Special Report: Danakali Ltd - Takeover Target

Update, January 2023: Sale of the Colluli Potash Project

We first called Danakali (DNK.ax) as an official 10 Bagger at the beginning of 2021 at $0.29.

We felt the company was seriously undervalued given the enormous size and potential of their 50% held Colluli Potash Project in Eritrea.

Colluli’s JORC potash reserve is a staggering 1.1 billion tonnes at 20% K₂SO₄.

Which is 200 million tonnes of high purity fertiliser that sells for US$600 per tonne.

Which is US$120 billion or AUD$160 billion of product in the ground.

The 10 Bagger Club has previously identified (at a very early stage):

• Element 25’s Butcherbird Manganese project (11c to $2.50).
• De Grey Mining’s Hemi Gold discovery (4c to $1.50).
• Chalice Mining’s Julimar Ni, Pt & Pd project (20c to $9.00).

The Colluli Potash project is bigger than all of them put together:

• DEG: maybe a 10-15 year mine life?
• CHN: possibly a 15 year mine life? They haven’t even announced a resource and already have a $3 billion market cap
• E25: a 40 year mine life, maybe +60 years

DNK’s Colluli project has a proven potash reserve with a +200 YEAR MINE LIFE It is the LARGEST UNDEVELOPED MINING PROJECT we have ever seen and will supply the planet with essential fertilisers to ensure the security of food supply for the next century

Since We Identified DNK.ax As A Potential 10 Bagger

• The share price has risen to as high as $0.64 and settled around $0.50.

• We pushed for change in the management team that has resulted in the CEO and CFO moving on, saving the company over $1 million per year in wages. We have reinstilled the ‘can do’ culture.

• We collectively bought out the long term seller JPMorgan for over $4 million in DNK stock, clearing the overhang that had been suffocating the share price. (JPM only selling as their UK based resource fund was closed down.)

• We coordinated a +$20 million capital raise for DNK at $0.43 enabling the company to commence construction of critical infrastructure, haul road, fresh water supply and employee camp.

• The road to completion of full project finance is now clear.

• Global food prices have continued to rise.

• Global commodities such as soybean, corn, wheat and rice are up massively.

• Share prices in global potash majors have gone up 50% to 80% in the last year.

• DNK have focussed on replacing and substituting the expensive, environmentally disastrous and frankly disgraceful Mannheim production of SOP in Europe. This initial market is for 2 mtpa or +$1 billion per year in sales.

• DNK has identified exceptional geothermal, solar and wind potential for Zero Carbon™ production of potash and cheap hydrogen supply from seawater.

The Next Steps

In our initial report on DNK we highlighted the takeover potential of the company and why it would be an attractive asset for a larger company.

We identified a number of potential suitors that would be interested in Danakali and the reasons why.

Many have been watching the progress and waiting for DNK to fail, to run out of money, so they could acquire it on the cheap. This is not going to happen.

Today, we zero in on this takeover theme, as we believe it is the likely outcome going forward due to a number of reasons at Colluli:

• Highest grade potash - 25x the grade of rival brine producers.
• Highest quality potash - Unrivalled purity.
• Closest project to port - Nearest competitor has more than 700km to travel to port.
• Closest to surface - Salts start from just 2m below the surface.
• Longest mine life - Mining Reserve +200 years (Reserves not resources!)
• Multi-commodity - SOP, SOPM, rock salt, gypsum, kiersite.
• Environment - It will end the disastrous Mannheim SOP production method.

Throughout history, large, best in class assets across the globe end up in major companies.

Major companies that don’t mind writing out cheques for $1b or $5b or $10b.

Examples include IGO acquiring the Nova nickel mine for $1.8 billion.

We believe Chalice (another one of our calls and currently a $3bl market cap) will probably be gobbled up by a major for +$4 billion.

Colluli is in another league and is so valuable, we believe it will also be taken over by a larger company, the only question is when and at what price.

Eritrea - Previous Takeovers

We highlight that all three current operating mines in Eritrea were previously purchased or taken over by various Chinese groups giving shareholders enormous returns:

• SFECO bought Chalice’s Zara gold mine for US$80 million.
• SRBM bought Canadian Sunridge’s Asmara base metal project for US$88 million.
• Zijin Mining takeover of Canadian listed Nevsun for in excess of $US1.4billion.

Latest Buying

Rumors hit the market last month that Macquarie Insto were chasing 10 million DNK shares

This appears to be the case as the biggest buyer over the last few weeks has been them (whilst retail broker CommSec has been the largest seller).

We wonder who they are buying for?

It is clear that Colluli would be a great asset to hold by a number of different groups.

Whoever gets Colluli controls the Danakil depression.

Whoever controls the Danakil controls the future price of food on planet Earth.

We believe more than one group listed below will ultimately try to buy the asset.

In fact, we predict a hard fought battle for control because the companies below cannot afford to let their competitors get a hold of the project.

Who will fire the first shot?

The Danakali Takeover List

Africa Finance Corp

DNK’s largest shareholder with a strategic 16.5% holding, AFC wants control of this asset to ensure food security for the African continent for decades to come. Will AFC President Samaila Zubairu become the champion of Africa? He will not let go of Colluli cheaply.
Market cap: $9 billion*

Eurochem

DNK’S off-take partner knows the project intimately. Based in Zug, Switzerland, the Russian controlled Eurochem certainly wouldn’t want to lose future supply of such valuable product.
Market cap: $20 billion*

Gazpom

Already have a J.V. with the Eritrean State Mining Company (ENAMCO)- the Ketina Mining Share Company(KMSC) Gazprom surely has an eye on the prize at Colluli? With annual revenues in excess of €120 billion Gazprom could take out DNK with spare change.
Market cap: $100 billion

Nestlé

The world’s largest food company. To have a Zero Carbon Potash™ supply for global food production would be a very valuable asset to them.
Market cap: $450 billion

Yara Fertiliser

One-third owned by the $1 trillion Norwegian Sovereign Wealth Fund! Yara knows the region well as they own the Dallol potash project in neighbouring Ethiopia. If Yara buys DNK they will control the entire Danakil basin and the future of food forever…
Market cap: $70 billion

Qinqhai Salt Lake Industry

China’s largest potash producer is losing $billions and heading toward bankruptcy. They desperately need another supply of potash to keep China’s rural development and food supply on track.
Market cap: $20 billion

China Harbour

Upgraded the Eritrean Port of Massawa in 2016 and would be a front runner to build the proposed new port at Anfile Bay, just 87km from the Colluli project. Wouldn’t they also want ownership of Colluli and instantly become a global fertiliser giant?
Market cap: $20 billion

Itochu

A Japanese giant 5% owned by Berkshire Hathaway. With annual revenues in excess of US$100 billion, global fertiliser and food divisions and operations in neighboring Ethiopia, Itochu will be watching DNK.
Market cap: $50 billion

Sabic

Across the Red Sea: Sabic Agri-Nutrients Company is a massive State-owned conglomerate who could build the roads, plant, port and distribute the end product.
Market cap: $15 billion

Maaden

Saudi Arabia’s diversified national mining company is already active in phosphate mining. Actively adopting Vision 2030 to diversify away from petrochemicals, will they beef up their sustainable portfolio with the acquisition of Colluli.
Market cap: $19 billion

K+S

Poor decision making from Germany’s K+S have seen them face a raft of problems. DNK will eat into their Mannheim production in Europe and wipe them out. Or will K+S emerge as a global fertiliser powerhouse by buying DNK?
Market cap: $3 billion

Anglo American

Dusted £400 million to buy Sirius Minerals polyhalite project. Anglo could buy DNK for the same amount and get the world’s greatest SOP project. DNK are dual listed in the UK on LSE Main Board.
Market cap: $75 billion

BHP

About to press the button on a US$5.7 billion investment on their Jansen Potash project in Canada bringing total capital spend to +US$10 billion! Wouldn’t their money be better spent on buying ‘chloride free’ DNK for a fraction of this price?
Market cap $250 billion

Hancock Prospecting

After emerging with a US$250m royalty from Sirius Minerals’ disastrous polyhalite fertilizer project, will Australia’s richest woman Gina Rinehart add to her ‘growing’ fertiliser empire?
Market cap $20 billion*

Fortescue Metals Group

Will Australia’s richest man, Twiggy Forrest go head to head with Gina or miss out on this once in a lifetime opportunity to take the giant Colluli Project and help feed Africa?
Market cap: $70 billion

Nutrien

BHP bid US$40 billion for Nutrien in 2011. They are Canada’s largest potash company but their MOP product is full of toxic chloride. Without Colluli to balance out their portfolio, they are heading the way of the dinosaur.
Market cap: $80 billion

Mosaic

Canada’s second largest potash company. How do they become No.1? They buy Danakali and overtake Nutrien.
Market cap: $45 billion

Disclaimer

No financial advice given. You are encouraged to do your own research (DYOR) on the above mentioned company and its strategy/progress and make your own financial decisions