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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Danakali Limited | LSE:DNK | London | Ordinary Share | AU000000DNK9 | ORDS NPV |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 20.00 | 19.00 | 21.00 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
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:
Hot Features
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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
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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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