Danakali Ltd (ASX:DNK) and its partner have signed a binding offtake agreement for up to 100% of module I sulphate of potash (SOP) production from the Colluli Potash Project in Eritrea, East Africa.

Danakali’s shares are trading about 9% higher intra-day at 72 cents after signing the offtake deal with EuroChem Trading GmbH, a leading global producer of nitrogen, phosphate and potash fertilizers.

The Colluli project is owned by CMSC, a 50:50 joint venture between Danakali and the Eritrean National Mining Corporation (ENAMCO).

READ: Danakali well-funded to continue execution phase at Colluli Potash Project

As per the offtake deal, EuroChem will take, pay, market and distribute up to 100% (minimum 87%) of Colluli module I SOP production.

EuroChem may use a portion of the Colluli SOP to produce complex nitrogen-phosphate-potassium (NPK) fertilisers at its facilities in Antwerp, Belgium and Nevinnomyssk, Russia.

The term of the agreement is 10 years from the date of commissioning of the Colluli SOP processing plant, with an option to extend for a further 3 years if agreed by EuroChem and CMSC.

EuroChem may terminate the agreement if first commercial production has not occurred by 1 July 2022, well beyond CMSC’s production commencement expectations.

READ: Danakali’s advanced potash project is a cut above the rest

Importantly, the agreement is expected to be instrumental in unlocking project funding for the Colluli Potash Project.

Danakali chief executive officer Danny Goeman said: “We could not be happier with this result.

“EuroChem is an outstanding partner for the project. EuroChem has a wealth of experience and expertise in the fertiliser sector.