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China to buy into Canadian potash projects in Africa


* Marc Davis, BNW News Wire

http://www.resourceinvestor.com/News/2009/7/Pages/China-to-buy-into-Canadian-potash-projects-in-Africa.aspx?channel=4&utm_source=resourceinvestor&utm_medium=email&utm_campaign=traffic&cmpid=resourceinvestor

In recent months, plenty of headlines have been garnered by several intrepid and well-financed potash exploration juniors that are vying to muscle-in on Saskatchewan’s lucrative potash mining industry. That uber-financier Robert Friedland is now the chairman of one of these mining juniors adds further sizzle to the emerging Prairie Potash Rush.

However, a couple of other potash explorers are also making impressive headway, but in more exotic locations. One of them is Toronto-based Allana Resources (TSX.V: AAA), which is hard at work with the development of a potash deposit in Ethiopia. It already has an inferred resource calculation of 105.2 million tonnes of potash, averaging an impressive grade of 20.8%, that has been outlined by way of past drill results.

The other is MagIndustries Corp. (TSX.V: MAA) which is in the early stages of developing a potash project in the Republic of Congo (ROC). MagIndustries’ early-stage efforts to develop rich potash supplies in Central Africa has already attracted the attention of the world’s fastest-emerging industrial nation, China. The company announced plans just last month that it was in preliminary negotiations with an unnamed Chinese multinational that may buy a large share position with a current valuation of up to Cdn. $280 million.

This impressive endorsement of MagIndustries’ flagship project acutely illustrates how very few undeveloped potash fields are dotted around the world. Indeed, even though over 150 nations import potash, only a dozen or so actually produce this indispensible agricultural nutrient (of which Canada, Russia and Belarus account for about 80% of global output).

Hence, government-owned Chinese companies with large treasuries are anxious to secure enough minerals to sustain their country's remarkable economic growth. So much so that they are willing to invest billions in ever-volatile, war-ravaged regions such as central Africa. ROC should not be confused with its much larger neighbor, Democratic Republic of Congo, which garners all the tragic headlines for its protracted humanitarian crisis.

Indeed, the world’s largest consumer of mineral resources is fast becoming a key source of mining capital for Canadian companies – large and small. This reality was underscored earlier this month when state-owned China Investment Corp. purchased a 17.2% equity stake in Vancouver-based Teck Resources – a diversified global mining powerhouse.

Such developments bode especially well for Allana Resources. It announced just this week its own preliminary joint venture agreement with a major state-run Chinese mining company to build a potash mine on Allana’s property in the potash-rich Danakil Evaporate Basin. The Chinese have also agreed to buy up to a 19.99% share position in Allana, which will infuse as much as Cdn. $4.5 million into the company’s treasury.

This is a milestone development that will put Allana “on the map,” according to one Toronto-based mining analyst who spoke to BNW News Wire on condition that his name is not used as he is not an official spokesperson for his investment bank.

“If the deal goes ahead, it will offer Allana considerable leverage concerning their efforts to expand and commercialize this deposit. And it also raises Allana’s profile in the investment industry,” he adds.

Much of Ethiopia’s appeal as a prospective future supplier of potash stems from its status as a politically stable developing economy with a democratic government. In recent years, Ethiopia has also implemented investor-friendly legislation, including legal safeguards for foreign mining companies, such as constitutional protection from expropriation.

Farhad Abasov, the President and CEO of Allana, says the Chinese are willing to bankroll 70% of the cost of the mine development project in return for the right to earn a comparable interest. And, though potash mines ordinarily have extremely high start-up costs (typically starting at the Cdn. $3 billion mark), Allana’s suitor has very deep pockets.

“Our future partner is one of China’s largest government-owned exploration and development organizations with over 10,000 employees and dozens of projects throughout China and a number of foreign countries, including Ethiopia,” he said in a July 20 company news release.

“We view this joint venture as a key strategic step in developing long-term partnerships with China-based mining and fertilizer organizations.”

Abasov told BNW News Wire that the Chinese are most interested in the ‘big picture’ potential of his company’s project, which is located in a potash basin that has similar geology to and is twice the size as the prolific Urals potash basin in Russia.

“Though we have 105,200,000 tonnes of potash already outlined in the inferred category, we’re ultimately targeting a potential resource up to four to five times this size, based on an independent technical study that is compliant with Canadian regulatory requirements,” he says.
“This would be world-class. And we’re confident that a future mine in this geological environment could be one of the lowest cost producers in the world.”

This project’s compelling economic dynamics are largely due to the fact that it is amenable to low-cost solution extraction (involving the flooding of drill holes with hot water to dissolve the potash for extraction), according to Vikas Ranjan, managing director of the Toronto-based investment research firm, Ubika Research.

“Solution extraction mines also involve significantly shorter developmental timelines than conventional brownfield potash mines (which can take 5-7 years to build), and this offers Allana another major competitive advantage,” he adds.