Sulphate of potash explorer Danakali (ASX: DNK) is a step closer to developing its flagship Colluli joint venture project in Eritrea after appointing London Stock Exchange-listed Aggreko as the project’s preferred power contractor.
Under the buy own operate transfer (BOOT) contract, Aggreko will be responsible for supplying, commissioning, maintaining and operating the power plant for five years.
Aggreko will provide funding for the plant, which is a 12.36MW thermal heavy fuel oil (HFO) solution that has been selected as the most effective option for module one.
After the five years is up, Aggreko will then transfer ownership of the plant to the joint venture company that owns the project, Colluli Mining Share Company.
Commenting on the deal Danakali chief executive officer Niels Wage pointed out that Aggreko has more than 55-years’ experience in delivering high-quality and reliable power services to a large number of projects in “challenging locations” and has the knowledge and capabilities required for powering Colluli.
Additionally, Aggreko has “extensive experience” in Eritrea with activity starting in the country in 2012 through the provision of off-grid energy to the Bisha Gold mine.
Bisha employs 1,468 workers, 95% of which are Eritrean nationals, and was sold by Nevsun Resources as part of the deal to Zijin Mining in 2018 which settled for C$1.86 million.
“At the early stages of the project development, the HFO solution will provide us with flexibility and reliability, and as confirmed by SEIA (Social and Environment Impact Assessment), Colluli will have a relatively small impact on the environment.”
Mr Wage added the company would look at diversifying its energy sources into renewables once the project development has reached a steady state.
Colluli SOP project
Danakali owns 50% of Colluli, with the Eritrean National Mining Corporation holding the other half. The project is run by joint venture entity Colluli Mining Share Company.
Mine development approvals were secured for Colluli at the end of July and Danakali is targeting first production within two years.
The preferred camp provider was appointed in August 2020 in preparation for proposed new phases of the development.
Underpinning production is a massive 1.1 billion tonne reserve which supports multi-generational mine life of almost 200 years.
Colluli is 75km from the Red Sea coast, which positions it to supply the world’s fastest growing markets.
A 10 year take or pay offtake agreement has already been secured with EuroChem Trading GmbH.