Danakali Limited (ASX:DNK) (LON:DNK) is in the final stages of the EPCM Phase 2 for Colluli Potash Project in Eritrea, East Africa, from which first production of sulphate of potash (SOP) is on schedule for 2022.

This phase, which includes FEED capital schedule estimate updates, is on budget and on schedule with completion expected next month.

Workflows continue

Even in light of COVID-19 restrictions, all EPCM Phase 2 workflows have continued and all vendor and contractor packages have been received in complete form.

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 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).

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 this morning.

EPCM Phase 2 aims

Key objectives of EPCM Phase 2 are:

  • Update of the FEED capital estimate;
  • Revision of the FEED project schedule; and
  • Identification of key test-work required to ensure full preparedness for EPCM Phase 3.

Additional optimisation opportunities will be defined as part of the EPCM Phase 2 deliverables to be presented at the end of the phase.

Completion of the identified test-work items provides key data necessary to finalise process plant design development and will allow advancement into EPCM Phase 3 with clear direction.

Accessible project

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.

Mineralisation 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, specialty 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 Trading GmbH 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.