Danakali Limited (ASX:DNK) Head of Corporate Development & External Affairs, William Sandover provides an update on the company's Colluli Potash Project in Eritrea, East Africa, including its offtake agreement with EuroChem, project financing option and project construction.

Jessica Amir: Hi I’m Jessica Amir for the Finance News Network. Today I’m with Danakali Limited (ASX:DNK) Head of Corporate Development, William Sandover. William, welcome to the Network.

William Sandover: Hi Jess, how are you?

Jessica Amir: First up, can you give us an introduction to the company for those who aren’t familiar?

William Sandover: We’re Danakali, we’re an ASX and LSE listed company. We’re looking to develop the Colluli potash project, its in Eritrea East Africa, very strategically located. The potash type that we’re focusing on is called sulphate of potash. It’s a premium potash type, because it’s chloride free and can be used on high-end crops.

Jessica Amir: Speaking about sulphate of potash (SOP), what are the key drivers for demand?

William Sandover: Fertiliser itself, the key drivers of demand is obviously people eating. So the greater the population, the more food people need, the more fertiliser that’s required. Sulphate of potash itself is actually used on I guess higher-end crops, so berries, citrus, vegetables, coffee, tea, nuts and the like. And so the demand for SOP is also bolstered by changing dietary preferences worldwide, and also the growth in sophistication of farming practices, in the developing countries.

Jessica Amir: Now to the Colluli project itself. Tell us about the size of the resource and what other attributes we should be aware of?

William Sandover: The size is staggering. So it’s 1.1 billion tonnes ore reserve, which leads to 203 million tonnes of contained sulphate of potash (SOP). That leads to a 200-year mine life, so well beyond our lifetimes and leads to a very strategic asset. The asset itself is very shallow, it’s solid salt, it’s low cost, it’s open cut mining. It’s really just a fantastic asset and we’re really looking forward to developing it.

Jessica Amir: What are the key financials?

William Sandover: We completed what’s called the Front End Engineering Design study, earlier this year. That was after completing a PFS and DFS. That zeroed in on our operating costs and capital costs, and our plus and minus 10 per cent accuracy. We’re forecast to be in the lowest quartile for costs. We’re industry leading in our capital intensity and our NPV and IRR, $902 million and almost 30 per cent respectively. The returns are quite unique in the sector.

Jessica Amir: Can you tell us what stage your projects at and about offtake agreements?

William Sandover: In June this year, we signed up with EuroChem. They’re a global fertiliser producer, one of only a handful of companies that produces across the macronutrient spectrum. So your nitrogen, your phosphorus and your potassium. We’ve got a 10-year take or pay binding offtake agreement with them, which again is unique among our peers. And the stage we’re at currently is we’ve completed all our studies, we’ve got our offtake, we’re signing up our operational contracts. We’re ready for project financing and to get going with development.

Jessica Amir: Now can you tell us about the project financing for Colluli?

William Sandover: We listed on the London Stock Exchange (LSE), which occurred in July. That was a very important step for the company. We do believe that the market in London and the UK and Europe, does understand African risk and also understands agri commodities. So that’s why we listed over there, open us up to a new set of institutional investors, big part of our equity-funding story. We are looking to fund the project with 60 per cent debt, 40 per cent equity. Debt discussions are well progressed. We’ve got a group of banks, they’ve met with Eritrean Government officials. So they’ve been to site, they’ve looked at technical reports, they’re getting through their due diligence. It’s very well progressed and we look forward to them moving towards credit approval.

Jessica Amir: Last but not least now William. Why should investors be taking a position in Danakali?

William Sandover: Danakali in our view is the most progressed SOP development project. It really should be the go to investment for investors, looking for exposure to the SOP market. We have the lowest operating costs, the lowest capital intensity, high returns. An asset, which is very strategic in nature, very long life, close to port, good infrastructure in place, close to the markets of the future. We’ve got very strong partners in ENAMCO, the Eritrean Government Mining Company and EuroChem, our offtake partner. And we’re really looking forward to making a real positive difference in Eritrea.

Jessica Amir: William Sandover, thank you so much for your time.

William Sandover: Thank you very much Jess, great to be here.