Future potash producer Danakali (ASX: DNK) has signed a binding “take-or-pay” offtake agreement with EuroChem, one of Europe’s largest phosphate fertilizer companies based in Switzerland.
The potash giant accrued over US$4.9 billion in sales last year and offloaded over 13 million tonnes in potash sales volumes.
According to Danakali’s chairman Seamus Cornelius, the deal represents a significant milestone because it enables Danakali to achieve the required project funding and significantly de-risks its financial position in relation to its Colluli potash project – the company’s flagship asset that will produce almost 1 million kilotons of sulphate of potash annually when the project is fully developed over the coming years.
The offtake deal means that Danakali will offload the entirety of its ‘Module I’ sulphate of potash (SOP) production from the Colluli potash project in Eritrea.
Sulphate of potash is a highly valued, chloride free, premium potash fertiliser that has limited primary production facilities globally.
The project is being developed to produce 944 kilotonnes per annum (ktpa) after ‘Module II’ is brought online sometime in 2024, with around 472ktpa of premium SOP product expected to commence in the foreseeable future.
The Colluli project is being developed as a 50/50 joint venture with state-backed Eritrean National Mining Corporation (ENAMCO).
Under the terms of the agreement, EuroChem will offtake at least 87% of Danakali’s production for the next 10 years from the date of commissioning of the Colluli SOP processing plant, with an option to extend for a further 3 years.
As it stands, Danakali and ENAMCO have obtained full approval from the Eritrean Ministry of Energy and Mines with no regulatory hurdles to be negotiated.
Commerce in potash
According to EuroChem, it may use a portion of Colluli’s produce to create “complex Nitrogen Phosphate Potassium (NPK) fertilisers” at its facilities in Antwerp, Belgium and Nevinnomyssk, Russia.
“We are excited about participating in this project with CMSC, as part of our growing global presence. Colluli is one of the closest SOP deposits to a coastline anywhere in the world and, in solid form, the salts at Colluli can be processed immediately, significantly reducing the time between mining and revenue generation,” said Dmitry Strezhnev, CEO of EuroChem Group.
To ensure the deal is completed smoothly and Danakali begins to supply EuroChem’s production facilities in Europe and Russia, EuroChem has agreed to provide technical support at Colluli “on terms to be agreed”.
EuroChem has also agreed to provide a “parent company guarantee” as part of the agreement which is instrumental in unlocking project funding and the appropriate facilities to be deployed to commence production. Danakali has said that its binding offtake deal with EuroChem “provides cash flow certainty” while strengthening the Colluli and Danakali investment propositions.
“The Agreement encourages the maximisation of netback pricing through the marketing and distribution of products into the highest value markets. This is a huge step in de-risking the Colluli and Danakali investment propositions. Colluli has no peer; it is the most advanced and economically attractive SOP greenfield development project,” said Danny Goeman, CEO of Danakali.
Today’s news that Danakali had secured a long-term offtake partner saw its shares trade up 13%, reaching a high of $0.74 per share in early morning trade, valuing the company at around A$200 million by market capitalisation.