ASX- and LSE-listed Danakali has obtained formal credit approval from the Africa Finance Corporation (AFC) and African Export Import Bank (Afreximbank) to provide the Colluli Mining Share Company (CMSC) with $200-million in senior debt finance.

The facility will be part of the overall project funding package for the development and construction of the Colluli potash project, in the Danakali Depression region of Eritrea.

The facility, funded equally by AFC and Afreximbank, remains subject to the completion of final documentation and will be subject to conditions precedent to drawdown.

It will be underwritten by the mandated lead arrangers and includes a formal approval of export credit support from the Export Credit Insurance Corporation of South Africa (ECIC).

The transaction will represent the first time the ECIC has provided export credit support to a non-South African bank.

CMSC and the mandated lead arrangers will now proceed to final documentation and the execution of the facility, which is on track to be the first mining senior debt project financing drawdown in Eritrea.

Commenting on the transaction, Danakali CEO Niels Wage says the final credit approval represents “outstanding progress” and a significant derisking milestone for the Colluli project financing.

Capital market company Numis, meanwhile, in a separate statement, said the transaction was a “material positive and lays the foundation for raising the balance of the funds required to start the development of the Colluli project”.

The company retained its buy recommendation and a target price of 70p based on an unchanged multiple of 0.6x net asset value of 8%.

The Colluli project, which has a 200-year life, is expected to be developed in two phases, with phase one requiring $302-million of capital expenditure (capex) over a 2.25-year build period for 472 000 t/y of sulphate of potash (SoP) capacity, funded from debt and equity.

Phase two will require $202-million of capex, to be funded from cash flow to increase capacity to 944 000 t/y, with total cash costs of $242/t for the fully expanded project.

Overall, Numis believes Colluli should be “at the bottom of the cost curve for SoP, which should enable it to remain cash generative throughout the price cycle”.