Danakali Limited (ASX:DNK) Executive Chairman Seamus Cornelius talks about the company's Sulphate of Potash (SOP) project in Eritrea, Eastern Africa. The project is characterised by its quality, size, grades, low CAPEX and SOP market potential. Danakali’s proximity to key markets and economics make it unique among SOP projects worldwide.
Thanks for the opportunity to talk about Danakali and our project Colluli. Danakali is the listed company, listed on the ASX and on the LSE and Colluli is our only asset. And as you say, it is an asset in Eritrea, which we're developing in a 50/50 joint venture with the Eritrean National Mining Corporation. It is a sulfate of potash project to begin with, or SOP, which is a key kind of fertilizer.
I think we should quickly look at the disclaimer slide, which should be the next one.
Investment highlights. There's a lot of things to talk about on Colluli, so we've just chosen a few key things that set the scene if you like. The first thing to know about Colluli is that it's massive, it's a 1.1 billion ton JORC reserve. And that translates into about 200 years of mine life, if we produce a million tons of SOP per year, so you can see the scale of the project. At the moment we are fully permitted and ready to go.
The other key thing to know about Colluli, in addition to its massive size, is it's exceptionally high grade. So when you talk about any mining project, if you're talking about massive size and extremely high grade, you're already starting from a really strong position, which is where Colluli is today. We've done extensive studies, we started with a PFS, we went through DFS, we've done a FEED study and then in the last year we've had the FEED study verified and brought up to date by our EPCM contractor, which is DRA. So we are really confident about first, our resource, and second, about how to extract the resource and turn it into very high grade SOP, in the most efficient way. So we're ready to go.
The next key thing I want to mention is we've started to talk lately about the zero carbon potential for Colluli SOP, it's real, and we've been looking at it for about five years, even though we've only started to talk about it lately. If you know anything about the Danakil Basin, which is where Colluli is located, then you'll know it's one of the hottest and driest places in the world, which sets it up perfectly for solar energy and wind energy. What a lot of people don't know is that it's also right on top of the East African Rift, which is a very large geothermal system. So in terms of being well-placed to produce zero carbon SOP, that is our objective, it is perfectly placed. We've got abundant solar energy, we've been collecting the wind data for a long time and we're right on top of a very well-recognized geothermal resource, so that gives us a great opportunity to push the Colluli SOP into zero carbon SOP, and we think there's huge value in that as we go forward. Not just over 200 years, but in a shorter timeframe as well.
Next key thing I'd like to mention is that the UNDP, which is the United Nations Development Programme, they actually commissioned and funded a study on Colluli, specifically aiming to demonstrate how Colluli can help Eritrea meet United Nations sustainable development goals, or the SDGs. So this study was funded by the UNDP, they organised the eminent development economists who wrote the study, we obviously support it by providing data and access. But it's a really useful report, it's publicly available and if anyone's interested in the kind of impact that Colluli will have, it's all set out in the report. I'll just mention a couple of things quickly. It helps with 13 of the 17 SDGs, which is really substantial. And then, more specifically we'll create, in the first phase, about 500 jobs in Eritrea or local nationals. And then indirectly we'll probably have about 10,000 jobs, that's what the UNDP report says. So we think that's just a very important added benefit that comes directly from the development of Colluli, and it's a key part of our plans.
If you look at where Colluli is located, it's in the Danakil right next to the Red Sea, so we can access to the north straight through the Suez canal, into the entire Mediterranean and Europe. If we go south, we can service most of Africa and all of Asia across through India, which is really important for us, but then further appeal as well. So our primary market to begin with is going to be Europe, because that's a very established market. If you take the European time zone and you look, sort of, Europe, around the Mediterranean, Middle East, Africa, over to India, that's about a two million ton per year SOP market. And we're perfectly placed to supply a significant portion of that, and of course take advantage of all the future growth that's going to happen around the Middle East, Africa and then across to India, so perfectly placed for established markets and for the future markets.
We're also really well-placed in terms of access to a port, it's only 230 kilometers by road from Colluli to Masala, which is the existing port, that is a very high grade port with capacity for us to use it and send our product out through there. That's a real bonus. Masala is widely recognised as a really good port, and it has the capacity already allocated for us. In the future, and the not so distant future, fairly soon, we should be able to have our own dedicated export facility for Colluli that's at Amphila Bay, it's only about 87 kilometers away. When we have that it will be significant in terms of lowering our logistics cost, but also enabling us to take advantage of all of the other products that we can extract from Colluli, beginning with rock salt, and then going into various other forms of potassium fertiliser. We haven't given any of those any value to date. That's just upside potential for the future when we have Amphila Bay.
All of these things that I've just been talking about... drive the superior economics for Colluli, that the economics speak for themselves. And we're right at the bottom of the cost curve, which is where you want to be, and we have capacity to expand at a very rapid and low cost rate, to meet future demand and take some of the existing demand from the current producers. Because the current producers in our part of the world are all high cost, Manheim producers making a synthetic or an artificial SOP. It's a good product, but the only reason that those producers produce, is because there's no natural primary producer. Colluli is the natural primary producer for that entire part of the world, which is great, and it also happens to be at the bottom of the cost curve, which is exactly where you want to be.
I've already touched upon the fact that Collulis valuation today is only based upon modules one and module two, but we will expand beyond that. That gives us just under a million tons, I'd expect us to go well beyond that as we develop the asset and once we have Amphila Bay. And we'll also be exporting other products which come out of the resource at a very low cost and which again, to emphasize, we've given no value to, in any of our studies. And I'm talking about rock salt, I'm talking about Gypsum, I'm talking about Kieserite and various other potassium products that go into the fertiliser industry. And I think also finally on this slide, I'd just like to mention, we are in a joint venture with ENAMCO, the Eritrea National Mining Corporation. They are a very experienced group of miners and project operators in Eritrea. They have three other mines in Eritrea that they are the joint venture partner in. And we are now the fourth operation in Eritrea. So I think we're really well-placed and we've got the right team in place, both externally and internally.
Can I just quickly move to the corporate snapshot? Right. So I mentioned Danakali is the company, Colluli is the asset. If you want to get involved in Colluli and I hope you do, then the way they get involved is through Danakali. This is a brief snapshot up to date, as of today, you'll see that our major shareholder is AFC Equity. They are also one of our lenders, AFC is Africa finance Corporation. They will provide US$100 million of senior debt to the project alongside Afreximbank, which is the Africa Export-Import Bank. They will also provide $100 million as of today, so we have US$200 million of senior debt already lined up and our top shareholders are there. You'll see the Danakali board and management, which to a substantial extent is me, is also significantly invested in the project, and you can see the market snapshot on the right hand side there. You also see on the right corner, a very simple diagram showing that we're in a 50/50 joint venture with ENAMCO.
Could we go to the "Colluli is where the value begins" slide? Great. So Colluli is the asset, and of course, with any mining project or extraction project, you have to look at the quality of the asset. I've already touched upon the massive size. There's nothing like it in the SOP space, nothing even close, so we can deal with that. The grade is also exceptionally high because we are mining solid salts out of the ground in an open pit environment, we don't have to sink a deep shaft, we are extracting the salts, from an open pit, starting at 16 meters below the surface. I've touched upon the geography already; extremely close to a port and extremely close to current and future markets. The next key thing, and these points, you can look at any mining project and use this as your lens, is the geometry. It's a flat line deposit, right below surface, where the salts are in layers, like a layer cake. We access those salts and use them to produce the SOP.
If you look at the bottom right-hand corner of the slide, you'll see how the deposit sits in the ground. This is a simplified version, but it's actually very accurate because it's a simple asset. We've got clastic, which is basically clay and soil, upper rock salt, which we have the mine through and which we will stockpile, waiting for the opportunity to monetize. We've given it no value so far, but it is very high quality, 98 percent plus pure sodium chloride. And then we get into the potassium salts; Sylvinite, Carnalitite and Kainitite. The fact that these three salts exist together at Colliculi and can be accessed in an open pit is where the real value of Colluli lies.
I'll just quickly tell you, Sylvinite is what they typically mine in Canada to make potash, Carnalitite is what they typically mine in the Middle East to make potash, Kainitite is where the sulfur and the potassium are together. Our process calls for these three salts, three potassium salts to be mined, processed together. And we produce a very high purity, low fluoride SOP at the site that we then ship direct to customers before the finished product leaves Colluli. And it's because we have these three salts. They don't exist together anywhere else in the world, except in Danakil. And they don't exist in a location where they can be accessed from the surface in an open pit anywhere else, except Colluli. So that's a tremendous value driver for us.
If I could have the first quartile cost of production? So I mentioned before that we will be sitting right at the bottom left-hand corner. First quartile cost of production. That's only two models and with zero credits for any of the additional products. So this is genuine mine gate cost comparison. Let's see where we are. That's effectively when we're at the startup stage, still developing the project and bringing it up to its full size and full scale, where we start to get the real benefits of the economies of scale. As you go up to the right, you can see the cost of production gets higher. The far right-hand column there, which is the Manheim producers. The Manheim production is basically SOP made in a factory by taking MOP, which is KCL potassium chloride, mixing it with sulfuric acid, adding a lot of energy and heat and then you get SOP. It's a high quality product. I don't want to say anything about that, that is negative, but it also has a very high carbon footprint. And the waste product is hydrochloric acid, which is not ideal and it has to be dealt with. So those are our direct competitors.
I mentioned at the beginning that in our part of the world, all of the current production comes from those high-cost producers. So we feel that we're perfectly placed to displace them now and in the future to take all of the growth. If you look at the economics, people talk about... economic growth and population growth is going to be centered right out of the world for the next 30 years, in the similar way that it's been centered in Asia for the past 30 years. So we think we're ideally placed. And not just in terms of geography, but also in terms of where we sit on the cost curve, that's where you want to be. Bottom left corner.
Can I have a look at the market potential and proximity slide please? Right, this is really talking about the growth in the use of SOP. I'll draw your attention to the dark green sections. Those are the parts of the world, USA, Europe, and China, where SOP is applied at the highest rate. And you can see kilograms per hectare applied to SOP crops. You'll see, China's very, very high. If you were to go back 30 years ago, their numbers would be similar to Africa today. So, while fertilizer in general is a population growth story, SOP in particular as a subset of fertilizer is really an economic growth story. The big thing that's changed in China in the last 30 years is not the population because they have, until very recently, had a one-child policy, its economic growth. And when you have economic growth, coupled with a large population, you get a change in the dietary preferences.
People want to start eating the crops, the vegetables, the fruits, the nuts and drinking coffee, which all require SOP. They can only be fertilized for potassium with SOP. And so when you look at the future of economic and population growth, fortunately for us, that is centred on Africa, the Middle East and over to India. And those locations today have a very low application rate for SOP. So not only is the market right and ready for us today because the current suppliers are all high cost, Manheim supplies, but the future of the next 30 years at least is right where we are. No one is better placed to serve the growth than Colluli, right on the Red Sea.
I'll quickly show you the economics slide. We always presented in this way, which is to say at the top, above the dark green line you'll see the project level economics, which are very compelling, below that because the opportunity for investment is in Danakali, below the dark green line, so the bottom three lines, those are the Danakali level economics. You'll see very strong discounted free cash flows coming for Danakali, US$43 million per year for module one, US$85 for module two, you see our IRR is very high, 30%. And so that's why we think this is such a compelling opportunity for investment. The final thing I'd like to say is, when you look at the expansion opportunities for Colluli, it's the capital intensity that you need to pay attention to. It's very low capital intensity. So Colluli is positioned to not only dominate the market, but also control the market to a significant degree. There's a lot more I can say about Colluli but I haven't got any time. So thank you very much for the opportunity. Thank you Clive, and I hope you have some follow-up questions.Ends