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(Small Caps) Danakali outlines huge potash potential on its Africa doorstep

Posted by: Semere Asmelash

Date: Tuesday, 08 September 2020






Danakali outlines huge potash potential on its Africa doorstep



Africa could potentially increase its production of cereals and grains by two or three times if more fertiliser became available.

Emerging sulphate of potash (SOP) producer Danakali (ASX: DNK) has passed another key step in Eritrea and now heads for production, not only with Asian markets in mind, but plans to realise huge potential in food-hungry Sub-Saharan Africa.


The key statistic: Africa has the potential to produce between two and three times the present quantity of cereals and grains, lifting it to account for 20% of global output.

Similar increases could also be seen in livestock and horticulture crops if more fertiliser was available.

The key factor: these goals can be achieved only if African farmers can get their hands on sufficient fertiliser supplies, including potash-based ones.

Danakali is targeting first production two years out at its Colluli SOP project in Eritrea.

Last week, the company reported it had completed the mobilisation phase which includes stages one and two of its engineering, procurement, construction and management (EPCM) study. These phases relate to project design work, the processing plant and associated infrastructure work, as well as significant de-risking work with a number of environmental and cost-optimisation opportunities identified

Danakali chief executive officer Niels Wage said the studies have given increased certainty and understanding of the Colluli project schedule.

“The detailed review process again validates the robustness of the project and previous technical studies,” he added.

Colluli is owned by the Colluli Mining Share Company, a 50:50 joint venture between Danakali and the Eritrean National Mining Company. In late July, the company received mine development approval from the Eritrean government, which specified mid-December 2022 as the latest possible start-up of mining.

Danakali has reported a 1.1 billion ore reserve with a mine life of almost 200 years.

Asian markets first target, but Africa emerging

Danakali has long seen Asia, particularly India, as a prime market. But its most recent presentation indicates that Africa is now also at the forefront of its business thoughts.

The potential to increase farm production on the continent is tremendous, although it is a long-neglected subject.

The number of countries that have significant amounts of uncultivated cropland runs to 18; this includes Ethiopia and Sudan, both neighbours to the company’s planned mine in Eritrea, as well as Mali, Angola, Zambia, Tanzania, Kenya, Uganda and Madagascar.

Other countries including Gabon, Republic of Congo, Guinea and Rwanda don’t have enough land – a problem that could be alleviated by higher yields.

Although the SOP within the first module of anticipated production is already committed to as part of the take-or-pay agreement with global fertiliser producer Eurochem, Danakali is also able to sell its product outside of the offtake contract. This module is expected to produce 472ktpa of premium SOP product, with the second module expected to increase total SOP production to 944ktpa.

Danakali hasn’t decided which markets to target, however Africa would be a logical choice, as the company wants to support the local farmers and agriculture in the region. Other opportunities are South-east Asia, India is also a growth market where SOP is currently under-applied.

Africa has half of the world’s uncultivated arable land

In fact, Africa has 202 million hectares of arable land that remains uncultivated — the greatest area of such land in the world.

According to Danakali, significant investment is required: six times the amount of high-quality seeds, eight times the present use of fertilisers, as well as large investments in crop storage and irrigation. Only 6% of Africa’s cultivated land area is irrigated.

And here is the nub of the problem as shown by Danakali: present farming methods in Africa result in potassium being stripped out of soils faster than it is being replaced.

The company lists the benefits that an operating mine at Colluli will bring to Africa.

Firstly, a 200-year mine life ensures long-term availability.

Two, producing high-quality fertilisers in Africa will mean lower transport costs than importing from another region of the world.

Three, Danakali has the ability to produce a suite of potash products catering to the various needs of African farmers — the potassium-bearing salts of the Danakil Depression, in which Colluli is located, are unique in that they can be used for a diverse range of potash types.

And four, the potash will allow African farmers to move from subsistence cropping to producing higher value crops.

Progress has begun, though. Fertiliser plants are being built, or planned, in several countries including Nigeria, Ethiopia, Ghana and Kenya.

Shallow deposit close to port for exporting

Colluli will produce SOP, which typically sells for between two and three times the price for muriate of potash (MOP).

SOP is a premium fertiliser product that, unlike MOP, does not contain chloride and is therefore suitable for crops such as tobacco, potatoes, beans, strawberries and citrus fruits.

Being chloride-free, SOP can be used on all plants; this is not the case with MOP as it does have chloride, which can kill some plants if added in excessive quantities and also destroy microorganisms, so affecting fungi and bacteria.

In addition, SOP – unlike MOP – contains sulphur, the essential micro-nutrient every plant requires. SOP provides both sulphur and potassium, whereas MOP only provides potassium with the need to add sulphur remaining.

SOP, despite being a salt, does not build up the soil’s salinity, while chloride can make ground saltier over time.

Africa’s growing population will stress food supplies

Nigeria is forecast to have 400 million people 30 years from now and will likely by then overtake the United States as the third most populous country — its present population being about 200 million.

Sub-Saharan Africa’s population is growing faster than South Asia’s (about 2.7% per annum). In the next 30 years, it is anticipated to increase from the present 1.2 billion to 2.4 billion — yet even now, it suffers from recurrent food shortages.

That’s an increase every two years of people, with that increased number being equivalent to the population of France.

But, food is a problem: a fertiliser conference 10 years ago heard at that time that 27% of Africa’s people were chronically undernourished, with experts blaming very limited use of fertiliser.

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