Essel Group ME (EGME): Bada Potash Project to Commence Production in 2018

Development News
The Indian multinational conglomerate Essel Group commence potash production from its Eritrea Bada Potash project in 2018
The Indian multinational conglomerate Essel Group, who in 2015 acquired the Bada Potash exploration license from the Canadian NGEX Resources, said potash production from its Eritrea project will commence in 2018.


With potash playing a key role in meeting agriculture’s needs with 95% of it being used as fertilizer, World Fertilizer’s Assistant Editor Harleigh Hobbs spoke to Punkaj Gupta, Joint Managing Director & Group Chief Executive of Essel Group ME, about the company, its flagship potash project and the future of the industry.

Q : Essel Group ME (EGME) is a diversified conglomerate operating primarily in Europe, the Middle East, Africa and Asia Pacific region. Tell us more about your natural resources platform and your portfolio.

EGME is part of Essel Group, the Indian multinational conglomerate which has a 90 year history of developing and promoting businesses and has net assets of approximately US$20 billion. EGME is driving Essel Group’s expansion across Europe, the Middle East, Africa and Asia pacific region. Our vision is to actively acquire and manage a portfolio of assets and businesses across a range of sectors capable of delivering long-term growth.

We see great opportunity in the oil & gas and mining sectors. We are confident that by targeting competitively valued assets in underdeveloped markets, we have the right strategy in place to become a leading, low-cost natural resources company.

Through our potash business, we have an interest in two extremely exciting projects. In May 2015, we acquired the exploration licence for the Bada potash mine, which is situated in the most northern part of the Danakil region of Eritrea.

Then, in November 2016, we signed a Memorandum of Understanding (MoU) with Gensource Potash Corp. (Gensource) to form a joint venture (JV) to develop a potash project in the Vanguard area in Saskatchewan, Canada.

Our mining business owns and operates four iron ore mines in Eritrea: Agameda, Gedem, Defere and Tereshi. The Agameda and Gedem mines contain total resource and reserves of 75 – 100 million tones of 60 – 64% quality Fe.

Our oil and gas portfolio was acquired in June 2015, following an agreement with Simba Energy, a Toronto-listed oil and gas exploration company. As part of the agreement we acquired a 60% participating interest in five production sharing contracts on assets in Kenya, Guinea, Liberia, Ghana and Chad.

Finally, as part of our commitment to meeting the global demand for energy from alternative low-carbon energy sources, in October 2016, we announced our investment in LeadCold Reactors, the Swedish-Canadian lead-cooled small nuclear reactor technology company.

Q : In August 2015, EGME acquired the exploration licence for the Bada potash mine in Eritrea’s Danakil Depression. Could you provide us with a background about details of the project and where you are at currently?

The 626 km2 Bada licence area is situated in the Danakil Depression in Eritrea, which is renowned for possessing significant accumulations of potash.

It is favourably located close to existing infrastructure and is approximately 330 km from the capital city Asmara and 230 km from established port facilities in Massawa, which provides direct and highly cost-competitive access to key end markets. We are also looking at the feasibility of constructing a jetty on the Red Sea coast, a mere 40 km from the Bada project, to further improve access.

We are currently conducting early stage testing across the site and anticipate that we will commence production in 2018.

Q : What are the next steps for Bada?

There are a number of important milestones that we need to reach before we commence production at Bada in 2018. We are currently conducting electrical resistivity tests at the site to delineate the potash deposit trend and identify any geological and structural disturbances. After that we will start direct core drilling to help better estimate our inventory resources. At the same time, we will proceed with the environmental baseline study, social impact assessment, feasibility report and EPCM (Engineering, Procurement, and Construction Management).

Q : Once developed, how much potash is projected to be produced and what end markets are you intending to target?

We estimate that the Bada project possesses reserves of more than 1 billion tones of potash.

The site is favourably located close to existing infrastructure and is approximately 330 km from the capital city Asmara and 230 km from established port facilities in Massawa. This provides direct access to key end markets in Europe, Africa, India, China and Southeast Asia.

The proposed jetty on the Red Sea coast, a mere 40 km from the Bada project, will further improve access.

Q : What obstacles have you faced in the development of Bada and how have you overcome these?

We haven’t encountered any unforeseen challenges, but as with any underdeveloped asset, you are always going to encounter small setbacks in the early phases. Bada is situated in a fairly remote location so it will take time to complete the testing phase on the asset. We remain extremely confident about the prospects for Bada and are looking forward to commencing core drilling later this year.

Q : There are several potash projects to the south of Bada and across the border in Ethiopia which have significant proven potash reserves. Do you see any potential here?

Of course, but none of them are yet in operation, due to technical and logistics issues. One of our neighbouring projects in Eritrea is in advanced stages of nearing production but, at present, we are focused on bringing Bada into production as quickly and as safely as possible.

Q : Safety is a top priority in mining. How is Essel Group’s performance here? What measures are you taking to consider the environment and safety?

Health and safety management is obviously a priority for us and our approach is tailored to the unique challenges at each of our assets. Prevention of injuries is key, and we have robust policies and procedures in place to ensure the ongoing safety of our employees and contractors.

For example, we plan to employ a skilled health and safety professional at Bada to further develop, review and enforce health and safety standards and procedures. As part of our focus on continuous improvement, we also conduct regular feedback and consultations through reports, workplace inspections and meetings.

On a more granular level at Bada, we have introduced several safety measures to help manage and eliminate risks, including the mandatory use of PPE, avoiding worker shifts during the hottest parts of the day and ensuring appropriate medical facilities are available on site.

Q : Last year, EGME entered into an MoU with Gensource Potash. What does this mean for EGME?

Last year we signed an MoU with Gensource to form a JV company to develop one of Gensource’s projects in the Vanguard area in Canada’s Saskatchewan region. This is another extremely exciting asset and the agreement is an important milestone for our potash business. In February 2017, Gensource announced that it has completed an updated NI 43-101 technical report on the Vanguard project, following the completion of two new exploration wells. The technical report upgrades the indicated resource potential to almost 145 million t of final potash product. The resource upgrade supports an expansion of the production capacity of the project once operational from 250 000 tpy of potash to over 1 million tones per year.

We are committed to building a portfolio of high-quality, competitively valued assets and the Vanguard project is a perfect example. Thanks to its cost-effective and efficient recovery method, Vanguard’s cash costs are the lowest in North America and equal to those in Russia.

In addition, the project lies close to existing infrastructure, which provides access to both domestic and international customers. Under the terms of the MoU, we will deliver US$200 million of financing for the project over two stages. The first tranche will fund the completion of the feasibility study that is currently underway and expected to be completed in spring 2017. The second injection of capital will then fund the construction of the project. Once this financing commitment has been met, we will hold a 70% economic interest in the JV company.

Q : Could you provide a general overview of current conditions in the global potash market?

The global potash fertilizer market has been oversupplied for the past 15 years, but the outlook now indicates that demand and supply will grow going forward, bringing the market into balance.

In addition, suppliers are now seeing favourable signs in the market. The price of potassium chloride is increasing in markets such as Brazil, the US, Asia, and Europe, and supply and demand of global potash fertilizer has become more balanced of late. These price increases indicate higher customer activity, as customers turn towards potash.

On a more basic level, many factors dictate whether individual fertilizer producers are successful, including cost of production (which includes energy costs) and logistical considerations to supply major customers, such as port access and availability of shipping and transportation facilities.

Q : What is your view on the short- and long-term market for potash mining?

Several factors drive global potash demand, underpinned by the need for food based on population growth and dietary changes. As the standard of living increases in developing countries, so does the demand for more calorific food and the associated dietary changes. The global population is growing at 80 million people yearly, which underscores the fundamentals of the fertilizer market as we need to make agricultural land more productive.

In addition to food, a growing biofuels industry is placing increased demand on arable land. Biofuels are made from high nutrient absorbing crops, such as corn, and their cultivation increases global fertilizer demand yet further. Moreover, it is not possible to substitute potash for any other plant nutrient, which provides strong fundamentals for the industry.

Consequently, we expect the underlying growth of the potash market to continue in the long term.

Bada potash project to commence in 2018
The Indian multinational conglomerate Essel Group in 2015 acquired the Bada Potash exploration license from the Canadian company NGEX Resources. Previously in 2012, Nevsun bought NGEX Resource’s Hambok project license.