Danakali Ltd (ASX:DNK) (LON:DNK) (OTCMKTS:SBMSF) (FRA:SO3) has issued instructions to WEC Projects in South Africa to complete the reverse osmosis (RO) plant manufacturing and function testing ready for shipment to the company’s Colluli Potash Project in Eritrea.

WEC has confirmed that manufacturing of the RO Plant will be complete and it will be ready for shipment to Massawa in Eritrea in 3-4 months.

The total contract value for the RO plant is US$1.6 million.

“Essential part of early works program”

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).

Danakali executive chairman Seamus Cornelius said: “I am very pleased to confirm that manufacturing of the RO plant is underway.

“Everyone involved in Colluli including our partners, ENAMCO and our shareholders want to see progress and the RO plant, which will make freshwater available at site, is an essential part of the project and early works program.”

Colluli Project potential

Mineralisation within the Colluli resource commences at just 16 metres, making it the world’s shallowest known potash deposit.

The 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.

The company has completed a Front End Engineering Design (FEED) for the production of potassium sulphate or Sulphate of Potash (SOP).

One of the key advantages of the resource is that the salts are present in solid form (in contrast with production of SOP from brines) which reduces infrastructure costs and substantially reduces the time required to achieve full production capacity.

Financial outlook

A binding take-or-pay offtake agreement has been confirmed with EuroChem Trading GmbH (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.

The credit documentation was executed in December 2019, allowing drawdown of CMSC senior debt on satisfaction of customary conditions precedent – which represents the majority of funding required for the development and construction of the Colluli Project.