Please Note: Blog posts are not selected, edited or screened by Seeking Alpha editors.

Allana Potash Receives "Significant" Interest From Potential Lenders For Dallol Project

*You can't submit an empty article!

Allana Potash Corp. (TSE:AAA) said Monday that initial discussions with prospective lenders has been "very positive", with the company receiving interest for more than $600 million to finance the construction of its Dallol potash project in Ethiopia so far.

The $600 million exceeds the amount of debt financing Allan was initially contemplating as part of its overall project financing strategy, it added.

The company plans to continue working with its project financing advisor BNP Paribas, as well as technical consultant ERCOSPLAN and prospective lenders as the necessary elements of the project's construction and operations are refined in the ongoing feasibility study, ESIA and pre-production work through 2012.

Allana expects the technical and commercial commitments for the project to be completed by late 2012, it said, allowing for the closing of the project debt financing and start of construction in early 2013.

The news sent Allana's share price up 4.29 percent to 73 cents on the Toronto Stock Exchange Monday afternoon.

"Allana is very encouraged by the formal expressions of interest from various propsective lenders consulted to date," chief executive Farhad Abasov said in a statement.

"We believe such indicative support underscores the technical merit of our project, their confidence in Ethiopia and the robust projected credit metrics of the project which can support our targeted amount of project debt financing thereby increasing the potential returns to Allana shareholders."

Last October, the company appointed international investment bank BNP Paribas as financial advisor to structure debt financing for its Ethiopian potash project.

BNP Paribas has offices in more than 50 countries, including 12 countries across Africa. The firm has a wide-ranging expertise in financing African mining projects with over 30 large scale transactions.

The company also announced in February the Republic of Djibtouti's government has started the pre-qualification process to select contractors for the construction of a new port at Tadjoura, Djibouti.

Allana said it will continue to work with the Djibouti authorities to integrate the required potash storage and handling facilities into the new port plans.

Last November, the company announced the results of the PEA for its Dallol potash project for production of one million tonnes, with the potential to expand output at the site to two million tonnes of muriate of potash (MOP) product per year at a later stage.

The economic study, conducted by Ercosplan and based on solution mining with a solar evaporation method, yielded, on an after-tax basis, an internal rate of return (NYSE:IRR) of 36.8 percent and a net present value (NYSE:NPV) of US$1.85 billion, based on a 12 percent discount rate.

The results exceeded management's expectations, said Abasov, with the project having "one of the lowest capex and opex in the world" in the potash industry, especially when compared to Saskatchewan players in Canada.

Solar evaporation of the saturated brine solution is possible at the Dallol project due to the year-round hot temperatures and very little rainfall, in contrast to Saskatchewan. Salts harvested from the ponds at Dallol will be processed by standard flotation to create an MOP product.

The Ethiopia project also hosts shallower deposits, which means the company is not required to drill that deep, allowing for cost savings, Abasov told Proactiveinvestors in December.

The ongoing feasibility study, which will consider additional MOP and sulphate of potash (NYSEARCA:SOP) output, is due out in the third quarter of 2012.

Meanwhile, pilot evaporation pond testwork, hydrogeological studies and solution mining testwork are underway as the company's feasibility study advances. Heavy machinery to construct the ponds is on site, and engineering work and earthworks are in progress, Allana added.

An update to the NI 43-101 compliant technical report is also expected by the end of the first quarter of 2012, with Abasov expecting substantial additions to resources on the eastern side, and an upgrade to the measured and indicated category on the western side.

Exploration drilling has now shifted to the far eastern part of the property as part of the program designed to add mineral resources.

Allana Potash already has financial support from two strategic investors, IFC, a member of the World Bank Group, and Liberty Metals and Mining, and recently announced the closing of a $20 million private placement financing.

Total measured and indicated resources now stand at 673 million tonnes, with an average grade of 18.65% KCI, with total inferred mineral resources of 596 million tonnes at a grade of 19.96% KCI.