Danakali Ltd’s (ASX:DNK) (LON:DNK) (OTCMKTS:SBMSF) (FRA:SO3) Colluli Sulphate of Potash (SOP) Project in Eritrea is set to be a global game-changer with the potential to become the world’s first zero-carbon producer of SOP.

The company, which has one of the world’s largest solid salt, near-surface high-grade SOP reserve of 1.1 billion tonnes or 200 years of life of mine, is fully permitted. 

Colluli is the only resource in the world that is ideal for SOP production that can be extracted in solid form. 

It also has access to solar, wind and one of the world’s greatest geothermal energy systems – the East African rift. 

Colluli Mining Share Company (CMSC), is a 50:50 joint venture between Danakali and the Eritrean National Mining Corporation (ENAMCO).

High potential for zero carbon

Colluli can disrupt incumbents in the market, with the capacity to displace all carbon-intensive Mannheim SOP production globally.

The company plans to transition to renewable energy, as it has options to access solar, wind and geothermal energy.

Danakil Basin has predictable sunlight, with African rift system is well-endowed with geothermal energy potential and there is predictable wind resource.

In May 2021, the company demonstrated economic, construction, operational and environmental optimisations at the Water Intake Treatment Area (WITA) using filtered seawater during extensive test-work in the pre-development process for SOP.

It will now rely on a combination of beach well intake, smaller pumping station and greater renewable energy to pump filtered seawater to the SOP processing plant at the Colluli mine site.

Lower costs and higher volumes

Its open cut costs are lower and volumes are higher than underground mining, making it one of the lowest-cost SOP producers in the world.

With a depth of 16 metres, its capital expenditure, including working capital is US$320 million, with a production target of about 1 million tons per annum.

The first two strategic growth phases will produce 944,000 tons per annum (tpa).

It also has robust returns with a net present value (NPV) of US$439 million and an internal rate of return of 31%.

The company has secured US$221 million of senior debt and equity project financing.

Market potential

SOP is currently under-applied in the areas expecting the highest rate of population growth, the majority of which are near to Colluli.

It is close to the established SOP markets of Europe, the Middle East, Southeast Asia and developing markets in Africa.

Demand is driven by the rapidly growing middle class in developing nations, changing dietary preferences and global population growth.

It has a 10-year take-or-pay offtake agreement with EuroChem for up to 100% of its production.

SOP demand and supply dynamics support a robust pricing environment, offering attractive margins for low-cost primary producers like Danakali.

Since 2014, the average SOP price premium to Muriate of Potash (MOP) is US$221 per tonne.

Transport links

Further, no other SOP project is located closer to port infrastructure with the port capacity at Massawa.

The future Anfile Bay port development, about 87 kilometres from site, will create “unrivalled global port advantage.”

Multi-commodity potential

Colluli can readily expand to become a multi-commodity premium fertilizer producer.

Once the Anfile Bay is developed, a number of its products can be commercialised, the company said.

COVID-19 impact

The company said no major impact on its operational costs was expected due to the COVID-19 pandemic.

Access to the Colluli site is secured and the company can get people into the country with the one-week quarantine period.

It is power-ready to go, with its renewables integration being investigated by Aggreko.

Its reverse osmosis plant is near completion and final geotechnical investigations are required.