"Although 2013 was a very eventful year, we think 2014 will be even more critical in our path to construction and then, of course, operations, "says Allana Potash Corp. (TSX: AAA) CEO Farhad Abasov, in an interview with Smallcappower.com. Mr. Abasov discusses his company¹s timeline for production, the unique advantages enjoyed by Allana¹s project, as well as the major catalysts that could move its stock price in the coming year.
Q: Since we last spoke to you in April this year, Allana has made significant progress in advancing the project further towards production. It received the mining license for its Danakhil Potash Project from the Ethiopian Ministry of Mines in October this year. Can you tell our viewers a little bit about that and its significance for the company?
A: Yes, of course. 2013 was a very eventful year for Allana Potash. We have achieved significant milestones this year. We started with the completion of a hydrogeological study on our project followed by the completion of the feasibility study, as well as a dramatic increase in our estimated mineral resource size. The team has also done a great job in preparing the environmental health impact assessment study, in cooperation with the International Finance Corporation, one of our significant financial investors. Our environmental assessment study was approved by the government in record time. This past summer, Allana also signed mandate letters with large development finance institutions in relation to providing debt to the company to build its Danakil Potash project. Last but not least, the company received its mining permit in October which, in my mind, was the culmination of successful operations in Ethiopia over the last four years. The mining permit is indispensable to further development of the project as it was the final stage of our exploration development efforts prior to commencing construction. The permit is currently given for an initial 20 years renewable for 10-year terms for the life of the mine. So we’re now fully permitted to build, operate and sell potash.
Q: There are several potash projects being developed across the globe but not all will be viable. How does Allana’s Danakil Potash project compare to other potash projects?
A: Well, Allana has a unique cost advantage over many other potash projects in that we are in an area with shallow potash deposits and a very hot and dry climate. We start intersecting potash at the depth of about 100 metres compared to other deposits which are much deeper. So, since we plan to use a solution mining method to extract potash, the ability to evaporate water from potash rich brineds is also critical. The hot and dry climate in this part of Ethiopia will actually allows us to utilize solar evaporation ponds which will lower our operating costs. Another important advantage we have is the availability of water in our project. We are uniquely positioned to have the best combination of large and shallow potash resources. The hot and dry environment coupled with our sufficient water resource, we believe, will enable us to achieve one of the lowest cost structures in the industry. I want to add also that we have very strong financial support. As you probably remember, the International Finance Corporation, the largest development financing institution in the world, is a shareholder in the company and a strong supporter of the project. We have also signed mandate letters with large DFI’s or development financing institutions from North America, Europe and Africa. So we believe we are in an enviable position compared to many industry peers.
Q: You have been working on putting together project financing to take the project towards production. Can you provide us some update on the progress made in the last few months?
A: Certainly. We have made significant progress with regards to project finance over the last several months. As you will remember, we have engaged BNP Paribas out of Paris to help us arrange debt financing for the project and they have indeed brought an elite group of large multilateral financing institutions interested in financing our potash project. As I mentioned earlier, in August we signed debt mandate letters with a number of them. We expect that 60 to 65 percent of the project’s capex will be financed through debt provided by these prestigious organizations. Lender due diligence is currently ongoing. In addition to the debt process, we have also made considerable progress in advancing our strategic partnership talks.Over the last several months, the company has received keen interest from several large organizations who’d like to partner with Allana to build our project and the company’s management and board have been working quite diligently to select the right partner to help us both fund and build the project. This process is quite advancing and I’m happy with the progress to date.
Q: It sounds like you are well on your way to be in production. Are there any technical, environment or social issues that can potentially delay the advancement of the project?
A: So far we’ve been hitting all our milestones on time. As you know, our environmental assessment study has been already approved. The project is fully permitted so we’re good on those accounts. The key to timely construction will be, of course, the ability to secure full funding in 2014. And if that is done then we’ll definitely be on track to start production in early 2016. This is the top priority for our management team at this point.
Q: So we understand that the Allana’s potash project is likely going to be one of the lowest cost producers in the world and potentially one of the closest sources of supplies to the potash deficient Asian market. Do you see potential to attract interest from players in countries like India and China for your project?
A: Yes, There is we have definitely a strong interest from different corners of the globe including India and China. As I think I mentioned earlier the right partner will be the key to the success of the project now, and of course, to maximizing shareholder value and therefore, we’re looking at a package of benefits that a potential partner can bring to the table and that package includes financial support for the project as well as technical assistance.
Q: One of the concerns that investors have been having lately is the upheaval in the potash markets due to the breakup of one of the major potash cartels, which has the potential to depress potash prices. How does this impact projects like yours? Do you believe that Allana’s project can still be profitable in a lower price environment for potash?
A: Yes, the Uralkali Belaruskali drama has had a very negative impact on the entire sector, unfortunately. But especially on the junior potash companies that still need to secure funding to build their projects and the potential to be able to compete with larger producers in the market. Allana has been impacted by these developments as well, however, the unique advantage of Allana is not only estimated lower capex which is considerably lower than other comparable projects, but also its estimated lower operating costs which are competitive, not only with any existing junior potash project, but most importantly with most existing producers. Once in production, we expect to have one of the most competitive operating cost structures in the industry. It’s not accidental that we have seen more interest in our project in the last several months than ever before, rather we believe this is simply another testament to this advantage, even in the face of Uralkali.
Q: So finally, what are the major catalysts that investors should look for in the next 6 to 12 months from Allana?
A: The Allana team is now working on several initiatives concurrently. We’re advancing our strategic partnership talks as well as the lender due diligence process. We’re also working on construction management contracting. The EPCM selection process is quite advanced now with proposals from some of the largest engineering companies in the world. The plan is to finalize strategic partnership talks in the first quarter of next year along with the completion of the technical and due diligence process for lenders. Once financing is secured, we intend to start construction in the middle of 2014. So, although 2013 was a very eventful year, we think 2014 will be even more critical in our path to construction and then, of course, operations.
Q: That’s great, thank you for taking the time to update us, Farhad.
A: Thank you, very much.
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Ubika Research has received compensation from Allana Potash Corp. to provide analyst research coverage.
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