Danakali pursues alternative funding for Colluli Potash Project in 2021

Danakali Ltd (ASX:DNK) is pursuing several funding avenues for the ongoing development of its Colluli Potash Project in Eritrea in a 50:50 joint venture with the Eritrean National Mining Corporation (ENAMCO), known as the Colluli Mining Share Company (CMSC).

Company chairman Seamus Cornelius said at the recent annual general meeting that due to the share price falling dramatically in March 2020 and not yet recovering to pre-crisis levels, its has been difficult to raise money and further progress the development of Colluli in 2020.

He said: “In 2019 the company signed key documents for a US$200 million senior debt facility with African Export-Import Bank (Afreximbank) and Africa Finance Corporation (AFC) and receiving a significant equity investment of US$21.5 million from AFC which became Danakali’s largest single shareholder, I began 2020 with a strong sense of optimism that we would be able to make substantial progress at Colluli.

“Colluli as a project is exceptional but Danakali as a public listed company is always subject to market forces, for better or worse.

“At our current share price there is little opportunity in the short term for a further issue of Danakali shares to fund Colluli.

“However, we are pursuing several alternatives and making progress toward a positive outcome.”

“Confident of a financing outcome soon”

While there is some flexibility in the construction schedule developed with EPCM contractor DRA Global, meeting the 2022 production target date depends on the company closing out funding and starting construction early in 2021.

Cornelius said: “We are discussing all possible options for developing Colluli with ENAMCO and MOEM.

“Given that Colluli is widely recognized as an outstanding asset I am confident that we will have an outcome soon.”

The company believes Colluli has many positive attributes and has been extensively studied by Danakali through the course of the PFS2 , DFS3 , and FEED4 studies and by senior lenders, AFC and Afreximbank through their consultants and by its off-taker, EuroChem.

Cornelius said: “It has outstanding size, grade, minerology, is very close to surface and is located close to excellent infrastructure as well as current and future markets for its products.

“All of these qualities combine to make Colluli an outstanding project that will deliver superior economic returns.”

Staged development plans

When the company did the initial PFS on Colluli, it approached it on the basis that it would develop it as an equal partner with ENAMCO and begin at a ‘sensible’ scale keeping in mind constraints such as product market size, development risk, local conditions and fundability.

Cornelius said: “We have proposed starting the development of Colluli in two modules, both producing approximately 472,000 tonnes of SOP/year or 944,000 tonnes/year 6 after the second module.

“At that scale Colluli will produce SOP for approximately 200 years.

“Clearly once Colluli is in production, we will reassess the development plan and look at product diversification and improved port/transport access to cut the operating costs even further and thereby deliver even greater economic and social impact dividends.”

Computer generated image of the Colluli Mine camp

Socio-economic impacts

In addition to the economic returns, Colluli is expected to provide a significant social impact dividend as was demonstrated by the independent report from the United Nations Development Program (UNDP Report) on Colluli published in January 2019.

The report details the jobs the project will create, the improved outcomes for farmers and improvements in food and nutrition security.

Other opportunities include the use of geothermal, wind and solar energy to make it carbon neutral which the company will examine as soon as the required funding is secured.

Cornelius said: “Despite the numerous obstacles imposed on Eritrea over the last 20 years or so the Government has done a remarkable job with scarce resources and achieved superior outcomes in the key areas of food security, water conservation, environmental protection, public health and education.

“I am very confident that the development of Colluli will only enhance these results.

“From the beginning of our 50:50 joint venture with ENAMCO it has been clear that economic and social impact returns are equally important.”

Looking forwards

Key activities planned for quarter four 2020 includes advancing project funding and continuing to satisfy conditions precedent necessary to allow CMSC senior debt drawdown.

The development of the project will also continue with ongoing technical workstreams including optimizing process test work and process streams and desktop studies for further opportunities with the water intake treatment area.

Cornelius said: “The only remaining hurdle to the development of Colluli is securing the balance of funds needed to build the asset, operate the company and service the debt before we start earning revenue.

“We are pursuing multiple options in partnership with ENAMCO.

“Our determination to honour our commitments and see Colluli developed is unwavering.

“We have strong shareholder representation on our board and are focused on achieving an outcome that creates value for shareholders and other stakeholders.”