“This project is going to be a game changer for the global potash industry,” managing director and CEO Paul Donaldson says.

The factors that give him such confidence are the many attributes that make Colluli’s huge 1.1 billion tonne sulphate of potash (SOP) resource fundamentally different to North American and Eastern European potash deposits, or as Donaldson prefers, “positively unique”.

The deposit is shallow and its salts will be extracted in solid form, it is best suited to producing premium-priced SOP, but it can also produce SOP-Magnesia and the more common muriate of potash (MOP) – and it has an unrivalled suite of other product options, including a 350 million tonne rock salt resource, an 85 million tonne magnesium sulphate resource and gypsum potential.

The plus-200-year SOP project demonstrates excellent economics, bottom quartile operating costs, industry leading capital intensity, requires low incremental growth capital and is close to the coast and key markets.

Donaldson likened it to being the potash equivalent of BHP Billiton’s (AU:BHP) Olympic Dam mine in Australia (which hosts one of the world’s largest copper, gold and uranium deposits and a significant deposit of silver), due to the project’s scale and product diversity.

“Rarely do you get such a large, multi-commodity resource that can deliver so much at low cost,” Donaldson said.

Significantly, Colluli was granted its mining agreement and mining licence in early February and Danakali isn’t wasting any time, with optimisation studies well underway as part of the front end engineering and design (FEED) process.

The Colluli Mining Share Company is a 50:50 joint venture with the government’s Eritrean National Mining Corporation (ENAMCO) and Donaldson is quick to point out this partnership has been a project enabler.

ENAMCO partnered with Nevsun Resources (CN:NSU) to develop and operate the country’s Bisha copper-zinc mine, and is also a partner in the Zara gold mine and the advanced copper-zinc-gold-silver Asmara project.

As for working in the African country, Donaldson is ready to start “myth busting” any misconceptions.

“We have demonstrated that business can be done in Eritrea, and everyone who visits our project is pleasantly surprised by the jurisdiction, the people, the mining code and the project itself,” he said.

“Eritrea was ranked 6th out of 20 for African mining investment by the Fraser Institute, ahead of South Africa.

“We’ve always maintained that our relationship with our joint venture partner is an enabler, and that has proved to be the case. We are now the most advanced stage greenfield primary SOP project in the world.”

Colluli’s location has another geographic advantage – it is at the epicentre of the world’s forecast population growth hotspot, which will require more fertiliser to grow more food on less available land.

The project has attracted resource industry leaders, and Danakali recently appointed Fluor, Global Potash Solutions, Knight Piésold and Elemental Engineering to the FEED team.

The already robust economics indicate phase one development costs of US$298 million with an anticipated post-tax IRR of 25.4% and a capital payback period of 3.5 years.

“The optimisation process is nearly at an end and we’ve got some really good initiatives out of that exercise that we’ll use to potentially compress the development capital further,” Donaldson said.

Internationally recognised power providers have also stepped up to express interest in the Colluli power station contract, which will be a build-own-operate-transfer model.

Donaldson said Danakali was progressively achieving its aims and the company was being rerated by the market as a result.

“We’re happy to have the mining agreement signed off and mining licence awarded,” he said.

“The mining agreement gives the Colluli Mining Share Company exclusivity over the resource for the life of the mine, which is at least 200 years.

“Some people have asked about why the licences ‘only’ covering the first 60 years of the project. Quite simply, it’s enough to get started, and the project will apply for more licenses over time.

“These are all significant re-rating milestones and further de-risking the company.”

The company is transitioning its non-binding off-take MOUs towards Heads of Agreement and is advancing discussions with other potential end-users, producers and traders.

The existing MOU contracts cover 800,000 tonnes per annum of SOP and 200,000tpa of SOP-M production.

Discussions over funding the project are progressing and Donaldson said there were a number of different paths the company was exploring.

As the project develops, Donaldson said the board’s composition would continue to evolve.

In early February, the board appointed highly experienced mining and potash executive Robert Connochie, whose previous roles include chairman of world-leading potash exporter Canpotex, director of the Saskachewan Potash Producers Association, chairman and CEO of Potash Company of America, chairman of the Phosphate and Potash Institute and director of the Fertiliser Institute.

Meanwhile, after providing instrumental guidance to help Danakali reach the development phase, Tony Kiernan stepped down this month as non-executive director.

“Tony has excellent knowledge of Eritrea and a very good relationship with our joint venture partners,” Donaldson said.

“He was instrumental in working through the mining agreement and licenses, and now that these have been awarded, marking a very distinct transition point for the company from explorer to developer, it makes sense for the company to re-evaluate the skills set within our board and management team as we take the project through the next phase.”

The company’s share price has risen circa 160% over 12 months as the project derisks and recent research reports point to further value accretion.

Baillieu Holst, Somers and Partners and Hartley’s have given share price targets ranging between A$1.02 and $1.22, well above Danakali’s mid-February price of 73c.

“There is still lots of upside for shareholders,” Donaldson notes.

He said stocks were boosted when JP Morgan joined the register last year, which was an endorsement both of the jurisdiction and the resource.

The rerating has continued and Donaldson said Danakali had made exceptional progress relative to other projects.

“This is the most advanced greenfield primary production SOP development out there, ready for funding and ready to build, with the best economics,” he said.

Returning to the project’s potential impact on the global potash industry, Donaldson said there was considerable growth for Colluli in its future.

Over 50% of the world’s production of SOP comes from high cost secondary production. The bottom quartile cost curve position, combined with low incremental growth capital and monetisation potential of other salts in the resource, means Colluli has the potential to grow into the world’s single biggest SOP producer.

 “It is also the only primary SOP production resource which is not weather dependent (because the salts are in solid form) for production, and there’s no lag between capital investment and revenue generation as there is with brine projects which can take up to two years to generate a harvest salt for subsequent production to SOP,” Donaldson said.

“That time lag has a massive NPV impact and I really don’t think the market appreciates the true strengths of Colluli over other projects just yet.

“It is an ongoing journey of education, and I do think people are starting to look more closely. Add to the outstanding economics of the SOP, the idea that monetisation of the other salts in the resource would effectively be someone else paying for our mine stripping and that puts what is already an outstanding project in a class of its own.

“This is probably the only potash project on the planet that can safely and swiftly grow either with or ahead of the market – it’s a one-horse race for market share.

“It can change the global SOP landscape. There’s no other project like it.”