Allana Potash’s Underappreciated Rich Potassium Sulphate (SOP) Resource – An Analysis

 

By cambodine – November 11, 2013

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While the Feasibilty Study addresses and bases the Dallol Project’s economics on only the MOP producing sylvinite layer, the vast and unquantified jewel of the project is locked in the SOP bearing kainitite horizon underlying the entire property. I present an analysis of that resource and it’s implications here, courtesy of guest contributor Karmanow, with a link to a Seeking Alpha submission outlining the substantial market advantages of SOP production over MOP. It should be noted the Ethiopotash project (majority owned by fertilizer giant Yara) Allana surrounds is moving forward with an estimated 600,000 tonne per annum SOP production target from the very same kainitite compound Allana sits on, so the process is, by extension, commercially viable, and awaits only the address of monetizing it, something Allana has yet to embark on, choosing instead to go with the lowest CAPEX option thus far…

About SOP:  http://en.wikipedia.org/wiki/Potassium_sulfate

Courtesy of Karmanow 

It appears that a god has had a hand here? Not only is there a continuous 7 meter thick seam of Kainitite but it is very shallow as well…it also appears to fit the bill as “a natural source laden with the required element of sulphur.” The underlying value to shareholders is having a mineable source of this resource and NOT having to add sulphuric acid, removing the naturally occurring saline and any other steps that K+S currently use to make their man made version of SOP (at a production cost of roughly $325/tonne). The global price for SOP is based on the 80% of production that is “man made” and requires much higher input costs to get the end result of SOP. A miner that can produce SOP “without” these added costs is in a very rare and enviable postion. Remember, there are only 4 other natural occurring sources of SOP in the world. Finished SOP sells for $600 per ton because of the added costs of the 80% of current global production. This is the reality of this product and Allana could be in a position to mine it at much lower operating cost than anyone else world wide.

This is a gift from god as it is positioned over a 10 mile north to south bed in Allana’s Nova parcel and lays in a continuous shallow depth on average of 70 meters deep from surface and 7 metres thick, representing the shallowest, richest SOP resource ever delineated. By comparison, Yara’s adjacent kainitite is much deeper and less extensive.

Some representative drill results indicative of Allana’s Nova parcel’s kainitite resource:

DM -11-02:….84m-94m deep. 9m seam at 13% Kain + 60% Kain Mass + 25% SO4 (sulphur)
DM -11-04:….67m-73m deep. 6m seam at 20% Kain + 40% Kain Mass + 20% SO4
DM -11-05:….62m-69m deep. 7m seam at 18% Kain + 60% Kain Mass + 20% SO4
DM -11-06:….67m-77m deep.10m seam at 15% Kain + 40% Kain Mass + 20% SO4
DM -11-08:….81m-90m deep.  9m seam at 16% Kain + 40% Kain Mass + 10% SO4
DM -11-09:….86m-73m deep.12m seam at 15% Kain + 40% Kain Mass +

DM -11-10:….74m-81m deep.  7m seam at 17% Kain + 60% Kain Mass + 15% SO4
DM -11-12:….56m-64m deep. 8m seam at 17% Kain + 60% Kain Mass + 20% SO4
DM -11-14:….41m-50m deep. 9m seam at  16% Kain + 60% Kain Mass + 10% SO4
DM -11-15:.104m-108m deep. 4m seam at 18% Kain + 25% Kain Mass + 20% SO4
DM -11-16:…  67m-73m deep. 7m seam at 18% Kain + 60% Kain Mass + 25% SO4

A further 20 holes have been drilled on the Nova parcel — preliminary results here  http://www.allanapotash.com/s/News.asp?ReportID=609209  and will be incorporated into a new resource estimate in the near future.

More pertinent info can be found filed here  http://www.sedar.com/DisplayProfile.do?lang=EN&issuerType=03&issuerNo=00010150  on the August 6, 2013 Technical Report.

All other related info is linked through Allana Potash’s website here  http://www.allanapotash.com/s/Home.asp

Everything else Allana Potash relevant can be found or linked to here  http://allanapotashblog.org/category/allana-potash-menu/

 

Unlike Commodity Potash, SOP Is “Not” Awash With Mining Capacity

Nov 8 2013, 11:10  by: Branson Hamilton

view original article here

http://seekingalpha.com/article/1822572-unlike-commodity-potash-sop-is-not-awash-with-mining-capacity#comment-25618322

Ample investment capital in the last decade led to a mine expansion binge across most commodity minerals. This created over-capacity even as demand flattened / declined after the “great recession”. Potash was affected alongside various metals and this has impacted the stock prices of the major potash providers.

Many investors are unaware that there are two forms of “potash” – one with an over-capacity relative to demand, and another with a completely different market dynamic that favors the miners.

The bulk commodity called “Potash” is the mineral Potassium Chloride. It is primarily mined underground in Canada, Belarus and Russia and sold by companies including the Uralkali Group (Russia), Plymouth, Minnesota-based Mosaic (MOS), Canada’s Agrium (AGU) and Potash Corp. of Saskatchewan (POT), Germany’s K+S AG and U.S.-based CF Industries Holdings (CF). Between them they control approximately 80% of the bulk commodity potash market. Millions of tons are produced each year that are spread on the soil of land producing corn, soybeans, wheat and other high-volume crops. This is the “potash” that has an over-capacity of mining relative to current demand. Experts in agricultural economics agree that demand will increase to absorb the capacity over the next few years, but meanwhile investment in this space is challenging.

Meanwhile, there is another mineral with “potash” in its name, the specialty fertilizer mineral Potassium Sulfate, also known as sulfate of potash or “SOP”. Potassium sulfate is not abundant and is definitely not in a mine-capacity over-supply situation. In fact, the market dynamics for SOP are quite favorable for the natural producers of this important fertilizer.

Potassium is an element critical to crop growth. Without replenishing the soil with potassium that is used by crops as they are growing, yields and quality of harvests decline. Potassium affects water uptake by plants and is important to processes that grow the harvested part of the plant, the vegetables, fruit, nuts and grain seeds. This is a fact of nature and there is no substitute for potassium.

SOP provides potassium to growing plants, as does the commodity mineral known as Potash with four very important differences. These differences mean that the supply economics favor SOP.

First of all, SOP does not contain chloride as does regular potash.

The chemical composition of regular potash is potassium chloride. The chloride ion can be toxic to some crops, and negatively affects soils in many regions of the world. Many high value crops including fruits, nuts, tea, and tobacco are negatively affected by regular potash. Regular Potash can make soils that are already saline or with inappropriate pH even worse. For example, in large regions of Brazil, for each ton of regular potash that is applied, an equal ton of limestone must be applied to offset the effect on pH. Unlike potash, SOP has no chloride ion in it, and therefore can be used on high value crops and in these poorer soil types. The demand for SOP continues to grow from developed and developing nations.

Secondly, “the demand for SOP far exceeds current and projected future mining capacity.

Naturally extracted potassium sulfate is actually “rather rare.” There are only four known places on earth where this form of the nutrient is found naturally: at the Great Salt Lake in Utah; on the Atacama desert in South America; at the Luobupo project in Xinjiang, China; and at the Sevier Lake in Utah. Each of these sources use evaporation of lake brine as the source. However, “these sources can supply only 20% of the demand for the fertilizer.” Approximately 80% of SOP demand is produced by a chemical process that converts potassium chloride to potassium sulfate by using sulfuric acid. K+S Aktiengesellschaft (DU:SDF), a European fertilizer/chemical company, is a significant supplier of this converted SOP. Demand far-exceeds the natural supply; there will never be an over-capacity in mining SOP.

Third, the higher-cost chemical conversion process puts a floor on the price of SOP.

The chemical conversion process is much more costly than is extracting the natural product. In fact, the cost of the process forces a selling price for SOP that is more than “three times the mine-produced SOP’s cost of production.” This conversion cost is dictated by the cost of the raw materials, energy required and the process. Therefore, the market price of SOP “cannot be less than the conversion process costs or the suppliers of 80% of the world demand could not stay in operation.” This guarantees “high operating margins for the suppliers of natural SOP regardless of market conditions.”

Fourth, SOP provides sulphur to the soil as well as potassium; regular potash does not.

Sulphur has been shown in many tests to be both necessary to plant growth, and to be available in lower amounts in soils than is optimal for many crops. Sulphur augmentation of soils has been common for certain high-value crops. Recent studies show that with the reduction in sulphur emissions from coal-fired electric utilities in the United States over the past two decades that soil in the Corn Belt is beginning to require sulphur augmentation to achieve optimal harvests of even bulk crops like corn and soybeans, crops thought to not be affected by sulphur levels before. SOP provides sulphur in a form that is more readily absorbable by plant roots than traditional forms of sulphur fertilization. Regular potash does not provide sulphur, SOP does.

So how do you play the SOP space? Two ways: the volume leader or the natural producers.

The Primary Chemical Conversion Producer

K+S Aktiengesellschaft (DU:SDF) is the largest supplier of SOP from its chemical convergence operations in Germany. Its stock trades on European exchanges. K+S supplies much of the SOP consumed in Europe, Central Asia and the Middle-East. K+S also supplies other fertilizer products, so it is not a pure play in SOP. Because K+S uses a chemical conversion process to produce SOP it does not have the margin opportunity of the producers of naturally extracted SOP. However, K+S is well positioned with respect to distribution and location to market to continue its long-term franchise in this space. See http://www.k-plus-s.com/en/ for more information.

Four Natural Sources of SOP

Sociedad Quimica Y Minra (SQM) has its operations in Chile on a high- altitude brine lake in the Atacama desert. SQM produces other minerals besides SOP including lithium, however natural fertilizers is its primary business. It continues to invest in additional capacity and has distribution to South American markets as well as to global markets. SQM should be considered for longer term growth. Additional information can be found at http://www.sqm.com/.

Compass Minerals International, Inc. (CMP) has brine extraction operations on the Great Salt Lake in Utah, United States that includes over 16 square miles of evaporation ponds and is intending to obtain rights to expand their operations on the lake. Compass produces SOP, magnesium chloride and salt from the Great Salt Lake. In addition, Compass has unrelated operations and divisions elsewhere in the U.S. and U.K. Third quarter financial results for each have been good, and Compass has distribution to U.S. markets as well as contracts in global markets. Compass should be considered for longer term growth. Additional information can be found at http://www.compassminerals.com/.

Investment in the Luobupo project in Xinjiang, China is not an option for investors. Ownership and production remain within China.

The resource on the Sevier Lake Playa in Utah is under development by EPM Mining Ventures, Inc. This project intends to produce SOP. Additional information on this project can be found at http://epmmining.com/cms/ .

There are other proposed mining projects in the U.S., in South America and in Africa. These are intending to produce potassium chloride, not SOP. Therefore, they will be competing with the major potash producers in a market that has more than sufficient capacity today. These are not opportunities to participate in the SOP market.

Seeking Alpha Allana Potash specific articles:

Insiders Are Buying Allana Potash

Markus Aarnio                   •                   Wed, Oct  2 • 14 Comments

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One Comment on “Allana Potash’s Underappreciated Rich Potassium Sulphate (SOP) Resource – An Analysis”

  1. Dave S November 11, 2013 at 1:23 pm #

    Thank you Cam (and Karmanow) for this very interesting and potentially very lucrative information. The news keeps getting better and better, cannot wait for them to get the shovels to the ground. It does seem odd, given the downward pressure on potash prices, that they would not emphasize this resource in order to expedite finance discussions, but they seem to be on top of their game not only in these developmental stages but also in their judicious acquisition of additional resources.

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