Junior Miners to Watch in Africa Mining – Danakali

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Danakali - Colluli Potash project
Danakali’s Colluli Potash project in Eritrea is a world class deposit.

By Warren Thompson | Money Web,

Joining me on the podcast today is mining analyst, Duncan Hughes, from Somers and Partners in Australia. The company that we wanted to talk about is Danakali, which is a potash project in Eritrea.

Q: Duncan, give us the scoop on what’s going on there.

I love this project, as a technical guy this is the best, as far as I’m concerned, the best under-developed SOP, sodium, sulphate and potash, project in the world. SOP generally sells for twice the value of MOP, muriate of potash, it’s used in agriculture but it’s used for sulphur-poor soil, so there’s real demand for it and this is a quality source.

What’s great quality about it, it’s in solid form, it’s not in a brine, so you don’t have to go through what can be quite a challenging and expensive processing of taking it out of a salt lake and processing it into product. It’s in solid form, it’s simple mining and it’s open pit. A lot of the potash mines of the world involve solution mining from 400, 500, 600 sometimes 800 metres down, that by its very nature is an uncertain process, compared to just going out and mining practically from surface. So that’s really going for it.

The other thing going for it is it’s close to port, it’s got pretty good infrastructure, there’s a road that goes to the port of Massawa.

Massaw is the port that the world class Bisha deposit, which is a base metals and gold project, owned by Canadian-listed Nevsun, is already shipping copper from. There’s capacity at the port for the guys to ship potash.

The challenge for Danakali is the global perception of Eritrea. Eritrea is viewed by many as a difficult place to operate. It’s not, I have been there but what is a challenge as well is that the government has taken 50% of the project.

Now, there are pros and cons to that, the cons are you are only going to be profitable and make a lot of money with a world class project, Danakali have that in Colluli, Nevsun have that in Bisha. Smaller projects won’t work when the government takes so much.

The positive is that the government really wants this to succeed and that’s been demonstrated by the fact that Danakali have just received a mining licence and have all the support that they need from the government. Landing in Eritrea, and I’ve been to a lot of African countries, it feels like one of the safest, easiest places to do business in Africa. Unfortunately ,it’s got bad press because of UK sanctions imposed due to alleged support of Somalian insurgents. I don’t know whether that is the case or not but certainly the UN feels it is. There’s a case for lifting those sanctions soon but whilst they are in place it makes it hard for traditional investments.

So Danakali is a relatively small capital project, given the size of it, they need $300 million to start an enormous project, there’s billions and billions of tons of the stuff, so it will go for 200 years. But to get that funding traditional sources might be difficult, so my view is they will achieve off-take and with that offt-take will come some form of funding to make that happen. When it happens it’s going to be the lowest cost, highest quality product that I’m aware of in this space. It’s very exciting.

Q: So it’s a really world class deposit.

Yes, a really world class deposit in a perceived challenging jurisdiction.

To listen Duncan’s radio interview about the other two mining companies Triton, Lucapa, you can click player below.