TIDMDNK
RNS Number : 3109X
Danakali Limited
27 August 2020
Announcement Thursday, 27 August 2020
============= =========================
Danakali HY 2020 Financial Report
Danakali Limited (ASX: DNK, LSE: DNK, Danakali or the Company),
focused on the development of the Colluli Sulphate of Potash
Project (Colluli, or the Project), is pleased to release its
Financial Report for the six month period ended 30 June 2020 (Half
Year Financial Report).
Operational Highlights:
-- EPCM Phases 1 and 2 (FEED Review and Update) completed on
budget with all vendor and contractor packages received from DRA
Global, allowing the completion of the tender evaluation
process
-- Business continuity and emergency plans put in place to
ensure safety of employees in response to COVID-19
-- All resources mobilised in support of desk-based activities
to allow continued progress on the development of the Project and
EPCM workstreams, including test work and optimisation studies in
support of EPCM Phase 3 (Detailed Design)
-- Optimisation design opportunities identified for improved Environmental and Capital outcomes
-- Notice of Commencement of Mine Development accepted by
Eritrean Ministry of Energy & Mines and permits granted for
infrastructure development and quarries
-- Publication of the inaugural 2019 Sustainability Report,
reaffirming our commitment to sustainable mining principles and
alignment to the UN SDGs and other international frameworks
Corporate & Financial Highlights:
-- Mutual agreement reached between DNK and AFC to extend the
deadline for Tranche 2 equity funding in response to, amongst other
things, constraints arising from COVID-19
-- Appointment of two AFC nominees as non-executive directors to Danakali's Board of Directors
Expectations for the remainder of 2020:
-- Finalisation of project funding requirements
-- Finalise the remaining conditions precedent and receipt of AFC Tranche 2 (US$28.5M)
-- Continue design and EPCM optimisation work and Commencement of EPCM Phase 3 (Detailed Design)
Niels Wage, Chief Executive Officer of Danakali, said: "We
started 2020 with the kick off of the Project Development for
Colluli, and despite the unprecedented and challenging COVID-19
pandemic, we have been able to make good progress with our EPCM
activities. I am pleased to report that the business has responded
well to the challenges and I thank all of my colleagues for their
hard and dedicated work during the period.
Following the significant milestones achieved towards the end of
last year, we entered 2020 with a robust plan to significantly
progress EPCM activities, bringing Colluli closer to construction.
This enabled us to progress on those works that could be delivered
remotely whilst restrictions continued.
As COVID-19 restrictions are being relaxed in Eritrea, access to
Colluli is possible and we can prepare for construction. The
business is well positioned financially with its existing cash
resources. With a number of prudent reduction measures that had
been taken to manage spend in Q2 2020, we are seeing a lower burn
rate, and continue to follow a disciplined and balanced capital
allocation policy.
We will continue our focus for the second half of 2020 on
closing out the required financing and progressing with the project
development. I look forward to reporting on further progress in the
months ahead."
Announcement authorised for release by the CEO of Danakali.
For more information, please contact:
Danakali
Niels Wage Mark Riseley
Chief Executive Officer Senior Corporate Development Manager
+61 8 6189 8635 +61 8 6189 8635
Corporate Broker - Canaccord UK IR/PR - Instinctif Partners
Genuity
James Asensio / Angelos Vlatakis Mark Garraway / Dinara Shikhametova
+44 (0)20 7523 4680 / Sarah Hourahane
danakali@instinctif.com
+44 (0)207 457 2020
Visit the Company's website: www.danakali.com
Follow Danakali on LinkedIn: www.linkedin.com/company/danakali-limited
Subscribe to Danakali on YouTube: www.youtube.com/channel/UChGKN4-M4lOvPKxs9b-IJvw
DANAKALI LIMITED
ABN 56 097 904 302
FINANCIAL REPORT FOR THE HALF YEARED
30 JUNE 2020
The following sections of the Financial Report are available on
our website at www.danakali.com :
Auditor's Independence Declaration
Independent Auditor's Report
This interim financial report does not include all the notes of
the type normally included in an annual financial report.
Accordingly, this report is to be read in conjunction with the
Annual Report for the year ended 31 December 2019 and any public
announcements made by Danakali Limited during the interim reporting
period in accordance with the continuous disclosure requirements of
the Corporations Act 2001.
Corporate Information
------------------------------------------------------------------------------------------
Directors
Seamus Cornelius (Non-Executive Chairman) Zhang Jing (Non-Executive Director)
John Fitzgerald (Non-Executive Director) Robert Connochie (Non-Executive Director)
Taiwo Adeniji (Non-Executive Director) Samaila Zubairu (Non-Executive Director)
Neil Gregson (Non-Executive Director)
Executive Management Joint Company Secretaries
Niels Wage (Chief Executive Officer) Catherine Grant-Edwards
Stuart Tarrant (Chief Financial Officer) Melissa Chapman
Registered Office & Principal Place of Business
Level 11, Brookfield Place, 125 St Georges Terrace
PERTH WA 6000
Telephone: +61 (0)8 6189 8635
Bank Auditors
National Australia Bank Ernst & Young
Level 12, 100 St Georges Terrace 11 Mounts Bay Road
PERTH WA 6000 PERTH WA 6000
Share Register (Australia) Share Register (United Kingdom)
Computershare Investor Services Computershare Investor Services
Pty Limited Pty Limited
Level 11, 172 St Georges Terrace The Pavilions, Bridgwater Road
PERTH WA 6000 Bristol BS13 8AE, United Kingdom
Telephone: 1300 850 505 (Inside Telephone: +44 (0) 370 702 0003
Australia)
Telephone: +61 (0)3 9415 4000 www.computershare.com
(Outside Australia)
Facsimile: +61 (0)3 9473 2500
www.computershare.com
To facilitate trading of Danakali's shares on the Standard
Segment of the London Stock Exchange (LSE) Main Market, Danakali
has established a Depositary Interest (DI) facility, under which it
has appointed Computershare Investor Services Plc as the
depositary. Securities of Australian issuers such as Danakali
cannot be directly registered, transferred or settled through CREST
(which is the electronic settlement system in the UK). The DI
facility overcomes this by creating entitlements to Danakali's
shares (the DIs), which are deemed to be UK securities and
therefore admissible to CREST. The underlying shares are listed and
traded on the Standard Segment of the LSE Main Market, while the
DIs are transferred in CREST to settle those trades.
Website
www.danakali.com.au
Stock Exchange Listing
Danakali Limited Shares are listed on the Australian Stock Exchange
(ASX:DNK) and the London Stock Exchange (LSE:DNK).
American Depository Receipts
The Bank of New York Mellon sponsors DNK's Level 1 American Depository
Receipts Program (ADR) in the United States of America. DNK's
ADRs are traded on the over-the-counter (OTC) securities market
in the US under the symbol DNKLY and CUSIP: 23585T101. One ADR
represents one ordinary share in DNK.
US OTC Market information is available http://www.otcmarkets.com/stock/DNKLY/quote
here:
DNK's ADR information can also http://www.adrbnymellon.com//?cusip=23585T101
be viewed here:
ADR Holders seeking information on their shareholding should contact:
shrrelations@bnymellon.com OR
LONDON NEW YORK
Mark Lewis Rick Maehr
mark.lewis@bnymellon.com richard.maehr @bnymellon.com
Telephone +44 207 163 7407 Telephone +1 212 815 2275
Directors' Report
Your directors submit their report together with the condensed
financial statements of the consolidated entity, being Danakali
Limited (Danakali or the Company) and its controlled entities (the
Group) for the half year ended 30 June 2020.
Directors
The names of the directors who held office during or since the
end of the half year are:
(Non-Executive Chairman)
* Seamus Cornelius
(Non-Executive Director)
* John Fitzgerald
(Non-Executive Director)
* Zhang Jing
(Non-Executive Director)
* Robert Connochie
(Non-Executive Director) (Appointed 23 April
* Taiwo Adeniji 2020)
(Non-Executive Director) (Appointed 23 April
* Samaila Zubairu 2020)
(Non-Executive Director) (Appointed 3 August
* Neil Gregson 2020)
(Non-Executive Director) (Resigned 3 August
* Paul Donaldson 2020)
(Non-Executive Director) (Resigned 3 August
* Andre Liebenberg 2020)
The Directors held their positions throughout the entire half
year period and up to the date of this report unless stated
otherwise.
PRINCIPAL ACTIVITIES
The principal activity of the Group during the half-year ended
30 June 2020 was advancing the Colluli Potash Project (Colluli, or
the Project) in Eritrea, East Africa. There was no significant
change in the nature of the Group's activities during the six
months to 30 June 2020.
REVIEW AND RESULTS OF OPERATIONS
The net loss after tax of the Group for the half-year ended 30
June 2020 amounted to $ 1,677,355 (30 June 2019: $1,540,083). Total
consolidated cash on hand at the end of the period was $15,771,118
(31 December 2019: $33,800,104).
REVIEW OF OPERATIONS
PROJECT OVERVIEW
The Colluli Potash Project (Colluli, or the Project) is located
in the Danakil Depression region of Eritrea, East Africa. Colluli
is approximately 177km south-east of the capital, Asmara, and 180km
from the port of Massawa, which is Eritrea's key import/export
facility. The Project is a joint venture between the Eritrean
National Mining Corporation (ENAMCO) and Danakali with each having
50% ownership of the joint venture company, the Colluli Mining
Share Company (CMSC). CMSC is responsible for the development of
the Project.
The Danakil Depression is an emerging potash province, which
commences in Eritrea and extends south across the border into
Ethiopia. It is one of the largest unexploited potash basins
globally; over 6Bt of potassium bearing salts suitable for
production of potash fertilisers have been identified in the region
to date (DNK announcement 19 February 2018 and
circumminerals.com/resources).
Colluli is located approximately 75km from the Red Sea coast
providing unrivalled future logistics potential. The Project
resides on the Eritrean side of the border, giving Colluli a
significant advantage relative to all other potash development
projects in the Danakil Depression, which need to ship from the
Tadjoura Port in Djibouti - over 600km by road from the closest
project on the Ethiopian side of the border.
Colluli boasts the shallowest mineralisation in the Danakil
Depression. Mineralisation commences at just 16m below surface. In
addition, the potassium bearing salts are present in solid form (in
contrast with production of SOP from brines). Shallow access to
salts in solid form provides Colluli with significant mining,
logistics and, in turn, capital and operating cost advantages over
other potash development projects globally. The Project also
carries a significantly lower level of complexity as a consequence
of predictable processing plant feed grade and predictable
production rates due to low reliance on ambient conditions.
Shallow mineralisation makes the resource amenable to open cut
mining: a proven, high productivity mining method. Open cut mining
provides higher resource recoveries relative to underground and
solution mining methods, is generally safer, and can be more easily
expanded.
The Colluli resource comprises three potassium bearing salts in
solid form: Sylvinite, Carnallitite and Kainitite. These salts are
suitable for high yield, low energy production of Sulphate of
Potash (SOP), which is a high-quality potash fertiliser carrying a
price premium over the more common Muriate of Potash (MOP). SOP is
chlorine free and is commonly applied to high value crops such as
fruit, vegetables, nuts, and coffee. Economic resources for primary
production of SOP are geologically scarce and there are few current
primary producers.
The JORC-2012 compliant Mineral Resource for Colluli is
estimated at 1.289Bt @ 11% K(2) O for 260Mt of contained SOP
equivalent (DNK announcement 19 February 2018). The JORC-2012
compliant Ore Reserve estimate for Colluli is estimated at 1,100Mt
@ 10.5% K2O for 203Mt of contained SOP equivalent (ASX announcement
19 February 2018). The Measured and Indicated Mineral Resources are
inclusive of those Mineral Resources modified to produce the Ore
Reserves.
Colluli will be developed to its full potential by adopting the
principles of risk management, resource utilisation and modularity,
using the first module as a platform for growth. The Colluli
Front-End Engineering Design (FEED) modules are:
-- Module I - 472ktpa SOP production; and
-- Module II - Additional 472ktpa SOP production commencing in year 6.
The massive Colluli Ore Reserve has significant capacity to
underpin further expansions and support decades of growth beyond
Modules I and II.
Colluli has significant diversification potential beyond SOP,
including the option to produce additional potash and salt products
such as MOP, SOP-M, Kieserite (MgSO(4) .H(2) O), Gypsum (CaSO(4)
.2H(2) O), Magnesium Chloride (MgCl(2) ), and Rock Salt (NaCl). The
Colluli SOP Mineral Resource also comprises an 85Mt Kieserite
(Magnesium Sulphate) Mineral Resource (DNK announcement 15 August
2016). Kieserite is a suitable fertiliser for magnesium deficient
soils. A 347Mt Rock Salt (Sodium Chloride) Mineral Resource (DNK
announcement 23 September 2015) has also been established at
Colluli. Unprocessed Rock Salt can be used for de-icing, processed
Rock Salt can be used as table salt.
The FEED for Colluli was undertaken to provide offtakers and
funders with a high level of study detail and accuracy and was the
final study stage before project execution. Subsequent to the
release of FEED, Colluli secured Offtake ( ASX announcement 12 June
2018) and begun the search for senior debt which culminated in the
execution of documentation for $200M Senior Debt facilities with
African Finance Corporation (AFC) and African Export Import Bank
(Afreximbank) (ASX announcement 23 December 2019) . In addition to
the Senior Debt, AFC committed to invest US$50M in Danakali in
equity ( ASX announcement 3 December 2019) .
FEED firmly established Colluli as an economically attractive
greenfield SOP development project (ASX announcement 29 January
2018) . The FEED results reaffirm the outstanding project economics
of Colluli with industry leading capital intensity. This, combined
with forecast first quartile operating costs, resulted in a Project
Net Present Value (NPV(10) ) of US$902M and Internal Rate of Return
(IRR) of 29.9%. The Danakali economic outcomes were an NPV(10) of
US$439M and IRR of 31.3%.
Project execution commenced in December 2019.
Mining Agreement Executed and Mining Licenses Awarded
CMSC is fully permitted, having entered into a mining agreement
(Mining Agreement) with the Eritrean Ministry of Energy and Mines
(MoEM) and was awarded mining licenses (Mining Licenses) for the
exploitation of mineral resources within the Colluli tenements (ASX
announcement 1 February 2017).
The project is progressing to construction as evidenced by the
submission of the Notice of Mine Development by
CMSC and the subsequent acceptance by the MoEM ( ASX announcement 22 July 2020) .
The Mining Agreement is applicable to the entire 1.3Bt JORC-2012
compliant Mineral Resource and provides exclusive rights to CMSC to
apply for mining licenses to exploit the potassium, magnesium,
calcium and sodium salts within the resource, as well as
bromine.
The award of the Mining Licenses follows the completion of a
series of pre-requisites including the completion and submission of
the DFS, submission of a comprehensive social and environmental
impact assessment and associated management plans, a series of pre
and post DFS stakeholder engagements with local and regional
communities and stakeholders, and the signing of the Mining
Agreement.
A Social and Environmental Impact Assessment (SEIA) and
associated Social and Environmental Management Plans (SEMPs) have
been completed to ensure consistency with the Equator Principles.
Stakeholder engagements have been completed throughout the study
phases, and the Project has strong support from local communities.
Following a period of consultation and further works, between the
Eritrean Ministry of Land, Water & Environment and CMSC, the
SEMPs finalised by CMSC were signed off in August 2018 following an
extensive review process. The SEMPs are a cornerstone of the
environmental, social and safety management system being developed
by CMSC and provide the foundation for compliance.
MARKETING AND PROJECT FINANCE UPDATE
Offtake
A binding take-or-pay offtake agreement has been reached with
EuroChem Trading GmbH (EuroChem) for up to 100% of Module I SOP
production from the Colluli Potash Project. EuroChem will take,
pay, market and distribute up to 100% (minimum 87%) of Colluli
Module I SOP production. The term of the agreement is 10 years from
the date of commissioning of the Colluli SOP processing plant, with
an option to extend for a further 3 years if agreed by EuroChem and
CMSC. EuroChem is an outstanding partner with global reach and
extensive fertiliser expertise and experience, and the agreement is
instrumental in unlocking project funding
Project Financing
Development finance institutions, Africa Finance Corporation
(AFC) and African Export Import Bank (Afreximbank, together the
Mandated Lead Arrangers), have executed documentation for the
provision of US$200M in senior debt finance to CMSC (each Mandated
Lead Arranger providing US$100M). The facility allows drawdown of
CMSC senior debt on satisfaction of customary conditions precedent
(refer ASX announcement 23 December 2019) for a project financing
facility of this kind and includes all project approvals required
to develop the project, and the balance of the equity contribution
having been raised.
AFC executed a Subscription Agreement to make a US$50M strategic
equity investment in Danakali. The Placement is being conducted in
two tranches. The first tranche consisted of approximately 53M new
Shares issued at A$0.60 per Share to raise A$31.8M (US$21.5M),and
was completed on 10 December 2019. The second tranche totals
US$28.5M (Tranche 2).
As previously announced, in light of the rapid spread of
COVID-19 and its significant impact on global financial markets,
Tranche 2 of AFC's equity funding has been be deferred to allow for
the stabilisation of market and global conditions. Prior to the
advance of Tranche 2, AFC requires satisfaction of certain
conditions precedent relating to CMSC's debt financing and
execution of certain documents ancillary to that debt financing, in
addition to the senior debt agreements already executed.
The deferment of Tranche 2 allows the parties to work through
satisfying many of the remaining conditions precedent to Danakali's
debt financing, and give Danakali additional time to reassess its
overall funding strategy and review a range of options appropriate
to the Project's funding requirements beyond the completion of EPCM
Phases 1 and 2. Danakali and AFC are working in good faith to agree
the extent of AFC's requirements, and determine which of these
require satisfaction before Tranche 2 is advanced. AFC extended the
deadline for satisfaction of remaining conditions precedent for
Tranche 2 of its investment to 21 November 2020. Approval of
Danakali's shareholders remains a further condition precedent.
The Company is currently progressing with a range of options for
funding the balance required to bring Colluli into production.
PROJECT UPDATE
In response to the COVID-19 pandemic, the Company has
prioritised the safety and wellbeing of all its employees. With
on-site activities temporarily suspended until restrictions are
lifted, the desk-based nature of the majority of the work that was
already underway has enabled the Company to focus all available
remote-working resources on the EPCM workstreams and to investigate
optimisation opportunities. Geotechnical investigation works have
been temporarily deferred pending the lifting of travel
restrictions. Project spend is continually assessed and restricted
to those areas critical to the long-term success, as Colluli
remains on track for production during 2022.
EPCM progress
Whilst on-site activities were suspended, desk-based work
continued allowing Danakali to make significant progress on the
EPCM testing and planning workstreams, and to further analyse
potential optimisation opportunities in environmental and capital
management, in preparation for the Detailed Design stage.
During the period, Phases 1 and 2 of the EPCM scope were
completed.
The EPCM Phase 2 materials have been delivered by DRA Global
(DRA), including:
-- Capital Estimate and Project Schedule, and
-- identifying focus areas in design and process.
These materials allow advancement to the Detailed Design Phase
of Project Development and identify focus areas to manage the risks
during this phase. The CMSC Project Team are in the process of
reviewing the deliverables.
Environmental and Capital optimisation opportunities identified
during EPCM Phase 2 include the:
-- use of filtered sea water in the processing plant, and
-- use of beach wells as the water intake system alternative for
the Water Intake Treatment Area (WITA).
Environmental and Social Governance (ESG)
During the period Danakali published the inaugural
Sustainability Report highlighting Colluli's potential to
positively impact Eritrea. The report outlined the following:
-- Significant commitment to responsible business;
-- Strong alignment with 13 of the 17 UN Sustainable Development
Goals (SDGs);
-- Operational management systems under development will align
with Equator Principles, IFC standards for Environmental and Social
Performance and the World Bank Group Environment, Health and Safety
Guidelines;
-- Commission an independent human rights due diligence scoping
exercise for the Colluli project and engage with key stakeholders;
and
-- Prior to our formal obligation to comply with the Act, we
will proactively disclose our efforts to address human rights
risks, including risks related to modern slavery, through an
ongoing human rights impact assessment scoping study and our annual
sustainability reporting process.
Once developed, it is expected operational management systems
will satisfy the requirements under the Modern Slavery Act 2018
(Cth) (Commonwealth Act) to which the company is not currently
required to comply with.
RESERVE AND RESOURCE OVERVIEW
Colluli has a JORC-2012 compliant resource of 1.289 billion
tonnes as shown in Table 1 as at 30 June 2020. Apart from the
inclusion of Kieserite (announced 15 August 2016), there have been
no changes to the Mineral Resource since 25 February 2015.
The Colluli JORC-2012 compliant mineral resource estimate as at
30 June 2020 is as follows:
Table 1: Colluli Mineral Resource Estimate announced on 25
February 2015 with Kieserite added (announced on 15 August
2016)
Tonnes Density K(2) O Equiv. Kieserite
Rock Unit Mt t/m(3) % %
------- -------- -------------- ----------
Sylvinite 265 2.2 12% 0.03%
------- -------- -------------- ----------
Upper Carnallitite 51 2.1 12% 3%
------- -------- -------------- ----------
Lower Carnallitite 347 2.1 7% 22%
------- -------- -------------- ----------
Kainitite 626 2.1 12% 1%
------- -------- -------------- ----------
Total 1,289 2.1 11% 7%
------- -------- -------------- ----------
Within the JORC-2012 compliant, 1.289 billion tonnes, Mineral
Resource Estimate, the JORC-2012 compliant Ore Reserve Estimate for
Colluli's potassium sulphate potash fertiliser is approximately 1.1
billion tonnes comprising 285 million tonnes of Proved and 815
million tonnes of Probable Ore Reserve and is shown below in Table
2. The Ore Reserve was updated in line with FEED and this update is
included below (ASX announcement 19 February 2018).
The Colluli JORC-2012 compliant Ore Reserve estimate by potash
mineral as at 30 June 2020 is as follows:
Table 2: JORC-2012 Colluli Potassium Sulphate Ore Reserve
announced on 29 January 2018 and 19 February 2018
Proved Probable Total
K(2) K(2)
K(2) K(2) K(2) SO(4) SO(4)
O Equiv O Equiv O Equiv Equiv Equiv
Occurrence Mt % Mt % Mt % % Mt(1)
---- --------- ---- --------- ------ --------- ------- -------
Sylvinite
(KCl.NaCl) 77 15.0% 173 12.1% 250 13.0%
---- --------- ---- --------- ------ --------- ------- -------
Carnallitite
(KCl.MgCl(2)
.H(2) O) 77 6.9% 279 7.8% 356 7.6%
---- --------- ---- --------- ------ --------- ------- -------
Kainitite
(KCl.MgSO(4)
.H(2) O) 131 11.8% 363 11.2% 494 11.4%
---- --------- ---- --------- ------ --------- ------- -------
Total 285 11.3% 815 10.3% 1,100 10.5% 18.5 203
---- --------- ---- --------- ------ --------- ------- -------
(1) Equivalent K(2) SO(4) (SOP) calculated by multiplying %K(2)
O by 1.85
In addition to potassium sulphate, substantial quantities of
rock salt exist. A JORC-2012 compliant Rock Salt Mineral Resource
Estimate of over 300 million tonnes has been completed for the area
considered for mining in the DFS as shown in Table 3. There have
been no changes to the Mineral Resource estimate since 23 September
2015.
As at 30 June 2020, the J ORC-2012 compliant Rock Salt Mineral
Resource is as follows:
Table 3: JORC 2012 Colluli Rock Salt Mineral Resource announced
on 23 September 2015
Classification Tonnes NaCl K Mg CaSO(4) Insolubles
(Mt)
Measured 28 97.2% 0.05% 0.05% 2.2% 0.23%
------- ------- ------- ------- -------- -----------
Indicated 180 96.6% 0.07% 0.06% 2.3% 0.24%
------- ------- ------- ------- -------- -----------
Inferred 139 97.2% 0.05% 0.05% 1.8% 0.25%
------- ------- ------- ------- -------- -----------
Total 347 96.9 % 0.06 % 0.05 % 2.1 % 0.24 %
------- ------- ------- ------- -------- -----------
CORPORATE
Board appointments
AFC President and CEO, Samaila D. Zubairu, and AFC Senior
Director for Investment Operations & Execution, Taiwo Adeniji,
joined Danakali's Board as Non-Executive Directors on 23 April
2020. These appointments are in accordance with the terms of AFC's
US$50M Subscription Agreement which provides AFC the right to
appoint two nominees to the Board of Danakali provided AFC's
Danakali ownership remains above certain thresholds.
Refer to events occurring after 30 June 2020 for details of
further board changes made in August 2020.
Shares
The following shares were issued during the period:
-- 195,000 shares issued upon vesting of performance rights
At 30 June 2020, there were a total of 318,741,306 fully paid
ordinary shares on issue.
Options
There were no unlisted options issued or exercised during the
period.
The following unlisted options lapsed during the period:
-- 500,000 unlisted options exercisable at $0.912 expired on 11
May 2020
-- 1,440,000 unlisted options exercisable at $0.940 expired on
19 May 2020
At 30 June 2020, there were a total of 4,064,112 unlisted
options on issue at various exercise prices and expiry dates.
Performance Rights
There were no performance rights issued during the period.
The following performance rights were cancelled during the
period:
-- 15,000 Class 7 performance rights(1)
-- 15,000 Class 8 performance rights
The following performance rights vested and converted into
shares during the period:
-- 25,000 Class 6 performance rights(2)
-- 50,000 Class 8 performance rights(3)
-- 100,000 Class 9 performance rights(4)
-- 20,000 Class 5 performance rights
At 30 June 2020, there were a total of 2,060,000 performance
rights on issue in the following classes:
-- 280,000 Class 1 performance rights
-- 800,000 Class 4 performance rights
-- 80,000 Class 5 performance rights
-- 900,000 Class 9 performance rights
(1) Relates to 15,000 performance rights that were subject to
cancellation at 31 December 2019 and removed from the register 13
January 2020.
(2) Relates to 25,000 performance rights in respect of which the
performance hurdle had been met at 23 December 2019. Issue of the
shares following conversion occurred 13 January 2020.
(3) Relates to 50,000 performance rights in respect of which the
performance hurdle had been met at 3 December 2019. Issue of the
shares following conversion occurred 13 January 2020.
(4) Relates to 100,000 performance rights in respect of which
the performance hurdle had been met at 20 December 2019. Issue of
the shares following conversion occurred 28 January 2020.
Interests in Mining Tenements
The exploration license for the Colluli Potash Project covers
approximately 30.4km(2) and the seven mining licenses awarded to
CMCS span over 63km(2) of the 99km(2) Agreement area. Further
details are provided below. There was no change in tenement holding
during the period .
Tenement: Colluli, Eritrea License Type: Mining License
Nature of Interest: Owned Current Equity: 50%
SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS
There were no other significant changes in the Company's state
of affairs other than that referred to in the financial statements
or notes thereto.
RISK MANAGEMENT
RISK MANAGEMENT
The Company has established a Risk Management Policy which
outlines the Board's expectations in relation to risk management,
responsibilities, risk management objectives, and the principles of
its risk management framework.
The Board, through the Audit and Risk Committee (previously
through the Technical and Risk Committee until 23 January 2020) is
responsible for overseeing the establishment and implementation of
effective risk management and internal control systems to manage
the Company's material business risks and for reviewing and
monitoring the Company's application of those systems.
The Audit and Risk Committee continues to work closely with
management to assess, monitor and review business risks and to
carry out assessments of internal controls and processes for
improvement opportunities. In support of this, the Committee
receives reports from management on new and emerging risks and
related controls and mitigation measures that management have
implemented.
A summary of the material business risks of the Company is set
out in the below table.
RISK MITIGATION / CONTROL
Strategic Risks
----------------------------------------------
The Group is reliant on the success The Group has implemented a comprehensive
of a single asset located in a risk management framework to early
remote region in Eritrea. Any detect and manage adverse events
adverse event affecting the Colluli that would affect the Project.
Potash Project (Project), either The Group maintains a strong relationship
during its development or following with a broad base of government
the commencement of production, and community stakeholders to monitor
would have a material adverse the political environment in Eritrea
effect on the value of the business and to stay ahead of any legislative
Changes to government, existing and regulatory changes.
applicable laws and regulations, The Group's public relations and
more stringent interpretations investment strategies promote the
of existing laws or inconsistent international awareness of the
interpretation or application benefits of doing business in Eritrea.
of existing laws by relevant authorities As further investment is made into
have the potential to adversely the country further infrastructure
impact business activities. can be developed.
Eritrea has limited local resources, The commencement of training programmes
infrastructure and skills, has in conjunction with Government
a less tested legislative and and other mining companies is planned
regulatory framework compared to increase the number of skilled
to more established mining jurisdictions and semi-skilled persons in Eritrea.
and is generally perceived as Whilst the Group has not experienced
a jurisdiction where there is any corruption in Eritrea, the
a high risk of corruption. Anti-Bribery & Corruption Policy
provides the framework for the
appropriate conduct when dealing
with government officials. The
Groups' values further promote
the proper behaviour of its employees
and contractors.
----------------------------------------------
Financial Risks
----------------------------------------------
The Group is yet to commence production The Group has adopted robust financial
and is in its development phase, management practices to ensure
therefore the company has no cash that cashflow are closely governed
generating assets which could and that future requirements remain
put a strain on long -term cash adequate to continue as a going
flows. concern.
The Group continues to execute
its fund raising strategies to
obtain the required capital to
fully fund the Project and working
capital of the business.
----------------------------------------------
The Group is aware that the economics The Group continuously monitors
for the development of the Project the SOP market and forecast demand
is strongly linked to the market to ensure that the economics of
price of SOP and its ability to the project remain favourable.
sell the product. A natural hedge exists against
lower SOP prices in the form of
an industry cost curve, of which
Colluli is expected to be in the
bottom quartile.
An offtake agreement with Eurochem
has been concluded for up to 100%
of the production for the first
10 years of the project. There
is an ongoing engagement with Eurochem
to continue to build the future
partnership.
----------------------------------------------
The Group is aware of the requirement The Group has established a funding
to raise additional funding to strategy to fund the project through
finance the Project. Without the debt and equity sources.
required raise, the business will A US$200m debt facility has been
not be able to develop the Project secured with African Finance Corporation
and long-term cashflow will become (AFC) and African Export-Import
a concern. The effect of COVID-19 Bank (Afreximbank). Drawdown on
on international travel and capital this facility is subject to a number
markets has increased funding of conditions precedent. A detailed
risk. plan is in-progress to close out
these conditions to enable drawdown
as required by the project.
Various strategies have been put
in place to raise the balance of
the funding for the project. AFC
has committed US$50m to the company
and the company continues to identify
and engage further strategic and
institutional investors through
its advisers and brokers.
Management continue to engage potential
investors and AFC have extended
the deadline to satisfy Tranche
2 conditions precedent to 21 November
2020.
----------------------------------------------
The Group is aware that foreign The Group implements appropriate
exchange movements and interest treasury management processes and
rate changes could affect the procedures to monitor and manage
financial performance of the company. its foreign exchange exposures.
The Group seeks to pursue natural
foreign exchange hedges through
the negotiation, where appropriate,
of USD denominated commercial contracts.
The senior debt funding facility
is linked to the Libor rate which
is relatively stable and does not
fluctuate significantly.
----------------------------------------------
Compliance Risks
--------------------------------------------
The Group is aware that the mining The Group has regular and effective
industry is subject to a number engagement with the Eritrean Ministry
of laws and governmental regulations of Energy and Mines to ensure
which need to be complied with. that it remains compliant with
Non-compliance could result to regulatory requirements and that
the loss of the Groups' mining the government is made aware of
licence. the company's commitments to develop
the project.
--------------------------------------------
The Group is aware of its Environmental The Group has appointed sustainability
& Social responsibilities and professionals to develop the management
the impact it would have on the systems to ensure that the environment
company if regulatory compliance and social compliance requirements
requirements have not been met. are achieved.
--------------------------------------------
Operation/ Project Risks
--------------------------------------------
The Group is reliant on a number The Group has developed succession
of key personnel. The loss of plans to reduce the exposure to
one or more of its key personnel the loss of any key personnel.
could have an adverse impact on In addition, long and short-term
the business of the Group incentive plans have been implemented.
--------------------------------------------
The Group is in the early stages The Group has identified a number
of development and therefore is of controls to reduce its exposure
exposed to various development to development risks.
risks. As part of the initial phase of
development, risk reviews are
undertaken and collated in a project
risk register.
--------------------------------------------
The Group is reliant on third The Group has awarded contracts
parties to develop and operate or preferential status to reputable
the Project, including mining, third-party contractors to develop
EPCM, and power contracts. and operate the project. The company
continues to engage these parties
as the Project develops.
--------------------------------------------
The Project is reliant on developing The Group has detailed plans to
its own infrastructure including, develop these infrastructures
processing plant, water and roads. and continue to engage with reputable
contractors.
--------------------------------------------
Project delay due to restriction Management continue to monitor
on international travel due to and update the project schedule
global pandemic (COVID-19). based on changing international
travel restrictions. As part of
the COVID-19 response a continuity
plan was developed and put into
action. These actioned are incorporated
into the overall Business Continuity
Plan.
Where appropriate, EPCM and other
project activities are undertaken
where these are not impacted by
travel restrictions.
--------------------------------------------
Reputational Risks
--------------------------------------------
The Group is aware of the risk The Group continues to employ
that Community and Government an in-country manager to regularly
support could deteriorate if the engage with the government and
Colluli project does not commence community to provide regular feedback
in the near term. on the development of the project.
The strategies to complete the
funding package to develop the
project are key to maintaining
the Groups reputation.
--------------------------------------------
The Group is aware of the external The Group intends to comply with
perception of Eritrea with respect IFC Performance Standards and
to political or economic instability. Equator Principles.
Specifically, allegations of Human The business is undertaking an
Rights violations. independent human rights due diligence
study and will be implementing
a number of policies, procedures,
and safeguards to ensure national
and international compliance with
fair work and human rights practices.
--------------------------------------------
Health & Safety
--------------------------------------------
Physical development of the Project In recognition of the physical
has not yet commenced, however remoteness of the Project, a well-equipped
the Group is aware of the activities medical clinic is planned for
and the environments in which on-site. The business has engaged
the project is located presents with an internationally recognised
inherent hazards, including the health and safety consultant to
risk of serious injury or fatality assist in to further develop these
while working on site. plans.
--------------------------------------------
The physical remoteness of Project Emergency response plans and travel
increases the risk of commuting safety strategies have been implemented.
to site and the availability of
medical assistance in the event
of an incident.
--------------------------------------------
EVENTS OCCURRING AFTER THE STATEMENT OF FINANCIAL POSITION
DATE
Mine Development Approval
On 22 July 2020, the Company announced that the Notice of
Commencement of Mine Development (the Notice) which CMSC lodged
with the Eritrean Ministry of Energy & Mines (MoEM) had been
accepted by the MoEM. Additionally, upon acceptance of the Notice
the MoEM has granted time to commence commercial production to be
within 36 months from submission of the Notice (mid-December
2022).
Board Changes
On 3 August 2020, Mr Neil Gregson was appointed as a
Non-Executive Director. Mr Paul Donaldson and Mr Andre Liebenberg
resigned as Non-Executive Directors on 3 August 2020. Mr Paul
Donaldson will remain actively engaged with Danakali as a Senior
Consultant.
AFC Mandate Letter
On 14 July 2020, the Company executed a mandate with AFC for the
provision of capital raising advisory services. Pursuant to the
mandate, AFC will be entitled to receive an industry standard
transaction fee on capital raising funds receipted by the Company
in respect of equity investors identified within the mandate with
AFC. Refer to Note 14 for further details.
There are no other events subsequent to 30 June 2020 and up to
the date of this report that would materially affect the operations
of the Group or its state of affairs which have not otherwise been
disclosed in this financial report.
AUDITOR'S INDEPENCE DECLARATION
A copy of the auditor's independence declaration as required
under section 307C of the Corporations Act 2001 is set out
separately in this report.
RESPONSIBILITY STATEMENT
The Directors (as listed under Corporate Information) confirm to
the best of their knowledge:
-- the Directors' Report, the financial statements and notes,
includes a fair review of the information required by:
a) DTR4.2.7 of the Disclosure and Transparency Rules in the
United Kingdom, being an indication of important events during the
first six months of the current financial year and their impact on
the half-year financial statements, and a description of the
principal risks and uncertainties for the remaining six months of
the year; and
b) DRT4.2.8 of the Disclosure and Transparency Rules in the
United Kingdom, being related party transactions that have taken
place in the first six months of the current financial year and
that have materially affected the financial position or performance
of the Group during that period, and any changes in the related
party transactions described in the last annual report that could
have such a material effect.
This report is made in accordance with a resolution of
directors.
Seamus Cornelius
NON-EXECUTIVE CHAIRMAN
Perth, 27 August 2020
COMPETENT PERSONS AND RESPONSIBILITY STATEMENT
Competent Persons Statement (Sulphate of Potash and Kieserite
Mineral Resource)
Colluli has a JORC-2012 compliant Measured, Indicated and
Inferred Mineral Resource estimate of 1,289Mt @11% K(2) 0 Equiv.
and 7% Kieserite. The Mineral Resource contains 303Mt @ 11% K(2) 0
Equiv. and 6% Kieserite of Measured Resource, 951Mt @ 11% K(2) 0
Equiv. and 7% Kieserite of Indicated Resource and 35Mt @ 10% K(2) 0
Equiv. and 9% Kieserite of Inferred Resource.
The information relating to the Colluli Mineral Resource
estimate is extracted from the report entitled "Colluli Review
Delivers Mineral Resource Estimate of 1.289Bt" disclosed on 25
February 2015 and the report entitled "In excess of 85 million
tonnes of Kieserite defined within Colluli Project Resource adds to
multi agri-commodity potential" disclosed on 15 August 2016, which
are available to view at www.danakali.com.au . The Company confirms
that it is not aware of any new information or data that materially
affects the information included in the original market
announcement and, in the case of estimates of Mineral Resources or
Ore Reserves, that all material assumptions and technical
parameters underpinning the estimates in the relevant market
announcement continue to apply and have not materially changed. The
Company confirms that the form and context in which the Competent
Person's findings are presented have not been materially modified
from the original market announcement.
Competent Persons Statement (Sulphate of Potash Ore Reserve)
Colluli Proved and Probable Ore Reserve is reported according to
the JORC Code and estimated at 1,100Mt @ 10.5% K(2) O Equiv. The
Ore Reserve is classified as 285Mt @ 11.3% K(2) O Equiv. Proved and
815Mt @ 10.3% K(2) O Equiv. Probable. The Colluli SOP Mineral
Resource includes those Mineral Resources modified to produce the
Colluli SOP Ore Reserves.
The information relating to the January 2018 Colluli Ore Reserve
is extracted from the report entitled "Colluli Ore Reserve update"
disclosed on 19 February 2018 and is available to view at
www.danakali.com.au . The Company confirms that it is not aware of
any new information or data that materially affects the information
included in the original market announcement and, in the case of
estimates of Mineral Resources or Ore Reserves, that all material
assumptions and technical parameters underpinning the estimates in
the relevant market announcement continue to apply and have not
materially changed. The Company confirms that the form and context
in which the Competent Person's findings are presented have not
been materially modified from the original market announcement.
Competent Persons Statement (Rock Salt Mineral Resource)
Colluli has a JORC-2012 compliant Measured, Indicated and
Inferred Mineral Resource estimate of 347Mt @ 96.9% NaCl. The
Mineral Resource estimate contains 28Mt @ 97.2% NaCl of Measured
Resource, 180Mt @ 96.6% NaCl of Indicated Resource and 139Mt @
97.2% NaCl of Inferred Resource.
The information relating to the Colluli Rock Salt Mineral
Resource estimate is extracted from the report entitled "+300M
Tonne Rock Salt Mineral Resource Estimate Completed for Colluli"
disclosed on 23 September 2015 and is available to view at
www.danakali.com.au . The Company confirms that it is not aware of
any new information or data that materially affects the information
included in the original market announcement and, in the case of
estimates of Mineral Resources or Ore Reserves, that all material
assumptions and technical parameters underpinning the estimates in
the relevant market announcement continue to apply and have not
materially changed. The Company confirms that the form and context
in which the Competent Person's findings are presented have not
been materially modified from the original market announcement.
AMC Consultants Pty Ltd (AMC) independence
In reporting the Mineral Resources and Ore Reserves referred to
in this public release, AMC acted as an independent party, has no
interest in the outcomes of Colluli and has no business
relationship with Danakali other than undertaking those individual
technical consulting assignments as engaged, and being paid
according to standard per diem rates with reimbursement for
out-of-pocket expenses. Therefore, AMC and the Competent Persons
believe that there is no conflict of interest in undertaking the
assignments which are the subject of the statements.
Quality control and quality assurance
Danakali exploration programs follow standard operating and
quality assurance procedures to ensure that all sampling techniques
and sample results meet international reporting standards. Drill
holes are located using GPS coordinates using WGS84 Datum, all
mineralisation intervals are downhole and are true width
intervals.
The samples are derived from HQ diamond drill core, which in the
case of carnallite ores, are sealed in heat-sealed plastic tubing
immediately as it is drilled to preserve the sample. Significant
sample intervals are dry quarter cut using a diamond saw and then
resealed and double bagged for transport to the laboratory.
Halite blanks and duplicate samples are submitted with each
hole. Chemical analyses were conducted by Kali-Umwelttechnik GmBH,
Sondershausen, Germany, utilising flame emission spectrometry,
atomic absorption spectroscopy and ion chromatography.
Kali-Umwelttechnik (KUTEC) has extensive experience in analysis of
salt rock and brine samples and is certified according by DIN EN
ISO/IEC 17025 by the Deutsche Akkreditierungsstelle GmbH (DAR). The
laboratory follows standard procedures for the analysis of potash
salt rocks chemical analysis (K(+) , Na(+) , Mg(2+) , Ca(2+) ,
Cl(-) , SO(4) (2-) , H(2) O) and X-ray diffraction (XRD) analysis
of the same samples as for chemical analysis to determine a
qualitative mineral composition, which combined with the chemical
analysis gives a quantitative mineral composition.
Forward looking statements and disclaimer
The information in this document is published to inform you
about Danakali and its activities. Danakali has endeavoured to
ensure that the information enclosed is accurate at the time of
release, and that it accurately reflects the Company's intentions.
All statements in this document, other than statements of
historical facts, that address future production, project
development, reserve or resource potential, exploration drilling,
exploitation activities, corporate transactions and events or
developments that the Company expects to occur, are forward looking
statements. Although the Company believes the expectations
expressed in such statements are based on reasonable assumptions,
such statements are not guarantees of future performance and actual
results or developments may differ materially from those in
forward-looking statements.
Factors that could cause actual results to differ materially
from those in forward-looking statements include market prices of
potash and, exploitation and exploration successes, capital and
operating costs, changes in project parameters as plans continue to
be evaluated, continued availability of capital and financing and
general economic, market or business conditions, as well as those
factors disclosed in the Company's filed documents.
There can be no assurance that the development of Colluli will
proceed as planned. Accordingly, readers should not place undue
reliance on forward looking information. Mineral Resources and Ore
Reserves have been reported according to the JORC Code, 2012
Edition. To the extent permitted by law, the Company accepts no
responsibility or liability for any losses or damages of any kind
arising out of the use of any information contained in this
document. Recipients should make their own enquiries in relation to
any investment decisions.
Mineral Resource, Ore Reserve, production target, forecast
financial information and financial assumptions made in this
announcement are consistent with assumptions detailed in the
Company's ASX announcements dated 25 February 2015, 23 September
2015, 15 August 2016, 1 February 2017, 29 January 2018, and 19
February 2018 which continue to apply and have not materially
changed. The Company is not aware of any new information or data
that materially affects assumptions made.
No representation or warranty, express or implied, is or will be
made by or on behalf of the Company, and no responsibility or
liability is or will be accepted by the Company or its affiliates,
as to the accuracy, completeness or verification of the information
set out in this announcement, and nothing contained in this
announcement is, or shall be relied upon as, a promise or
representation in this respect, whether as to the past or the
future. The Company and each of its affiliates accordingly
disclaims, to the fullest extent permitted by law, all and any
liability whether arising in tort, contract or otherwise which it
might otherwise have in respect of this announcement or any such
statement.
The distribution of this announcement outside the United Kingdom
may be restricted by law and therefore any persons outside the
United Kingdom into whose possession this announcement comes should
inform themselves about and observe any such restrictions in
connection with the distribution of this announcement. Any failure
to comply with such restrictions may constitute a violation of the
securities laws of any jurisdiction outside the United Kingdom.
Consolidated Statement of Profit or Loss and Other Comprehensive
Income
FOR THE HALF YEARED 30 JUNE 2020
-----------------------------------------------------------------------------------
Half Year Ended
------------------------------------------------
30 June 2020 30 June 2019
------------------------------------------------
Notes $ $
------------------------------------------------ ----- ------------ ------------
REVENUE
Interest revenue calculated using the effective
interest rate method 63,091 53,675
Net gain on financial assets at fair value
through profit or loss 5 159,654 521,661
Foreign exchange gain 1,205,348 63,117
Sundry 50,000 1,897
EXPENSES
Depreciation expense (2,337) (3,290)
Loss on disposal of assets (231) (3,074)
Administration expenses 4 (1,730,452) (1,268,649)
Share based payment expense 11 (654,710) (197,473)
Share of net loss of joint venture 6 (767,718) (707,947)
LOSS BEFORE INCOME TAX (1,677,355) (1,540,083)
Income tax expense - -
------------ ------------
NET LOSS FOR THE PERIOD (1,677,355) (1,540,083)
OTHER COMPREHENSIVE (LOSS) / INCOME
Items that may be reclassified to profit
and loss
Share of foreign currency translation reserve 6,
relating to equity accounted investment 9 153,665 (7,061)
TOTAL OTHER COMPREHENSIVE INCOME / (LOSS)
FOR THE PERIOD 153,665 (7,061)
TOTAL COMPREHENSIVE INCOME / (LOSS) FOR THE
PERIOD (1,523,690) (1,547,144)
============ ============
Earnings per share for loss attributable
to the ordinary equity holders of the Company:
Basic loss per share (cents per share) (0.53) (0.58)
Diluted loss per share (cents per share) (0.53) (0.58)
------------ ------------
The consolidated statement of profit or loss and other
comprehensive income is to be read in conjunction with the notes to
the financial statements .
Consolidated Statement of Financial Position
AS AT 30 JUNE 2020
-----------------------------------------------------------------
30 June 2020 31 December
2019
Notes $ $
------------------------------ ----- ------------ ------------
CURRENT ASSETS
Cash and cash equivalents 15,771,118 33,800,104
Receivables 5 99,847 281,804
Prepayments 469,105 269,878
------------ ------------
TOTAL CURRENT ASSETS 16,340,070 34,351,786
------------ ------------
NON--CURRENT ASSETS
Receivables 5 16,403,972 15,204,815
Investment in joint venture 6 32,367,959 27,975,738
Plant and equipment 17,271 13,998
TOTAL NON--CURRENT ASSETS 48,789,202 43,194,551
------------ ------------
TOTAL ASSETS 65,129,272 77,546,337
------------ ------------
CURRENT LIABILITIES
Trade and other payables 7 368,972 11,794,757
Provisions 86,678 80,623
TOTAL CURRENT LIABILITIES 455,650 11,875,380
------------ ------------
NON-CURRENT LIABILITIES
Provisions 53,453 45,229
------------ ------------
TOTAL NON-CURRENT LIABILITIES 53,453 45,229
------------ ------------
TOTAL LIABILITIES 509,103 11,920,609
------------ ------------
NET ASSETS 64,620,169 65,625,728
============ ============
EQUITY
Issued capital 8 109,058,372 109,194,951
Reserves 9 14,731,646 13,923,271
Accumulated losses 10 (59,169,849) (57,492,494)
------------ ------------
TOTAL EQUITY 64,620,169 65,625,728
============ ============
The consolidated statement of financial position is to be read
in conjunction with the notes to the financial statements.
Consolidated Statement of Changes in Equity
FOR THE HALF YEARED 30 JUNE 2020
Reserves
Share Based Foreign Currency Accumulated
Issued Capital Payments Translation Losses Total Equity
------------------------------ -----
Notes $ $ $ $ $
------------------------------ ----- -------------- ----------- ---------------- ------------ ------------
BALANCE AT 1 JANUARY 2020 109,194,951 11,962,019 1,961,252 (57,492,494) 65,625,728
Loss for the period 10 - - - (1,677,355) (1,677,355)
Other comprehensive income 6 - - 153,665 - 153,665
Total comprehensive
income/(loss)
for the period - - 153,665 (1,677,355) (1,523,690)
Transactions with owners in
their
capacity as owners:
Capital raising costs (136,579) - - - (136,579)
Share based payments expense 11 - 654,710 - - 654,710
BALANCE AT 30 JUNE 2020 109,058,372 12,616,729 2,114,917 (59,169,849) 64,620,169
============== =========== ================ ============ ============
BALANCE AT 1 JANUARY 2019 79,576,117 11,231,923 1,979,430 (54,343,760) 38,443,710
Loss for the period - - - (1,540,083) (1,540,083)
Other comprehensive income - - (7,061) - (7,061)
Total comprehensive
income/(loss)
for the period - - (7,061) (1,540,083) (1,547,144)
Transactions with owners in
their
capacity as owners:
Share based payments expense - 197,473 - - 197,473
BALANCE AT 30 JUNE 2019 79,576,117 11,429,396 1,972,369 (55,883,843) 37,094,039
============== =========== ================ ============ ============
The consolidated statement of changes in equity is to be read in
conjunction with the notes to the financial statements.
Consolidated Statement of Cash Flows
FOR THE HALF YEARED 30 JUNE 2020
Half Year Ended
30 June 2020 30 June 2019
Notes $ $
-------------------------------------------- ------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Interest received 62,762 53,020
Payments to suppliers and employees (1,752,608) (1,324,295)
NET CASH OUTFLOW FROM OPERATING ACTIVITIES (1,689,646) (1,271,275)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Funding of joint venture (14,007,357) (1,996,645)
Payments for plant and equipment (5,840) -
NET CASH OUTFLOW FROM INVESTING ACTIVITIES (14,013,197) (1,996,645)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Payment of capital raising costs (3,302,478) -
NET CASH OUTFLOW FROM FINANCING ACTIVITIES (3,302,478) -
------------ ------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (19,005,321) (3,267,920)
Cash and cash equivalents at the beginning
of the financial period 33,800,104 9,550,585
Realised foreign exchange gain/(loss) on
cash 976,335 (2,803)
CASH AND CASH EQUIVALENTS AT THE OF THE
PERIOD 15,771,118 6,279,862
============ ============
The consolidated statement of cash flows is to be read in
conjunction with the notes to the financial statements.
Notes to the Consolidated Financial Statements
1. REPORTING ENTITY
Danakali Limited (Danakali or the Company) is a company limited
by shares, incorporated and domiciled in Australia, and whose
shares are publicly traded on the Australian Securities Exchange
(ASX) and the London Stock Exchange (LSE). The consolidated half
year financial report of the consolidated group as at, and for the
six months ended 30 June 2020 comprises the Company and its
subsidiaries (together referred to as the Group).
The financial report of Danakali for the half year ended 30 June
2020 was authorised for issue by the Directors on 27 August
2020.
The nature of the operations and principal activities of the
consolidated entity are described in the Directors' Report.
2. BASIS OF PREPARATION
(a) Basis of preparation
This condensed general purpose financial report for the half
year ended 30 June 2020 has been prepared in accordance with AASB
134 Interim Financial Reporting and the Corporations Act 2001.
The half year financial report does not include all notes of the
type normally included within the annual financial report and
therefore cannot be expected to provide as full an understanding of
the financial performance, financial position and financing and
investing activities of the consolidated entity as the full
financial report. It is recommended that the half year financial
report be read in conjunction with the annual financial report for
the financial year ended 31 December 2019 and considered together
with any public announcements made by the Company during the half
year ended 30 June 2020 in accordance with the continuous
disclosure obligations of the ASX Listing Rules.
The half year financial report has been prepared on a historical
cost basis and is presented in Australian dollars.
(b) New standards, interpretations and amendments adopted by the
Group
The accounting policies adopted in the preparation of the
interim condensed consolidated financial statements are consistent
with those followed in the preparation of the Group's annual
consolidated financial statements for the year ended 31 December
2019, except for the adoption of the new standards and
interpretations effective as of 1 January 2020. Adoption of these
standards and interpretations did not have any effect on the
statements of financial position or performance of the Group. The
Group has not elected to early adopt any new standards or
amendments.
The following standards and interpretations apply for the first
time for entities with a year ending 31 December 2020:
Reference Title Summary
Conceptual Framework AASB Conceptual Framework for The revised Conceptual Framework includes some new
2019-1 Financial Reporting and concepts, provides updated definitions
relevant amending standards and recognition criteria for assets and liabilities, and
clarifies some important concepts.
It is arranged in eight chapters, as follows:
* Chapter 1 - The objective of financial reporting
* Chapter 2 - Qualitative characteristics of useful
financial information
* Chapter 3 - Financial statements and the reporting
entity
* Chapter 4 - The elements of financial statements
* Chapter 5 - Recognition and derecognition
* Chapter 6 - Measurement
* Chapter 7 - Presentation and disclosure
* Chapter 8 - Concepts of capital and capital
maintenance
AASB 2019-1 has also been issued, which sets out the
amendments to affected standards in
order to update references to the revised Conceptual
Framework. The changes to the Conceptual
Framework may affect the application of IFRS in
situations where no standard applies to a
particular transaction or event. In addition, relief has
been provided in applying IFRS 3
and developing accounting policies for regulatory
account balances using IAS 8, such that
entities must continue to apply the definitions of an
asset and a liability (and supporting
concepts) in the 2010 Conceptual Framework, and not the
definitions in the revised Conceptual
Framework.
---------------------------- ---------------------------------------------------------
AASB 2018-7 Definition of Material This Standard amends AASB 101 Presentation of Financial
(Amendments to AASB 101 and Statements and AASB 108 Accounting
AASB 108) Policies, Changes in Accounting Estimates and Errors to
align the definition of 'material'
across the standards and to clarify certain aspects of
the definition. The amendments clarify
that materiality will depend on the nature or magnitude
of information. An entity will need
to assess whether the information, either individually or
in combination with other information,
is material in the context of the financial statements. A
misstatement of information is material
if it could reasonably be expected to influence decisions
made by the primary users.
---------------------------- ---------------------------------------------------------
(c) Going concern
The financial statements have been prepared on a going concern
basis which contemplates the continuity of normal business
activities and the realisation of assets and the settlement of
liabilities in the ordinary course of business.
At balance date, the Group had cash and cash equivalents of
$15,771,118 (31 December 2019: $ 33,800,104 ) and a net working
capital surplus of $15,884,420 (31 December 2019: $22,476,406).
Whilst the existing cash reserves are sufficient to cover the
working capital requirements of the Group for the next 12 months,
the Group has commenced execution of the project development and as
such, additional funding will be necessary to carry out these
planned activities.
Under the mining agreement entered into between the Government
of the State of Eritrea and Colluli Mining Share Company (CMSC)
dated 31 January 2017 (Mining Agreement), CMSC is obliged to spend
US$200 million on infrastructure and mine development within the
area of the Colluli project mining licences in the 36 months
following the provision of formal Notice of Commencement of Mine
Development (the Notice) to the Ministry of Energy and Mines
(MoEM). The Notice, lodged on 17 December 2019, was accepted by
MoEM in July 2020 ( ASX announcement 22 July 2020 ) . The granted
time to commence commercial production by the MoEM is 36 months
from submission of the Notice (mid-December 2022).
At the date of this report, the directors are satisfied there
are reasonable grounds to believe that the Group will be able to
continue its planned activities and the Group will be able to meet
its obligations as and when they fall due. The directors are
confident that the Group will be able to obtain the additional
funding requirement to continue with the development of the project
as evidenced by the execution of documentation for a conditional
US$200M debt facility and a conditional equity subscription
agreement with AFC for an amount of US$28.5M - refer to notes 6 and
8 respectively for further details on the status of these
arrangements. Where such financing was likely to be delayed, the
directors would seek to defer its planned capital expenditure on
the project.
Should the Group not achieve the matters set out above, there is
uncertainty whether the Group would continue as a going concern and
therefore whether it would realise its assets and extinguish its
liabilities in the normal course of business and at the amounts
stated in the financial report. The financial statements do not
include any adjustment relating to the recoverability or
classification of recorded asset amounts or to the amounts or
classification of liabilities that might be necessary should the
Group not be able to continue as a going concern.
3. SEGMENT INFORMATION
The Group operates in the mining industry in Eritrea. For
management purposes, the Group is organised into one main operating
segment which involves the exploration of minerals in Eritrea. All
of the Group's activities are interrelated and discrete financial
information is reported to the Board (Chief Operating Decision
Maker) as a single segment.
Accordingly, all significant operating decisions are based upon
analysis of the Group as one segment. The financial results from
this segment are equivalent to the financial statements of the
Group as a whole.
With the exception of fixed assets which are located in
Australia, the Group's non-current assets are geographically
located in Eritrea.
4. EXPENSES
30 June 2020 30 June 2019
$ $
------------------------------------------------ ------------ ------------
Employee benefits (net of recharges) 270,226 194,842
Director fees 245,694 271,015
Lease payments relating to operating leases 55,584 71,081
Compliance, regulatory and other administration
expenses 1,158,948 731,711
------------ ------------
1,730,452 1,268,649
------------ ------------
5. TRADE AND OTHER RECEIVABLES
31 December
30 June 2020 2019
$ $
------------------------------------------ ------------ -----------
Current
Net GST receivable 44,107 225,023
Accrued interest 443 114
Other receivables at amortised cost 297 1,667
Security bonds at amortised cost 55,000 55,000
------------ -----------
99,847 281,804
------------ -----------
Non-Current
Loan to Colluli Mining Share Company - at
fair value 16,403,972 15,204,815
------------ -----------
Danakali's wholly owned subsidiary, STB Eritrea Pty Ltd, is
presently funding the Colluli Mining Share Company (CMSC) for the
development of the Colluli Potash Project and 50% of the funding is
represented in the form of a shareholder loan.
Repayment of this loan, as defined in the CMSC Shareholders
Agreement, will be made preferentially from future operating cash
flows. The shareholder loan is denominated in USD, non-interest
bearing, unsecured and subordinate to any loans from third party
secured lenders, under which CMSC may enter into in order to fund
the Project Development Capital. For accounting purposes, the value
of the loan has been discounted by applying a market effective
interest rate of 21% (31 December 2019: effective interest rate of
21%).
During the period ended 30 June 2020 and the year ended 31
December 2019, the repayment profile of the receivable was updated
to consider the timing of the completion of construction, timing of
project financing and alignment to the indicative debt financing
terms. The remeasurement of the receivable at fair value results in
a gain of $159,654 through profit or loss ( 31 December 2019:
$4,400,730) .
The undiscounted underlying loan balance at 30 June 2020 is
$43,602,112 (USD 30,192,056) (31 December 2019: $40,053,560 (USD
28,061,524)).
Financial Year
Half Year to to
31 December
30 June 2020 2019
$ $
----------------------------------------------- ------------- --------------
Reconciliation of movement in loan to Colluli
Mining Share Company:
Carrying amount at the beginning of the period 15,204,815 9,283,670
Additional loans during the period 810,491 1,586,388
Foreign exchange gain/(loss) 229,012 (65,973)
Net gain/(loss) on financial assets at fair
value through profit or loss 159,654 4,400,730
Carrying amount at the end of the period 16,403,972 15,204,815
------------- --------------
6. INVESTMENT IN JOINT VENTURE
The Group has an interest in the following joint
arrangement:
Equity Interest Carrying Value
31 December 31 December
30 June 2020 2019 30 June 2020 2019
Project Activities % % $ $
-------- -------------------- ------------ ----------- ------------ -----------
Colluli
Potash Mineral Exploration 50 50 32,367,959 27,975,738
-------- -------------------- ------------ ----------- ------------ -----------
The Group acquired an interest in Colluli Mining Share Company
(CMSC) at the date of its incorporation on 5 March 2014. This
acquisition was in accordance with a shareholders agreement entered
into with the Eritrean National Mining Corporation (ENAMCO) and
executed in November 2013 (Shareholders Agreement). CMSC was
incorporated in Eritrea, in accordance with the Shareholders
Agreement, to hold the Colluli project with Danakali (through its
wholly owned subsidiary STB Eritrea Pty Ltd) and ENAMCO holding 50%
of the equity each.
Under the terms of the Shareholders Agreement, at the date of
incorporation of CMSC, consideration for the acquisition of shares
in CMSC equates to half of the allowable historical exploration
costs transferred to CMSC by STB Eritrea Pty Ltd, a wholly owned
subsidiary of Danakali. The balance of the allowable historic
exploration costs transferred to CMSC are recoverable via a
shareholder loan account (see note 5).
The Group's 50% interest in CMSC is accounted for as a joint
venture using the equity method. The following tables summarise the
financial information of the Group's investment in CMSC at 30 June
2020.
Financial Year
Half Year to to
31 December
30 June 2020 2019
$ $
----------------------------------------------- ------------- --------------
Reconciliation of movement in investments
accounted for using the equity method:
Carrying amount at the beginning of the period 27,975,738 19,829,489
Additional investment during the period 5,006,274 11,121,696
Share of net profit / (loss) for the period (767,718) (2,957,269)
Other comprehensive income / (loss) for the
period 153,665 (18,178)
------------- --------------
Carrying amount at the end of the period 32,367,959 27,975,738
------------- --------------
Summarised financial information of joint venture:
31 December
30 June 2020 2019
$ $
----------------------------------------------------- ------------ ------------
Financial position (Aligned to Danakali accounting
policies)
Current assets:
Cash and cash equivalents 1,167,091 81,067
Other current assets 147,786 109,984
------------ ------------
1,314,877 191,051
Non-current assets:
Fixed assets 116,988 114,708
Development costs capitalised 3,675,363 204,109
Prepaid finance costs 12,046,633 12,046,633
Mineral property 31,924,731 31,302,663
------------ ------------
47,763,715 43,668,113
------------ ------------
Current liabilities:
Trade & other payables and accruals (5,230,591) (4,786,610)
------------ ------------
(5,230,591) (4,786,610)
------------ ------------
Non-current liabilities:
Loan from Danakali Limited - at amortised
cost (13,898,651) (12,901,373)
------------ ------------
(13,898,651) (12,901,373)
------------ ------------
NET ASSETS 29,949,350 26,171,181
============ ============
Group's share of net assets 14,974,675 13,085,590
============ ============
Reconciliation of Equity Investment:
Group's share of net assets 14,974,675 13,085,590
Share of initial contribution on establishment
of the Joint Venture not recognised by Danakali (4,305,107) (4,305,107)
Outside shareholder interest in equity contributions
by Danakali 21,698,391 19,195,255
------------ ------------
Carrying amount at the end of the period 32,367,959 27,975,738
------------ ------------
Half Year to Half Year to
30 June 2020 30 June 2019
$ $
------------------------------------------------ ------------- -------------
Financial performance
Interest expense relating to the unwinding
of discount on joint venture loan (1,476,974) (1,096,626)
Gain on re-measurement of loan to joint venture
carried at amortised cost 1,654,755 574,965
Expenses recorded through profit and loss (1,713,217) (894,233)
------------- -------------
LOSS FOR THE PERIOD (1,535,436) (1,415,894)
------------- -------------
Group's share of total loss for the period (767,718) (707,947)
============= =============
During the period ended 30 June 2020 no dividends were paid or
declared (31 December 2019: Nil).
Colluli Mining Share Company has the following commitments or
contingencies at 30 June 2020:
COMMITMENTS
Government
Under the mining agreement entered into between the Government
of the State of Eritrea and Colluli Mining Share Company (CMSC)
dated 31 January 2017 (Mining Agreement), CMSC is obliged to spend
US$200 million on infrastructure and mine development within the
area of the Colluli project mining licences in the 36 months
following the provision of formal Notice of Commencement of Mine
Development (the Notice) to the Ministry of Energy and Mines
(MoEM). The Notice, lodged on 17 December 2019, was accepted by
MoEM in July 2020 (ASX announcement 22 July 2020). The granted time
to commence commercial production by the MoEM is 36 months from
submission of the Notice (mid-December 2022).
Development
At 30 June 2020, CMSC had commitments of $1.2M in respect to the
Reverse Osmosis (RO) plant contract.
Funding
CMSC successfully executed a mandate to provide fully
underwritten debt finance facilities of US$200M to fund the
construction and development of the Project (Debt). African
development financial institutions African Export-Import Bank
(Afreximbank) and Africa Finance Corporation (AFC) are acting as
Mandated Lead Arrangers (MLAs).
Under the terms of the mandate, CMSC is responsible to pay all
reasonable costs and expenses related to external technical,
financial, insurance, tax and legal consultants required by the
MLAs to assist in the due diligence. The mandate letter includes
various fees, payable by CMSC to the MLAs, based on various future
outcomes, including termination by CMSC.
At 30 June 2020, CMSC has commitments of $0.4M in annual agent
fees (2019: $0.4M). CMSC will be liable for facility fees of $2.9M
to the MLAs on the drawdown of the facility (2019: $2.9M). This
commitment is subject to the performance of additional services by
the MLAs in connection with the facility.
In addition, CMSC has commitments of $3.6M to the financial
advisor upon the successful drawdown of the facility.
CONTINGENCIES
There are no material contingent liabilities of CMSC at balance
date.
7. TRADE AND OTHER PAYABLES
31 December
30 June 2020 2019
$ $
--------------------- ------------ -----------
Trade payables 259,646 4,213,886
Accrued expenses (a) 83,936 7,580,871
Other payables 25,390 -
------------ -----------
368,972 11,794,757
------------ -----------
(a) 31 December 2019 balance includes lenders fees of USD
5,275,000 ($7,520,545) associated with the debt financing.
8. ISSUED CAPITAL
of shares
Half Year to Financial Year to
30 June 2020 31 December 2019
---------------------------------------------------------------
Number Number
of shares $ of shares
--------------------------------------------------------------- ----------- -----------
(a ) Share capital
Ordinary shares fully paid 318,741,306 109,058,372 318,546,306 109,194,951
=========== =========== =========== ===========
(b) Movements in ordinary share
capital
Beginning of the period 318,546,306 109,194,951 264,422,398 79,576,117
Issued during the period:
* Issued at $0.543 per share on option exercise - - 250,000 135,750
* Issued at $0.558 per share on option exercise - - 900,000 502,200
* Issued on vesting of performance rights (iii) 195,000 - 15,000 -
* Issued at $0.60 per share pursuant to placement (i) - - 52,958,908 31,775,345
* Cost of capital raised (ii) - (136,579) - (2,794,461)
End of the period 318,741,306 109,058,372 318,546,306 109,194,951
=========== =========== =========== ===========
(i) On 3 December 2019, the Company announced that AFC had
agreed to make a US$50M (A$74M) strategic equity investment in
Danakali to fund construction and project execution for Colluli (
Placement ). The subscription price of A$0.60 per Share represented
a 5% discount to Danakali's 30-day VWAP. The Placement is being
conducted in two tranches. The first tranche consisted of
52,958,908 new Shares issued at A$0.60 per Share to raise A$31.8M
(US$21.5M); this tranche was completed on 10 December 2019 (
Tranche 1 ). The second tranche totals US$28.5M (Tranche 2).
As previously announced, in light of the rapid spread of
COVID-19 and its significant impact on global financial markets,
Tranche 2 of AFC's equity funding has been be deferred to allow for
the stabilisation of market and global conditions. Prior to the
advance of Tranche 2 AFC requires satisfaction of certain
conditions precedent relating to CMSC's debt financing and
execution of certain documents ancillary to that debt financing, in
addition to the senior debt agreements already executed.
The deferment of Tranche 2 allows the parties to work through
satisfying many of the remaining conditions precedent to Danakali's
debt financing, and give Danakali additional time to reassess its
overall funding strategy and review a range of options appropriate
to the Project's funding requirements beyond the completion of EPCM
Phases 1 and 2. Danakali and AFC are working in good faith to agree
the extent of AFC's requirements, and determine which of these
require satisfaction before Tranche 2 is advanced. AFC extended the
deadline for satisfaction of remaining conditions precedent for
Tranche 2 of its investment to 21 November 2020. Approval of
Danakali's shareholders remains a further condition precedent.
Success fees of $2.3M will be payable to financial advisors upon
completion of the Tranche 2 of the Placement.
(ii) Includes fees paid or payable to financial advisers in
relation to Tranche 1 funds raised pursuant to the Placement.
(iii) Includes 175,000 shares issued upon conversion of
performance rights during the period in respect of which the
performance hurdle had been met during the year ended 31 December
2019. The balance of 20,000 shares relates the issue of shares upon
conversion of performance rights in respect of which the
performance hurdle was met in the half-year period to 30 June
2020.
9. RESERVES
Financial Year
to
Half Year to 31 December
30 June 2020 2019
$ $
------------------------------------------ ------------- --------------
(a) Reserves
Share-based payments reserve
Balance at beginning of the period 11,962,019 11,231,923
Employee and contractor share options
& performance rights 654,710 730,096
Balance at end of the period 12,616,729 11,962,019
------------- --------------
Foreign currency translation reserve
Balance at beginning of the period 1,961,252 1,979,430
Currency translation differences arising
during the period 153,665 (18,178)
------------- --------------
Balance at end of the period 2,114,917 1,961,252
------------- --------------
Total reserves 14,731,646 13,923,271
============= ==============
(b) Nature and purpose of reserves
Share-based payments reserve
The share-based payments reserve is used to recognise the fair
value of share options and performance rights issued.
Foreign currency translation reserve
The foreign currency translation reserve records the exchange
differences arising on translation of a foreign joint
arrangement.
10. ACCUMULATED LOSSES
Financial Year
to
Half Year to 31 December
30 June 2020 2019
-----------------------------------
$ $
----------------------------------- ------------- --------------
Balance at beginning of the period (57,492,494) (54,343,760)
Loss for the period (1,677,355) (3,148,734)
Balance at end of the period (59,169,849) (57,492,494)
------------- --------------
11. SHARE BASED PAYMENTS
(a) Expenses arising from share-based payment transactions
Total expenses from share-based payment transactions recognised
during the period were as follows:
Half Year to Half Year to
30 June 2020 30 June 2019
--------------------------------------------------
$ $
-------------------------------------------------- ------------- -------------
Options issued to directors and employees 583,804 173,584
Performance rights issued to directors, employees
and consultants 70,906 23,889
Expense 654,710 197,473
------------- -------------
(b) Option movement summary
Movements in the number of unlisted options (being those the
subject of share based payments) on issue during the period is as
follows:
Unlisted Option Opening Issued Exercised Lapsed Closing
balance / Expired balance
1 Jan 2020 30 Jun 2020
----------------------------- ----------- ------ --------- ----------- ------------
Exercise price $0.940 expiry
date 19/05/2020 1,440,000 - - (1,440,000) -
Exercise price $0.912 expiry
date 11/05/2020 500,000 - - (500,000) -
Exercise price $1.031 expiry 1,469,312
date 24/01/2022 1,469,312 - - - (a)
Exercise price $1.108 expiry 583,000
date 13/03/2022 583,000 - - - (a)
Exercise price $1.119 expiry 561,800
date 28/03/2022 561,800 - - - (a)
Exercise price $1.114 expiry 1,450,000
date 30/05/2022 1,450,000 - - - (b)
6,004,112 - - (1,940,000) 4,064,112
----------- ------ --------- ----------- ------------
(a) Vested options.
(b) Balance includes 725,000 vested options and 725,000 unvested
options.
(c) Options issued during the period
There were no new options granted during the period.
As detailed in the Company's 2019 Annual Report, a short-term
incentive ( STI ) scheme applies to executives in the Company and
is designed to link any STI payment with the achievement of
specified key performance indicators (KPI's) which are in turn
linked to the Company's strategic objectives and targets. In line
with the recommendation from the Remuneration and Nomination
Committee, the Board formally approved the results of the FY19 key
performance indicators (KPIs) on 23 March 2020. In order to
preserve cash reserves, STI bonuses earned will be paid in equity
by way of zero exercise price options ( ZEP Options ).
On 20 August 2020, the Board approved an offer of a total of
947,041 ZEP Options expiring 31 December 2021 with no vesting
conditions to eligible employees of the Company. The Company has
recorded a provisional share based payment expense of $478,256
associated with the anticipated issue of ZEP Options, which has
been estimated in reference to the share price of $0.505 at 30 June
2020 and on the assumption that all ZEP Options offered will be
taken up under the offer. This provisional amount will be revised
upon formal offer and acceptance, which is expected to occur in the
FY20 period.
(d) Performance Rights
Movements in the number of performance rights on issue during
the period is as follows:
Performance Rights Opening balance Granted Vested Cancelled Closing
- Class 1 Jan 2020 balance
30 Jun 2020
------------------- --------------- ------- -------- --------- ------------
Class 1 (a) 280,000 - - - 280,000
Class 4 (a) 800,000 - - - 800,000
Class 5 (a) 100,000 - (20,000) - 80,000
Class 8 (a) 15,000 - - (15,000) -
Class 9 900,000 - - - 900,000
2,095,000 - (20,000) (15,000) 2,060,000
--------------- ------- -------- --------- ------------
(a) Issued under the Performance Rights Plan which was
re-approved at the annual general meeting of the Company held 17
November 2014.
The 2,060,000 Performance Rights on issue at 30 June 2020 are
subject to the following performance conditions:
Class 1:
-- 280,000 upon completion of securing finance for the
development of the Colluli Potash Project.
Class 4:
-- 800,000 upon commencement of construction of the production
facility.
Class 5:
-- 60,000 upon 6-month construction mark if safety, costs and
schedule are all on target; and
-- 20,000 upon completion of commissioning and completion of
performance testing (performance testing to meet contractual
requirements).
Class 9:
-- 300,000 when construction at Colluli is considered to be 50%
complete provided construction is materially on time and on budget
and Danakali are meeting safety standards;
-- 500,000 when CMSC commences commercial production at Colluli
provided this is materially on time and on budget, meeting safety
and product quality standards; and
-- 100,000 when CMSC have shipped and been paid for 100,000t of
SOP provided this occurs materially on time, meeting safety and
product quality standards.
12. FINANCIAL INSTRUMENTS
Set out below is an overview of financial instruments, other
than cash and short-term deposits, held by the group as at 30 June
2020:
Fair value
through through other
At amortised profit and comprehensive
cost loss income
$ $ $
----------------------------- ------------- ------------ ---------------
Financial Assets:
Trade and other receivables 99,847 - -
------------- ------------ ---------------
Total current 99,847 - -
------------- ------------ ---------------
Receivable - 16,403,972 -
------------- ------------ ---------------
Total non-current - 16,403,972 -
------------- ------------ ---------------
Total Assets 99,847 16,403,972 -
============= ============ ===============
Financial liabilities:
Trade and other payables 368,972 - -
------------- ------------ ---------------
Total current 368,972 - -
------------- ------------ ---------------
Total Liabilities 368,972 - -
============= ============ ===============
Fair values:
Set out below is a comparison of the carrying amount and fair
values of financial instruments as at 30 June 2020:
Carrying amount Fair value
$ $
----------------------------- ---------------- -----------
Financial Assets:
Trade and other receivables 99,847 99,847
---------------- -----------
Total current 99,847 99,847
---------------- -----------
Receivable 16,403,972 16,403,972
---------------- -----------
Total non-current 16,403,972 16,403,972
---------------- -----------
Total Assets 16,503,819 16,715,100
================ ===========
Financial liabilities:
Trade and other payables 368,972 368,972
---------------- -----------
Total current 368,972 368,972
---------------- -----------
Total Liabilities 368,972 368,972
================ ===========
The current receivables carrying values and payables carrying
values approximates fair values due to the short-term maturities of
these instruments.
The fair value of the long-term receivable was determined by
discounting future cashflows using a current market interest
rate of 21% which incorporates an appropriate adjustment for
credit risk. The timing of cash receipts has been updated to
consider the timing of the completion of construction, timing of
project financing and alignment to the indicative debt financing
terms . The fair value measurement for the long-term receivable is
categorised as Level 3 in the fair value hierarchy as the estimated
market interest rate is an unobserved input in the valuation. The
fair value of the loan is sensitive to the discount rate
applied.
13. SUBSIDARY
Interest in subsidiary
The consolidated financial statements incorporate the assets,
liabilities and results of the following subsidiary in accordance
with the accounting policy:
(a) (a) (a)
Equity Holding
------------ -------------------- --------------- ----------------
30 June 2020 31 December
2019
Principal Country of
Name Activities Incorporation Class of Shares % %
------------ -------------------- --------------- ---------------- ------------ -----------
Investment
STB Eritrea in
Pty Ltd Potash Exploration Australia Ordinary 100 100
------------ -------------------- --------------- ---------------- ------------ -----------
The proportion of ownership interest is equal to the proportion
of voting power held.
14. RELATED PARTY INFORMATION
Key Management Personnel (KMP)
With respect to new key management personnel (KMP) appointments
during the half-year ended 30 June 2020, the Company has entered
into arrangements regarding remuneration for services provided, the
key terms of which are summarised below.
Mr Samaila Zubairu, Non-Executive Director (Appointed 23 April
2020):
-- Entitled to receive $48,000 per annum for the provision of
non-executive director services.
Mr Taiwo Adeniji, Non-Executive Director (Appointed 23 April
2020):
-- Entitled to receive $48,000 per annum for the provision of
non-executive director services.
Mr Neil Gregson, Non-Executive Director (Appointed 3 August
2020):
-- Entitled to receive $48,000 per annum for the provision of
non-executive director services.
The Company has entered into revised arrangements with the
following KMP during the half-year ended 30 June 2020:
Mr Niels Wage, Chief Executive Officer:
-- Effective from 1 January 2020, Mr Wage's salary was increased
to EUR257,500 per annum plus superannuation at the Australian
statutory rate
-- In response to COVID-19, effective from 1 May 2020 until 31
October 2020, Mr Wage's salary has been reduced by 20% to
EUR206,000 per annum plus superannuation at the Australian
statutory rate
Mr Stuart Tarrant, Chief Financial Officer:
-- Effective from 1 January 2020, Mr Tarrant's salary was
increased to $306,000 per annum inclusive of superannuation
-- In response to COVID-19, effective from 1 May 2020 until 31
October 2020, Mr Tarrant's salary has been reduced by 20% to
$244,800 per annum inclusive of superannuation.
Mr Seamus Cornelius, Mr Paul Donaldson, Mr John Fitzgerald, Mr
Robert Connochie, Ms Zhang Jing, Mr Andre Liebenberg:
In response to COVID-19, effective from 1 May 2020 until 31
October 2020, the base fees each Non-Executive Director is entitled
to receive was reduced from $60,000 to $48,000 per annum (Revised
Director Fees).
Offer of ZEP Options
On 20 August 2020, Mr Niels Wage and Mr Stuart Tarrant received
an offer of 471,030 and 241,968 ZEP Options respectively (refer
note 11(c) for details).
Transactions with directors, director related entities and other
related parties
AFC is deemed to be a related party of the Company on the basis
of significant influence. The related party status applies from 23
April 2020, being when AFC held an interest of 16.6% in the issued
capital of the Company and the date that Danakali appointed two AFC
nominees to its Board of Directors.
AFC and Afreximbank (together the Mandated Lead Arrangers), have
executed documentation for the provision of US$200M in senior debt
finance to CMSC (each Mandated Lead Arranger providing US$100M).
The facility allows drawdown of CMSC senior debt on satisfaction of
customary conditions precedent (refer ASX announcement 23 December
2019) for a project financing facility of this kind and includes
all project approvals required to develop the project, and the
balance of the equity contribution having been raised.
Additionally, AFC executed a Subscription Agreement to make a
US$50M strategic equity investment in Danakali. The Placement is
being conducted in two tranches. The first tranche consisted of
approximately 53M new Shares issued at A$0.60 per Share to raise
A$31.8M (US$21.5M) and was completed on 10 December 2019. The
second tranche will consist of US$28.5M (refer to note 8(i)).
AFC President and CEO, Samaila D. Zubairu, and AFC Senior
Director for Investment Operations & Execution, Taiwo Adeniji,
joined Danakali's Board as Non-Executive Directors on 23 April
2020. These appointments are in accordance with the terms of AFC's
US$50M Subscription Agreement which provides AFC the right to
appoint two nominees to the Board of Danakali provided AFC's
Danakali ownership remains above certain thresholds. As at the date
of release of this report, AFC holds two out of seven board seats
on the Company.
Subsequent to the half-year end, on 14 July 2020, the Company
executed a mandate with AFC for the provision of capital raising
advisory services. Pursuant to the mandate, AFC will be entitled to
receive an industry standard transaction fee on capital raising
funds receipted by the Company in respect of equity investors
identified within the mandate with AFC.
15. CONTINGENCIES
AFC executed a Subscription Agreement to make a US$50M strategic
equity investment in Danakali. The Placement is being conducted in
two tranches. The first tranche consisted of approximately 53M new
Shares issued at A$0.60 per Share to raise A$31.8M (US$21.5M), and
was completed on 10 December 2019. The second tranche encompasses
the remaining US$28.5M (Tranche 2). The Company is liable to pay
success fees of $2.3M upon the completion of the Tranche 2 equity
raise.
16. COMMITMENTS
Financial Year
to
Half Year to 31 December
30 June 2020 2019
$ $
Lease commitments (Group as lessee):
Operating leases (non-cancellable)
Minimum lease payments
* Within one year 17,752 13,640
- -
* Later than one year but not later than five years
------------- --------------
Aggregate lease expenditure contracted for
at reporting date but not recognised as liabilities 17,752 13,640
------------- --------------
Advisory fees pursuant to contracts - 206,104
------------- --------------
Total Commitments 17,752 219,744
------------- --------------
Operating Leases:
The minimum future payments above relate to non-cancellable
leases for offices.
17. EVENTS OCCURRING AFTER THE STATEMENT OF FINANCIAL POSITION DATE
Mine Development Approval
On 22 July 2020, the Company announced that the Notice of
Commencement of Mine Development (the Notice) which CMSC lodged
with the Eritrean Ministry of Energy & Mines (MoEM) had been
accepted by the MoEM. Additionally, upon acceptance of the Notice
the MoEM has granted time to commence commercial production to be
within 36 months from submission of the Notice (mid-December
2022).
Board Changes
On 3 August 2020, Mr Neil Gregson was appointed as a
Non-Executive Director. Mr Paul Donaldson and Mr Andre Liebenberg
resigned as Non-Executive Directors on 3 August 2020. Mr Paul
Donaldson will remain actively engaged with Danakali as a Senior
Consultant.
AFC Mandate Letter
On 14 July 2020, the Company executed a mandate with AFC for the
provision of capital raising advisory services. Pursuant to the
mandate, AFC will be entitled to receive an industry standard
transaction fee on capital raising funds receipted by the Company
in respect of equity investors identified within the mandate with
AFC. Refer to Note 14 for further details.
There are no other events subsequent to 30 June 2020 and up to
the date of this report that would materially affect the operations
of the Group or its state of affairs which have not otherwise been
disclosed in this financial report.
Directors' Declaration
In the directors' opinion:
1. the financial statements and notes of Danakali Limited for
the half-year ended 30 June 2020 are in accordance with the
Corporations Act 2001, including:
a) complying with Accounting Standards, the Corporations
Regulations 2001 and other mandatory professional reporting
requirements; and
b) giving a true and fair view of the entity's financial
position as at 30 June 2020 and of its performance for the half
year ended on that date; and
2. there are reasonable grounds to believe that Danakali Limited
will be able to pay its debts as and when they become due and
payable subject to achieving the matters set out in note 2(c).
This declaration is made in accordance with a resolution of the
directors.
Seamus Ian Cornelius
NON-EXECUTIVE CHAIRMAN
Perth, 27 August 2020
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IR KKOBPQBKKPFB
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August 27, 2020 02:00 ET (06:00 GMT)
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