“There was a sense and an understanding that we were making the right move at the right time, with the right partners,” EuroChem Chief Executive Dmitry Evgenyevich Strashnov said.
EuroChem, one of the world’s largest producers of nitrogen-based fertilisers, has ambitions to be a global potash market player by 2020 with capacity of 2 million tonnes.
Danakali’s Colluli mine is well placed to be a major supplier with 1.1 billion tonnes of reserves and a mine life estimated at more than 200 years. The deposits are cheap and easy to extract as they lie just 16 metres below the surface.
Danakali’s Colluli Mining Share Company (CMSC) is a 50:50 venture with state-owned Eritrean National Mining Corporation (ENAMCO), a split analysts say may unnerve some investors.
“This obviously means the risk of nationalisation is somewhat higher,” said Humphrey Knight, potash analyst at CRU International. “Eritrea doesn’t really have a large mining industry and it’s really difficult to predict how the government might act if or when the project enters production.”
ENAMCO could not be reached for comment. But officials have previously said Eritrea was committed to offering a stable environment. “We don’t change the game in the middle,” the director-general for mines, Alem Kibreab, told Reuters in 2016.
Criticism of Eritrea’s human rights record, including its compulsory national service programme, has also made many investors wary, despite government denials of the abuse charges.
When Lundin Mining Corp bid for Canada’s Nevsun Resources Ltd in May, its initial offer was structured to avoid taking Nevsun’s Eritrean mine at Bisha because of rights concerns. It changed tack in July, as Ethiopia and Eritrea’s rapprochement gained pace, offering to buy Bisha too.
But Nevsun rejected the approaches, agreeing in September to a buyout by China’s Zijin Mining Group Co.
Mining industry lawyers said the success of Bisha, which has produced gold, silver, copper and zinc since construction was completed in 2010, showed ventures in Eritrea could succeed.
For Danakali, Eritrea’s isolation has meant it had the chance to secure access to the kind of “tier one” resource — long life, low cost, high grade — normally snapped up by much bigger operators, Cornelius said.
It may not be so easy in future. Kevin Pietersen, a Johannesburg-based partner at law firm Hogan Lovells, said there was “increased appetite for both Ethiopia and Eritrea” this year.
Junior explorer Altus Strategies, which has been working on copper and gold projects in Ethiopia since 2010, said mining interest in both African countries had climbed.
“We have had a number of expressions of interest from people about Ethiopia and also about Eritrea even though we’re not currently active there,” CEO Steven Poulton said, adding that Altus was sending a team to assess opportunities in Eritrea.
For land-locked Ethiopia, access to Eritrea’s long coast may prove an early dividend of peace. The prime minister’s chief of staff, Fitsum Arega, said in July it was “an urgent priority for Ethiopia” to speed up the transit of goods, which now mostly flow through the ports of another neighbouring state, Djibouti.
Danakali’s mine lies close to the Ethiopian border and just 75 km (47 miles) from Anfile Bay, where the mining company firm could build a port for exports. The potash could also be trucked 230 km (144 miles) to Eritrea’s established Massawa port.
Additional reporting by Polina Ivanova in Moscow, Aaron Maasho in Addis Ababa and Maggie Fick in Nairobi Editing by Edmund Blair