Ethiopia Mulls New Potash Partner After Failed Deal With Israeli FirmBy
Israel Chemicals seeking $198 million compensation on project
Ethiopia wants to get mine operating as soon as possible
Ethiopia is considering finding a new partner to develop a potash mine abandoned last year by Israel Chemicals Ltd., which has sought compensation at an arbitration court after accusing the government of failing to support the project.
Several companies are interested in developing potash deposits in the country’s northeastern Afar region, Mines Minister Motuma Mekassa said in an interview Wednesday in the capital, Addis Ababa. The government is eager to begin work on the project as long as there are no legal hindrances from the arbitration process currently under way in The Hague, though no discussions with prospective investors have taken place yet, he said.
“If the legal procedures allow us, we won’t wait for the decision of the arbitration court,” Motuma said. “We need as a government to develop the potash as soon as possible.”
Ethiopia, Africa’s fastest-growing economy over the past decade, plans to double the contribution of mining exports to gross domestic product to 1.7 percent and collect about $3.7 billion from the industry by 2019, the end of its current economic plan. Oslo-based Yara International ASA plans to establish a $700 million potash plant in Ethiopia’s low-lying Danakil area, while British Virgin Islands-registered Circum Minerals Ltd. said in March it’s been granted a license to mine there.
A June 2015 filing by Israel Chemicals, or ICL, said a feasibility study showed the mine, also in Danakil, could yield as much as 1 million metric tons a year of potash for a quarter of a century. Potash prices traded at $217 per ton on Aug. 31, having dropped 55 percent since hitting a five-year high of $483 in February 2012.
ICL announced in May that its Netherlands-based subsidiary ICL Europe Cooperatief UA asked the Permanent Court of Arbitration in The Hague to administer arbitration proceedings against the Ethiopian government. ICL terminated its potash project in Ethiopia last year, saying it invested about $170 million. Ethiopia filed its response to the notice of arbitration on June 12, according to ICL’s second-quarter results.
The company is seeking $198 million in compensation, which the government is challenging because it disputes Israel Chemical’s claims, Motuma said.
“There are other international companies working there, they all use the same infrastructure,” he said. “This cannot be a reason for abandoning the potash development.”
A write down of Israel Chemical’s assets over the “discontinued” Ethiopian activities, including the expected closure cost, totaled $202 million, according to the company’s second-quarter results.
ICL acquired Allana Potash Corp. in 2015 after paying C$137 million ($112 million) to purchase the 88 percent of the Canadian miner’s shares it didn’t already own. That enabled ICL to “fully control and accelerate the development” of the Ethiopian potash concession, earlier held by Allana, the company said that year.
The license transfer from Allana to ICL didn’t follow Ethiopian tax procedures, and Allana failed to consult the mines ministry, according to Motuma. The company has failed to pay $55 million in taxes sought by the government, he said.
ICL spokeswoman Maya Avishai declined to comment beyond providing a link to the company’s May 10 filing to the Tel Aviv Stock Exchange.
Ethiopia is targeting annual exports of the fertilizer ingredient totaling 74,000 tons by 2019, according to its five-year industrial plan, which says exploration and production licenses for selected minerals including potash will be given to 121 companies “including 20 big international companies.”
Neighboring Djibouti has contracted a Kuwaiti company to build a $98-million road link to enable Ethiopia to ship its first potash output from a new Red Sea port that’s been especially designed for Ethiopian exports of the mineral.