Eritrea – ASX-listed potash company Danakali has completed the definitive feasibility study (DFS) for its Colluli potash project in Eritrea, the results of which have exceed expectations and prefeasibility results.

Colluli potash project core sample
Colluli potash project core sample

Key outcomes of the DFS include a reduction in Phase I development capital by over 30% to US$298 million resulting in a market leading capital intensity of $702/t sulphate of potash (SOP) and an accelerated Phase I payback period of 3.5 years.

The decrease in Phase I development capital is largely attributed to a reduction in water requirements, a change in product logistics methodology and a simplified mine development.

The Colluli operation will apply open pit mining methods to take full advantage of its shallow mineralisation, which commences at just 16 m below surfaced. This depth of mineralisation makes Colluli the shallowest known evaporite deposit globally.

Development plan

Phase I is expected to produce approximately 425 000 tpa of premium SOP product with commissioning currently targeted for the fourth quarter of 2018. Phase II, commencing production in year six, will increase total SOP production to 850 000 tpa at an additional capital cost of $175 million.

Phase II development capital has decreased by 38% to $175 million with the majority expected to be funded by operating cash flows. Third party debt is expected to fund the balance.

Phases I and II are designed to create a platform for growth and generate cash flows to fund subsequent expansions which have not been included in the DFS.

“We are very happy with the outcome of the Colluli DFS. The DFS confirms a robust, low capital intensity, low operating cost project with attractive economic returns and a high level of expandability,” says Danakali MD Paul Donaldson.

“The DFS also confirms that Colluli is one of the most attractive potash projects in the world. The 1.1 Bt ore reserve that underpins the project, in combination with the suite of potassium salts and proximity to coast and future markets, makes Colluli positively unique.”

Donaldson says that Colluli has the potential to grow to an ultimate capacity of 4 Mtpa to 5 Mtpa of potash products. Rock salt, magnesium chloride and magnesium sulphate within the resource also represent significant project upside.

“We are looking forward to working with our Joint Venture partners over the upcoming months to advance the approvals process and secure the funding for the project development,” he adds.

Mine development has also been optimised in the DFS.

Development timeline

Approval has been received from both the Danakali and the Colluli Mining Share Company boards to progress the mining license application process. Supporting documentation is well advanced and the approval process is expected to be initiated in the first quarter of 2016.

Mine construction is currently scheduled to commence in 2017, followed by commissioning and first production in 2018.

Moving forward

Along with initiating of the mining license application, Danakali will pursue a select number of key optimisation activities to further enhance project economics, the construction timeline and/or reduce the potential risks of the project.

Danakali is holding ongoing discussions with potential offtakers and strategic partners to help fund the Phase I development capital requirement. Commercial negotiations will also commence with respect to the construction and development of Colluli.

Top Project Stories in Eritrea:

Danakali Colluli potash DFS – looking good, due for completion Q4, 2015

Nevsun Resources continues to expand Harena with high grade drill results

South Boulder to complete east African Colluli potash PFS and DFS this year