Danakali Ltd (ASX:DNK) has further improved the economics of its tier-1 Colluli Potash Project in Eritrea with a new study delivering industry leading capital intensity and first quartile operating costs.
The front end engineering design (FEED) study has confirmed Colluli as the world’s most advanced and economically attractive sulphate of potash (SOP) greenfield development project.
No other known SOP greenfield development project has completed FEED, which provides offtakers and funders with a high level of detail and accuracy.
NPV of US$902 million
The study demonstrates a project level net present value (NPV) of US$902 million with internal rate of return (IRR) of 29.9% for modules I and II.
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).
Danny Goeman, chief executive officer, said: “We are extremely happy with the FEED outcomes for Colluli, which are the culmination of a long period of high quality work from our study team and consultants.
“Colluli is the premier and most progressed SOP greenfield development project globally.
“It has industry leading capital intensity, forecast first quartile operating costs, and highly attractive economic returns.
“As such, the FEED results confirm what we already knew, but, importantly, provide us with a much greater degree of accuracy and certainty, with key cost and valuation outcomes improving significantly.”
Reserve of 1.1 billion tonnes
Colluli is fully permitted and has a 1.1 billion tonne reserve suitable for low cost, shallow, open cut mining.
Fluor was lead FEED consultant supported by industry recognised consultants with intimate knowledge of the project.
Study improves DFS outcomes
The study further reduced the capital intensity achieved in the definitive feasibility study (DFS) due to lower development capital requirements for module I and increased annual production.
Module I is expected to produce 472,000 tonnes of premium SOP product annually.
Module II, which starts in year 6, will increase total annual production to 944,000 tonnes.
The expected mine life at FEED production rates is circa 200 years.
Danakali’s share of the NPV is US$439 million with an IRR of 31.3%.
Colluli’s diversification and multi-commodity potential provides additional upside.
Goeman added: “The successful completion of FEED, as well as the completion of permitting in 2017, further enhances Danakali and CMSC’s ability to finalise binding offtake agreements, advance towards financial close, and execute the project.
“We are looking forward to working with our joint venture partners to ensure the successful development of project modules I and II, and unlocking the significant expansion and multi-commodity potential of the resource.”
Key near term milestones
Danakali is focused on offtake, funding, and project execution in 2018 and the key milestones are:
• Progress negotiations to final binding offtake agreements;
• Final EPCM negotiations with shortlisted bidders;
• Final mining negotiations with shortlisted bidders;
• Final power negotiations with the preferred power provider Inglett and Stubbs International;
• Dual listing on the London Stock Exchange; and
• Finalise debt arrangements with commercial lenders.