Global Report

Allana Potash opening Ethiopian mine in the hottest place on earth

Keeping costs low is key amid potash price slump

A highway under constuction in Ethiopia's Danakhil depression. (Allana Potash Corp.)

A highway under constuction in Ethiopia’s Danakhil depression. (Allana Potash Corp.)

Lately, things haven’t been looking good for potash producers. Last summer, Uralkali, one of the biggest producers of the potassium fertilizer, killed its partnership with competitor Belaruskali in favour of boosting output, fuelling oversupply fears among investors and driving down prices. The situation has hardly improved since then. On Jan. 30, fourth-quarter profits at Potash Corp. of Saskatchewan, another large producer, dropped 46%, a result, said the company, of the “challenging pricing environment.”

Allana Potash Corp., the Canadian developer of a $718-million potash mine in Ethiopia, believes it can buck the trend. While other mines are shelving development projects because of the lower prices, Allana is going “full speed ahead” with its Ethiopian project, says Richard Kelertas, vice-president of corporate development at Allana. The company’s secret? Kelertas says that the mine, set to begin producing in late 2015, will have easy access to the booming Chinese and Indian markets, and much lower production costs, making it profitable despite the price slump.

Allana’s mine is located in the remote Danakhil depression, a scorching-hot salt plain where temperatures often soar above 45°C, and where potash is close to the surface. Allana will do solution mining—cheaper than the open-pit or shaft mining done by its competitors. “When you’re talking about drilling down, you have to have a big mine, and big mines have to have big dollars,” says Spencer Churchill, a Toronto-based analyst at Paradigm Capital. Now, says Churchill, “a lot of the higher-cost producers are looking more aggressively where they can expand with lower costs.”

Lower potash prices will still hurt companies like Allana—just not as much as the big producers. Meanwhile, Kelertas can’t wait to start digging in the Danakhil depression. “It’s fairly tough conditions for humans,” he says, “but there’s always a slight breeze coming off the mountains.”