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Food For Thought

Colluli targets 2022 production.

By: Nelendhre Moodley

Given a rapidly growing global population coupled with limited farming land, the fundamentals for potash, a potassium-rich salt essential element for stimulating plant growth, continues to be strong, with future projections expected to remain robust, Danakali CEO Niels Wage tells SA Mining.

Dual-listed Danakali, which is focused on developing its flagship Colluli Potash Project located in the Danakil Depression region of Eritrea, East Africa, is targeting breaking ground in 2021 and production and commissioning in 2022.

The Colluli Potash Project has a life of mine in excess of 200 years, with mineralisation commencing at just 16m, which makes the Colluli resource the shallowest known evaporite deposit globally, and amenable to open-cut mining. It is “suitably situated close to the sea, giving the company the advantage of access to port”.

According to JORC-2012-compliant ore reserve estimates, the project represents one of the largest potash reserves in the country with an estimated reserve of 1.100Bt @ 10.5% K2O for 203Mt of contained sulphate of potash (SOP) equivalent.

SOP fertiliser, used in fruit, vegetable and nut farming, significantly increases product yield.

According to Wage, the resource is amenable to open-cut mining which provides higher resource recoveries relative to underground and solution mining methods, and is generally safer, lower in cost and more easily expanded.

“The project carries a significantly lower level of complexity when compared to other projects, given its predictable processing plant feed grade, predictable production rates and simple, commercially proven mineral processing technology,” he says.

The Colluli Potash Project is capable of producing a diverse range of potash types but is focusing primarily on SOP or potassium sulphate.

Speaking of project development, Wage explains that the engineering, procurement, construction and commissioning contract related to phase 1 of the project has been finalised, phase 2 is under way, and key appointments, including the diversified global engineering group DRA Global, have been completed. Earth Moving Worldwide has been identified as a preferred contractor for the mining services. The company is working on finalising a power contract.

According to the studies, Module I of the project is expected to produce 472 000tpa of premium SOP, with Module II, which is expected to commence production in year six of the project, scheduled to double total SOP production to 944 000tpa.

“As such, compared to typical sulphate of potash which contains approximately 94% potassium sulphate, the Colluli process is expected to generate product with purity of 98%. As for the size, Colluli development allows for standard, granular and soluble products to be generated for distribution to the market,” says Wage.

Colluli – a driver for Eritrea’s economic growth

Once complete, the Colluli Potash Project will be a significant contributor to Eritrea’s economy, which is dominated by agriculture.

“The project is expected to be a substantial provider of jobs, contributor to GDP and catalyst for infrastructure development. The Colluli project will employ roughly 500 people on-site and create more employment at the port. We anticipate that the project will provide significant income for the country – accounting for roughly 50% of exports by 2030.”

Furthermore, given that Eritrea’s economy is driven by agriculture, having access to the potash will offer local farmers the opportunity to optimise their yields.

The project is also expected to deliver handsome shareholder returns. “We will be producing SOP from an extremely shallow open-cut mine only 16m in the mineralisation depth, using a simple processing methodology proven in Canada. This gives us access to a stable low-cost production benefiting from close proximity to port for export. As such, we can keep our costs low and deliver attractive returns to shareholders. Currently the project has an internal rate of return of (percentages in the low 30s), a net present value of $439-million and free cash flow of $85m annually (targeting the first 60 years of production). Aside from the attractive economics and employment benefits to the country, the project unlocks opportunity for local farmers to improve their yields and thereby profitability as well as providing significant shareholder returns,” says Wade.

He says the project is set to scale up production when needed. “Further to this, there is opportunity to expand the current product offering as well. We have the option to produce beyond rock salt, including production of sulphate of potash magnesia (SOPM) with magnesium variants as well as muriate of potash (MOP). However, it is important to note that we’ve chosen deliberately to go for the premium product as it is readily available.”

Market fundamentals

“Globally, the approximate current supply for potash sits at around seven million tonnes, 50% of which resides with China. China is both a producer and consumer of SOP, producing and consuming roughly 3.5 million tonnes. Of the 3.5 million remaining tonnes, the majority is shipped to Europe and the US, where it is used to improve the yields of products such as fruit, vegetables, nuts, coffee, tea and potatoes,” says Wage.

Demand for product is driven by an ever-increasing global population and a change in diets of the more affluent middle class as they increase their consumption of fruit and vegetables.

The fundamentals for SOP are quite healthy, given the reducing land availability and the need to increase yields of the existing land. Looking ahead the company anticipates a significant increase in demand including latent demand that hasn’t come to the fore as yet.

“When in steady state production, the Colluli Potash Project will deliver close to a million tonnes of product per annum and scale up relatively quickly as the economics required to do so are in place.

“On average the potash price currently trades at around $500 a tonne. Factoring a production cost at the mine gate of around $150 a tonne and just over $70 a tonne to transport product to port, Colluli Potash Project margins will be healthy, especially at a selling price of about $500.”

Market analysts CRU Group have projected a SOP market growth of around 2% to 3% for the next decade.

Off-take agreements

The emerging miner has secured a 10-year off-take agreement with EuroChem, a global fertiliser producer. “EuroChem have agreed to sell the Colluli product via their distribution channels and have offered us a great opportunity to partner with them and leverage off their knowledge to build our own expertise. The take-and-pay contract is extremely helpful for de-risking the project and for getting the cash flows that we need.”

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