Danakali Limited (ASX:DNK) (LON:DNK) is in the final stages of completing the second phase of development for its world-class Colluli Potash Project in Eritrea from which first production of sulphate of potash (SOP) is on schedule for 2022.
The front-end engineering design (FEED), expected to be finished in June, will take the company a step closer to the construction phase, Danakali said.
Despite COVID-19 restrictions, all engineering, procurement and construction management (EPCM) activities have continued as scheduled and all vendor and contractor packages have now been received.
Receiving these bids has allowed DRA Global to finalise the tender evaluation process with the intention of providing a technically compliant and commercially favourable estimate.
The three key objectives set for the second phase of development included updating the capital estimate, project schedule and identifying key test work required to move into Phase 3.
The project is 100% owned by the Colluli Mining Share Company (CMSC), a 50:50 joint venture between Danakali and the Eritrean National Mining Corporation (ENAMCO).
In the initial phase of operation, chief executive Niels Wage said, Colluli would produce more than 472,000 tonnes a year of Sulphate of Potash. Annual output could rise to almost 944,000 tonnes if Danakali decides to go ahead with a second phase of development, as the project has a possible 200-year plus mine-life.
The asset has the potential to produce other fertilizer products, such as Sulphate of Potash Magnesium (SOP-M), muriate of potash (MOP) and gypsum, along with rock salt. There is also potential for kieserite and mag chloride to be commercialized with minimal further processing required.
Shares of the company, which has a market cap of approximately A$131.7 million, have climbed from A30.5 cents at close on March 18 to A43.5 cents on Thursday (21) morning.
The Colluli project is in the Danakil Depression region of Eritrea and is about 75 kilometres from the Red Sea coast, making it one of the most accessible potash deposits globally.
Mineralization within the Colluli resource begins at just 16 metres, making it the world’s shallowest known potash deposit.
This resource is amenable to open-cut mining, which allows higher overall resource recovery to be achieved, is generally safer than underground mining and is highly advantageous for modular growth.
SOP Price Premium
Danakali has completed a Front End Engineering Design (FEED) for the production of SOP, a chloride-free, speciality fertiliser which carries a price premium relative to the more common Muriate of Potash (MOP) or potassium chloride.
A binding take-or-pay offtake agreement has been confirmed with EuroChem for up to 100% (minimum 87%) of Colluli Module I SOP production.
Development finance institutions, Africa Finance Corporation (AFC) and African Export Import Bank (Afreximbank), have obtained formal credit approval to provide CMSC with US$200 million in senior debt finance.
Credit documentation allows drawdown of CMSC senior debt on satisfaction of customary conditions precedent.
This represents the majority of funding required for the development and construction of the project. AFC has also executed a subscription agreement to make a US$50 million strategic equity investment in Danakali.
A United Nations report published last year suggested that Colluli could significantly boost Eritrea’s economy.
Eritrea was, until 2018, on the UN’s sanctions list.
The document estimated that Colluli would contribute 3% of the country’s GDP by 2021 and 50% of the nation’s exports by 2030, while providing 10,000 direct and indirect local jobs.
The report also identified how the mine could help Eritrea advance its sustainable development agenda, which are 13 priority Sustainable Development Goals (SDGs).
These include: No poverty, zero hunger, quality education, gender equality, clean water and sanitation, sustainable economic growth and decent work, industry, innovation and infrastructure, reduced inequalities, climate action, peace, justice and strong institutions and partnerships for the SDGs.