REG - Danakali Limited - HY 2019 Financial Report
Announcement
Friday, 13 September 2019
Danakali Half Year 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 2019 (Half Year Financial Report).
Key achievements:
· Credit approval received for US$200M senior debt facility, funded and underwritten equally by Mandated Lead Arrangers Africa Finance Corporation (AFC) and African Export Import Bank (Afreximbank);
· Credit approval received by Inglett & Stubbs International from Afreximbank for US$42M guarantee to facilitate senior debt funding for the Colluli power plant;
· Appointment of Mr. Niels Wage as Chief Executive Officer;
· Promotion of Mr. Tony Harrington to Project Director; and
· United Nations Development Programme report released highlighting Colluli's potential to contribute to Eritrean economy and 13 of the 17 United Nations Sustainable Development Goals.
Expectations for the remainder of 2019:
· Advance remaining project funding requirements; and
· Commence project execution.
Chief Executive Officer of Danakali, Niels Wage said: "During 2019, we have continued to achieve important milestones as we progress towards bringing Colluli into production. With credit approval secured, we have a large proportion of the development capex for Module I (US$302M) secured, and an aim to commence development later this year. This financial achievement was secured in the context of the UNDP report released earlier in 2019, which highlighted the Project's potential for contributing significantly to sustainable development in Eritrea.
"With the support of AFC and Afreximbank, two leading African development finance institutions, and Standard Chartered Bank acting as our corporate financial adviser, we are assessing a range of options for funding the balance of the funding required to maintain momentum and begin development. We look forward to unlocking operational catalysts in the coming months."
For more information, please contact:
Danakali
Niels Wage
Chief Executive Officer
+61 8 6189 8635
William Sandover
Head of Corporate Development & External Affairs
+61 499 776 998
Corporate Broker - Numis Securities
UK IR/PR - Instinctif Partners
John Prior / Matthew Hasson / James Black /
Paul Gillam
+44 (0)20 7260 1000
David Simonson / Sarah Hourahane /
Dinara Shikhametova
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 YEAR ENDED
30 JUNE 2019
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 2018 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)
Paul Donaldson (Non-Executive Director)
John Fitzgerald (Non-Executive Director)
Zhang Jing (Non-Executive Director) Robert Connochie (Non-Executive Director)
Andre Liebenberg (Non-Executive Director)
Executive Management
Niels Wage (Chief Executive Officer)
Stuart Tarrant (Chief Financial Officer)
Joint Company Secretaries
Catherine Grant-Edwards
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
National Australia Bank
100 St Georges Terrace
PERTH WA 6000
Share Register (Australia)
Computershare Investor Services Pty Limited
Level 11, 172 St Georges Terrace
PERTH WA 6000
Telephone: 1300 850 505 (Inside Australia)
Telephone: +61 (0)3 9415 4000 (Outside Australia)
Facsimile: +61 (0)3 9473 2500
www.computershare.com
Auditors
Ernst & Young
11 Mounts Bay Road
PERTH WA 6000
Share Register (United Kingdom)
Computershare Investor Services Pty Limited
The Pavilions, Bridgwater Road
Bristol BS13 8AE, United Kingdom
Telephone: +44 (0) 370 702 0003
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 t 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 here:
DNK's ADR information can also be viewed here:
ADR Holders seeking information on their shareholding should contact:
LONDON
Mark Lewis
Telephone +44 207 163 7407
http://www.otcmarkets.com/stock/DNKLY/quote
http://www.adrbnymellon.com//?cusip=23585T101
shrrelations@bnymellon.com OR
NEW YORK
Rick Maehr
richard.maehr@bnymellon.com
Telephone +1 212 815 2275
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 2019.
Directors
The names of the directors who held office during or since the end of the half year are:
Seamus Cornelius
(Non-Executive Chairman) (transitioned from Executive Chairman to Non-Executive Chairman 25 June 2019)
Paul Donaldson
(Non-Executive Director)
John Fitzgerald
(Non-Executive Director)
Zhang Jing
(Non-Executive Director)
Robert Connochie
(Non-Executive Director)
Andre Liebenberg
(Non-Executive Director)
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 2019 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 2019.
REVIEW AND RESULTS OF OPERATIONS
The net loss after tax of the Group for the half-year ended 30 June 2019 amounted to $1,540,083 (30 June 2018: $1,108,408). Total consolidated cash on hand at the end of the period was $6,279,862 (31 December 2018: $9,550,585).
REVIEW OF OPERATIONS
PROJECT OVERVIEW
Colluli 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 Company (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% K2O 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 (MgSO4.H2O), Gypsum (CaSO4.2H2O), Magnesium Chloride (MgCl2), 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.
A FEED for Colluli was undertaken to provide offtakers and funders with a high level of study detail and accuracy and is the final study stage before project execution. FEED firmly establishes Colluli as the most progressed, economically attractive, and fundable SOP greenfield development project globally (DNK announcement 29 January 2018). The FEED results reaffirm the outstanding project economics of Colluli. Industry leading capital intensity as a result of low development capital requirements for Module I and high annual production rate. This, combined with forecast first quartile operating costs, resulted in a Project Net Present Value (NPV10) of US$902M and Internal Rate of Return (IRR) of 29.9%. The Danakali attributable economic outcomes were an NPV10 of US$439M and IRR of 31.3%.
Mining Agreement and Mining Licenses in place
The Project is fully permitted and ready to advance into engineering and construction upon securing funding.
CMSC 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 (DNK announcement 1 February 2017).
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 followed the completion of a series of pre-requisites including the completion and submission of the Definitive Feasibility Study (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.
Offtake agreement signed and debt financing term sheet executed
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.
Danakali has also successfully executed a mandate to provide fully underwritten debt finance facilities of US$200M to fund the construction and development of the Colluli Potash Project. African development financial institutions African Export-Import Bank (Afreximbank) and Africa Finance Corporation (AFC) are acting as Mandated Lead Arrangers (MLAs). The execution of the mandate is a critical project financing and execution milestone.
On 5 August 2019, Danakali announced that the MLAs obtained formal credit approval to provide the CMSC with the US$200M in senior debt finance (the Facility). The facility was underwritten by Afreximbank and AFC with export credit support from Export Credit Insurance Corporation of South Africa SOC Limited (ECIC). Approval marked the conclusion of an extensive due diligence process by the Mandated Lead Arrangers and ECIC.
MINERAL RESOURCE ESTIMATES (DNK announcement 19 February 2018)
SOP Mineral Resource
From 2010 to 2012, Danakali carried out a drilling program at Colluli, encompassing 103 diamond drillholes (including failed holes and duplicates). Of the 103 holes collared, 83 were assayed and used in the resource estimate. The remaining 20 holes were either failed holes, had no potash present, were drilled for geo-mechanical test work or, in the case of four holes, were considered close enough to other drilling that they would not need to be assayed for resource purposes.
An original resource estimate was completed by Ercosplan, a German engineering firm specialised in industrial potash and salt extraction, in April 2012, using a commonly accepted modelling method in the potash industry commonly termed the "Region of Influence" type model. This type of model is not a block based model but uses a series of virtual intersecting columns around each drillhole. The model was reported by Danakali as compliant with Canadian National Instrument 43-101 and the JORC Code 2004.
AMC used additional drilling by Danakali in 2014 to update the model, including a re-interpretation of the geology and the use of a block model method for estimation, and has reported an updated Mineral Resource in accordance with the JORC Code 2012. The updated Mineral Resource was prepared by AMC in February 2015 and is the Mineral Resource upon which the DFS and FEED is based. The Mineral Resource estimate is represented below.
The JORC-2012 compliant Mineral Resource for Colluli is estimated at 1.289Bt at 11 per cent. potassium oxide for 260Mt of contained SOP equivalent. The JORC-2012 compliant Ore Reserve estimate for Colluli is 1,100Mt at 10.5 per cent. potassium oxide for 203Mt of contained SOP equivalent. The Measured and Indicated Mineral Resources are inclusive of those Mineral Resources modified to produce the Ore Reserves. No cut-off grade has been used to report the Colluli SOP Mineral Resource. Consideration of mining, metallurgical and pricing assumptions suggest that all of the currently reported SOP Mineral Resource has a reasonable prospect for eventual economic extraction.
Area
Rock Unit
Measured
Indicated
Inferred
Total
Mt
K2O Equiv %
Mt
K2O Equiv %
Mt
K2O Equiv %
Mt
K2O Equiv %
Area A
Sylvinite
66
12
38
11
10
8
115
11
Carnallitite
55
7
190
9
6
16
251
9
Kainitite
86
12
199
11
1
10
285
11
Area B
Sylvinite
24
15
122
13
5
12
150
13
Carnallitite
25
6
114
7
8
7
147
7
Kainitite
48
13
289
13
4
13
341
13
Total
Sylvinite
90
13
160
13
15
9
265
12
Carnallitite
80
7
303
8
15
11
398
8
Kainitite
133
12
488
12
5
12
626
12
Overall Total
303
11
951
11
35
10
1,289
11
The SOP Mineral Resource of 1,289 Mt contains 87 Mt (7%) of Kieserite (DNK announcement 15 August 2016) in an announcement to the ASX. Kieserite is a multinutrient fertilizer comprising sulphur and magnesium. No cut-off grade has been used to report the Kieserite within the SOP Mineral Resource.
SOP Ore Reserve1 (DNK announcement 19 February 2018)
The first Ore Reserve estimate for the Project was reported on 19 May 2015, the second Ore Reserve estimate was reported on 30 November 2015, and the third in line with FEED on 19 February 2018. All Ore Reserve estimates were prepared by AMC in accordance with the 2012 JORC Code. The 29 January 2018 Ore Reserve estimate is set out below.
Proved
Probable
Total
Occurrence
Mt
K2O equiv.
Mt
K2O equiv.
Mt
K2O equiv.
K2SO4 equiv. Mt2
K2SO4 equiv. Mt2
Sylvinite (KCl.NaCl)
77
15.0%
173
12.1%
250
13.0%
Carnallitite (KCl.MgCl2.H2O)
77
6.9%
279
7.8%
356
7.6%
Kainitite (KCl.MgSO4.H2O)
131
11.8%
363
11.2%
494
11.4%
Total
285
11.3%
815
10.3%
1,100
10.5%
203
1 The SOP Ore Reserve includes dilutant material; only Sylvite, Carnallite and Kainite mineral species from Sylvinite, Carnallitite and Kainitite rock types contribute to recovered product
2 Equivalent K2SO4 (SOP) sourced from Sylvite, Carnallite and Kainite mineral species only, shown prior to the application of processing losses
Rock Salt Mineral Resource (DNK announcement 23 September 2015)
The estimated combined measured, indicated and inferred Rock Salt Mineral Resource as at 23 September 2015 totals 347 Mt with average grades of 96.9 per cent. NaCl and 2.1 per cent. CaSO4, as shown in the table below. The Rock Salt Mineral Resource is reported above an NaCl Cu-off grade of 95.0 per cent. and below a CaSO4 grade cut-off of 2.5 per cent. There has been no change, material or otherwise, to the rock salt Mineral Resource since it was first estimated on 23 September 2015.
Classification
Tonnes
(Mt)
Grades
(% NaCl)
(% K)
(% Mg)
(% CaSO4)
(% Insolubles)
Measured
Indicated
Inferred
28
180
139
97.2
96.6
97.2
0.05
0.07
0.05
0.05
0.06
0.05
2.2
2.3
1.8
0.23
0.24
0.25
Total
347
96.9
0.06
0.05
2.1
0.24
The rock salt Mineral Resource estimate is classified and reported according to the JORC and relates only to Area A. A rock salt Mineral Resource has not been estimated for Area B. Further, the rock salt Mineral Resource has not been converted to an Ore Reserve and so is not included in the economic evaluation of the Colluli Potash Project.
PROJECT UPDATE
It is Danakali and CMSC's aim to commence project execution in 2019. In preparation, Danakali and CMSC are currently focused on:
· Operational contracts
― Finalisation of EPCM contract pending funding
― Tenders for suppliers and sub-contractors
· Operations readiness
― Ensuring Danakali and CMSC are set up to accept funding and efficiently move into project execution
· Corporate social responsibility initiatives and ongoing risk assessment
· Securing the Owner's Team to support project execution activities
· Safety and medical set-up and processes
· Logistics and other technical and product optimisation collaboration aspects with offtake partner EuroChem
Operational contracts
Specific conditions of final contracts agreed at CMSC level for EPCM, mining services and power. Major contracts have been reviewed by the legal counsel appointed by the Mandated Lead Arrangers. Feedback has been received with respect to senior debt compatibility and no material gaps exist.
Execution preparedness continued, including ongoing collaboration with DRA Global. Several sub-contractor visits to Asmara, the Port of Massawa and Colluli were held during the first half of 2019. Potential mechanical services and camp provider sub-contractors were among those that carried out preliminary due diligence ahead of CMSC issuing tender packages.
Clear ongoing benefits resulting from the Eritrea-Ethiopia rapprochement have been identified through CMSC's ongoing tendering for contractors and suppliers. Potential Ethiopian contractors and suppliers have been identified including cement suppliers, and earthworks, civil and mechanical contractors. The ability to seek Ethiopian suppliers and contractors is providing for increased competition in tender processes and more efficient and economic project execution outcomes than would otherwise have been available prior to the rapprochement. CMSC continues to prioritise the assessment of local capacity.
The Eritrea-Ethiopia rapprochement is also encouraging other countries and companies to enter Eritrea. The CMSC office was recently separately visited by 2 leading European automobile companies developing business cases to set up truck supplies and support in Eritrea. Both are looking into providing trucks for Colluli. In-country options on this front have previously been limited so this could represent a positive development from a competition and quality perspective.
Currently fuel service contracts are being discussed with the 2 major petroleum service companies in Eritrea.
Project financing
On 5 August 2019, Danakali announced that Africa Finance Corporation (AFC) and African Export Import Bank (Afreximbank, together the Mandated Lead Arrangers), obtained formal credit approval to provide CMSC with US$200M in senior debt finance (the Facility). The facility was underwritten by Afreximbank and AFC with export credit support from Export Credit Insurance Corporation of South Africa SOC Limited (ECIC). Approval marked the conclusion of an extensive due diligence process by the Mandated Lead Arrangers and ECIC, the majority of which was undertaken during the six months to 30 June 2019.
The Company continues to complement the Project's senior debt funding progress with:
· extensive awareness exercises carried out to further raise the profile of Danakali and Colluli;
· ongoing discussions with strategic, institutional and private client investors and brokers globally; and
· moving towards financial close for Colluli Module I in parallel with the CMSC senior debt process.
The Company is carefully working towards achieving the further funding requirements at the optimal time and on the optimal terms.
CORPORATE
Management changes
New CEO appointed
Following a thorough global search for potential CEO candidates, Mr. Niels Wage was appointed as CEO due to his extensive and relevant industry experience, clear leadership capabilities, and passion for the Colluli Potash Project and Eritrea.
Mr. Wage brings significant potash, trading and logistics experience to the team. Prior to joining Danakali he held a number of senior management roles at BHP, including Vice President Potash, Vice President Freight and Vice President Diamonds. At BHP he was also responsible for marketing, sales and supply chain for the Jansen Potash Project. Mr. Wage previously worked in trading and logistics for Cargill and Vopak. He has also held a series of directorships including joint ventures between Japanese firms K-line, Daiichi and JFE Steel and BHP, the International Plant Nutrition Institute and RightShip. He holds a Master's Degree in Business Economics from the University of Amsterdam and has completed the International Directors Programme at global business school INSEAD.
Mr. Wage joined Danakali in June 2018 as Chief Commercial Officer (CCO). As CCO, Mr. Wage assisted the Company with building and maintaining industry relationships including interacting with CMSC's offtake partner, EuroChem. He has also been involved in investigating the multicommodity and logistics optimisation potential of the Project, further developing CMSC's product sales strategy, advancing Danakali and CMSC's social and environmental agenda, and supporting funding, project execution and operations readiness processes.
New Project Director appointed
Mr. Tony Harrington was recently promoted to the role of Project Director (from Project Manager). He brings a depth of experience to his role as well as Eritrean and wider developing nation insight. Mr. Harrington has over 35 years' experience managing the delivery of projects across a diverse range of commodities, mineral processing units and jurisdictions including East Africa, West Africa, Southern Africa, China, Europe, UK and Australia
Annual General Meeting
The Company's annual general meeting was held on 27 May 2019 (AGM). Strong support from shareholders in the latest round of resolutions at the Company's Annual General Meeting, including:
· Re-election of John Fitzgerald as a Non-Executive Director;
· Re-election of Robert Connochie as a Non-Executive Director; and
· Replacement of the Company's Constitution
Shares
There were no new fully paid ordinary shares issued during the period.
At 30 June 2019, there were a total of 264,422,398 fully paid ordinary shares on issue.
Options
The following unlisted options were issued during the period:
· 500,000 unlisted options at an exercise price of $0.912 each expiring 11 May 2020
· 2,025,055 unlisted options at an exercise price of $1.031 each expiring 24 January 2022
· 583,000 unlisted options at an exercise price of $1.108 each expiring 13 March 2022
· 561,800 unlisted options at an exercise price of $1.119 each expiring 28 March 2022
· 1,450,000 unlisted options at an exercise price of $1.114 each expiring 30 May 2022
There were no unlisted options exercised during the period.
The following unlisted options lapsed during the period:
· 455,800 unlisted options exercisable at $1.031 with an expiry of 24 January 2022 lapsed on 7 June 2019
· 400,000 unlisted options exercisable at $0.96 expired on 20 June 2019
At 30 June 2019, there were a total of 7,254,055 unlisted options on issue at various exercise prices and expiry dates.
Performance Rights
The following performance rights were issued during the period:
· 1,000,000 Class 9 performance rights
The following performance rights were cancelled during the period:
· 15,000 Class 7 performance rights
The were no performance rights vested and converted into shares during the period.
At 30 June 2019, there were a total of 2,300,000 performance rights on issue in the following classes:
· 280,000 Class 1 performance rights
· 800,000 Class 4 performance rights
· 100,000 Class 5 performance rights
· 40,000 Class 6 performance rights
· 15,000 Class 7 performance rights
· 65,000 Class 8 performance rights
· 1,000,000 Class 9 performance rights
Interests in Mining Tenements
The exploration license for the Colluli Potash Project covers approximately 30.4km2 and the seven mining licenses awarded to CMCS span over 63km2 of the 99km2 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.
PRINCIPAL RISKS AND UNCERTAINTIES
The principal risks and uncertainties facing Danakali are unchanged from those set out in Danakali's 2018 Annual Report and Accounts and Danakali's Corporate Governance Statement, copies of which are available on the Danakali website at https://www.danakali.com.au/, and will remain unchanged in the opinion of the directors for the remaining six months of the year.
EVENTS OCCURRING AFTER THE STATEMENT OF FINANCIAL POSITION DATE
On 5 August 2019 Danakali announced that Africa Finance Corporation (AFC) and African Export Import Bank (Afreximbank, together the Mandated Lead Arrangers), obtained formal credit approval to provide the CMSC with US$200M in senior debt finance (the Facility). The facility was underwritten by Afreximbank and AFC with export credit support from Export Credit Insurance Corporation of South Africa SOC Limited (ECIC). Approval marked the conclusion of an extensive due diligence process by the Mandated Lead Arrangers and ECIC.
On 8 August 2019 Danakali announced Afreximbank had granted credit approval to provide preferred power contractor, Inglett & Stubbs International (ISI) with a US$42M guarantee which will facilitate senior debt funding for the Colluli power plant (the Guarantee). The Guarantee allows ISI's project financing to advance towards completion.
On 9 August 2019 Danakali issued 900,000 ordinary shares upon the exercise of unlisted options, raising $502,200.
There are no other events subsequent to 30 June 2019 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 INDEPENDENCE 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
CHAIRMAN
Perth, 13 September 2019
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% K20 Equiv. and 7% Kieserite. The Mineral Resource contains 303Mt @ 11% K20 Equiv. and 6% Kieserite of Measured Resource, 951Mt @ 11% K20 Equiv. and 7% Kieserite of Indicated Resource and 35Mt @ 10% K20 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% K2O Equiv. The Ore Reserve is classified as 285Mt @ 11.3% K2O Equiv. Proved and 815Mt @ 10.3% K2O 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+, Mg2+, Ca2+, Cl-, SO42-, H2O) 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 YEAR ENDED 30 JUNE 2019
Half Year Ended
30 June 2019
30 June 2018
Notes $
$
REVENUE
Interest revenue calculated using the effective interest rate method
53,675
90,863
Net profit on financial assets at fair value through profit or loss
5
521,661
1,198,376
Foreign exchange gain
63,117
263,384
Sundry
1,897
1,438
EXPENSES
Depreciation expense
(3,290)
(3,979)
Loss on disposal of assets
(3,074)
-
Administration expenses
4
(1,268,649)
(929,668)
Share based payment (expense)/ reversal
(197,473)
226,946
Share of net loss of joint venture
6
(707,947)
(1,955,768)
LOSS BEFORE INCOME TAX
(1,540,083)
(1,108,408)
Income tax expense
-
-
NET LOSS FOR THE PERIOD
(1,540,083)
(1,108,408)
OTHER COMPREHENSIVE (LOSS) / INCOME
Items that may be reclassified to profit and loss
Share of foreign currency translation reserve relating to equity accounted investment
(7,061)
464,969
TOTAL OTHER COMPREHENSIVE (LOSS) / INCOME FOR THE PERIOD
(7,061)
464,969
TOTAL COMPREHENSIVE LOSS FOR THE PERIOD
(1,547,144)
(643,439)
Earnings per share for loss attributable to the ordinary equity holders of the Company:
Basic loss per share (cents per share)
(0.58)
(0.44)
Diluted loss per share (cents per share)
(0.58)
(0.44)
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 2019
30 June 2019
31 December 2018
Notes
$
$
CURRENT ASSETS
Cash and cash equivalents
6,279,862
9,550,585
Receivables
5
108,367
108,477
Prepayments
101,165
17,474
TOTAL CURRENT ASSETS
6,489,394
9,676,536
NON‑CURRENT ASSETS
Receivables
5
10,099,101
9,283,670
Investment in joint venture
6
20,948,038
19,829,489
Plant and equipment
16,588
22,952
TOTAL NON‑CURRENT ASSETS
31,063,727
29,136,111
TOTAL ASSETS
37,553,121
38,812,647
CURRENT LIABILITIES
Trade and other payables
7
331,840
223,854
Provisions
60,691
86,180
TOTAL CURRENT LIABILITIES
392,531
310,034
NON-CURRENT LIABILITIES
Provisions
66,551
58,903
TOTAL NON-CURRENT LIABILITIES
66,551
58,903
TOTAL LIABILITIES
459,082
368,937
NET ASSETS
37,094,039
38,443,710
EQUITY
Issued capital
8
79,576,117
79,576,117
Reserves
9
13,401,765
13,211,353
Accumulated losses
10
(55,883,843)
(54,343,760)
TOTAL EQUITY
37,094,039
38,443,710
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 YEAR ENDED 30 JUNE 2019
Reserves
Notes
Issued Capital
Share Based Payments
Foreign Currency Translation
Accumulated Losses
Total Equity
$
$
$
$
$
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
BALANCE AT 1 JANUARY 2018
75,415,034
11,416,109
1,105,490
(47,399,347)
40,537,286
Loss for the period
-
-
-
(1,108,408)
(1,108,408)
Other comprehensive income
-
-
464,969
-
464,969
Total comprehensive income/(loss) for the period
-
-
464,969
(1,108,408)
(643,439)
Transactions with owners in their capacity as owners:
Shares issued during the period
8
3,885,640
-
-
-
3,885,640
Costs of capital raised
8
-
-
-
-
-
Share based payments reversal
-
(226,946)
-
-
(226,946)
BALANCE AT 30 JUNE 2018
79,300,674
11,189,163
1,570,459
(48,507,755)
43,552,541
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 YEAR ENDED 30 JUNE 2019
Half Year Ended
30 June 2019
30 June 2018
Notes
$
$
CASH FLOWS FROM OPERATING ACTIVITIES
Interest received
53,020
89,875
Payments to suppliers and employees
(1,324,295)
(1,613,080)
NET CASH OUTFLOW FROM OPERATING ACTIVITIES
(1,271,275)
(1,523,205)
CASH FLOWS FROM INVESTING ACTIVITIES
Funding of joint venture
(1,996,645)
(3,499,160)
Payments for plant and equipment
-
(9,412)
NET CASH OUTFLOW FROM INVESTING ACTIVITIES
(1,996,645)
(3,508,572)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issues of ordinary shares
8
-
3,885,640
Costs of capital raised
8
-
-
NET CASH INFLOW FROM FINANCING ACTIVITIES
-
3,885,640
NET DECREASE IN CASH AND CASH EQUIVALENTS
(3,267,920)
(1,146,137)
Cash and cash equivalents at the beginning of the financial period
9,550,585
15,559,980
Realised foreign exchange (loss)/gain on cash
(2,803)
41,866
CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD
6,279,862
14,455,709
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 2019 comprises the Company and its subsidiaries (together referred to as the Group).
The financial report of Danakali for the half year ended 30 June 2019 was authorised for issue by the Directors on 13 September 2019.
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 2019 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 2018 and considered together with any public announcements made by the Company during the half year ended 30 June 2019 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 2018, except for the adoption of the new standards and interpretations effective as of 1 January 2019. 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 year ending 31 December 2019:
Reference
Title
Summary
AASB 16
Leases
The key features of AASB 16 are as follows:
Lessee accounting
· Lessees are required to recognise right-of-use assets and lease liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value.
· Assets and liabilities arising from a lease are initially measured on a present value basis. The measurement includes non-cancellable lease payments (including inflation-linked payments), and also includes payments to be made in optional periods if the lessee is reasonably certain to exercise an option to extend the lease, or not to exercise an option to terminate the lease.
· AASB 16 contains disclosure requirements for lessees.
Lessor accounting
· AASB 16 substantially carries forward the lessor accounting requirements in AASB 117. Accordingly, a lessor continues to classify its leases as operating leases or finance leases, and to account for those two types of leases differently.
· AASB 16 also requires enhanced disclosures to be provided by lessors that will improve information disclosed about a lessor's risk exposure, particularly to residual value risk.
AASB 16 supersedes:
a) AASB 117 Leases
b) Interpretation 4 Determining whether an Arrangement contains a Lease
c) SIC-15 Operating Leases-Incentives
d) SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease
The Group has adopted AASB 16 with the initial date of initial application being 1 January 2019. At 1 January 2019 it was determined that the adoption of AASB 16 had no impact on the Group as the Groups lease is treated as a short-term lease under practical expedient AASB 16.C10.
AASB Interpretation 23, and relevant amending standards
Uncertainty over Income Tax Treatments
The Interpretation clarifies the application of the recognition and measurement criteria in AASB 112 Income Taxes when there is uncertainty over income tax treatments. The Interpretation specifically addresses the following:
· Whether an entity considers uncertain tax treatments separately
· The assumptions an entity makes about the examination of tax treatments by taxation authorities
· How an entity determines taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates
How an entity considers changes in facts and circumstances.
The Group has adopted AASB Interpretation 23 and relevant amending standards at 1 January 2019. The new standard does not have a material impact on the financial statements.
AASB 2017-7
Amendments to Australian Accounting Standards - Long-term Interests in Associates and Joint Ventures
This Standard amends AASB 128 Investments in Associates and Joint Ventures to clarify that an entity is required to account for long-term interests in an associate or joint venture, which in substance form part of the net investment in the associate or joint venture but to which the equity method is not applied, using AASB 9 Financial Instruments before applying the loss allocation and impairment requirements in AASB 128.
The Group has adopted AASB 2017-7 at 1 January 2019. The new standard does not have a material impact on the financial statements.
AASB 2018-1
Australian Amendments to Australian Accounting Standards - Annual Improvements 2015-2017 Cycle
The amendments clarify certain requirements in:
· AASB 3 Business Combinations and AASB 11 Joint Arrangements - previously held interest in a joint operation
· AASB 112 Income Taxes - income tax consequences of payments on financial instruments classified as equity
AASB 123 Borrowing Costs - borrowing costs eligible for capitalisation.
The Group has adopted AASB 2018-1 at 1 January 2019. The new standard does not have a material impact on the financial statements.
(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 $6,279,862 (31 December 2018: $9,550,585) and a net working capital surplus of $6,096,863 (31 December 2018: $9,366,502). The Group's cashflow forecasts through to 30 September 2020 reflect that the Group will need to raise additional working capital during this period. It is anticipated that the Group will commence execution of the project development during this period 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 to the Ministry of Energy and Mines that development has commenced. The notice, not a primary obligation under the mining agreement, was scheduled to be submitted by 30 October 2018 and then 31 December 2018. CMSC will now submit the notice once sufficient funding has been raised to allow the advancement of infrastructure and mine development.
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. On 5 August 2019, the the Company announced that African Finance Corporation (AFC) and African Export Import Bank (Afreximbank, together the Mandated Lead Arrangers), obtained formal credit approval to provide CMSC with US$200m in senior debt finance (the Facility). The Facility, funded equally by the Mandated Lead Arrangers, remains subject to completion of final documentation and will be subject to conditions precedent to drawdown. If it appeared that the Facility is likely to be delayed, the directors are confident that the Group will be able to obtain the additional funding requirements via an equity raise otherwise it would seek to defer its planned capital expenditure on the project and, if necessary, seek an extension of the deadline to meet its expenditure obligations pursuant to the Colluli Mining Agreement.
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 2019
$
30 June 2018
$
Employee benefits (net of recharges)
194,842
114,591
Director fees
271,015
185,929
Compliance and regulatory expenses (a)
527,510
399,992
Lease payments relating to operating leases
71,081
56,771
Other administration expenses
204,201
172,385
1,268,649
929,668
(a) Expenditure in the areas of legal, consultants and other compliance and regulatory expenses (including ASX and LSE listing fees, audit expenses and share registry fees).
5. TRADE AND OTHER RECEIVABLES
30 June 2019
$
31 December 2018
$
Current
Net GST receivable
31,703
31,863
Accrued interest
1,124
469
Other receivables
1,290
1,895
Security bonds
74,250
74,250
108,367
108,477
Non-Current
Loan to Colluli Mining Share Company - at fair value
10,099,101
9,283,670
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 25% (31 December 2018: effective interest rate of 25%).
The loan is categorised as Level 3 in the fair value hierarchy as the estimated market interest rate is an unobserved input in the valuation.
During the period ended 30 June 2019 and the year ended 31 December 2018, 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 resulted in a loss on financial assets at fair value through profit or loss of $574,965 (31 December 2018: $4,862,775) (see note 6).
The undiscounted underlying loan balance at 30 June 2019 is $34,790,081 (USD 24,406,216) (31 December 2018: $33,571,559 (USD 23,676,610)).
Half Year to
30 June 2019
$
Financial Year to
31 December 2018
$
Reconciliation of movement in loan to Colluli Mining Share Company:
Carrying amount at the beginning of the period
9,283,670
12,216,952
Additional loans during the period
227,854
987,356
Foreign exchange gain
65,916
942,137
Net gain/(loss) on financial assets at fair value through profit or loss
521,661
(4,862,775)
Carrying amount at the end of the period
10,099,101
9,283,670
6. INVESTMENT IN JOINT VENTURE
The Group has an interest in the following joint arrangement:
Equity Interest
Carrying Value
Project
Activities
30 June 2019
%
31 December 2018
%
30 June 2019
$
31 December 2018
$
Colluli Potash
Mineral Exploration
50
50
20,948,038
19,829,489
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.
Pursuant to 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 2019.
Half Year to
30 June 2019
$
Financial Year to
31 December 2018
$
Reconciliation of movement in investments accounted for using the equity method:
Carrying amount at the beginning of the period
19,829,489
13,811,946
Additional investment during the period
1,833,557
5,532,842
Share of net losses for the period
(707,947)
(389,239)
Other comprehensive (loss)/income for the period
(7,061)
873,940
Carrying amount at the end of the period
20,948,038
19,829,489
Summarised financial information of joint venture:
30 June 2019
$
31 December 2018
$
Financial position (Aligned to Danakali accounting policies)
Current assets:
Cash and cash equivalents
54,595
110,666
Other current assets
142,591
104,928
197,186
215,594
Non-current assets:
Fixed assets
137,346
135,013
Mineral property
31,291,380
31,125,894
31,428,726
31,260,907
Current liabilities:
Trade & other payables and accruals
(122,891)
(311,850)
(122,891)
(311,850)
Non-current liabilities:
Loan from Danakali Limited
(10,099,101)
(9,283,670)
(10,099,101)
(9,283,670)
NET ASSETS
21,403,920
21,880,981
Group's share of net assets
10,701,960
10,940,491
Reconciliation of Equity Investment:
Group's share of net assets
10,701,960
10,940,491
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
14,551,185
13,194,105
Carrying amount at the end of the period
20,948,038
19,829,489
Half Year to
30 June 2019
$
Half Year to
30 June 2018
$
Financial performance
Interest expense relating to the unwinding of discount on joint venture loan
(1,096,626)
(1,198,376)
Gain on re-measurement of loan to joint venture carried at amortised cost
574,965
-
Exploration and evaluation expenditure
(894,233)
(2,713,160)
LOSS FOR THE PERIOD
(1,415,894)
(3,911,536)
Group's share of total loss for the period
(707,947)
(1,955,768)
During the period ended 30 June 2019 no dividends were paid or declared (31 December 2018: Nil).
Colluli Mining Share Company has the following commitments or contingencies at 30 June 2019:
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, 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 to the Ministry of Energy and Mines that development has commenced.
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. 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.
7. TRADE AND OTHER PAYABLES
30 June 2019
$
31 December 2018
$
Trade payables
161,741
122,362
Accrued expenses
120,163
65,868
Other payables
49,936
35,624
331,840
223,854
8. ISSUED CAPITAL
Half Year to
30 June 2019
Number
of shares $
Financial Year to
31 December 2018
Number
of shares $
(a) Share capital
Ordinary shares fully paid
264,422,398
79,576,117
264,422,398
79,576,117
(b) Movements in ordinary share capital
Beginning of the period
264,422,398
79,576,117
251,697,687
75,415,034
Issued during the period:
- Issued at $0.350 per share on option exercise
-
-
10,381,821
3,633,640
- Issued at $0.405 per share on option exercise
-
-
400,000
162,000
- Issued at $0.450 per share on option exercise
-
-
200,000
90,000
- Issued at $0.652 per share via cashless exercise of 1,949,000 options with an exercise price of $0.405
-
-
738,346
-
- Issued at $0.624 per share via cashless exercise of 750,000 options with an exercise price of $0.527
-
-
116,586
-
- Issued at $0.648 per share via cashless exercise of 1,600,000 options with an exercise price of $0.550
-
-
241,974
-
- Issued at $0.773 per share via cashless exercise of 750,000 options with an exercise price of $0.550
216,364
-
- Issued on vesting of performance rights
-
-
65,000
-
- Issued at $0.755 per share in lieu of advisor fees
-
-
356,049
268,817
- Issued at $0.773 per share in lieu of advisor fees
-
-
8,571
6,626
End of the period
264,422,398
79,576,117
264,422,398
79,576,117
9. RESERVES
Half Year to
30 June 2019
Financial Year to
31 December 2018
$
$
(a) Reserves
Share-based payments reserve
Balance at beginning of the period
11,231,923
11,416,109
Employee and contractor share options & performance rights
197,473
(184,186)
Balance at end of the period
11,429,396
11,231,923
Foreign currency translation reserve
Balance at beginning of the period
1,979,430
1,105,490
Currency translation differences arising during the period
(7,061)
873,940
Balance at end of the period
1,972,369
1,979,430
Total reserves
13,401,765
13,211,353
(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
Half Year to
30 June 2019
Financial Year to
31 December 2018
$ $
Balance at beginning of the period
(54,343,760)
(47,399,347)
Loss for the period
(1,540,083)
(6,944,413)
Balance at end of the period
(55,883,843)
(54,343,760)
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
30 June 2019
Half Year to
30 June 2018
$ $
Options issued to directors and employees
173,584
11,104
Performance rights issued to directors, employees and consultants
23,889
(238,050)
Expense / (reversal)
197,473
(226,946)
(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 balance
Issued
Exercised
Lapsed / Expired
Closing balance
Exercise price $0.558 expiry date 08/08/2019
900,000
-
-
-
900,000 a
Exercise price $0.543 expiry date 07/10/2019
250,000
-
-
-
250,000 a
Exercise price $0.940 expiry date 19/05/2020
1,440,000
-
-
-
1,440,000 a
Exercise price $0.960 expiry date 20/06/2019
400,000
-
-
(400,000)
-
Exercise price $0.912 expiry date 11/05/2020
-
500,000 c
-
-
500,000 a
Exercise price $1.031 expiry date 24/01/2022
-
2,025,055
-
(455,800)
1,569,255 b
Exercise price $1.108 expiry date 13/03/2022
-
583,000
-
-
583,000 b
Exercise price $1.119 expiry date 28/03/2022
-
561,800
-
-
561,800 b
Exercise price $1.114 expiry date 30/05/2022
-
1,450,000
-
-
1,450,000 b
2,990,000
5,119,855
-
(855,800)
7,254,055
a Vested options.
b Unvested options.
c Refers to options granted to a director in the year ended 31 December 2018 which were subject to shareholder approval. The options were issued in the current period following receipt of shareholder approval at the 27 May 2019 Annual General Meeting.
(c) Options issued during the period
A summary of options granted to directors and employees during the period is included in the following table. The value was calculated by using the Black & Scholes Option Pricing Model applying the following inputs, to produce the fair value per option:
Number of Options
Exercise Price
Expiry Date
Grant Date
Share Price at Grant Date
Risk Free Interest Rate
Volatility
Fair Value per Option
500,000
$0.912
11-May-2020
27-May-2019
$0.730
1.23%
42.71%
$0.066
1,724,015
$1.031
24-Jan-2022
24-Jan-2019
$0.735
1.78%
44.49%
$0.152
301,040
$1.031
24-Jan-2022
27-May-2019
$0.730
1.21%
42.71%
$0.124
583,000
$1.108
13-Mar-2022
13-Mar-2019
$0.795
1.53%
43.92%
$0.161
561,800
$1.119
28-Mar-2022
28-Mar-2019
$0.780
1.53%
43.94%
$0.152
1,450,000
$1.114
30-May-2022
30-May-2019
$0.750
1.21%
42.76%
$0.130
(d) Performance Rights
Movements in the number of performance rights on issue during the period is as follows:
Performance Rights - Class
Opening balance
Granted
Vested
Cancelled
Closing
balance
Class 1 a
280,000
-
-
-
280,000
Class 4 a
800,000
-
-
-
800,000
Class 5 a
100,000
-
-
-
100,000
Class 6 a
40,000
-
-
-
40,000
Class 7 a
30,000
-
-
(15,000)
15,000
Class 8 a
65,000
-
-
-
65,000
Class 9
-
1,000,000
-
-
1,000,000
1,315,000
1,000,000
-
(15,000)
2,300,000
a Issued under the Performance Rights Plan which was re-approved at the annual general meeting of the Company held 17 November 2014.
The 2,300,000 Performance Rights on issue at 30 June 2019 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:
· 20,000 upon commencement of the first development work on the ground at the Colluli site within 1 week of the scheduled development time;
· 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 6:
· 15,000 upon Endeavour Financial being paid its first milestone success fee which is linked to a letter of finance support from a lending institution; and
· 25,000 upon term sheets being signed for the project financing of the Colluli project.
Class 7:
· 15,000 upon completion of a strategic investment at greater than 30-day VWAP plus 10%.
Class 8:
· 5,000 on completion of an approval and issued CSR report befitting an ASX200 company;
· 50,000 on securing a strategic equity partner; and
· 10,000 on finalising broker mandates which support the equity capital market strategy.
Class 9:
· 100,000 when CMSC commences early works at Colluli provided this occurs in 2019;
· 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 2019:
Fair value
At amortised cost
through
profit and loss
through other comprehensive income
$
$
$
Financial Assets:
Trade and other receivables
108,367
-
-
Total current
108,367
-
-
Receivable
-
10,099,101
-
Total non-current
-
10,099,101
-
Total Assets
108,367
10,099,101
-
Financial liabilities:
Trade and other payables
331,840
-
-
Total current
331,840
-
-
Total Liabilities
331,840
-
-
Fair values:
Set out below is a comparison of the carrying amount and fair values of financial instruments as at 30 June 2019:
Carrying amount
Fair value
$
$
Financial Assets:
Trade and other receivables
108,367
108,367
Total current
108,367
108,367
Receivable
10,099,101
10,099,101
Total non-current
10,099,101
10,099,101
Total Assets
10,207,468
10,207,468
Financial liabilities:
Trade and other payables
331,840
331,840
Total current
331,840
331,840
Total Liabilities
331,840
331,840
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:
Name
Principal Activities
Country of Incorporation
Class of Shares
Equity Holding
30 June 2019
31 December 2018
% %
STB Eritrea Pty Ltd
Investment in
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)
The Company has entered into revised arrangements with the following key management personnel (KMP) during the half-year ended 30 June 2019:
Mr Seamus Cornelius, Non-Executive Chairman (Transitioned from Executive Chairman to Non-Executive Chairman 25 June 2019):
· Under an executive services agreement for the provision of executive duties, Mr Cornelius received:
o For the period 1 January 2019 to 24 June 2019: $69,028
· In addition, Mr Cornelius received the following director fees:
o For the period 1 January 2019 to 26 May 2019: $32,917
o For the period 27 May 2019 to 30 June 2019: $9,581 (reflecting an increase of $20,000 per annum, in line with the Revised Director Fees as referred below)
Mr Niels Wage, Chief Executive Officer:
Effective from 25 March 2019:
· Engaged as a permanent full time employee
· Remuneration of €250,000 per annum plus superannuation at the Australian statutory rate and health insurance for Mr Wage and his dependents
· Notice period of 6 months, required to be given by either party for termination
· Mr Wage is eligible to participate in the Company's incentive plans, the terms and operations of which are at the discretion of the Board. During the period, 1,000,000 performance rights (Class 9) were issued to Chief Executive Officer, Niels Wage, as part of his remuneration package.
Mr Paul Donaldson, Mr John Fitzgerald, Mr Robert Connochie, Ms Zhang Jing, Mr Andre Liebenberg:
At the 27 May 2019 annual general meeting, shareholder approval was received to increase the aggregate non-executive directors' fee pool limit from $400,000 to $500,000 per annum. Effective from 27 May 2019, the base fee paid to each Non-Executive Director was increased from $40,000 to $60,000 per annum (Revised Director Fees).
Transactions with directors, director related entities and other related parties
During the half year to 30 June 2019 the following transactions with related parties took place:
Options:
· 500,000 unlisted options with an exercise price of $0.912 each expiring 11 May 2020 were issued to the nominee of Director, Andre Liebenberg;
· 301,040 unlisted options with an exercise price of $1.031 each expiring 24 January 2022 (subject to vesting conditions) were issued to the nominee of Chairman, Seamus Cornelius;
· 583,000 unlisted options with an exercise price of $1.108 each expiring 13 March 2022 (subject to vesting conditions) were issued to the nominee of Chief Financial Officer, Stuart Tarrant; and
· 1,450,000 unlisted options with an exercise price of $1.114 each expiring 30 May 2022 (subject to vesting conditions) were issued to Chief Executive Officer, Niels Wage.
15. CONTINGENCIES
There are no material contingent liabilities or contingent assets for the Group at the balance date.
16. COMMITMENTS
Half Year to
30 June 2019
Financial Year to
31 December 2018
$ $
Lease commitments (Group as lessee):
Operating leases (non-cancellable)
Minimum lease payments
- Within one year
54,560
11,667
- Later than one year but not later than five years
-
-
54,560
11,667
17. EVENTS OCCURRING AFTER THE STATEMENT OF FINANCIAL POSITION DATE
On 5 August 2019 Danakali announced that Africa Finance Corporation (AFC) and African Export Import Bank (Afreximbank, together the Mandated Lead Arrangers), obtained formal credit approval to provide the CMSC with US$200M in senior debt finance (the Facility). The facility was underwritten by Afreximbank and AFC with export credit support from Export Credit Insurance Corporation of South Africa SOC Limited (ECIC). Approval marked the conclusion of an extensive due diligence process by the Mandated Lead Arrangers and ECIC.
On 8 August 2019 Danakali announced Afreximbank had granted credit approval to provide preferred power contractor, Inglett & Stubbs International (ISI) with a US$42M guarantee which will facilitate senior debt funding for the Colluli power plant (the Guarantee). The Guarantee allows ISI's project financing to advance towards completion.
On 9 August 2019 Danakali issued 900,000 ordinary shares upon the exercise of unlisted options, raising $502,200.
There are no other events subsequent to 30 June 2019 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 2019 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 2019 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
CHAIRMAN
Perth, 13 September 2019
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.ENDIR LJMATMBABMIL
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