Sichuan Road and Bridge Group provides $31 million shareholder loan — via STB Eritrea Pty Ltd — for Colluli Potash Project

Project narrative

In March 2014, a special purpose vehicle known as Colluli Mining Share Company (CMSC) was legally incorporated as as joint venture of Danakali Limited (50% equity stake) and the Eritrean National Mining Corporation (ENAMCO) (50% equity stake). At that time, STB Eritrea Pty Ltd — a wholly-owned subsidiary of Danakali Limited — issued a shareholder loan with an unknown face value to CMSC for the Colluli Potash Project. Repayment of the loan, as defined in the CMSC Shareholders Agreement, was to be made preferentially from future operating cash flows. The shareholder loan was denominated in US dollars (USD), non-interest bearing, unsecured, and subordinate to any loans from third party secured lenders. Then, on November 30, 2015, a definitive feasibility study was completed for the Colluli Potash Project. Approximately one year later, in December 2016, the Eritrean Ministry of Land, Water and Environment granted approval to CMSC for the environmental and social impact assessment (ESIA) of the Colluli Potash Project. Two months later, in February 2017, CMSC and the Eritrean Ministry of Land, Water and Environment signed a Mining Agreement for the Colluli Potash Project. The agreement granted CMSC exclusive exploitation rights of all mineral resources within the agreement area. CMSC also gained the exclusive right for one or more mining licenses within the agreement area and the exclusive right of land use within the agreement area over the resource life. The agreement area covers around 100km² and comprises the entire Colluli resource, which includes a JORC-2012 mineral resource estimate of 1.3 billion tonnes of potassium bearing salts. In addition, it possesses an ore reserve estimate of more than 1.1 billion tonnes, a rock salt mineral resource estimate in excess of 300 million tonnes and a kieserite (magnesium sulphate) mineral resource estimate exceeding 80 million tonnes. The February 2017 Mining Agreement enabled CMSC to submit an application for mining licenses, each covering up to a maximum of 10km². Once the conditions of the mining licences were met, the Mining Agreement would be applicable to the development phase, operational phase, and reclamation and closure phases of the project. CMSC would then be able to undertake exploration, feasibility work, development, operation, and reclamation and closure concurrently within the license area. This agreement also enabled CMSC to construct all industrial, administrative, residential, medical and other buildings and facilities necessary for mining operations. In addition, CMSC was entitled under the agreement to gain access to roads, bridges, airfields, port facilities and other transportation facilities, power and fuel. CMSC signed the February 2017 Mining Agreement following completion and submission of the definitive feasibility study (DFS) for production of sulphate of potash (SOP) fertilizer. Then, in June 2018, CMSC announced that it had signed a binding take-or-pay offtake agreement with EuroChem Trading GmbH (EuroChem) for up to 100% of Module I Sulphate of Potash (SOP) production from the Colluli Potash Project. Almost five years later, on January 12, 2023, Danakali Limited announced that it had executed a binding share sale agreement (SSA) with Sichuan Road and Bridge Group Co., Ltd (SRBG) pursuant to which SRBG agreed to purchase, and STB Eritrea Pty Ltd and Danakali Limited agreed to sell, for a total sum of $166 million before government taxes: (a) 100% of the shares held by STB Eritrea Pty Ltd in CMSC (CMSC Equity) for $135 million; and (b) the outstanding amount owed by CMSC to STB pursuant to the terms of the shareholders agreement between the ENAMCO and STB (Shareholder Loan) for $31 million (subject to an adjustment for deferred payment). As a consequence of this transaction, SRBG effectively replaced Danakali Limited as the owner of the lending institution. The Colluli Potash Project is the world’s largest and most advanced Sulphate of Potash (SOP) greenfield development project with a mine life in excess of 200 years. It is located in the Danakil Depression region of Eritrea. Colluli is approximately 177km southeast of the capital, Asmara, and 180km from the port of Massawa, which is Eritrea’s key import/export facility.