ranging from 50 to 300 metres. The potash resource on an adjoining concession is being developed by Sainik Coal Company of India in joint venture with Yara International ASA of Norway, with additional nearby leases in the same basin held by BHP Billiton (ASX:BHP, NYSE:BHP). All of the individual concessions and resources form one continuous zone of potash mineralization in the basin.
Historic exploration work within the Danakil Depression by Parsons identified the Houston Formation, which is comprised of the Sylvinite, Intermediate, and Kainitite horizons. These units extend onto the Allana concessions where they have been traced for approximately 10 kilometers along strike, on both the northern and southern extremities of the Project area and are known to vary in thickness from 7 to 48 metres at depths ranging from 50 metres to 300 metres below surface. The Sylvinite horizon contains sylvite and halite and can be up to 11 metres in thickness. The Kainitite horizon contains kainite, halite and minor amounts of sylvite and averages 9 metres in thickness. The Intermediate horizon is layered between the Sylvinite and Kainitite horizons, and carries carnallite, halite and bischofite mineralization.
The regional evaporite basin covers most of the Allana concessions, and has potential to host all three potash zones, and a deeper horizon identified by historic drilling, which intersected 45 metres of potash mineralization at a depth of 680 metres. These extensive zones form conceptual resource targets that have potential to contain up to a billion tonnes of potash resources.
Allana management has been evaluating annualized extraction rates ranging from 1 million to over 3 million tonnes of KCl product per annum from a low cost, open pit mining operation, with deeper horizons recovered by solution mining. This is a unique extraction method for a potash deposit as recovery in developed potash resources is typically through high cost underground mining or solution mining from deposits at depths averaging from 500 to 2,000 metres. Dundee Capital Markets recently forecast potash price targets of from $700 to $750 per tonne within 24 months, so the upper end of Allana’s potential extraction rate (3 MTY) could yield revenues of over $2.1 billion per year, with Dallol also being in the lowest cost quartile of potash producers worldwide.
The concessions are located in a hot and sunny desert setting that is ideal for direct solar evaporation of brines, and is perfectly placed for low cost geothermal power derived from nearby geothermal hot springs that produce a super-heated water at temperatures of 125°C.
Allana has established a base camp on the concessions that has a capacity to support 100 people and has already completed a first stage drilling program of 5,000 metres. A second stage drill program of 10,000 metres is underway and should provide sufficient data for ERCOSPLAN to complete a new NI 43-101 compliant resource estimate covering a greater area of Allana’s holdings by the end of the second quarter of 2011.
The Company has also completed 48 kilometers of 2D seismic surveys primarily in the southern part of its exploration licenses. This survey indicates strong continuity of the potash horizons across the southern portion of Allana’s land package and highlight additional exploration targets.
Highlights from current drilling programs include DK-10-02 which was drilled in the northernmost part of the Project, within the historic resource area and intersected 5 metres of 25.8% KCI, including 2 metres of 34.8% KCI at a depth of 150 metres. DK-10-10, drilled 7 kilometers south of DK-10 -02, intersected 12 metres of 23.7% KCI at a depth of 257 metres. Table 1 and Fig 1 outline drill highlights on the property.
Drill hole DK 11-11 was drilled on the most southerly extension of the concessions, approximately 12 kilometers south of DK 11-02 and intersected 3.35 metres of 33.8% KCI at a depth of 116 meters, and 7 metres of 17.6% KCI at a depth of 125 metres. This drill hole increases the resource potential of the eastern portion of the project area, which extends by more than 10 kilometers to the east and has seen very limited exploration in the past.
Drill hole DK11 -17 was drilled 1,500 metres southwest of DK11 -11 and intersected 2 metres of 19.4% KCI at a depth of 73 metres, and 7 metres of 17.7% KCI at 78 metres, and opens up potential for a second open pit mining operation in the southern part of the Project area. This drill hole lies within a mineralized trend of newly drilled and defined potash resources that cover 20 square kilometers, and will be included in the next upgraded resource estimate.
Fig. 1 Allana Potash land position with drill holes and seismic lines.
Allana expects to commence feasibility studies in the second half of 2011, and make a decision to proceed with mine construction in the second half of 2012. This would lead to first production in 2014. The feasibility studies will be funded from a placement made with IFC, a member of World Bank Group which is the largest global development institution focused on the private sector in developing countries, who contributed $10 million in new equity. Liberty Mutual Group, Allana’s largest shareholder, also invested an additional $1.9 million to maintain its 16% equity interest in the Company.
Both IFC and Liberty have announced that they will remain as strategic investors and will support Allana with funding at the mine construction stage. Dundee Capital Markets has a 12 month price target of $2.50 on the Company.