The Conversation (0)
Australia’s South Boulder Mines announced a 50/50 joint venture agreement with the Eritrean National Mining Corporation for its Colluli potash project in Eritrea.
The agreement with the government is no small win for the company. The joint venture will provide South Boulder with a fair amount of certainty as to the economic and fiscal basis for the development of the project; not to mention facilitating attracting potential strategic investors for the project.
The Eritrean government is highly supportive of of the potash project.
Colluli potash project
The Colluli potash project is the company’s flagship project, located in the Danakil Depression, a region known to most investors for hosting Allana Potash’s (TSX:AAA) Dallol project. Colluli has a JORC-compliant resources of 1.08 billion tonnes of contained potash grading at 18-percent KCl. According to the company’s fact sheet, Colluli is “the world’s shallowest” potash deposit, which facilitates extraction via open-pit mining. There are currently no operating open-pit potash mines.
The project has had an engineering scoping study that returned an economic 1 million tonne per annum mine can be build for a significant discount to typical potash mines. South Boulder has also provided investors with updated economics for the project which have shows a total capex (without working capital) of US$1.2295 billion. With a potash price of $450 per tonne, the project has an net present value of $1.3 billion with a discount rate of 7 percent and an IRR of 15.1 percent.
The company is currently working on its definitive feasibility study.
Should all go according to plan, production is slated for 2016.
The Danakil Depression
The Danakil Depression is a desert basin that stretches from southern Eritrea to north-eastern Ethiopia. The region has a history of artisanal salt production. According to Beat the Market Stock Picks, the Danakil Depression is the fourth most important potash belt in the world (the other three being in Saskatchewan, Brazil and Russia).
As mentioned, Allana Potash is working on the Dallol potash project on the Ethiopian side of the Danakill depression. The project totals 1.2 billion tonnes of potash. The company has applied for a mining license and is hoping to start production in Q4 of 2015.
Securities Disclosure: I, Vivien Diniz, hold no direct investment interest in any company mentioned in this article.