Danakali Limited (ASX:DNK) (OTCMKTS:SBMSF) (Danakali or the Company) is pleased to provide the following Company update. The Company is set for a strong finish to 2017 with the completion of the front-end engineering design (FEED) phase imminent, offtake discussions well advanced, equity and debt strategy progressing, secondary listing on the London Stock Exchange (LSE) underway, and a solid cash position which will allow the company to focus on key deliverables as it progresses to full engineering and construction of the Colluli Potash Project (Colluli).
With the study phase progressing rapidly to full completion, the Company is amplifying its focus on firming up offtake agreements, and advancing the project debt and equity. Changes in both the Board and management team over the past twelve months have been firmly aligned with these objectives.
Outstanding capital cost outcomes from FEED
Capital and operating cost estimates for the first module of the two-phase development have been received from the FEED phase. The FEED phase was led by globally recognised, multi-national engineering and construction firm, FLUOR, with input from Knight Piesold, Global Potash Solutions, Elemental Engineering and AMC Consultants.
Preliminary FEED capital numbers and comparison with the definitive feasibility study (DFS) are shown in Table 1 below.
Table 1: DFS and FEED Colluli Module I capital estimates1
|Annual production rate (SOP)||425ktpa||472ktpa|
|Plants, ponds and mine development||US$133m||US$126m|
|Owners costs, EPCM, working capital, contingency||US$127m||US$114m|
|Total capital expenditure (including working capital)||US$337m||US$332m|
|Capital intensity (including working capital)||US$790/t||US$705/t|
- Module I represents a standalone 472ktpa production facility. The DFS includes a two module development approach. Capital estimates for Module II are currently underway. Module II is a 472ktpa production facility planned for construction five years after Module I.
The FEED results have further improved the project’s competitive position as a result of both reduced development capital and higher sulphate of potash (SOP) output. Danakali believes that the Colluli Project has a lower estimated capital cost per tonne of SOP than any other greenfields development. The FEED results also build upon the disciplined study execution and project de-risking approach adopted by Danakali and its joint venture partner, the Eritrean National Mining Corporation (ENAMCO) following the completion of scoping, prefeasibility and definitive feasibility study phases. The capital and operating costs have further improved from the +/- 15% level of accuracy in the DFS to +/- 10%.
Equipment and supplier lists developed in the FEED phase now provide key inputs to the procurement led debt funding process.
Capital cost estimates for the second module of the two-stage development process are currently being finalised and will form part of the final FEED economics which are planned to be released in January 2018.
Capital optimisation work continuing – completion expected in December 2017
Optimisation work on the site water intake and treatment area (WITA) is continuing and expected to further reduce development capital costs. The expected completion is December 2017. The results will be included in the final FEED economics.
FEED costs fully supported by contract bids for key operational contracts
Operating cost estimates for FEED are currently being collated and will be supported by competitive bids in the key operating contract areas of mining and power generation. Inglett and Stubbs International has been appointed as the preferred power provider (ASX announcement 31 May 2017). Mining bids have been shortlisted to two competitive bids. Commercial negotiations to select the preferred mining contractor will commence shortly.
FEED economics will be complete and released by January 2018
Capital estimates for the second module of the two-phase development are being finalised following the completion of the Module I FEED and optimisation work. Module II capital estimates are expected to be complete by mid-December. Following completion of Module II capital and operating cost estimates, a revised Ore Reserve and Competent Persons Statement will precede the final FEED economics.
Colluli continues to demonstrate world class attributes in cost structure, fundability and scalability
Throughout the progressive phases of study, Colluli has continued to demonstrate world class attributes. Through the study phases development capital and overall economics have progressively improved while capital intensity remains unrivalled in contrast with advanced stage peer developments. Colluli is underpinned by a highly versatile resource which has the ability to produce potassium chloride (MOP), potassium magnesium sulphate (SOP-M), magnesium sulphate and rock salt in addition to the premium primary product, sulphate of potash (SOP). FEED economics are based solely on the sale of SOP.
Completion of FEED further cements Colluli as the most advanced SOP project globally
With FEED drawing to conclusion, Colluli remains the most advanced stage greenfield SOP development in the world. The project has been costed to a +/-10% level of accuracy and is supported by firm operational contract bids. The project is fully permitted and ready to immediately advance into engineering and construction upon securing funding. Social and environmental impact assessments and associated management plans have been completed to ensure consistency with the Equator Principles. Stakeholder engagements have been completed throughout the study phases, and the project has strong support from local communities.
The SOP market has been exceptionally price resilient throughout the commodity cycle, with a significant increase in price premium being observed over the more common potash type, potassium chloride (MOP) since 2012. Economically exploitable primary resources are geologically scarce.
Offtake discussions are well progressed
The Company continues to advance its offtake strategy and is working with a select group of potential offtake parties to secure bankable offtake agreements. The Company has been well supported by Norton Rose Fulbright in the development of the contract framework. Completion of binding agreements is targeted for Q1 2018.
Equity strategy advancing
The Danakali Board of Directors has approved applying for a secondary listing on the London Stock Exchange (LSE) which is expected to be complete by Q1 2018.
Debt process progressing
The completion of FEED is a key milestone to advance debt funding discussions with the completion of equipment and supplier lists. The Company is progressing discussions with commercial lenders, export credit agencies and development finance institutions with regard to the funding solution and is progressing ‘know your client’ (KYC) processes with a number of commercial lenders as the revised FEED economics draws to conclusion.
Strong cash position
The company currently has a strong cash position of approximately A$16m with approximately A$3.5m of in-the-money options with 30 March 2018 expiry.
Board and management changes to support the next phase of development
As the Company’s focus shifts to securing binding offtake agreements, completing the LSE listing, executing the equity strategy and advancing the debt funding solution, a number of changes have commenced and will continue to be implemented over the following weeks. This is in addition to key appointments that have been made in both the management team and Board previously. After redefining the product and development path and process for the Colluli project and overseeing the scoping, prefeasibility, definitive feasibility and FEED phases, Mr. Paul Donaldson, an experienced chemical engineer and mining industry professional will transition from the role of Chief Executive Officer and Managing Director to the role of Non-Executive Director on the Danakali Board.
Mr. Danny Goeman, a highly experienced mining industry professional will transition from Head of Marketing to the role of Chief Executive Officer where he will focus on completion of the binding offtake agreements and overseeing the continuation of the debt and equity process as well as the LSE listing. Mr. Goeman has more than 25 years of extensive experience in management, sales and marketing strategy development and high level commercial negotiations, including more than 20 years with the Rio Tinto group of companies. He holds a Master’s Degree in Business Administration and joined the Danakali team in August 2016.
The timing of the transition coincides with the final stage of the pre-construction studies. The industry and project knowledge, skills and relationships developed by Mr. Donaldson throughout the study phases will be retained within both Danakali and the Colluli Mining Share Company as the project progresses. Mr. Donaldson will assume Chairmanship of a newly established technical review sub-committee within Danakali and join the nomination and remuneration committee.
The transition will take place prior to the end of the calendar year with further details to follow.