Yara International is a global fertilizer manufacturing company which has been supplying fertilizer to Ethiopia for years. In 2009 a subsidiary called Yara Dallol BV was established which has been engaged in potash exploration project in the Danakil Depression in the Afar Regional State, northeastern part of Ethiopia. The company has confirmed the presence of a vast potash deposit which can be mined for the next 20 years. Recently, the Ministry of Mines, Petroleum and Natural Gas signed the mining agreement for large-scale potash mining with Yara Dallol. Kaleyesus Bekele of The Reporter sat with Sanjay Rathore, general manager of Yara Dallol, to discuss the exploration work the company has done so far and the planned mining project. Excerpts:
The Reporter: Can you tell us about the exploration work Yara Dallol has undertaken?
Sanjay Rathore: We did a lot of exploration work. We used standard drilling equipment with very experienced drilling operators. This is a very technical work that requires very experienced drillers and geologists who can understand and analyze the core samples. The entire earth is not potash. There are different layers and the potash comes in between. The area was covered by sea millions of years ago. The sea was cut off from the mainland and an evaporate sequence of various salts was created; some of it as potash layers especially the kainitite for sulphate of potash. This layer was well studied and analyzed for its grade, consistency and thickness. We did many core drillings and collected thousands of core samples.
We did a lot of well logging using international consultants but we also trained local geologists under them and now we do some of the well loggings by local capacity. That was an important part of the exploration work. We did a 2D seismic survey for nearly 100km using German expertise. So these three important information – actual core logging and sampling, geophysical well logging and seismic studies – allow the geologists and mining experts to interpret the results and then make the geo-analysis of not only the chemistry but also the quantity and geometry of the targeted layer of the potash.
These were some of the exploration work we have done but then we had to see how we can mine economically and safely. This method was found to be using solution mining technology. That was a very interesting because this is not conventional mining. We have to dissolve the targeted salt by injecting solvent water. So we have to find enough water and its responsible use. That required an intense hydro-geological investigation. We did a study with support of the Ministry of Water, Irrigation and Electricity. It is encouraging to see that there is enough ground water with some more investigations to follow. Hydro-geology study has been one important part of our exploration work.
Tell us about the findings of your exploration work? What types of minerals have been found? And tell us about the amounts of deposits.
Our concession primarily consists of potash. Within potash we have focused on kainitite for sulphate of potash because that is the layer which is quite consistent and high grade. Based on the mineable resources what we have, we plan to produce about 600,000 tons per annum with a mine life of nearly 20 years. We will see the opportunity if we would be able to do more investigation to increase the mineable resource base in the future.
How much did you spend on the exploration work?
We have spent a huge amount of money in the exploration work in the past seven years. It is not only the ground studies but we also do a lot of analyses including off site analysis and engineering activities in terms of processing and sampling. International laboratories were involved in making the geochemical and rock mechanical analysis. We should be able to mine the optimum amount of the potash deposit taking care of the environment.
What type of fertilizer are you going to make out the sulphate of potash mineral? For what type of crops would this fertilizer be useful?
The type of fertilizer would be Sulphate of Potash (SoP). This is a special fertilizer which allows healthy crops especially for high-end crops like fruits and vegetables and cash crops. It increases the immunity of crops with increase in productivity. That makes our Dallol potash project interesting.
After a long negotiation, you recently signed a mining agreement with the Ministry of Mines, Petroleum and Natural gas. Why did it take so long to sign the agreement?
We are very thankful to the Ministry and the Government of Ethiopia for making this happen. The mining agreement was signed recently. The challenge with the project is also that it took a long time to understand the deposit. Solution mining is not common in the mining world. So we have to develop our unique method to extract the potash. Even processing of potash required a lot of work. You do not simply pick the technology from the shelves and apply it here. This is a greenfield project that is being developed for the first time and it is quite challenging. It requires a combination of experts from different fields.
You also need a site camp for the people working in the harsh climatic conditions of Dallol which goes up to 45-50 degrees Celsius. You have to also look after the health and wellbeing of the people working on the project in that challenging environment. You do not work at the hottest hours of the day because you do not expose your employees to health risk and this reduces your productive time in the project and affects the efficiency. Lack of nearby infrastructure and support services compels you to develop your own supporting systems and everything becomes a small project in itself.
So that is one part and the other is that such big project requires financing. Once the feasibility was completed we applied for mining license. Then we started negotiating the mining agreement with the Ministry. In addition to the equity investments, the banks also need to have a bankable project to provide loans. The commercial banks have strict conditions to invest their money in the project and reduce the risk. They have their own experts to do a due diligence.
This took quite some time and the Ministry was patient with us and we tried to explain in a good way the project requirements. We are having discussions with various agencies on power and water supply and have made good progress. We are also closely looking at the road network development for the project and product export route to Djibouti. Primarily, this project is export oriented and the authorities have been doing a great effort to complete the road and other infrastructures.
Do you plan to export the potash by truck or train?
The project feasibility study base case is by trucking. Normally, a railway can be cheaper for bulk transportation but at this point our base case is by road logistics.
What were the major challenges you faced during the exploration phase?
Challenges were there. The remoteness of the place and the severe climatic conditions are some of the challenges. It is very hot out there. With lack of supporting infrastructure nearby you are almost in the middle of a desert so you have to develop living facilities. We had to install a VSAT as there was no internet or mobile connection in the beginning. Initially there was no asphalt road to the site. There is no electric power supply in the area. The national grid will reach there after two or three years so we are totally dependent on diesel generators and we need to ensure constant supply of diesel. So there are many logistical issues. But with proper planning and stock management we did not face power shutoff.
Your site is very close to the Eritrean boarder. Have you faced any security issues?
The government has provided security in the area and so far we have not faced a challenge which could impact the work. We keep communication with the government on security matters and we receive good support. The project is safe and it has been free of any incident.
Now you have signed the mining agreement. How are you going to develop the potash mine and when are you going to start?
Signing the mining agreement is an important milestone. But it is also important that we continue discussions with the government to get the other permits like water, power supply and port agreement. We also need assurance that the proper infrastructure will be in place and on time. All these should be finalized before we can start construction.
What do you want the government to build?
The government has to build the lowland road for which work has started besides the power supply line and station for Dallol. We also have to do detailed engineering work which is the key part of the project i.e. how we are going to engineer the plant and the mine. We will also work on engineering of the water field and potash storage facilities. Engineering contractors will be appointed to carry the project through to the next phase.
What are you going to build? Is it a fertilizer factory?
We plan to build a solution mining area for brine production and evaporation and a potash processing plant at Dallol.
It is not going to be an open pit mine?
It is not going to be an open pit mine. We will drill holes of medium to high depth and potash brine is produced below the ground.
How many holes are you going to drill?
About forty production wells each with estimated depth of average 200-250 meters to start with. It will have pumping installations. The brine (potash solution) will be taken to the evaporation ponds and will be left in the ponds for the water to evaporate. When the water is evaporated the potash will remain in the ponds. Then we will have the plant. It will have its own installations. The potash will be crystallized and we will separate the good salt from the bad salt. We will dry it, refine it and pack it. Then it will be loaded on trucks and transported to Djibouti and the final product will be sulphate of potash.
How long will it take to develop the mine and build the plant? And how much will it cost?
As per our mining agreement obligations, we have to start production from the date of agreement within four years. The first year will be doing the detailed engineering work. Given that the required closure of the project financing and the required infrastructure is in place. The actual construction may take about three years. Regarding the project cost, an estimate of the detailed engineering work will enable us learn about the costs. As per the feasibility study, the estimated capital expenditure was about USD 740 million. But we are doing some cost optimization by selecting most optimized processing route and also trying to be smart in minimizing our capital cost. We are also looking at how best we can use local expertise. So we do not have to spend everything outside of Ethiopia. We hope to reduce the investment cost without compromising the quality. That will take the project to better profitability. The product will be more competitive in the global market and everybody will win. The government has a five percent stake on the project in addition to all the taxes and royalty fees as applicable.
Do you plan to export your product via the Port of Tajourah?
Yes that is the plan.
How much of the production will be exported and do you plan to supply to the local market?
There is the potential for local use of potash for fruits, vegetables, flower and coffee farms. But agronomists should conduct the study on the type of soil that requires potash fertilizer. The Ministry of Agriculture can help in this regard to understand the soil needs. Ethiopia is a big country and depending on the geography and the studies conducted on the soils, the nutrient needs could be found out. We are hopeful and we will be happy to supply our product to the local market and contribute to the growth of agriculture.
So you export the majority of the product?
At this point we think that it will be a mainly export oriented product which will bring a lot of foreign exchange. It will significantly contribute to the economic development of the country. But opportunities for local supplies can be explored.
How much do you expect to generate every year?
The price of SoP is always something which is subject to market conditions and varies as per demand and supply side. If we produce 600,000 tons of potash we could generate USD 300 million in revenue every year.
How many jobs did you create and how many do you plan to create in the future?
During the exploration stage, we had from 150-200 people in the project. We have done some estimate about the construction. A lot of work will be carried out by contractors. The project will hire a good number of local and fewer expatriates based on the nature of the job. On average the project will hire about 1,000 people during the construction phase. When we go operational, we will have lesser employees. We may have 500-600 employees when we become operational. The project will open job opportunity for the people of Afar and also other parts of Ethiopia. Because of the nature of some specialized activities we may hire foreign experts.
Other similar mine projects have failed in the past. Some foreign companies who were trying to develop potash mine in the Danakil region have pulled out for various reasons. So people now have doubts if Yara Dallol is going to succeed.
We are planning for success. Yara is a very responsible corporate entity. We are very serious. What we are saying is we have a few more steps to take. Those steps will enable us to make financing closure and to get the go ahead to start the construction. Yara is already a major fertilizer manufacturing company with an ambition to do more in Africa not only in Ethiopia. From that aspect it is seen as a strategic plan for Ethiopia which is a very important part of Africa. So we are quite committed to see that this project is realized. We just want to make sure that we do it in the right way and responsibly. It is not only about the mine but we also think about the farmers who are going to be the end users. We want to contribute to food security and increase the incomes of the farmer by enhancing productivity. Our product will also boost the productivity of commercial farms.