http://menafn.com/1095037229/Danakali-Ltd-Broker-lifts-price-target-as-Eritrea-opens-to-foreign-investment
Danakali Ltd: Broker lifts price target as Eritrea opens to foreign investment
MENAFN - ProactiveInvestors - Australia - 01/11/2016
(MENAFN - ProactiveInvestors - Australia) Site visit to Eritrea
confirms world class SOP project
We recently returned from Eritrea to visit DNK's very large potash
(SOP) project. We were very impressed with the country itself, and
with the Colluli project.
Management has a very good relationship with the Government, and we
were able to have meetings with several ministers.
It is clear that the Colluli project is high on the Government's
development agenda. We visited the Massawa port facilities (a
container port where Nevsun is currently exporting copper and zinc
concentrate).
The port is a reasonable size and appears to be running efficiently,
with a laydown area already allocated to DNK.
Massawa itself is a mid-sized industrial and local tourist city and
should have a good pool of skilled labour for the Colluli mine.
Access roads a potential for cost savings
The road from Massawa to Colluli is in poor condition, but the
Government is planning to upgrade it, and we saw some evidence that
works have begun.
The recent DFS assumes a 24hour cycle time for trucks based on current
road conditions.
This appears conservative based on actual trip times (it took our
party 6hours in 4WD), but is a reasonable average assumption given
there would be significant delays on the current roads.
The distance itself is only 180km, and is flat, sparsely populated and
only travels through one modest township where speed could be limited.
It would seem that relatively cheap upgrades could dramatically
improve transport times.
The DFS assumes logistic costs of US66/t ex shipping.
If road conditions were eventually upgraded to allow Australian style
road trains, we see potential for transport of US20/t (we assume DFS
costs in our valuation)./p>
Site unpopulated (and very, very large!)
The Colluli deposit is very large. At night the Yara (Danakil) and ICL
(Afar Dallol) camps are visible across the border into Ethiopia in the
distance.
There is a modest and unassuming army presence given the border
location (note there is no history of conflict in the area), and we
had no problems with access.
The locals appear to be free to move, most likely even across the border.
We visited local communities who were very supportive of the mine. The
region is arid with no formal agriculture.
There is a government presence with schools and health clinics in most villages.
We saw ruins of the railway operations from the original Italian
potassium chloride (MOP) mine which was established in the region in
the early 1900's and an old sulphur processing plant.
Had the history of Eritrea and Italy/Europe been different, the
Danakil region could already be industrialised.
It is very well located to the coast, there is a good service
corridor, there is potential for geothermal power, and there are
several high quality minerals that could be economic once logistics
are reduced (eg rock salt, gypsum).
Retain Speculative Buy with a price target of 73cps
Problems in the development of Yara and ICL projects regarding tax and
government funded infrastructure and logistics, suggest that Colluli
is the most likely to be developed project.
The opening up of Eritrea to foreign investment gives someone the
opportunity to develop a very large industrial salts/chemical
business.
We would not be surprised to see industry acquire the project given
such potential.
Otherwise, DNK may grow into a speciality minerals business (the
closest ASX peer could be something like ILU.asx).
Received on Tue Nov 01 2016 - 16:05:39 EDT