Date: Thursday, 14 October 2021
“It’s more than fair to say that given Colluli will operate in the bottom quartile of the cost curve, if we were producing today at these prices the margins on this project would be nothing short of spectacular,” says chairman.
Danakali Ltd (ASX:DNK, LSE:DNK, OTC:SBMSF) has received updated Sulphate of Potash Price Forecast Analysis from CRU International Limited, which shows Muriate of Potash (MOP) prices surged higher across multiple global markets from January 2021.
Encouragingly for DNK and its Colluli SOP Project in Eritrea, forecasts suggest SOP prices will surge even higher in the long term.
This would be highly beneficial for Danakali as for every 10% increase in SOP price, its Colluli Project NPV increases by US$250 million.
DNK is focused on the development of the Colluli Sulphate of Potash Project, which is 100%-owned by the Colluli Mining Share Company (CMSC), a 50:50 joint venture between Danakali and the Eritrean National Mining Corporation (ENAMCO).
Through the Colluli Project, DNK holds the world’s largest JORC-compliant solid salt, Sulphate of Potash (SOP) reserve at 1.1 billion tonnes.
DNK is aiming to be the world’s first Zero Carbon SOP producer and is well on its way to production.
“Colluli is a unique game changing asset on so many levels,” Danakali chairman Seamus Cornelius said.
“We are excited to see this SOP forecast from CRU which is well above the long run average price we have used in FEED particularly as we are on the cusp of coming into production.
"It’s more than fair to say that given Colluli will operate in the bottom quartile of the cost curve, if we were producing today at these prices the margins on this project would be nothing short of spectacular.”
Colluli’ s FEED sensitivity analysis shows the Colluli NPV is most sensitive to SOP price and WACC (weighted average cost of capital).
The current NPV in the Colluli FEED study uses US$569/tonne for standard grade SOP and applies a 10% price premium for its granular grade premium product. Colluli will sell 56% of its production as standard grade and 44% of its production as granular (premium grade).
The long-term outlook for the weighted average netback price to Massawa for the target markets of Colluli SOP is US$668, with CRU expecting all specialty potash fertiliser prices to move higher through 2021-23 with a pull back from 2024-2027.
It will then see a steady price rise until 2040.
This year has been a strong year for the global potash market on the back of rising demand, poor international crop yields, surging crop prices and margins and supply-side risks in Belarus.
All these factors have combined to drive regional potash prices up 200%-300% to above US$700/tonne (CFR Brazil Spot) and US$520/tonne (CFR SE Asia Spot).
Further to this, according to Green Markets, Bloomberg, North America’s nutrient gauge (fertiliser prices) surged past the 2008 peak to hit a new record of US$996.32.
Historically, the 10-year average premium of SOP to MOP is US$221 with current MOP prices FOB Vancouver at over US$550/tonne.
The following graphic clarifies demand drivers:
With China and India running down stockpiles and global crop prices largely persisting at historically high levels, availability remains very limited, presenting an opportunity for future producers.