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Danakali Ltd: DEEP DIVE

Danakali aims for transformative year with Colluli SOP project in Eritrea

Plans to build the 200-year fertiliser project are backed with a US$200 million loan facility.
Colluli is 75 kilometres from Eritrea’s eastern Red Sea coast
OVERVIEW: DNK The Big Picture
Colluli is 75 kilometres from Eritrea’s eastern Red Sea coast
  • Colluli Potash Project is held in a joint venture with the Eritrean National Mining Company
  • The project has a 1.1 billion tonne ore reserve grading 10.5% potassium oxide
  • Colluli’s reserve contains 203 million tonnes of sulphate of potash (SOP) equivalent
  • The massive deposit is big enough for a 200-year mine life

What does Danakali do?

Danakali Ltd (ASX:DNK) (LON:DNK) is a greenfields potash project developer focused on Africa. The company is led by new chief executive officer Niels Wage, an experienced potash industry executive who became CEO in March 2019.

He had been Danakali’s chief commercial officer from June 2018, advancing the company’s relationship with its flagship project’s offtake partner EuroChem Group AG.

The executive previously held senior management positions at BHP, where he was vice-president of its potash, freight and diamonds divisions. At BHP, Wage was also responsible for Jansen Potash Project marketing and sales activity and its supply chain.

Before his time with BHP, Wage worked in trading and logistics for Cargill and Vopak, holding directorships in ventures such as JVs between Japanese firms K-line, Daiichi and JFE Steel and BHP, the International Plant Nutrition Institute and RightShip.

What does Danakali own?

The key asset is the 200-year Colluli Potash Project in Eritrea held in the 50%-owned Colluli Mining Share Company (CMSC) joint venture with the Eritrean National Mining Company (ENAMCO).

In December 2018 Danakali secured a US$200 million syndicated loan facility towards construction of the 50:50 JV’s sulphate of potash (SOP) mining project.

Colluli has a very large ore reserve estimate of 1.1 billion tonnes grading 10.5% potassium oxide for 203 million tonnes of contained SOP equivalent.

The company hopes to put the project in development this year as it meet a number of milestones set in its fully-underwritten loan facility.

Colluli’s loan facility is being led by African development financial institutions (DFIs) African Export-Import Bank and Africa Finance Corporation.

EuroChem has agreed to take, pay, market and distribute up to 100% (minimum 87% at CMSC’s option) of Colluli Module I SOP production for at least 10 years.

The agreement makes the developer a stand-out SOP greenfields developer with a take-or-pay offtake agreement.

Danakali had $9.7 million cash at the end of 2018 after making a $6.1 million total comprehensive loss for the year.

The well-backed company is expected to spend $2.6 million in the end of the March quarter of 2019 and is due to file its next quarterly reporting by the end of April 2019.

Inflection points

  • Construction and financing milestones

  • Regulatory approvals

  • Key investment decisions

  • Offtake agreement progressions

  • Significant agreements and transactions

CEO Niels Wage highlights significance of Colluli project

New Danakali CEO Niels Wage told the market this month: “2018 was very important for Danakali, with a mix of significant financial, operational and geopolitical developments that supported the progress of our plans.”

Speaking as the company released its fiscal year 2018 annual report, he said: “I believe that 2018 and 2019 will prove to be transformative for the company.

“We have established a clear strategy to further develop (Colluli) project and unlock shareholder value over the coming years.”

Chatting with Proactive Investors this month about the Eritrean project he noted the fertiliser project was a shallow deposit that “can be mined with an open pit.

“We’re working very closely with the Eritrean government to develop this project.

“The development of this deposit is quite unique for the industry ... it’s a low-cost project but also has a significant impact on Eritrea and the area.”


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