HOUSTON (ICIS)--Israel Chemicals Limited (ICL) said on Thursday it is entering into a partnership with Canadian fertilizer producer Allana Potash to develop the Danakhil project in Ethiopia.
The agreement includes ICL taking a $23m share stake in Allana at a price of 43 cents per unit, which will give the company 16% of the regular shares, with ICL holding the option to increase its stake up to 37%. Allana officials said in a statement that the investment proceeds will be used to further develop the Danakhil potash mine.
The Danakhil Potash project compromises 312 square kilometers in northeastern Ethiopia. The company’s feasibility studies project that up to 1m tonnes per year of potash could be produced using solution mining and solar evaporation techniques within a five year period.
Allana officials have touted the potential success of the project by highlighting its goal of providing additional sources of potash for Ethiopia and Africa, which will enable local farmers to increase their agricultural output.
Per the agreement, ICL will purchase and market the potash from Danakhil and provide technical assistance to Allana in bringing the facility on line. ICL officials said due to its strategic location, the project will also provide its customers in India and southeast Asia with a new supply source.
With mines in Israel, Spain and the UK, ICL is the sixth largest potash producer and sold over 5m tonnes of the crop nutrient in 2013.
ICL also said the partnership is in line with the company’s strategy to broaden its sources of raw materials while reducing production costs and to develop emerging markets.
The need for additional sources of raw materials is key to the company’s future success as it needs to acquire other means to produce potash other than from the limited opportunities remaining from its operations that extract the nutrient out of the Dead Sea.“The agricultural fertilizers market in Africa is evolving into one with the highest growth potential in the world. In addition, the location of the Danakhil mine will provide us with fast and easy access to the Indian Ocean, which will enable us to even better serve our customers in India and southeast Asia and their appetite to grow," said Stefan Borgas, ICL CEO.
Given the recent turbulence of the potash market, Allana had been trying to position itself for any market disruptions in the future by finding a potential offtake partnership as well as possible strategic equity investment with several larger fertilizer companies.
CEO Farhad Abasov said Allana will benefit from ICL’s existing global marketing and distribution networks. He said Danakhil is expected to become one of the lowest cost potash mines and that the alliance will allow the producer to achieve its operational and commercial targets.
In connection with its investment in Allana, ICL has appointed Yoram Cohen, ICL Africa General Manager, to the board of directors of Allana. ICL said it may nominate a second director to Allana's board subject to its additional investment in the producer.