Danakali confident of financing
DEBT financing agreements could be finalised “any day”, which would catalyse equity financing and start the almost 30-month development process of the 1.1 billion tonne Colluli sulphate of potash project in Eritrea, Danakali executive chairman Seamus Cornelius said this morning.
The company's project has a possible 200-year plus mine life, and the mine could be transformational for the Horn of African nation, he said.
Cornelius told shareholders he was pleased with the pace of discussions for the US$300 million financing the company needs to fund its share of the mammoth development, which it owns via a 50% share of a joint venture company with the Eritrean government.
The normally London-based Cornelius radiated confidence in the company's plans for one of the world's largest and cheapest potash projects.
It will propel the company out from the pack of Australian-listed developments such as Kalium Lakes, Salt Lake Potash and Agrimin and into a realm occupied by the likes of SQM, New York-listed Compass and Belgian-based Tessenderlo - all multi-billion market giants.
With the recent rapprochement between Eritrea and Ethiopia bringing a higher degree of certainty to the Horn of Africa, and the removal of United Nations sanctions opening the door to more investment, Cornelius said he was happy with Danakali's milestones over the past year.
The company has agreed to debt terms with Afreximbank and Africa Finance Corporation for $200 million, an offtake agreement with Eurochem for 87-100% of production for up to 13 years, and lined up key contractors such as DRA Global as it prepares for the development of its 472,000 tonne per annum module one.
At this stage a doubling of production to around 944,000tpa is planned five years after, although that deadline is subject to change and market conditions.
Cornelius said Danakali was looking for the best outcome for the circa $100 million equity funding required, but he told shareholders the company had a laser-like focus on developing its sole asset, and was getting all the pieces set up for a final investment decision, which could be later this year.
That would allow first cargoes in 2022.
The Eritrean government is also keen to advance the mine given it will meet 13 of 17 sustainability goals set by the United Nations, and will generate 500 direct and 10,000 indirect jobs. By 2030 it could account for half of Eritrea's exports, transforming the Eritrean economy.
But it was clear some were concerned about Eritrea's largely untested role as a mining destination, and its authoritarian military-backed government under president Isaias Afwerki, who has refused to draft 1997 constitution that would allow for a multi-party democracy.
Afwerki has been in power for more than two decades, and his government has been accused of disappearances, including of former allies, mass killings, and claims of slavery in the mining and construction sectors.
A lawsuit filed in 2014 by Eritrean refugees in Canada claims Nevsun Resources engaged Eritrean-run contractors and the military to build the Bisha gold, copper and zinc - and that involved the use of slave labour in "abhorrent conditions".
None of the accusations have been proven, and Cornelius said he was concerned by some allegations he said had no apparent basis in reality - but he was confident Danakali would not use slave labour.
He was also not worried by the risks of expropriation, saying the company has confident in its ownership of the JV company, and in the local mining code, which was essentially drafted around the Western Australian legislation.
"Our greatest assets, other than Colluli are our relationships, and we are confident in them," he said.
Newly appointed CEO Neils Wage, who comes from BHP's potash business, believes in Danakali, because the world's population is growing, the amount of arable land is shrinking, and people will always need food.
While other projects like Jansen in Canada need to spend massive amounts sinking 1km-deep shafts to get at the potash, Colluli sits on a dry sea bed, and the mineralisation is just 16km from the surface. It is one of the only greenfields solid salt projects globally, and close to the coast.
The project will be competitive with Chinese production - and that's before optimisation work is carried out on other products within the deposit that were not assessed in the front-end engineering and design process, including rock salt, which at around $20 per tonne is a low-value product, but could help offset logistics costs.
By-products such as kieserite and bischofite could also provide benefits and feed into other secondary production of other potash products.
Danakali shares were off 1.34% this afternoon at A73.5c, capitalising the company at $194 million. It has traded above 70c for more than a year, peaking at 94c.
DNK Price at posting:
73.0¢ Sentiment: Buy Disclosure: Held
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