* Study shows 85 pct increase in fertiliser reserves

* Australian firm says to increase mine life

(Reuters) – Australia-based South Boulder Mines has upgraded its flagship Colluli potash mine in Eritrea to a first tier asset, after a study indicated an 85 percent increase in reserves, the firm said on Monday.

Scores of mining contracts with foreign firms are expected to drive economic growth in the secretive Horn of Africa state, which exports little to the outside world and suffers from a shortage of foreign currency.

The firm, which has a 90 percent stake in the project, said it estimated Colluli now had 1.08 billion tonnes of 18 percent grade for 194 million tonnes of contained potash.

“This represents an 85 percent increase in contained potash,” a company statement said.

“The expanded resource is expected to substantially improve the already robust economics of an open pit mine at Colluli. Importantly, the shallow deposit is open in many directions and is expected to grow further with the current resource extension drilling programmes,” the statement added.

Eritrea set the government’s stake in any mining project at 10 percent in 2008 with an option to buy a further 30 percent, a small claim compared to other countries in the area like Egypt which mandates a 50 percent stake or Sudan at 60 percent, according to industry experts.

“This upgrade further confirms Colluli as a Tier 1 asset,” said South Bolder Managing Director Lorrie Hughes, adding the 17-year mine life would be extended.

Potash is a key crop nutrient that is produced in only a handful of countries, with Canadian and Russian players controlling the vast majority of global potash exports.

Apart from small-scale, artisan mining and some minor extraction by Italians during the colonial era, Eritrea’s mining potential is unexploited. Some bigger miners were scared off by the 1998-2000 border war with Ethiopia. (Reporting by Mark Anderson; Editing by Yara Bayoumy)