DNK (ASX) Danakali Article

Originally posted by Bützbuster: ↑

https://www.goldseiten.de/artikel/426059--Danakali-Ltd.~-Update.html

(translated by deepl.com from the german language)

Danakali Ltd: Update 16.09.2019 | Hannes Huster

As announced, I was able to meet the CEO Niels Wage of Danakali on Friday. Basically, we know everything that will be at the top of the agenda in the coming months. The discussions for the equity financing (approx. 100 to 120 million USD) are ongoing and term sheets are exchanged with the interested addresses.
The whole Danakali team is currently active worldwide to work on various other projects. One example is the potential new harbour in Anfile Bay. Anfile Bay is only 83 kilometers away from the Colluli project, while the existing port in Massawa is about 230 kilometers away. There are interested parties who would like to build a new port in Anfile Bay, which would be a huge plus for Danakali Ltd.
The transport costs per ton could be reduced by up to USD 50, which would not only significantly increase the margin, but also make Danakali unassailable in the cost structure worldwide. Colluli is already the SOP project with the shortest route to a port, if the port in Anfile Bay came, the project would be unbeatable.
In my opinion, what is often neglected is the potential of the additional products. Road salt, to name just one, has to be mined during the construction of the mine and Danakali could ship about 2 million tons of it per year.
For these by-products, with lower market prices, the nearest port would of course be ideal. If one carefully calculates at USD 20 per tonne of road salt, we are talking about an additional sales potential of USD 40 million per year, which has not yet been taken into account at all. In the first module alone (472,000 tons of SOP per year), this new port would save transport costs of over USD 20 million. In the second module almost 50 million USD per year!
Otherwise, Danakali is actually "ready to go" as soon as the equity financing is in place. Project manager Harrington goes through the final details with DRA (Contractor). According to CEO Wage, DRA is at gunpoint and could mobilize the working groups within 4-6 weeks to start construction.
What each of us would like to know is when Danakali will have the financing in dry cloths. A binding statement is difficult to make, but CEO Wage wants to start construction by the end of the year.
Standard Chartered Bank has been engaged as financial advisor for the equity financing and the management team is going the usual way in the process. Surely we all want a quick start to mine construction and quick financing, but in our sector these discussions simply take longer and longer.
The uniqueness of the project (near the surface, mine life >200 years, 1.1 billion tonnes of deposits, proximity to the port, etc.) is obvious and would the area be in Australia if it had been mined decades ago.
However, Eritrea is still new territory for many investors and the due diligence takes accordingly longer.
The big producers, in my opinion, have Danakali right in their sights. But they don't have time pressure at the moment. They can watch how Danakali frees the project from further risks (financing risk, construction risk, etc.) and then, if necessary, strike. The producers are often very risk-oriented in such situations. This means that they prefer to buy/take over later at a significantly higher purchase price instead of taking some risk beforehand.

Conclusion:
Darage makes a sure impression and knows what he is talking about. During his time at BHP he worked on the Jansen Mine, which was technically much more demanding than Colluli. There, two shafts were driven to a depth of 1,000 meters, which cost BHP USD 2.7 billion alone. Most recently, the further investment required to bring the mine into production was estimated at USD 5.3-5.7 billion.
We can see from these figures alone that Danakali, with its $300 million capital requirement for any large company, would be a small fish that could be taken over in no time at all.
I think we're still on the right horse here, even though we would all have liked to have seen faster development. But once the full financing is in place, I expect the first big leap upwards.
The project could produce one or two million tons of SOP per year and is extremely scalable due to the surface mining. The big players in the industry know this of course and will (have to) act sooner or later.
Danakali therefore remains a long-term top investment for me, where patience will pay off.

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Fantastic find, buster, thanks for sharing a translated version of it.

Working backwards: having the contractor at "gunpoint" - not quite sure that handled translation very well - to begin construction on 4-6 weeks notice and still wanting to start construction this calendar year gives the Danakali team a window till mid November for Standard Chartered to deliver the equity tranche. I still reckon that the turbulence caused by Brexit will make any risk related decision making in November unlikely so it has to be sometime this month.

Interesting details about the cost advantages of using a port at Anfile Bay and the musing by the author that the reduced transport costs would make the selling of road salt byproduct viable and that that byproduct would be available during the construction stage. Having cash inflows, of gross US$40m a year, starting 2 years earlier than cash flows from the sale of SOP would I'm guessing, have a significant impact on the discounted cashflow analysis of the project. I can't remember who were looking at building a port at Anfile Bay … not the Chinese was it?