Circum Minerals Ltd., a closely held Canadian miner, held talks with Chinese and Indian companies about establishing a partnership to develop a $2.58-billion Ethiopian potash plant as it awaits a mining license from the government, its chief executive officer said.

Several companies from other nations are also interested in the world’s “lowest-cost” potash mine in the northeast Afar region that may generate $1 billion of the fertilizer ingredient a year by 2022, Brad Mills said by phone from Toronto on Wednesday. Chemical producers, industrial engineering companies and Chinese and Indian potash-sellers with valuations of at least $25 billion are the type of partners being considered, he said.

“There are probably 20 companies in the world that can do this project and have the balance sheet and the kind of capital that’s going to be required,” Mills said. “We are confident that it will attract that sort of serious attention by strategic players who want to have one of the world’s best potash projects for the next 50 years.”

Other companies including Oslo-based Yara International ASA are working on similar plans in the low-lying Danakil area, one of the hottest places on earth, though none have begun production. BHP Billiton Ltd., the world’s largest mining company, exited a potash operation in the area in 2012.

MAP: Ethiopia
MAP: Ethiopia

Ethiopia’s government is evaluating Circum’s proposal and should make a decision by January on whether to issue the license or request further information, Mines Minister Tolesa Shagi said by phone Nov. 3 from the capital, Addis Ababa.

Circum’s aim to attract around $1 billion of equity financing for the project’s first phase follows Allana Potash Corp.’s acquisition by Israel Chemicals Ltd. in June. Allana said it intended to start developing a $1.3 billion mine in Afar this year after receiving a mining license in 2013. Muriate of potash was trading at $300 per metric ton on Sept. 30 after reaching a five-year high of $483 in February 2012.

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The government has built a road to the area from Mekelle city and plans to continue it to a proposed port at Tadjourah in neighboring Djibouti, as well as provide electricity, Mills said. It should cost less than $100 per ton to get the potash onto a ship, while maximum freight costs to Asian markets are $15, he said.

“That gives you a huge operational advantage to everybody else in the world,” the former BHP senior executive said. Mills is also an investor in the project through funds including project developers Plinian Capital Ltd.

Local potash production could boost Ethiopian agriculture, which grew at 6 percent over the past five years and accounts for about 80 percent of employment, said Mark Bohlund, an economist with Bloomberg Intelligence in London.

“Having potash sourced domestically, rather than shipped in through Djibouti, should reduce the farm-gate price of fertilizer for Ethiopian farmers and help them to raise yields and production at a lower cost than existing subsidy programs,” he said in an e-mailed response to questions on Thursday.

The first phase of the solution-mining project will last 26 years, according to Circum’s website. Around $800 million will be spent on 20 square kilometers (7.7 square miles) of evaporation ponds, which will be used to extract as much as 2 million tons of muriate of potash and 750,000 tons of sulphate of potash a year.

It may take three years to build the mine and three more to reach full production, Mills said.

http://www.bloomberg.com/news/articles/2015-11-06/circum-mulls-china-partner-for-2-6-billion-ethiopia-potash-mine

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