2016
ANNUAL
REPORT
DANAKALI LTD
ABN 56 097 904 302
FOR THE YEAR ENDED 31 DECEMBER 2016
Colluli Project Executive Summary
DANAKALI LIMITED IS FOCUSED ON THE DEVELOPMENT OF THE WORLD CLASS COLLULI POTASH
PROJECT. COLLULI IS DIFFERENT - IT IS POSITIVELY UNIQUE. EVERYTHING THAT IS DIFFERENT ABOUT
COLLULI IS DIFFERENT IN A POSITIVE WAY.
COMPELLING BUSINESS CASE
Colluli meets all criteria that aggregate to demonstrate
a Tier 1 project:
•
•
• Outstanding grade,
•
• Close proximity to both the coast and
Exceptionally long mine life (200+ years),
Industry leading capital intensity,
Bottom quartile operating costs and
global markets.
With a Project post tax NPV of US$860m and IRR of
29%, Colluli demonstrates superior economics
relative to all advanced SOP projects globally and is a
stand out greenfield development opportunity.
WORLD CLASS RESOURCE
AND RESERVE
The Colluli deposit, located in the Danakil region of
Eritrea, comprises over 1.3 billion tonnes of potassium
bearing salts suitable for potash fertiliser production
and a massive ore reserve of 1.1 billion tonnes.
The Danakil basin is the only potash basin in the world
that exhibits the most favourable combination of
potassium salts for low cost, high yield production of SOP.
SHALLOW MINERALISATION
With mineralisation starting at just 16m, Colluli
represents the shallowest part of the Danakil basin
and is amenable to open cut mining.
SALTS EXTRACTED IN SOLID FORM
Colluli is the only SOP resource in the world that allows
extraction of potassium salts in solid form. Primary
production of SOP typically comes from potassium rich
brines, which require considerable evaporation.
Extracting the salts in solid form from Colluli provides
superior economic outcomes - it enables the salts to be
processed immediately, significantly reducing the time
between mining and revenue generation and reduces the
pond footprint contributing to a lower capital intensity.
EXCEPTIONAL GRADE
Colluli is one of the highest grade primary SOP
resources in the world. Ore extracted from the mine
has a potassium concentration up to twenty-five
times higher than potassium rich brines.
UNRIVALLED PRODUCT DIVERSITY
AND UPSIDE POTENTIAL
In addition to potassium bearing salts, the Colluli
resource contains appreciable amounts of rock salt,
magnesium chloride, magnesium sulphate and
gypsum. Each of these salts has established markets
creating future monetisation potential.
The combination of potassium salts in Colluli provides
unrivalled potash diversification potential and the
ability to make multiple chloride free, multi-nutrient
potash products. Potash products including MOP,
SOP, SOPM and kainite all have market potential and
provide Colluli with product versatility that does not
exist in other potash resources.
CLOSE PROXIMITY TO COAST AND
ESTABLISHED INFRASTRUCTURE
Colluli is the closest SOP deposit to a coastline
anywhere in the world with only 60km separating the
resource and the Red Sea coast.
An existing coastal road which extends to the
established port of Massawa runs proximate to the
future Colluli mine site. The port of Massawa is
equipped with bulk and container loading facilities.
AN OUTSTANDING SOCIAL DIVIDEND
Colluli will create over 300 permanent jobs for Eritrean
nationals and will provide a training ground for trades
and professionals over decades to come. Colluli
will positively impact national, regional and local
communities through its impact on infrastructure, job
creation, taxes and royalties.
1 Two phase 100% Project level basis with the second module commencing in year 6.
Page II
Danakali Annual Report 2016DANAKALI LIMITED Colluli Project Executive Summary
Colluli At A Glance
DANAKALI LIMITED IS FOCUSED ON THE DEVELOPMENT OF THE WORLD CLASS COLLULI POTASH
PROJECT. COLLULI IS DIFFERENT - IT IS POSITIVELY UNIQUE. EVERYTHING THAT IS DIFFERENT ABOUT
COLLULI IS DIFFERENT IN A POSITIVE WAY.
COMPELLING BUSINESS CASE
EXCEPTIONAL GRADE
Colluli meets all criteria that aggregate to demonstrate
Colluli is one of the highest grade primary SOP
a Tier 1 project:
•
•
•
Exceptionally long mine life (200+ years),
Industry leading capital intensity,
• Outstanding grade,
Bottom quartile operating costs and
• Close proximity to both the coast and
global markets.
With a Project post tax NPV of US$860m and IRR of
29%, Colluli demonstrates superior economics
relative to all advanced SOP projects globally and is a
stand out greenfield development opportunity.
WORLD CLASS RESOURCE
AND RESERVE
The Colluli deposit, located in the Danakil region of
Eritrea, comprises over 1.3 billion tonnes of potassium
bearing salts suitable for potash fertiliser production
and a massive ore reserve of 1.1 billion tonnes.
The Danakil basin is the only potash basin in the world
that exhibits the most favourable combination of
potassium salts for low cost, high yield production of SOP.
SHALLOW MINERALISATION
With mineralisation starting at just 16m, Colluli
represents the shallowest part of the Danakil basin
and is amenable to open cut mining.
SALTS EXTRACTED IN SOLID FORM
Colluli is the only SOP resource in the world that allows
extraction of potassium salts in solid form. Primary
production of SOP typically comes from potassium rich
brines, which require considerable evaporation.
Extracting the salts in solid form from Colluli provides
superior economic outcomes - it enables the salts to be
processed immediately, significantly reducing the time
between mining and revenue generation and reduces the
pond footprint contributing to a lower capital intensity.
resources in the world. Ore extracted from the mine
has a potassium concentration up to twenty-five
times higher than potassium rich brines.
UNRIVALLED PRODUCT DIVERSITY
AND UPSIDE POTENTIAL
In addition to potassium bearing salts, the Colluli
resource contains appreciable amounts of rock salt,
magnesium chloride, magnesium sulphate and
gypsum. Each of these salts has established markets
creating future monetisation potential.
The combination of potassium salts in Colluli provides
unrivalled potash diversification potential and the
ability to make multiple chloride free, multi-nutrient
potash products. Potash products including MOP,
SOP, SOPM and kainite all have market potential and
provide Colluli with product versatility that does not
exist in other potash resources.
CLOSE PROXIMITY TO COAST AND
ESTABLISHED INFRASTRUCTURE
Colluli is the closest SOP deposit to a coastline
anywhere in the world with only 60km separating the
resource and the Red Sea coast.
An existing coastal road which extends to the
established port of Massawa runs proximate to the
future Colluli mine site. The port of Massawa is
equipped with bulk and container loading facilities.
AN OUTSTANDING SOCIAL DIVIDEND
Colluli will create over 300 permanent jobs for Eritrean
nationals and will provide a training ground for trades
and professionals over decades to come. Colluli
will positively impact national, regional and local
communities through its impact on infrastructure, job
creation, taxes and royalties.
1 Two phase 100% Project level basis with the second module commencing in year 6.
Industry Leading
Capital Intensity
Exceptional
Cashfl ow
Exceptional
Returns
US$557/t SOP
>US$9Bn
Undiscounted over fi rst 60 years
US$860M NPV
and IRR of 29%
Modular Approach
Low Development
Capital
Bottom Quartile
Operating Costs
Lower project risk and
capital requirements
US$298M
US$227/t
Phase I
FOB Port of Massawa
Premium Product
Unrivalled Product
Diversifi cation
Simple Commercially
Proven Technology
Highest grade
primary SOP
Chloride free, multi-nutrient potash type
Resource highly favourable
to produce suite of
agri-commodities
Low risk processing
approach
Large Scale, Long Life
Reserve / Resource
Supportive Mining
Jurisdiction
Skills & Development
for Local Communities
>200 years life
1.1Bt reserve
Competitive capital
investment regime
Over 300
permanent jobs
NOTE: All results over Phase I and II unless stated
Phase I
Page III
Danakali Annual Report 2016DANAKALI LIMITED Corporate Information
Directors
Seamus Ian Cornelius
Paul Michael Donaldson
Anthony William Kiernan
Liam Raymond Cornelius
John Daniel Fitzgerald
Zhang Jing
Robert Gordon Connochie
Executive Management
Paul Michael Donaldson
Christiaan Philippus Els
Company Secretary
Christiaan Philippus Els
(Non-Executive Chairman)
(Managing Director)
(Non-Executive Director) - Resigned 6 February 2017
(Non-Executive Director)
(Non-Executive Director)
(Non-Executive Director) - Appointed 17 June 2016
(Non-Executive Director) - Appointed 6 February 2017
(Managing Director and Chief Executive Officer)
(Chief Financial Officer)
Appointed 1 February 2016
Registered Office and Principal Place of Business
Level 1, 234 Churchill Avenue
Churchill Court
SUBIACO WA 6008
Telephone:
Facsimile:
+61 (0)8 6315 1444
+61 (0)8 9467 9119
Bank
ANZ
1275 Hay Street
WEST PERTH WA 6005
Share Register
Computershare Investor Services Pty Limited
Level 11, 172 St Georges Terrace
PERTH WA 6000
Telephone:
Telephone:
Facsimile:
www.computershare.com
1300 850 505 (Inside Australia)
+61 (0)3 9415 4000 (Outside Australia)
+61 (0)3 9473 2500
Auditors
Ernst and Young
11 Mounts Bay Road
PERTH WA 6000
Website
www.danakali.com
Stock Exchange Listing
Danakali Ltd Shares (Code: DNK) are listed on the Australian Stock Exchange.
American Depository Receipts
The Bank of New York Mellon sponsors DNK’s Level 1 American Depository Receipts Program (ADR) in the
United States of America. DNK’s ADRs are traded on the over-the-counter (OTC) securities market in the US
under the symbol DNKLY and CUSIP: 23585T101. One ADR represents one ordinary share in DNK.
US OTC Market information is available here:
http://www.otcmarkets.com/stock/DNKLY/quote
DNK’s ADR information can also be viewed here: https://www.adrbnymellon.com/?cusip=23585T101
ADR Holders seeking information on their shareholding should contact: shrrelations@bnymellon.com OR
LONDON NEW YORK
Rick Maehr
Mark Lewis
richard.maehr@bnymellon.com
mark.lewis@bnymellon.com
Telephone +1 212 815 2275
Telephone +44 207 163 7407
Page IV
Danakali Annual Report 2016DANAKALI LIMITED
Contents
Chairman’s Letter
Managing Director’s Letter
Review of Operations
Directors’ Report
Audit Independence Letter
Consolidated Statement of Profit or Loss and Other Comprehensive Income
Consolidated Statement of Financial Position
Consolidated Statement of Changes in Equity
Consolidated Statement of Cash Flows
Notes to the Consolidated Financial Statements
Directors' Declaration
Independent Audit Report
ASX Additional Information
Page
1
2
4
16
39
41
42
43
44
45
68
69
74
Page V
Danakali Annual Report 2016DANAKALI LIMITED Chairman’s Letter
Dear fellow shareholders,
2016 and early 2017 has been a very important
and positive period for Danakali. A large amount of
work has been completed and significant progress
has been made toward the development of the
Colluli asset. The superior economics, geography and
production diversification potential make Colluli the
premier development stage potash asset in the World
today. The completion of construction permitting and
advancement of the front-end engineering design
(FEED) process also make it the most advanced
toward development.
The executive and management team lead by our
MD, Paul Donaldson has completed a tremendous
amount of high quality work to advance and de-
risk Colluli. They thoroughly deserve our thanks
and encouragement. The support we have received
from our partners, the Eritrean National Mining
Corporation (ENAMCO) and Government in Eritrea
has also been excellent.
Some people may say that pragmatism, realism and
fact-based analysis are all unfortunately in short
supply in the mining exploration and development
industry. It is a tremendous strength of Colluli and
undeniable but often underappreciated fact that
the truly unique and superior quality of Colluli as an
asset has meant that Danakali can put forward a very
pragmatic, realistic and fact based development path
for Colluli and still be best in class. The progression
of scoping, prefeasibility and definitive feasibility
studies (DFS), coupled with the high level of resource
definition and significant collection of site geological,
geotechnical, hydrological and environmental data
to support the studies epitomises the disciplined
approach applied to the project development.
The DFS level development path for Colluli that we
are refining and optimising right now with Fluor
during the FEED process is based on the simple idea
that we should start with a realistic, fundable and
economically attractive project, get into production as
soon as possible and then grow fast to become the
dominant SOP company in the World.
We believe, the SOP market is ripe for disruption and
Colluli is the asset that gives Danakali, in partnership
with ENAMCO, the opportunity be the disruptive
force that ultimately transforms the company
to a market leader. As a very attractive addition,
the Colluli asset has the capacity to support the
development of a very large salt business. We aspire
to become a business that can sell salt into the de-
icing and chemical industries with Colluli potentially
supporting a salt business in the order of 8-10mtpa.
This would make it comparable in scale with Dampier
Salt in Western Australia. Colluli also contains a suite
of other agricultural products and de-icing salts. We
plan to start can start looking to monetise these
additional products as soon as we start Phase I SOP
production.
Importantly, unlike some other projects in the
fertilizer space being promoted in the market, we
have attributed zero value to date to anything other
than SOP. This is consistent with our pragmatic,
realistic and fact based approach to the development
of Colluli. Equally, unlike any other project being
talked about, all of the other agricultural products
and salts in Colluli have a real-world potential to be
monetised because Colluli is the world’s shallowest
evaporite deposit, the closest to the coast, the closest
to existing usable port infrastructure, has the largest
reserve and is the only asset where all the salts are
in solid form and amenable to open pit mining. Put
simply, everything that is unique about Colluli is
unique in a good way.
We have come a long way. There is a lot further
to go until we realise the full and proper value of
Colluli. How will we know when Danakali is fully and
properly valued? That is the key question but when
you appreciate our aspiration is to produce in the
order of 4mtpa of potash products, 8-10mtpa of salt,
2mtpa of gypsum, 500ktpa of kieserite and 500ktpa
of MgCl2 from Colluli, then we can surely say that full
value is not yet recognised.
2017 is going to be a pivotal year for Danakali. As a
shareholder, I am very excited about the potential and
look forward to seeing continued progress toward
development.
Yours sincerely
Seamus Cornelius
Chairman
Page 1
DANAKALI LIMITED
Danakali Annual Report 2016
Managing Director’s Letter
Dear fellow shareholders,
At the end of 2016 I am proud to say that Colluli
is currently the most advanced greenfield primary
production sulphate of potash (SOP) project in the
world. This comes following a disciplined journey
of resource evaluation, scoping study, pre-feasibility
study, and definitive feasibility study. Each step of this
journey has further differentiated the Colluli project
from every other potash development in world as the
positively unique characteristics of the resource have
become more evident.
While many projects have been shelved or stalled
through the potash commodity cycle Colluli has
continued to advance and is now the most fundable
advanced stage SOP project globally, and carries with
it unrivalled product diversification potential, industry
leading capital intensity, bottom quartile operating
costs and low incremental growth capital. As the
project advances through construction to production,
these attributes will provide Colluli with industry
leading returns throughout the commodity cycle.
Throughout the year, price erosion of the more
common potash type, potassium chloride (muriate
of potash or MOP) continued due to oversupply
and poor industry discipline. Considerable capacity
has been idled by major producers awaiting price
recovery. Despite the reduction in MOP prices,
sulphate of potash (SOP) prices have remained
resilient due to lack of new primary production
capacity, growing demand and lack of advanced
stage SOP projects. Colluli is now the most favourably
positioned primary production SOP project to meet
the supply gap.
2016 has been another year of significant
achievements and milestones for both Danakali
and the Colluli Mining Share Company. Following
the completion and submission of the definitive
feasibility study early in the year, the company
turned its attention to securing approvals for the
social and environmental impact assessment and
social and environmental management plans,
completing stakeholder engagements with the local
communities, progressing the mining agreement
and mining license, continuing the sourcing
of project debt funding, and initiating offtake
negotiations. All of these activities have progressed
exceptionally well with the approval of the social
and environmental impact assessment in December
2016, the successful signing of non-binding
memorandums of understanding for over 800,000
tonnes per annum of SOP product, advancement of
discussions, agreements and commercial terms with
a select group of potential offtakers, and significant
advancement of the mining agreement and license.
In addition to these activities, the company hosted a
number of site visits throughout the year for mining
media and analysts to improve their understanding
of both the project and the operating jurisdiction.
Feedback from all of the site visits hosted has been
excellent and reflected in subsequent research notes
issued with regard to the project. There is a consistent
trend that those who visit Eritrea, have a positive
experience, and return home pleasantly surprised
with a new paradigm of the country. The success and
ongoing progress, not just in the mining industry, but
in all aspects of development in Eritrea is extremely
understated. Significant progress and advancement
continues to be made.
Turning our attention to 2017, the year has started
positively as the company continues to advance to
construction, with globally recognised engineering
and construction firm, Fluor, being appointed to
lead the front end engineering design (FEED) and
optimisation phase of the project. Other highly
reputable organisations joining the team include
Global Potash Solutions, Knight Piesold and Elemental
Engineering. Bidding processes have commenced
for the key operating contracts which include power
generation and the mining contract.
Finally, I would like to thank all of the company
shareholders for the ongoing support we have had as
we have progressed the project through the various
milestones, to a significantly advanced stage. I would
also like to acknowledge the significant contribution
and ongoing commitment of the Danakali and Colluli
Mining Share Company management teams, and the
support and guidance provided by our Colluli Joint
Venture partners, ENAMCO.
Yours sincerely
Paul Donaldson
CEO and Managing Director
DANAKALI LIMITED
Danakali Annual Report 2016
Page 2
FORWARD LOOKING STATEMENTS AND DISCLAIMER
The information in this report is published to inform you about Danakali Limited
(the Company” or “DNK”) and its activities. DNK 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 report, 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 the Colluli Project 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 report. Recipients should make their own enquiries
in relation to any investment decisions.
Mineral Resource, Ore Reserve and financial assumptions made in this report are
consistent with assumptions detailed in the Company’s ASX announcements dated
25 February 2015, 4 March 2015, 19 May 2015, 23 September 2015, 30 November
2015, 15 August 2016 and 1 February 2017 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.
PROJECTS OF
COLLULI’S
QUALITY
ARE RARE
Page 3
Project Overview
Resource and Reserve
Danakali Limited (ASX: DNK) is focused on the
The Danakil basin is located in the South Western region
development of the world class Colluli Potash Project
of Eritrea, and extends over 300km into Eastern Ethiopia.
(Colluli or the Project) located in the Danakil region of
It hosts the youngest evaporite deposit and the largest
Eritrea, East Africa. Colluli is 100% owned by the Colluli
unexploited potash basin in the world. To date, over
Mining Share Company (“CMSC”), a 50:50 joint venture
10 billion tonnes of potassium bearing salts have been
between Danakali and the Eritrean National Mining
identified in the Danakil region. The overall deposit
Corporation (“ENAMCO”).
differentiates itself by its depth and composition.
Colluli comprises a world class ore reserve of over 1.1
With mineralisation commencing at just 16m, Colluli is
billion tonnes of potassium bearing salts1 suitable for
the shallowest known evaporite potash deposit in the
the production of potash fertilisers. Potash fertiliser
world, and amenable to open cut mining - a safe,
demand is expected to substantially increase over the
predictable mining method providing a high resource
coming decades as the global population continues to
to reserve conversion. In contrast, most potash deposits
grow at a rate of approximately 80 million people per
typically sit at depths of up to 1km beneath the earth’s
year.
The massive reserve will underpin decades of growth.
CMSC plans to develop this large, high grade resource
to its full potential through a de-risked development
surface. Resource access costs of deep, underground
potash deposits result in excessively high development
costs and expose these large-scale developments to
high cost and time overruns.
approach, initially focussing on the production of
The composition of the Colluli resource is highly
sulphate of potash (SOP), a premium, chloride free, multi-
favourable for the production of a suite of agri-products
nutrient potash type with limited primary production
including potassium chloride, potassium sulphate,
centres globally. The production process will utilise simple,
potassium magnesium sulphate and magnesium
commercially proven mineral processing technology.
sulphate monohydrate (kieserite). Initial production
The completed definitive feasibility study (DFS)1
demonstrates highly attractive economics, industry
leading capital intensity, bottom quartile operating costs,
exceptional mine life, low incremental growth capital,
from Colluli is planned to commence with potassium
sulphate (Sulphate of Potash or SOP). The potassium
salt composition in the resource provides the option to
diversify the product suite as the project grows.
and unrivalled product diversification potential. It truly is
Geologically unique, the Colluli resource comprises
world class.
Appreciable volumes of calcium, sodium and magnesium
salts within the resource, that will be extracted as part of
the open cut mining process, provide Colluli with future
products and revenue potential.
over 1.3 billion tonnes of potassium-bearing salts1
suitable for the production of potash fertilisers. The
evaporite sequence is capped by an upper rock salt
layer, and interbedded sequence of halite, gypsum,
anhydrite and clay. Underlying this rock salt is the main
mineralised formation containing three key potassium
CMSC has signed a Mining Agreement with the Eritrean
salts; sylvinite, carnallitite and kainitite.
Ministry of Energy and Mines which provides CMSC
exclusive rights to apply for Mining Licenses for the
exploitation of the Colluli resource. The Mining
Agreement is valid for the life of mine. Mining Licenses
have been applied for and granted, making Colluli the
most advanced SOP greenfield project globally. The
project is progressing to construction.
Eritrea is a stable jurisdiction which has a maturing,
proven mining industry, and an excellent track record
of project development. The project has strong support
from local and regional communities, and over three
hundred jobs will be created for local people in the first
phase of the development.
1 DFS ASX announcement dated 30 November 2015
2 Kieserite ASX announcement dated 15 August 2016
In excess of 85 million tonnes of kieserite2 has also
been quantified in the resource. Kieserite is a
commonly used, chloride free, multi-nutrient fertiliser
with limited primary production centres globally. It is
suitable for magnesium deficient soils which are
common in South East Asia, Africa and Eastern South
America.
”It truly is world class.”
Danakali Annual Report 2016DANAKALI LIMITED Project Overview
Resource and Reserve
Danakali Limited (ASX: DNK) is focused on the
development of the world class Colluli Potash Project
(Colluli or the Project) located in the Danakil region of
Eritrea, East Africa. Colluli is 100% owned by the Colluli
Mining Share Company (“CMSC”), a 50:50 joint venture
between Danakali and the Eritrean National Mining
Corporation (“ENAMCO”).
The Danakil basin is located in the South Western region
of Eritrea, and extends over 300km into Eastern Ethiopia.
It hosts the youngest evaporite deposit and the largest
unexploited potash basin in the world. To date, over
10 billion tonnes of potassium bearing salts have been
identified in the Danakil region. The overall deposit
differentiates itself by its depth and composition.
Colluli comprises a world class ore reserve of over 1.1
billion tonnes of potassium bearing salts1 suitable for
the production of potash fertilisers. Potash fertiliser
demand is expected to substantially increase over the
coming decades as the global population continues to
grow at a rate of approximately 80 million people per
year.
The massive reserve will underpin decades of growth.
CMSC plans to develop this large, high grade resource
to its full potential through a de-risked development
approach, initially focussing on the production of
sulphate of potash (SOP), a premium, chloride free, multi-
nutrient potash type with limited primary production
centres globally. The production process will utilise simple,
commercially proven mineral processing technology.
The completed definitive feasibility study (DFS)1
demonstrates highly attractive economics, industry
leading capital intensity, bottom quartile operating costs,
exceptional mine life, low incremental growth capital,
and unrivalled product diversification potential. It truly is
world class.
Appreciable volumes of calcium, sodium and magnesium
salts within the resource, that will be extracted as part of
the open cut mining process, provide Colluli with future
products and revenue potential.
CMSC has signed a Mining Agreement with the Eritrean
Ministry of Energy and Mines which provides CMSC
exclusive rights to apply for Mining Licenses for the
exploitation of the Colluli resource. The Mining
Agreement is valid for the life of mine. Mining Licenses
have been applied for and granted, making Colluli the
most advanced SOP greenfield project globally. The
project is progressing to construction.
Eritrea is a stable jurisdiction which has a maturing,
proven mining industry, and an excellent track record
of project development. The project has strong support
from local and regional communities, and over three
hundred jobs will be created for local people in the first
phase of the development.
1 DFS ASX announcement dated 30 November 2015
2 Kieserite ASX announcement dated 15 August 2016
With mineralisation commencing at just 16m, Colluli is
the shallowest known evaporite potash deposit in the
world, and amenable to open cut mining - a safe,
predictable mining method providing a high resource
to reserve conversion. In contrast, most potash deposits
typically sit at depths of up to 1km beneath the earth’s
surface. Resource access costs of deep, underground
potash deposits result in excessively high development
costs and expose these large-scale developments to
high cost and time overruns.
The composition of the Colluli resource is highly
favourable for the production of a suite of agri-products
including potassium chloride, potassium sulphate,
potassium magnesium sulphate and magnesium
sulphate monohydrate (kieserite). Initial production
from Colluli is planned to commence with potassium
sulphate (Sulphate of Potash or SOP). The potassium
salt composition in the resource provides the option to
diversify the product suite as the project grows.
Geologically unique, the Colluli resource comprises
over 1.3 billion tonnes of potassium-bearing salts1
suitable for the production of potash fertilisers. The
evaporite sequence is capped by an upper rock salt
layer, and interbedded sequence of halite, gypsum,
anhydrite and clay. Underlying this rock salt is the main
mineralised formation containing three key potassium
salts; sylvinite, carnallitite and kainitite.
In excess of 85 million tonnes of kieserite2 has also
been quantified in the resource. Kieserite is a
commonly used, chloride free, multi-nutrient fertiliser
with limited primary production centres globally. It is
suitable for magnesium deficient soils which are
common in South East Asia, Africa and Eastern South
America.
Full details of the Resource and Reserves can be
found in the Director’s Report.
”It truly is world class.”
Page 4
Danakali Annual Report 2016DANAKALI LIMITED Simple Proven Process
PRODUCTION FOLLOWS A SIMPLE,
WELL UNDERSTOOD AND
COMMERCIALLY PROVEN PROCESS
The three potassium bearing minerals (sylvinite, carnallitite
and kainitite) combine in a commercially proven, well
understood, high yield, ambient temperature, low energy
input process to precipitate SOP.
A pond system boosts recovery by allowing the capture
of potassium and sulphate from both the carrier and
decomposition brines. The high evaporation rates
achieved at the project site reduce the required pond
footprint, improving capital intensity relative to other
potash projects.
Processing plant water is planned to be pumped along
an 85km pipeline from an abstraction facility on the
Red Sea coast, and will be supplemented by a small
number of water bores at the Colluli site.
Once processed, SOP precipitate will be dried and
compacted before being loading onto containers for export.
SALTS EXTRACTED IN SOLID FORM
Currently, primary production of SOP typically
comes from potassium rich brines, which require
considerable evaporation. Colluli is unique in that
the potassium bearing salts are obtained in solid
form.
In solid form, the salts at Colluli can be processed
immediately, significantly reducing the time between
mining and revenue generation (as illustrated on the
next page).
“Extracting salts in solid form
reduces time from mine to
revenue and improves capital
intensity, resulting in superior
economic outcomes”
Page 5
Artists impression of Colluli processing plant
Danakali Annual Report 2016DANAKALI LIMITED SOLID SALTS
COST & TIME SAVINGS
MINE
PROCESS
TRUCK
SHIP
SOLUTION
WATER
PUMP
TREATMENT
DISSOLVE PUMP
EVAPORATE
MINE
PROCESS
TRUCK
SHIP
LAKE WATER BRINE
LAKE WATER
PUMP
EVAPORATE
MINE
PROCESS
TRUCK
SHIP
PLAYA BRINE
TRENCH
BORE
PUMP
EVAPORATE
MINE
PROCESS
TRUCK
SHIP
N
O
I
T
A
R
E
N
E
G
E
U
N
E
V
E
R
D
N
A
N
O
I
T
C
A
R
T
X
E
T
L
A
S
N
E
E
W
T
E
B
E
M
I
T
Artists impression of Colluli processing plant
Page 6
Danakali Annual Report 2016DANAKALI LIMITED
Colluli Economics - A Compelling Business Case
COLLULI MEETS ALL CRITERIA THAT AGGREGATE TO DEMONSTRATE A TIER 1 PROJECT. WITH AN
EXCEPTIONALLY LONG MINE LIFE OF OVER 200 YEARS, INDUSTRY LEADING CAPITAL INTENSITY,
OUTSTANDING GRADE, BOTTOM QUARTILE OPERATING COSTS AND CLOSE PROXIMITY TO COAST AND
GLOBAL MARKETS. COLLULI IS A STAND OUT GREENFIELD DEVELOPMENT OPPORTUNITY.
The Colluli resource comprises almost 1.3 billion
form, the salts at Colluli can be processed immediately,
tonnes of potassium-bearing salts suitable for the
signifi cantly reducing the time between mining and
production of potash fertilisers, over 350 million
revenue generation. The small relative pond footprint
tonnes of high grade Rock Salt which overlays the
contributes to a lower capital intensity.
potash mineralisation, and over 80 million tonnes of
kieserite (magnesium sulphate), which is used as a
multi-nutrient fertiliser in magnesium defi cient soils. In
addition, the resource contains appreciable amounts of
gypsum and magnesium chloride salts.
Mineralisation commences at just 16m, making Colluli
the shallowest known evaporite deposit and amenable
to open cut mining. Open cut mining provides a high
resource to reserve conversion of almost 90%.
Extraction of potassium bearing salts in solid form
provides signifi cant advantages over potassium rich
brines which are typically used to produce SOP. In solid
The highly favourable combination of potassium salts
enable simple, low cost, production of SOP. The DFS
considers a two stage development approach with
SOP production modules each producing 425,000
tonnes per annum.
The initial capital development for Phase I of US$298m
will be funded through a combination of third party
debt and equity. Phase II will be funded from cash
generated by the operations.
An economic snapshot of the outstanding DFS project
fi nancials is indicated below.
Outcome
Annualised SOP Production
Development Capital
Average SOP Price (FOB Massawa Port)
Average Mine Gate Cash Costs
Average Total Cash Costs
Post tax NPV (10%) – Project
After tax Internal Rate of Return - Project
Post tax NPV (10%) – DNK
Post tax Internal Rate of Return - DNK
Undiscounted cash fl ow (cumulative)
Unit
Phase I
Phase II¹
kt/annum
US$m
US$/t SOP
US$/t SOP
US$/t SOP
US$m
US$m
%
%
425
298
572
168
255
439
25.4
206
25.2
850
1752
572
141
227
860
29.0
415
29.3
US$m
4,539
9,637
¹ Based on an additional 425ktpa Phase II commencing production in year 6 2 Additional capital required for second production module
“The Colluli Resource will support decades of growth”
Colluli meets all criteria that
aggregate to demonstrate
a Tier 1 project. With an
exceptionally long mine life
of over 200 years, industry
leading capital intensity,
outstanding grade, bottom
quartile operating costs
and close proximity to
coast and global markets,
Colluli is a stand out
greenfi eld development
opportunity.
Page 7
Danakali Annual Report 2016DANAKALI LIMITED Colluli Economics - A Compelling Business Case
COLLULI MEETS ALL CRITERIA THAT AGGREGATE TO DEMONSTRATE A TIER 1 PROJECT. WITH AN
EXCEPTIONALLY LONG MINE LIFE OF OVER 200 YEARS, INDUSTRY LEADING CAPITAL INTENSITY,
OUTSTANDING GRADE, BOTTOM QUARTILE OPERATING COSTS AND CLOSE PROXIMITY TO COAST AND
GLOBAL MARKETS. COLLULI IS A STAND OUT GREENFIELD DEVELOPMENT OPPORTUNITY.
The Colluli resource comprises almost 1.3 billion
tonnes of potassium-bearing salts suitable for the
production of potash fertilisers, over 350 million
tonnes of high grade Rock Salt which overlays the
potash mineralisation, and over 80 million tonnes of
kieserite (magnesium sulphate), which is used as a
multi-nutrient fertiliser in magnesium defi cient soils. In
addition, the resource contains appreciable amounts of
gypsum and magnesium chloride salts.
Mineralisation commences at just 16m, making Colluli
the shallowest known evaporite deposit and amenable
to open cut mining. Open cut mining provides a high
resource to reserve conversion of almost 90%.
Extraction of potassium bearing salts in solid form
provides signifi cant advantages over potassium rich
brines which are typically used to produce SOP. In solid
form, the salts at Colluli can be processed immediately,
signifi cantly reducing the time between mining and
revenue generation. The small relative pond footprint
contributes to a lower capital intensity.
The highly favourable combination of potassium salts
enable simple, low cost, production of SOP. The DFS
considers a two stage development approach with
SOP production modules each producing 425,000
tonnes per annum.
The initial capital development for Phase I of US$298m
will be funded through a combination of third party
debt and equity. Phase II will be funded from cash
generated by the operations.
An economic snapshot of the outstanding DFS project
fi nancials is indicated below.
Outcome
Annualised SOP Production
Development Capital
Average SOP Price (FOB Massawa Port)
Average Mine Gate Cash Costs
Average Total Cash Costs
Post tax NPV (10%) – Project
After tax Internal Rate of Return - Project
Post tax NPV (10%) – DNK
Post tax Internal Rate of Return - DNK
Undiscounted cash fl ow (cumulative)
Unit
Phase I
Phase II¹
kt/annum
US$m
US$/t SOP
US$/t SOP
US$/t SOP
US$m
%
US$m
%
US$m
425
298
572
168
255
439
25.4
206
25.2
850
1752
572
141
227
860
29.0
415
29.3
4,539
9,637
¹ Based on an additional 425ktpa Phase II commencing production in year 6 2 Additional capital required for second production module
“The Colluli Resource will support decades of growth”
Page 8
Danakali Annual Report 2016DANAKALI LIMITED Understanding Potash
WHAT IS POTASH?
Potash is a generic term for any potassium (K) salt. Potassium
is an essential, non-substitutable fertiliser which is consumed
in the crop production process. It is one of three key nutrients
which also include nitrogen and phosphorus.
Potassium assists in photosynthesis, fruit quality, the
building of protein, and the reduction of disease.
Nitrogen helps plants grow quickly, while also increasing
the production of seed and fruit.
Phosphorus supports the formation of oils, sugars, and
starches and encourages the growth of roots.
TYPES OF POTASH
While all potash fertilisers contain potassium, a
number of potash types exist, and have different
application due to their chemical composition. The
two most common types are Muriate of Potash (MOP)
and Sulphate of Potash (SOP). Other types, which
represent a smaller portion of the global market
include Sulphate of Potash-Magnesium (SOPM) and
Nitrate of Potash (NOP).
SULPHATE OF POTASH (SOP)
SOP is a premium, chloride free, multi-nutrient potash
fertiliser (unlike MOP). SOP has the lowest salinity
index compared to MOP and NOP and is ideal for
chloride intolerant crops, low rainfall regions, and
regions combatting soil salinity.
1 CRU
SOP is primarily used on high value crops, such as
fruits, nuts, vegetables and coffee. In contrast, MOP
is commonly used on carbohydrate rich crops such as
wheat and oats.
While SOP may be applied to carbohydrate crops, the
use of MOP on leafy plants will typically burn and harm
them while also affecting taste. This provides SOP with
excellent substitutability for MOP.
SOP is produced via primary and secondary processing
methods. SOP price is underpinned by the rarity of
sizeable primary deposits and the high cost of the
secondary Mannheim production process, which
requires a high temperature thermal reaction between
potassium chloride and sulphuric acid to produce SOP.
Mannheim production represents over 50% of global
SOP production. Acid management and disposal, and
logistics costs are some of the key long term issues
associated with secondary production of potassium
sulphate.
1
Primary processing is the lowest cost production
method, however the rarity of economically
exploitable primary deposits means less than 30% of
SOP production is via this method. Danakali’s product
will be processed through the primary method.
1
SOP (and SOPM) is produced in three forms: Standard,
Granular and Soluble. Granular is priced at a premium to
Standard and Soluble at a further premium to Granular.
Oranges without SOP
Oranges with SOP
Page 9
Danakali Annual Report 2016DANAKALI LIMITED WHAT IS POTASH?
Potash is a generic term for any potassium (K) salt. Potassium
is an essential, non-substitutable fertiliser which is consumed
in the crop production process. It is one of three key nutrients
which also include nitrogen and phosphorus.
Potassium assists in photosynthesis, fruit quality, the
building of protein, and the reduction of disease.
SOP is primarily used on high value crops, such as
fruits, nuts, vegetables and coffee. In contrast, MOP
is commonly used on carbohydrate rich crops such as
wheat and oats.
While SOP may be applied to carbohydrate crops, the
use of MOP on leafy plants will typically burn and harm
them while also affecting taste. This provides SOP with
excellent substitutability for MOP.
Nitrogen helps plants grow quickly, while also increasing
SOP is produced via primary and secondary processing
the production of seed and fruit.
Phosphorus supports the formation of oils, sugars, and
starches and encourages the growth of roots.
TYPES OF POTASH
While all potash fertilisers contain potassium, a
number of potash types exist, and have different
application due to their chemical composition. The
two most common types are Muriate of Potash (MOP)
and Sulphate of Potash (SOP). Other types, which
represent a smaller portion of the global market
include Sulphate of Potash-Magnesium (SOPM) and
Nitrate of Potash (NOP).
SULPHATE OF POTASH (SOP)
SOP is a premium, chloride free, multi-nutrient potash
fertiliser (unlike MOP). SOP has the lowest salinity
index compared to MOP and NOP and is ideal for
chloride intolerant crops, low rainfall regions, and
regions combatting soil salinity.
methods. SOP price is underpinned by the rarity of
sizeable primary deposits and the high cost of the
secondary Mannheim production process, which
requires a high temperature thermal reaction between
potassium chloride and sulphuric acid to produce SOP.
Mannheim production represents over 50% of global
SOP production. Acid management and disposal, and
logistics costs are some of the key long term issues
associated with secondary production of potassium
sulphate.
Primary processing is the lowest cost production
method, however the rarity of economically
exploitable primary deposits means less than 30% of
SOP production is via this method. Danakali’s product
will be processed through the primary method.
SOP (and SOPM) is produced in three forms: Standard,
Granular and Soluble. Granular is priced at a premium to
Standard and Soluble at a further premium to Granular.
Oranges without SOP
Oranges with SOP
Understanding Potash
Demand for Potash
THE GLOBAL POTASH MARKET IS APPROXIMATELY 64MT, WITH MOP (55MT) AND SOP (7MT)
REPRESENTING APPROXIMATELY 97% OF THE TOTAL VOLUME.
1,2
SOP demand has doubled over the past ten years with
the majority of additional supply coming from high cost
secondary production. Secondary production is
expected to increase from 50% to over 60% of global
SOP supply by 2020 due to the lack of primary
production projects.
1
Demand for potash is driven by the food challenge
of the future, which requires a 70% increase in
agricultural yield to accommodate growing population,
declining arable land and changing dietary preferences.
Colluli is geographically favourable to meet potash
demand where it is needed most.
3
4
Over 50% of the population growth over the next
three decades is predicted to be in Africa, with
the balance in South East Asian regions which are
proximate to East Africa. With sustainable agricultural
land decreasing, the world’s focus for food security is
on improving yields from existing farmland, primarily
through the application of fertilisers. The attributes
of SOP make it an essential fertiliser component to
achieve farming yields and as a result the SOP market
is expected to increase by over 2 million tonnes over
the following 10 years.
1,2,5
“Potash growth is underpinned by strong demand drivers including growing
population, reduction in arable land and changing dietary preferences.”
1 CRU
2 FAO
3 Food and agriculture organisation of the United Nations
4 Unicef
5 IFA
OUR FUTURE GLOBAL SOCIETY HAS
CHANGING NEEDS
Reduction in arable land per person in comparison to a football field
62%
1960
4,500m2
Source: UN, FAO
33%
2005
2,400m2
25%
2050
1,800m2
Page 10
Danakali Annual Report 2016DANAKALI LIMITED Colluli Product
PRODUCT SAMPLES HAVE BEEN GENERATED FROM COLLULI SALTS AND ARE USED FOR
MARKETING PURPOSES.
In addition to the production of high quality Potassium
Sulphate (Sulphate of Potash or SOP), the Colluli resource
has the capability of producing Sulphate of Potash
Magnesia (SOPM) and Potassium Chloride (Muriate of
Potash or MOP), allowing production of three of the four
key potash types traded globally.
Test results received from the Saskatchewan Research
Council in Canada indicate that the solubility
characteristics of Colluli SOP and SOPM compare
favourably with similar commercialised products.
Production at Colluli will initially focus on Standard and
Granular SOP and SOPM with expansion to include
Soluble SOP and SOPM as the project progresses.
Sulphate of potash (SOP)
Colluli SOP samples have properties which place product
at the high end of the quality spectrum. These properties
are a result of the process plant design and the liberation
characteristics of the salts within the Colluli resource.
Sulphate of potash magnesia (SOPM)
SOPM is chlorine free and contains potassium, sulphur
and magnesium. Colluli SOPM samples demonstrate
high solubility which is sought-after.
Rock Salt
Overlying the 1.1 billion tonne potassium sulphate ore
reserve is a resource of nearly 350 million tonnes of
high quality rock salt.
Over the fi rst 30 years of production, rock salt is
scheduled for stockpiling to enable commercialisation,
and results in estimated rock salt volumes of over 50
million tonnes.
Varying cut off grades modelled within the 30-year pit
shells indicate Colluli Rock Salt to be a perfect fi t for
the de-icing industry.
Product Specifi cations are available at: www.danakali.com
Page 11
Health, Safety,
Environment
and Community
HEALTH AND SAFETY
Danakali places a priority on Health and Safety and
is fi rmly committed to enabling all work activities to
be carried out safely, and with all practical measures
taken to remove risks to the health, safety and welfare
of workers, contractors, authorised visitors, and
anyone else who may be affected by our operations.
We believe that all injuries and incidents are
preventable and that everybody has a personal
responsibility to work safely.
Health and Safety is an integral part of our value of
People, and an inherent part of our commitment to
ensure the wellness of our people. While the company
is ultimately responsible for health and safety, with
a target of zero harm, we require all employees,
contractors and visitors to take reasonable care of the
health and safety of themselves and others.
Although activities at Colluli have increased as the
project has advanced, it is pleasing that no injuries
have been reported since exploration commenced in
2010. This safety performance, along with a strong
safety culture, bodes well for the company as it moves
into the construction and production phase at Colluli.
ENVIRONMENT
COMMUNITY
Danakali is fi rmly committed to the development
and preservation of mutually benefi cial community
relationships where host communities are infl uenced by
our operations. We believe that benefi cial community
relationships not only facilitate business success but also
provide optimal local outcomes from our activities.
The respect for communities is an integral part
of Our Value of People, and an inherent part of
our commitment to ethical business conduct and
sustainable development.
Ongoing stakeholder engagements are held with
representatives and members of communities proximate
to Colluli and the transportation route. Feedback from
the engagements revealed overwhelmingly positive
support for the project.
Danakali is committed to preventing, or otherwise
Stakeholder feedback has been integrated in the Social
minimising, mitigating and remediating, harmful effects
and Environmental Impact Assessment (SEIA) and Social
of the Company’s operations on the environment.
and Environmental Management Plans (SEMP). Both
Environmental performance, underpinned by
submissions were conducted according to Equator
compliance with all environmental laws and regulations,
Principles, a risk management framework adopted by
is essential to success and provides optimal local
outcomes from our activities.
fi nancial institutions for determining, assessing and
managing environmental and social risk in projects.
Environmental matters are considered during all stages
The Defi nitive Feasibility Study (DFS) estimates
of our activities. Environmental and social impact
that approximately 300 permanent employment
assessments are undertaken as part of the feasibility
opportunities for Eritrean nationals will be created. In
process for projects and are used as the basis for
addition to this, the project will have a positive social
planning project development through to operation and
impact through economic growth.
subsequent closure.
Danakali Annual Report 2016DANAKALI LIMITED Colluli Product
PRODUCT SAMPLES HAVE BEEN GENERATED FROM COLLULI SALTS AND ARE USED FOR
MARKETING PURPOSES.
In addition to the production of high quality Potassium
Sulphate (Sulphate of Potash or SOP), the Colluli resource
has the capability of producing Sulphate of Potash
Magnesia (SOPM) and Potassium Chloride (Muriate of
Potash or MOP), allowing production of three of the four
key potash types traded globally.
Test results received from the Saskatchewan Research
Council in Canada indicate that the solubility
characteristics of Colluli SOP and SOPM compare
favourably with similar commercialised products.
Production at Colluli will initially focus on Standard and
Granular SOP and SOPM with expansion to include
Soluble SOP and SOPM as the project progresses.
Sulphate of potash (SOP)
Colluli SOP samples have properties which place product
at the high end of the quality spectrum. These properties
are a result of the process plant design and the liberation
characteristics of the salts within the Colluli resource.
Sulphate of potash magnesia (SOPM)
SOPM is chlorine free and contains potassium, sulphur
and magnesium. Colluli SOPM samples demonstrate
high solubility which is sought-after.
Rock Salt
Overlying the 1.1 billion tonne potassium sulphate ore
reserve is a resource of nearly 350 million tonnes of
high quality rock salt.
Over the fi rst 30 years of production, rock salt is
scheduled for stockpiling to enable commercialisation,
and results in estimated rock salt volumes of over 50
million tonnes.
Varying cut off grades modelled within the 30-year pit
shells indicate Colluli Rock Salt to be a perfect fi t for
the de-icing industry.
Product Specifi cations are available at: www.danakali.com
Health, Safety,
Environment
and Community
HEALTH AND SAFETY
Danakali places a priority on Health and Safety and
is fi rmly committed to enabling all work activities to
be carried out safely, and with all practical measures
taken to remove risks to the health, safety and welfare
of workers, contractors, authorised visitors, and
anyone else who may be affected by our operations.
We believe that all injuries and incidents are
preventable and that everybody has a personal
responsibility to work safely.
Health and Safety is an integral part of our value of
People, and an inherent part of our commitment to
ensure the wellness of our people. While the company
is ultimately responsible for health and safety, with
a target of zero harm, we require all employees,
contractors and visitors to take reasonable care of the
health and safety of themselves and others.
Although activities at Colluli have increased as the
project has advanced, it is pleasing that no injuries
have been reported since exploration commenced in
2010. This safety performance, along with a strong
safety culture, bodes well for the company as it moves
into the construction and production phase at Colluli.
ENVIRONMENT
Danakali is committed to preventing, or otherwise
minimising, mitigating and remediating, harmful effects
of the Company’s operations on the environment.
Environmental performance, underpinned by
compliance with all environmental laws and regulations,
is essential to success and provides optimal local
outcomes from our activities.
Environmental matters are considered during all stages
of our activities. Environmental and social impact
assessments are undertaken as part of the feasibility
process for projects and are used as the basis for
planning project development through to operation and
subsequent closure.
COMMUNITY
Danakali is fi rmly committed to the development
and preservation of mutually benefi cial community
relationships where host communities are infl uenced by
our operations. We believe that benefi cial community
relationships not only facilitate business success but also
provide optimal local outcomes from our activities.
The respect for communities is an integral part
of Our Value of People, and an inherent part of
our commitment to ethical business conduct and
sustainable development.
Ongoing stakeholder engagements are held with
representatives and members of communities proximate
to Colluli and the transportation route. Feedback from
the engagements revealed overwhelmingly positive
support for the project.
Stakeholder feedback has been integrated in the Social
and Environmental Impact Assessment (SEIA) and Social
and Environmental Management Plans (SEMP). Both
submissions were conducted according to Equator
Principles, a risk management framework adopted by
fi nancial institutions for determining, assessing and
managing environmental and social risk in projects.
The Defi nitive Feasibility Study (DFS) estimates
that approximately 300 permanent employment
opportunities for Eritrean nationals will be created. In
addition to this, the project will have a positive social
impact through economic growth.
Page 12
Danakali Annual Report 2016DANAKALI LIMITED About Eritrea
ERITREA HAS A GROWING ECONOMY WITH A PROVEN
TRACK RECORD IN THE MINING INDUSTRY. DANAKALI
HAS BEEN OPERATING IN ERITREA SINCE 2009 AND
HAS FOUND THE COUNTRY TO BE SAFE, STABLE AND
DEVELOPMENT FOCUSED.
History
Eritrea is one of the youngest countries in the world
and achieved its independence in 1991. In 2016, Eritrea
celebrated 25 years of independence.
The government has focused on developing the economy and
country, centred on food security and agricultural production,
infrastructure development, and human resources development.
Eritrea’s development aspiration is to achieve rapid, balanced,
home-grown and sustainable economic growth with social
equity and justice, anchored on the self-reliance principle. The
Government places emphasis on community and individual
rights as well as issues of social justice, such as access to
education, health, food and equitable access to all services
regardless of locality.
Supporting Mining Industry Growth
Eritrea has structured its regimes to enable successful
commencement of operations within the minerals extraction
industry. This is evident through the favourable mining
tax regime which includes low import duties on capital
development, favourable tax depreciation rules and use of tax
losses for up to 10 years.
Progression of the mining industry has seen Eritrea experience
some of the highest economic growth rates in Africa primarily
driven by the development of the Bisha Copper, Gold and
Zinc mine which has been operational since 2010 and has
completed three subsequent expansions.
With a stable and maturing mining jurisdiction a pipeline
of mining projects has developed. Following Bisha is the
Zara (Koka) mine. With a successful commissioning phase,
operations are underway for the production of gold.
Sunridge Gold is third in the pipeline with its Asmara Gold
project. Following the issue of its mining licence in Q3 2015,
development has now commenced.
Colluli is fourth in the pipeline of project.
Page 13
Danakali Annual Report 2016DANAKALI LIMITED About Eritrea
ERITREA HAS A GROWING ECONOMY WITH A PROVEN
TRACK RECORD IN THE MINING INDUSTRY. DANAKALI
HAS BEEN OPERATING IN ERITREA SINCE 2009 AND
HAS FOUND THE COUNTRY TO BE SAFE, STABLE AND
DEVELOPMENT FOCUSED.
History
Eritrea is one of the youngest countries in the world
and achieved its independence in 1991. In 2016, Eritrea
celebrated 25 years of independence.
The government has focused on developing the economy and
country, centred on food security and agricultural production,
infrastructure development, and human resources development.
Eritrea’s development aspiration is to achieve rapid, balanced,
home-grown and sustainable economic growth with social
equity and justice, anchored on the self-reliance principle. The
Government places emphasis on community and individual
rights as well as issues of social justice, such as access to
education, health, food and equitable access to all services
regardless of locality.
Supporting Mining Industry Growth
Eritrea has structured its regimes to enable successful
commencement of operations within the minerals extraction
industry. This is evident through the favourable mining
tax regime which includes low import duties on capital
development, favourable tax depreciation rules and use of tax
losses for up to 10 years.
Progression of the mining industry has seen Eritrea experience
some of the highest economic growth rates in Africa primarily
driven by the development of the Bisha Copper, Gold and
Zinc mine which has been operational since 2010 and has
completed three subsequent expansions.
With a stable and maturing mining jurisdiction a pipeline
of mining projects has developed. Following Bisha is the
Zara (Koka) mine. With a successful commissioning phase,
operations are underway for the production of gold.
Sunridge Gold is third in the pipeline with its Asmara Gold
project. Following the issue of its mining licence in Q3 2015,
development has now commenced.
Colluli is fourth in the pipeline of project.
Permitting
THE PERMITTING PROCESS IS NOW COMPLETE ALLOWING CMSC TO FINALISE MARKETING ACTIVITIES AND
FINANCING THROUGH TO CONSTRUCTION AND OPERATION.
The Social and Environmental Impact Assessment
(SEIA) and Social and Environmental Management
Plans (SEMP), conducted according to the Equator
Principles, were submitted by CMSC in Q2 2016 and
approved by the Eritrean Ministry of Land, Water and
Environment in Q4 2016.
The application for Mining License was submitted by
CMSC in Q2 2016. Award of the licence was received in
Q1 2017 along with approval of the Mining Agreement.
The Mining Agreement provides exclusive access to
CMSC over the 1.3 billion tonne potassium resource
and associated minerals.
The licenses span over 60km2 of the 100km2
Agreement area, and represent over 60 years of the
200-year mine life determined in the DFS. The focus
of the DFS is a two-stage modular development for
the production of Sulphate of Potash (SOP). Additional
licenses can be applied for within the agreement area
as required to sustain and/or grow operations.
The licences allow exploitation of potassium, calcium,
sodium, and magnesium salts from the Colluli
resource, as well as bromine. This facilitates signifi cant
growth potential through the monetisation of other
salts within the resource and diversifi cation of potash
product types.
Government support and
strategic alliance
Eritrea is a stable jurisdiction with a rapidly emerging
mining industry. Danakali has a strong, effective
working relationship with the government through
its joint venture agreement with the Eritrean
National Mining Company (ENAMCO).
ENAMCO and Danakali each hold a 50% ownership in
Colluli Mining Share Company (CMSC)
The CMSC board was established following the
incorporation of CMSC in March 2014. The board is
overseeing the project development.
CMSC has a Board of 5, with 3 members from
Danakali and 2 from ENAMCO.
The structure allows Government direct insight into
the mining industry, which is an important part of
Eritrea’s development.
CMSC Chairman, Seamus Cornelius and Minister of Energy and Mines,
Sebhat Ephrem at the Mining Agreement signing
Page 14
Danakali Annual Report 2016DANAKALI LIMITED Values
Our Values
Our core values are our guiding principles that defi ne our
internal conduct and our relationships with the external
operating environment and will not be compromised. A
description of each value is provided below:
People
Our employees, customers, local communities, business
partners, shareholders and other stakeholders are vital to
our business success and future growth. The health, safety
and wellbeing of our people are paramount. Our business
success is underpinned by educating our employees about
our business, embracing diversity, encouraging ideas that
improve our business, demonstrating a “can do“ attitude,
respecting each other, promoting and rewarding teamwork,
and aligning ourselves to a set of common goals.
Integrity
We conduct ourselves with uncompromising integrity and
honesty as individuals and as a company. This means standing
up for what we believe in, speaking out against something
that is wrong and putting values ahead of short term results.
We are forthright with bad news and diffi cult issues. We
strive to earn enduring credibility with others, which we
believe is essential to long-term personal and business
relationships. This means doing what we say we will do.
Planet
We respect our operating environment at local, national and
international levels and are focussed on continually reducing
the environmental footprint of our business. We achieve
this through creating environmental management plans,
using energy effi ciently, conserving water, minimising waste
generation and managing waste responsibly.
Performance
We are a performance driven organisation, and continually
strive for improvement in the things that matter most to
our business. We embrace innovation, responsibility and
accountability, and always consider short, medium and
long term time horizons.
Simplicity
We embrace the principle that everything should be as
simple as possible. We maintain simplicity in our internal
processes and procedures with objectives that are succinct,
quantitative, and time bound.
Page 15
Danakali Annual Report 2016DANAKALI LIMITED DANAKALI LTD
DIRECTORS’
REPORT
FOR THE YEAR ENDED
31 DECEMBER 2016
Page 16
Danakali Annual Report 2016DANAKALI LIMITED Directors’ Report
The directors present their report together with the financial statements of the consolidated entity being, Danakali Ltd
(“Danakali” or the “Company”) and its controlled entities (“the Group”) for the financial year ended 31 December 2016.
DIRECTORS
The names and details of the Company’s directors in office during the financial period and until the date of this report are
as follows. Where applicable, all current and former directorships held in listed public companies over the last three years
have been detailed below. Directors were in office for this entire period unless otherwise stated.
Names, qualifications, experience and special responsibilities:
Seamus Ian Cornelius
Non-Executive Chairman, LLB, LLM, appointed 15 July 2013
Mr Cornelius is a corporate lawyer and former partner of one of Australia’s leading international law firms. He has a high
degree of expertise in cross-border transactions, particularly in the resources and finance sectors.
Mr Cornelius has been based in China since 1993, and has advised global companies, banks, major resource companies
and Chinese State-owned entities on resource project investments both within China and abroad.
Mr Cornelius is currently the Non-Executive Chairman of Buxton Resources Ltd (appointed 29 November 2010),
Montezuma Mining Company Ltd (appointed 30 June 2011), and Duketon Mining Ltd (appointed 8 February 2013).
Special Responsibilities:
Mr Cornelius is Chairman of the Remuneration and Nomination Committee and a member of the Audit and Risk Committee.
Paul Michael Donaldson
Managing Director and Chief Executive Officer; Master’s Degree - Mining Engineering, Master’s Degree - Business and
Technology, BEng Chemical (Honours, University Medal), Assoc Dip. Applied Science (Metallurgy), initially appointed Chief
Operating Officer 29 November 2012, transitioned to Chief Executive Officer 1 February 2013 and additionally appointed
Managing Director 29 April 2014.
Mr Donaldson joined Danakali from a series of senior management roles spanning more than 25 years with BHP Billiton
(“BHP”). At BHP Mr Donaldson managed large scale, open cut mining operations, significant growth and sustaining capital
projects, and complex pyro metallurgical, beneficiation and manufacturing processes. Mr Donaldson headed the BHP
Carbon Steel Materials Technical Marketing Team, managed the Port Hedland iron ore facility as well as occupying key
roles in product and infrastructure planning across large scale supply chains.
Mr Donaldson also brings extensive experience in high-level business improvement and logistics from base metal
operations and a high degree of integrated supply chain management, technical operational management and frontline
leadership experience in the steel industry.
Anthony William Kiernan
Independent Non-Executive Director, LLB, appointed 15 October 2012, resigned 6 February 2017
Mr Kiernan has over 25 years of experience in the mining industry and was previously a commercial lawyer. He is currently
a corporate advisor and has extensive experience in the administration and operation of public listed companies. He brings
skills in the areas of Government relations, corporate strategy and corporate governance.
Mr Kiernan is currently the Non-Executive Chairman of Pilbara Minerals Ltd (appointed 1 July 2016), Venturex Resources
Limited (appointed 14 July 2010) and Chalice Gold Mines Ltd (appointed 15 February 2007).
In addition, Mr Kiernan is Chairman of the Fiona Wood Foundation which focuses on research into burn injuries.
Previously Mr Kiernan was Non-Executive Chairman of BC Iron Ltd (11 October 2006 until 7 December 2016).
Special Responsibilities:
Mr Kiernan was Chairman of the Remuneration and Nomination Committee and a member of the Audit and Risk Committee.
DANAKALI LIMITED
ABN 56 097 904 302
Page 17
4
Danakali Annual Report 2016DANAKALI LIMITED
Directors’ Report (Cont’d)
Liam Raymond Cornelius
Non-Executive Director, BApp.Sc, appointed 21 August 2001
Mr Cornelius graduated from Curtin University of Technology with a BApp.Sc in Geology, and has been involved in the
exploration industry within Australia, Asia and Africa for over 20 years. Mr Cornelius has experience with a wide range of
commodities including gold, nickel, copper, platinum, uranium and potash.
As a founding member of Danakali Ltd, Mr Cornelius has played a key role in outlining areas of interest for the Company.
Special Responsibilities:
Mr Cornelius is a member of the Remuneration and Nomination Committee.
John Daniel Fitzgerald
Independent Non-Executive Director, CA, appointed 19 February 2015
Mr Fitzgerald has over 30 years of finance and corporate advisory experience in the resource sector.
Previously, he held senior positions at NM Rothschild and Sons, Investec Bank Australia, Commonwealth Bank, HSBC
Precious Metals and Optimum Capital.
Mr Fitzgerald is Non-Executive Chairman of Carbine Resources Limited (appointed 13 April 2016) and Dakota Minerals
Limited (appointed 23 December 2015) and a Non-Executive Director of Northern Star Resources Limited (appointed 30
November 2012),
Previously Mr Fitzgerald was Non-Executive Chairman of Atherton Resources Limited (14 December 2009 to 9 November
2015).
Mr Fitzgerald is a Chartered Accountant, a Fellow of the Financial Services Institute of Australasia (FINSIA) and a graduate
member of the Australian Institute of Company Directors.
Special Responsibilities:
Mr Fitzgerald is Chairman of the Audit and Risk Committee and member of the Remuneration Committee.
Zhang Jing
Non-Executive Director, M. Sc, appointed 17 June 2016
Ms Zhang has more than 15 years of international trading and business development experience in China and previously
held investment and project managerial roles in public listed companies.
Ms Zhang holds a Master’s degree in International Consultancy and Accounting form the university or Reading in the United
Kingdom.
Special Responsibilities:
None
Robert Gordon Connochie
Independent Non-Executive Director, B.A. Sc, M.B.A., appointed 6 February 2017
Mr Connochie is a highly-experienced potash and mining specialist with over 40 years of industry experience. He brings
extensive senior line management experience from the potash industry, including marketing, corporate development,
evaluations, financing and acquisitions.
Previously, Mr. Connochie held positions as Chairman of Canpotex (a world leading potash exporter for over 40 years) and
Chairman of Behre Dolbear Capital, Inc.
Further, Mr Connochie was Chairman and CEO of Potash Company of America, CEO Asia Pacific Potash, Director of
Athabasca Potash, Chairman of the Phosphate and Potash Institute, Director of the Fertiliser Institute, and Director of the
Saskachewan Potash Producers Association.
He is currently a Non-Executive Director of Behre Dolbear, Australia (appointed 14 July 2008) and Behre Dolbear,
International (10 October 2010).
Special Responsibilities:
Mr Connochie is a member of the Audit and Risk Committee.
DANAKALI LIMITED
ABN 56 097 904 302
Page 18
5
Danakali Annual Report 2016DANAKALI LIMITED
Directors’ Report (Cont’d)
COMPANY SECRETARY
Christiaan Philippus Els
B.Com (Hons), CA, appointed 1 February 2016
Mr Els is a finance executive with over 20 years’ industry experience spanning mining, manufacturing, agribusiness,
business services and fast moving consumer goods sectors in Australia, South Africa and Brazil. His area of expertise
includes, amongst others equity, project and debt funding, M&A, business and financial strategy development, investor
relations and corporate governance.
Prior to joining Danakali, Mr Els held Chief Financial Officer positions in both Mirabela Nickel Ltd and Norilsk Nickel
(Australia). He also held the position of Company Secretary at Mirabela Nickel Ltd.
Mr Els is also an associate member of the Chartered Institute of Management Accountants, a member of the Certified
Practicing Accountants of Australia and the Chartered Global Management Accountants. Mr Els was appointed as Chief
Financial Officer from 3 December 2015.
Amy Dawn Just
B.Bus, CA, AGIA, resigned 1 February 2016
Ms Just is an employee of Grange Consulting Pty Ltd where she specialises in the provision of corporate advisory, company
secretarial and financial management services. She has ten years of experience as a Chartered Accountant and is a
member of the Governance Institute of Australia.
Ms Just has acted as Financial Controller and Company Secretary of numerous domestic and international oil and gas and
mineral exploration companies, and has significant ASX compliance, statutory reporting, and corporate governance
experience.
INTERESTS IN SHARES, OPTIONS AND PERFORMANCE RIGHTS OF THE COMPANY
As at the date of this report, the interests of the directors in the shares, options and performance rights of Danakali Limited
were:
Director
S I Cornelius
P M Donaldson
L R Cornelius
J D Fitzgerald
Z Jing
R G Connochie
PRINCIPAL ACTIVITIES
Ordinary
Shares
Options over Ordinary
Shares
Performance
Rights
8,493,046
2,518,334
15,682,041
258,334
-
-
2,800,000
1,550,000
1,900,000
1,225,000
-
-
-
800,000
50,000
-
-
-
The principal activity of the Group during the period was advancing the Colluli Potash Project in Eritrea, East Africa. There
was no significant change in the nature of the Group’s activities during the financial year ended 31 December 2016.
CORPORATE STRUCTURE
Danakali Limited is a company limited by shares that is incorporated and domiciled in Australia.
DANAKALI LIMITED
Page 19
ABN 56 097 904 302
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Danakali Annual Report 2016DANAKALI LIMITED
Directors’ Report (Cont’d)
REVIEW OF OPERATIONS
Project overview
The Colluli Potash Project (Colluli or the Project), is located in the Danakil region of Eritrea, East Africa. Colluli is 100%
owned by the Colluli Mining Share Company (CMSC) which is a 50:50 Joint Venture between Danakali Limited and the
Eritrean National Mining Corporation (ENAMCO).
The proven large resource, with low development capital intensity, project scalability, estimated bottom quartile operating
costs, product diversification potential and ease of access to global markets, supports a Tier 1 asset definition. An estimated
mine life of over 200 years, at a production rate increasing to 850ktpa demonstrates project growth potential over decades.
The Project’s resource comprises almost 1.3 billion tonnes of potassium-bearing salts suitable for the production of potash
fertilisers, approximately 350 million tonnes of high quality rock salt (sodium chloride), which overlays the potash
mineralisation, and over 85 million tonnes of kieserite (magnesium sulphate) which is a suitable fertiliser for magnesium
deficient soils. Over 1.1 billion tonnes of the potassium bearing salts is included in the Ore Reserve.
Mineralisation commences at a depth from surface of 16m, making Colluli the world’s shallowest evaporite deposit. The
resource is amenable to open pit mining, which provides a very high resource to reserve conversion, and is generally safer,
cheaper and more efficient than underground mining. Open cut mining is highly advantageous for low cost modular growth.
Colluli is located in close proximity to both a deep-water port and established infrastructure and is favourably positioned to
supply the world’s fastest growing markets. The deposit is approximately 60km from the Red Sea coast, making it one of
the most accessible potash deposits globally. By road it is approximately 350km south-east of the capital, Asmara and
230km by road from the established port of Massawa, a six-berth bulk and container loading facility, and which is Eritrea’s
key import / export operation.
Danakali has completed a two-phased definitive feasibility study (DFS) for the production of potassium sulphate (Sulphate
of Potash or SOP). SOP is a chloride free, multi-nutrient, specialty fertiliser which carries a substantial price premium
relative to the more common potash type; potassium chloride (MOP). Economic resources for primary production of SOP
are geologically scarce and there are few current producers.
The unique composition of the Colluli resource favours low energy input, high potassium yield conversion to SOP using
commercially proven technology. One of the key advantages of the resource is that the salts are present in solid form (in
contrast with production of SOP from brines) which reduces infrastructure costs and substantially reduces the time required
to achieve full production capacity.
The Definitive Feasibility Study (DFS) results are highly attractive with project economics over the two-phase development
resulting in an estimated internal rate of return (IRR) of 29%. The first phase of the development requires an estimated
initial development capital of US$298m and as a standalone project has an IRR of over 25%.
In addition to the production of SOP, the Colluli resource has the capability of producing potassium magnesium sulphate
(SOPM), potassium chloride (MOP), allowing production of three of the four key potash types traded globally. The multi-
agri commodity potential is further supported by the ability to produce polyhalite and magnesium sulphate monohydrate
(kieserite).
With the award of the Mining Licence and approval of the Mining Agreement in February 2017, the permitting process is
now complete allowing the finalisation of marketing activities, design engineering and financing through to construction and
operation.
Figure: Artists impression of Colluli processing plant
DANAKALI LIMITED
ABN 56 097 904 302
Page 20
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Danakali Annual Report 2016DANAKALI LIMITED
Directors’ Report (Cont’d)
ACTIVITIES UNDERTAKEN DURING 2016
During the year, Danakali maintained its disciplined focus and execution of activities supporting the development of its
world class Colluli Potash Project. Significant work completed in 2016 continues to build on a well-established track record
of success for Danakali as the Project progresses towards construction and ultimately production.
Progression of Mining Approvals
The submission of the completed definitive feasibility study (DFS) to the Eritrean Ministry of Energy and Mines (MoEM) in
February 2016 commenced the mining approvals process, followed by the submission of the Social and Environmental
Impact Assessment (SEIA) and Social and Environmental Management Plans (SEMP) in April 2016 and the application for
the project Mining License submitted to the Ministry of Energy and Mines on 2 May 2016. The SEIA was developed
consistent with the criteria specified in the Terms of Reference agreed between CMSC and the Ministry of Land, Water and
Environment, as well as IFC Performance Standards and the Equator Principles. It follows extensive data gathering
programmes from the Colluli site and the wider region. Stakeholder engagements including focus group discussions and
town hall meetings were conducted throughout the project study phases and the final SEIA report document has been
made available to local community groups. Stakeholder consultations are continuing as the project progresses.
Key inputs to the SEIA and SEMP documents include stakeholder engagements (in total over 500 people were engaged,
representing both male and female community members and confirmed the overwhelmingly positive support for the project)
and detailed social and environmental baseline studies which have been submitted in tranches as the project has continued
to advance. The baseline assessments represent the conclusion of over four years of data collection, surveying and
community consultations. The SEMP includes details of the commitments and monitoring methods for avoiding or reducing
unwanted social and environmental impacts as well as plans for enhancing the benefits of the project for the regional
population and environment.
The Eritrean Ministry of Land, Water and Environment formally approved the Colluli SEIA in December 2016. The approval
validated the quality of the data collection, baseline condition analysis, associated risk assessments and overall
thoroughness of the assessment.
The approval followed a comprehensive review by an Impact Review Committee nominated and assembled by the Ministry
and Land, Water and Environment, and a mining approvals team nominated and assembled by the Ministry of Energy and
Mines. As part of the approvals process, representatives of the ministries visited the Colluli project site and local and
regional communities. A series of workshop engagements between ministry representatives, review team members,
Danakali representatives and CMSC representatives were held in Asmara, the capital of Eritrea, to ensure an effective
review process with alignment of all parties to the successful outcome.
The approval of the SEIA was the last formal step in the permitting process before award of the Mining Licences.
In February 2017, the Company announced that the Colluli Mining Share Company (CMSC) had entered into a Mining
Agreement with the MoEM and had been awarded Mining Licenses for the exploitation of mineral resources within the
Colluli tenements.
The Mining Agreement provides exclusive access to CMSC over the 1.3 billon tonne Colluli JORC-2012 compliant
potassium resource and associated minerals. CMSC applied for, and were awarded seven mining licenses which span
over 60km2 of the 100km2 Agreement area, and represent over 60 years of the 200-year mine life determined in the DFS.
Additional licenses can be applied for within the Agreement area as required to sustain and/or grow operations.
The licenses allow exploitation of potassium, calcium, sodium, and magnesium salts from the Colluli resource, as well as
bromine. The focus of the highly favourable DFS is a two-stage modular development for the production of Sulphate of
Potash (SOP) which is a high quality, chloride free multi-nutrient potash type with limited primary production centres
globally. There is significant growth potential through the monetisation of other salts within the resource and diversification
of potash product types.
These Mining approvals signal the end of the permitting process allowing the finalisation of marketing activities and
financing through to construction and operation.
Photo: CMSC and Danakali employees with residents of Tio following project presentations
DANAKALI LIMITED
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ABN 56 097 904 302
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Danakali Annual Report 2016DANAKALI LIMITED
Directors’ Report (Cont’d)
Initiation of Front End Engineering Design works (FEED)
During the year, expressions of interest (EOI) were sought for the front-end engineering and design (FEED) and the
engineering, procurement and construction (EPC) for the Colluli development. The EOI drew strong support from
internationally renowned engineering companies from which a shortlist was derived based on Africa, Potash and Eritrean
experience. A formal bidding process was then initiated.
In October 2016, representatives from the shortlisted engineering firms visited the future Colluli mine site, inspected the
nominated processing plant location, traversed the water pipeline and transport corridors, and inspected the Port facility at
Massawa from where the product will be exported. The representatives also toured the country capital, Asmara, and met
with the heads of the key construction, earthworks and logistics companies in Eritrea.
In January 2017, internationally recognised, highly reputable construction and engineering company Fluor, was awarded
the contract to conduct the FEED and optimisation for the project. Fluor have exceptional credentials in African and potash
experience, proven EPC success across multiple projects and through their strong relationships with export credit agencies,
provide project financing support to clients. Fluor has a globally distributed footprint and is a leader in the mining industry
for developing projects based on a fixed-price EPC contracting strategy.
Fluor are supported by industry recognised mining consultants, Global Potash Solutions (GPS), Knight Piésold (KP) and
Elemental Engineering (Elemental), all of which made significant contributions to both the prefeasibility and definitive
feasibility studies.
GPS oversaw the metallurgical test program, process flowsheet development and initial optimisation work and will support
process optimisation, equipment selection and commissioning procedures. KP will support in the areas of surface water
modelling, hydrogeology, potassium recovery pond design and site geotechnical investigations. Elemental will provide
process simulation and process development services to the team along with mass balance modelling work.
The initial phase of the FEED process will focus on refining the Colluli DFS to increase project definition, optimise the
process and throughput, reduce development capital and develop a procurement strategy that will support the funding
solution.
Initiated tendering process for mining contractor
During the second half of 2016 a selection of mining contractors was engaged through a formal Expression of Interest (EOI)
for the Colluli mining contract. The mining contractors were selected from Australia and Africa, based on African operational
and surface mining experience. AMC Consultants facilitated the selection process.
Early due diligence of the project and the operating jurisdiction was a key component of the EOI phase and the contractor
response was highly positive. A select number of the respondents have since passed into the formal tendering phase which
is expected to be complete in Q2 of 2017. The mining contract is expected to include operations and maintenance and will
be supported by an owner’s technical services team. The structure and tendering approach has been designed to enable
further optimisation of the mining operation.
Initiated tendering process for power supply
In June 2016, Danakali initiated expressions of interest (EOI) for a power purchase agreement to tie in with the construction
and operation of the Colluli project. This EOI phase, which completed in January 2017, resulted in a shortlist of
internationally recognised power providers which are participating in competitive tender process for the Colluli power
contract. The power station for Colluli is planned to be structured as a build own operate transfer (BOOT) model.
Project Finance Update
Off-take
During the year, Danakali continued to progress off-take discussions with multi-national parties which included the signing
of several non-binding Memorandums of Understanding (MOUs) for 800k of sulphate of potash (SOP) and 200k of sulphate
of potash magnesium (SOPM). Parties include producers, end-users and traders.
In order to advance the off-take negotiations, Mr Danny Goeman was appointed as Head of Marketing. Mr Goeman has
over 20 years of Marketing and Sales experience including industry analysis, price negotiation, market segmentation and
product placement across multiple commodities and geographies (Australia, Asia and Europe).
Danakali has received strong interest in its product and has been able to provide interested parties with product samples
generated in pilot tests from the Colluli resource, as well as provide indicative product specification sheets.
Following the signing of the MoUs, Danakali has made further positive progress on developing its marketing strategy and
advancing offtake discussions.
The Company conducted additional SOP market research resulting in the development of a list of customer segmentation
criteria and SOP pricing mechanisms. The outcome of this work informed the drafting of the key commercial terms contained
in the proposed non-binding Heads of Agreements (HOAs).
Danakali continues to hold discussions with a broad range of prospective offtake parties in Asia, Europe, and the Middle
East. The Company intends to finalise these non-binding HOAs by the middle of 2017.
DANAKALI LIMITED
ABN 56 097 904 302
Page 22
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Danakali Annual Report 2016DANAKALI LIMITED
Directors’ Report (Cont’d)
Project Funding
Danakali and CMSC continues to work with its debt advisor, Endeavour Financial, on the funding solution for the project
development.
Endeavour has engaged with several International Banks, Development Financial Institutions and Export Credit Agencies
who have expressed interest in participating in the debt financing. Discussions are continuing as the procurement and off-
take strategies are finalised.
To further support the funding solution, the company progressed its mining, engineering and procurement strategies, with
the award of the contract to Fluor to conduct the FEED and optimisation for the project in January 2017.
In addition to its engineering capabilities, Fluor has extensive capability and experience in assisting clients to arrange
financing for their projects and maintains a specialised group of project finance professionals located in various locations
throughout the world. This capability and experience is particularly strong in working with export credit agencies to arrange
export credit loans and loan guarantees for major international projects that is closely aligned with the equipment
procurement and sourcing strategies.
Kieserite resource defined – in excess of 85 million tonnes
In August 2016, the kieserite content in the Colluli resource was quantified by AMC Consultants (refer the Resource and
Reserve section of this report). Kieserite (Magnesium sulphate monohydrate) is a commonly used, chloride free, multi-
nutrient fertiliser with limited primary production centres globally.
The Resource contains 18 million tonnes of kieserite in Measured Resource, 66 million tonnes of kieserite in Indicated
Resource and 3 million tonnes of kieserite in Inferred Resource.
Table 1: Kieserite contained by Resource Classification
Measured
Contained
Indicated
Contained
Kieserite (Mt) Mt
160
0
Kieserite (Mt) Mt
15
0
Inferred
Contained
Kieserite (Mt)
0
16
2
18
303
488
951
59
7
66
15
5
35
3
0
3
Total1
Contained
Kieserite (Mt)
0
78
9
87
Total
(Mt)
265
398
626
1,289
Kieserite
%
0.03
20
1
7
Sylvinite
Carnallitite
Kainitite
Total
Mt
90
80
133
303
1 Weighted Average
Kieserite is suitable for magnesium deficient soils which are common in South East Asia, Africa and Eastern South America.
Figure: Distribution of Magnesium deficient soils (Source: CRU Consultants)
Metallurgical test work indicates that kieserite will report to the tailings stream of the planned processing plant. Test work
was completed at the Saskatchewan Research Council (SRC) using salts from the Colluli resource. Preliminary liberation
testing indicates the kieserite can be separated from the tailings salt. The large volume of kieserite adds to the multi-agri
commodity potential of the Project.
DANAKALI LIMITED
ABN 56 097 904 302
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Danakali Annual Report 2016DANAKALI LIMITED
Directors’ Report (Cont’d)
CORPORATE
Share Placements
On 21 March 2016, Danakali announced a placement of approximately 25 million shares (Placement Shares), with one
free attaching unlisted option (Option) to subscribe for one fully paid ordinary share for every two Placement Shares issued
to sophisticated and professional investors to raise approximately AU$5.5million at $0.22 per share (Placement).
Danakali issued the first tranche of the Placement, consisting of 23,270,464 Placement Shares and 11,635,232 Options at
$0.35 per option on 31 March 2016 and issued the second tranche of the share placement to Directors, consisting of
1,600,000 Placement Shares and 800,000 Options at $0.35 per option pursuant to shareholder approval obtained at the
Company’s AGM held on 13 May 2016.
On 18 August 2016, Danakali announced that it had issued 20,200,000 shares (Placement Shares) at $0.33 per share, to
JP Morgan Asset Management (UK) Limited, a subsidiary of JP Morgan Chase to raise gross $6.7 million (Placement).
The Placement Shares were issued in a single tranche under the Company’s 15% placement capacity pursuant to ASX
Listing Rule 7.1.
Funds raised from the Placements will be used for the completion of mining approvals process, securing off-take
agreements, to further strategic relationships, securing project funding (debt/equity), transaction costs, working capital and
corporate purposes.
In addition to the Placements made during the year, a total of $1,223,116 was received through the exercise of various
options on issue in the Company.
Sustainable Development Framework
Danakali and the Colluli Mining Share Company (CMSC) has a strong commitment to sustainable development which is
underpinned by the principles that mineral projects should be financially, technically and environmentally sound and socially
responsible.
Therefor the company implemented a Sustainable Development Framework to govern its Corporate Social Responsibilities
(CSR) and Sustainability, and is aligned with its Corporate Governance Framework. The policies developed using this
framework directly supported the management plans associated with the SEIA and SEMP for the project.
The following policies were approved during 2016:
DNK Human Rights Policy
DNK Health and Safety Policy
DNK Environmental Policy
DNK Community Policy
DNK Anti-Corruption Policy
This framework and policies were endorsed and adopted by joint venture partner, CMSC.
Site Visits
During the year, Danakali and CMSC hosted two site visits for mining analysts and mining media. Representatives from
Hannam and Partners, Somers and Partners, Baillieu Host, Hartleys and Paydirt Media travelled to the future Colluli mine
site, toured the Port of Massawa, toured the country capital of Asmara, and met with the Joint Venture partners and the
Ministry of Energy and Mines.
All visits were well executed and attendees left with a positive view on the jurisdiction.
RESERVE AND RESOURCE OVERVIEW
Colluli has a JORC-2012 compliant resource of 1.289 billion tonnes as shown in Table 2 as at 31 December 2016. Apart
from the inclusion of Kieserite as discussed earlier in this report, there have been no changes to the Mineral resource
since 25 February 2015.
Rock Unit
The Colluli JORC-2012 compliant mineral resource estimate as at 31 December 2016 is as follows:
Table 2: Colluli Mineral Resource Estimate, 25 February 2015, with Kieserite added
Tonnes
Mt
265
51
347
626
1,289
Sylvinite
Upper Carnallitite
Lower Carnallitite
Kainitite
Total
K2O Equiv.
%
12
12
7
12
11
Density
t/m3
2.2
2.1
2.1
2.1
2.1
Kieserite
%
0.03
3
22
1
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 287 million tonnes
of Proved and 827 million tonnes of Probable Ore Reserve and is shown below in Table 3. There have been no changes
to the Ore Reserve since 30 November 2015.
DANAKALI LIMITED
ABN 56 097 904 302
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Danakali Annual Report 2016DANAKALI LIMITED
Directors’ Report (Cont’d)
The Colluli JORC-2012 compliant, Mineral Reserve estimate by potash mineral as at 31 December 2016 is as follows:
Table 3: JORC-2012 Colluli Potassium Sulphate Ore Reserve as at 30 November 2015
Proved
Probable
Total
Occurrence
Sylvinite
(KCl.NaCl)
Carnallitite
(KCl.MgCl2.H2O)
Kainitite
(KCl.MgSO4.H2O)
Total
Mt
78
79
130
287
K2O
Equiv %
15
7
12
11
Mt
174
284
368
827
K2O
Equiv %
12
8
11
10
Mt
253
363
497
1,113
1 Equivalent K2SO4 (SOP) calculated by multiplying %K2O by 1.85
K2O
Equiv %
K2SO4
Equiv %
K2SO4
Equiv Mt1
13
8
11
10
18.5
205
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 4. There have been no changes to the Mineral Resource estimate since 23 September 2015.
As at 31 December 2016, the JORC-2012 compliant Rock Salt Mineral Resource is as follows:
Table 4: JORC 2012 Colluli Rock Salt Mineral Resource as at 23 September 2015
Classification
Tonnes (Mt)
Measured
Indicated
Inferred
Total
SAFETY
28
180
139
347
NaCl
97.2
96.6
97.2
96.9
K
0.05
0.07
0.05
0.06
Mg
0.05
0.06
0.05
0.05
CaSO4
Insolubles
2.2
2.3
1.8
2.1
0.23
0.24
0.25
0.24
Danakali is committed to ensuring all work activities are carried out safely with all practical measures taken to remove risks
to health, safety and welfare of workers, contractors, authorised visitors, and anyone else who may be affected by the
Group’s activities.
Since the Company commenced exploration in 2010, no injuries have been reported. This safety performance, along with
a strong safety culture, bodes well for the company as it moves into the construction and production phases at Colluli.
ENVIRONMENT
The Group is subject to environmental regulation in respect to its exploration and development activities. Danakali aims to
ensure the appropriate standard of environmental care is achieved, and in doing so, that it is aware of and is in compliance
with relevant environmental legislation. There were no breaches of environmental legislation for the period under review.
EVENTS OCCURRING AFTER THE BALANCE DATE
On 9 January 2017, the company announced the appointment of Fluor as front end engineering design (FEED) and
optimisation lead for Colluli project. Please refer to the activities undertaken during 2016 of this report for more details.
On 1 February 2017, the company announced both the award of the Mining Licence and approval of the Mining Agreement.
Please refer to the activities undertaken during 2016 of this report for more details.
On 6 February 2017, the company announced the appointment of Mr Connochie as a non-executive director to the board.
Details of Mr Connochie experience and qualifications can be found earlier in the Directors’ Report. Mr Anthony Kiernan
resigned as a non-executive director of the company with effect from 6 February 2017.
ACTIVITIES PLANNED FOR 2017
The following key activities are scheduled over the coming year:
Complete value engineering and optimisation as part of FEED process
Initiate EPC bidding process
Selection of preferred supplier for power generation
Appointment of mining consultant to develop detailed mining schedules
Selection of preferred mining contractor for the Colluli project
Continuation of off-take discussions to move to non-binding Heads of Agreement
Continuation of financing discussions
Commencement of pre-construction geotechnical investigations for pond and plant foundation design
DANAKALI LIMITED
Page 25
ABN 56 097 904 302
12
Danakali Annual Report 2016DANAKALI LIMITED
Directors’ Report (Cont’d)
FINANCE REVIEW
The Group recorded a net loss after tax of $4,925,558 for the financial year to 31 December 2016 compared to a loss of
$6,792,685 for the financial year to 31 December 2015. As the Group is still in the exploration and development stage,
revenue streams mainly relate to interest earned on investing of surplus funds from capital raisings. The net losses after
tax reflect the Groups’ exploration and development expenditure on the Colluli Potash Project and ongoing administration
costs.
The Groups’ net assets increased by 38.7% compared to the net assets as at 31 December 2015, which is consistent with
the increase in cash balance due to the successful equity raises during 2016 and the net increase in the investment and
loan to the Colluli Mining Share Company.
Total consolidated cash on hand at the end of the financial year was $10,904,760 (31 December 2015: $2,756,341).
Operating activities utilised $1,670,534 (31 December 2015: $2,197,330 utilised) of net cash flows. Net cash outflow from
investing activities of $2,955,454 (31 December 2015: $10,089,471) was primarily in relation to expenditure made to
advance the Colluli Project in relation to:
Initiation of front end engineering works (FEED).
Initiating the mine contract tendering process.
Obtaining mining approvals for the Colluli project.
Pursuit of funding and off-take agreements.
Net cash inflow from financing activities of $12,774,407 (31 December 2015: $7,929,748) was due to the placement of
shares and the exercise of options to fund the ongoing exploration and development work to advance the project.
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.
DEVELOPMENTS AND EXPECTED RESULTS
Details of important developments occurring in this financial year have been covered in the Review of Operations section
of the Directors’ Report. The Group will continue to invest in the Colluli Potash Project to advance activities in the
exploration, evaluation and development of the project with the objective of developing a significant mining operation. Any
significant information or data will be released to the market and the shareholders pursuant to the Continuous Disclosure
rules as and when they come to hand.
DIVIDENDS
No dividends were paid or declared during the financial year to 31 December 2016. No recommendation for payment of
dividends has been made.
DIRECTORS’ MEETINGS
The number of meetings of the Company’s Board of Directors held during the financial year ended 31 December 2016 and
the number of meetings attended by each Director were:
Director
S I Cornelius
A W Kiernan
L R Cornelius
J D Fitzgerald
P M Donaldson
J Zhang
Total
Directors
Meetings
9
9
9
9
9
5
Total
Audit and Risk
Committee
Meetings
2
2
-
2
-
-
Total
Audit and Risk
Committee
Meetings
Attended
2
2
-
2
-
-
Total
Remuneration
and Nomination
Committee
Meetings
1
1
1
-
-
-
Total
Remuneration
and Nomination
Committee
Meetings
Attended
1
1
-
-
-
-
Total
Directors
Meetings
Attended
7
8
9
9
9
5
DANAKALI LIMITED
ABN 56 097 904 302
Page 26
13
Danakali Annual Report 2016DANAKALI LIMITED
Directors’ Report (Cont’d)
OPTIONS
At the date of this report, unissued ordinary shares in respect of which options are outstanding are as follows:
Balance at the beginning of the year
Movements of share options during the financial year ended 31 December 2016:
Number of options
16,350,000
Expired, exercisable at $0.599, on or before 31 January 2016
Expired, exercisable at $0.649, on or before 31 January 2016
Expired, exercisable at $0.949, on or before 31 January 2016
Exercised, exercisable at $0.278 on or before 17 November 2017
Exercised, exercisable at $0.340 on or before 29 November 2016
Expired, exercisable at $0.340, on or before 29 November 2016
Issued, exercisable at $0.350, on or before 30 March 2018
Exercised, exercisable at $0.350 on or before 30 March 2018
Issued, exercisable at $0.350, on or before 13 May 2018
Issued, exercisable at $0.405, on or before 13 May 2018
Issued, exercisable at $0.450, on or before 23 June 2018
Issued, exercisable at $0.550, on or before 4 November 2018
Issued, exercisable at $0.550, on or before 31 December 2018
Issued, exercisable at $0.558, on or before 8 August 2019
Issued, exercisable at $0.543, on or before 7 October 2018
Movements of share options during period since the financial year ended 31 December 2016:
Share options outstanding at 31 December 2016
Exercised, exercisable at $0.350 on or before 30 March 2018
Exercised, exercisable at $0.405, on or before 13 May 2018
Total number of share options outstanding as at the date of this report
(700,000)
(1,000,000)
(1,300,000)
(400,000)
(2,630,000)
(3,370,000)
11,635,232
(622,046)
800,000
2,700,000
200,000
750,000
1,000,000
1,000,000
800,000
25,213,186
(630,001)
(251,000)
24,332,185
Expiry date
17 November 2017
30 March 2018
13 May 2018
13 May 2018
29 May 2018
31 May 2018
23 June 2018
4 November 2018
4 November 2018
31 December 2018
8 August 2019
7 October 2019
Exercise price
$0.278
$0.350
$0.350
$0.405
$0.527
$0.550
$0.450
$0.408
$0.550
$0.550
$0.558
$0.543
Total number of share options outstanding at the date of this report
Number of options
4,600,000
10,383,185
800,000
2,449,000
750,000
600,000
200,000
1,000,000
750,000
1,000,000
1,000,000
800,000
24,332,185
No option holder has any right under the option to participate in any share issue of the Company or any other entity. No
options were granted to key management personnel of the Company since the end of the financial year.
PERFORMANCE RIGHTS
Details of performance rights over unissued shares in Danakali Ltd as at the date of this report are set out below:
Balance at the beginning of the year
Movements of performance rights during the year
No movements
Movements since the financial year ended 31 December 2016:
Performance rights outstanding at 31 December 2016
Vested and Exercised (a)
Forfeited (b)
Total number of performance rights as at the date of this report
Note:
Number of rights
1,958,000
-
1,958.000
(775,000)
(75,000)
1,108,000
(a) Performance rights vested upon the grant of the mining lease.
(b) Performance rights forfeited upon the resignation of non-executive director, Anthony Kiernan on 6 February 2017.
No performance rights holder has any right to participate in any other share issue of the company or any other entity.
DANAKALI LIMITED
Page 27
ABN 56 097 904 302
14
Danakali Annual Report 2016DANAKALI LIMITED
Directors’ Report (Cont’d)
INDEMNIFICATION AND INSURANCE OF DIRECTORS AND OFFICERS
Indemnification
An indemnity agreement has been entered into with each of the directors and company secretary of the Company named
earlier in this report. Under the agreements, the Company has agreed to indemnify those officers against any claim or for
any expense or cost which may arise as a result of work performed in their respective capacities to the extent permitted by
law. There is no monetary limit to the extent of this indemnity.
Insurance
During the period, the Company paid an insurance premium in respect of Directors’ and Officers’ insurance. The premiums
relate to costs and expenses incurred by the relevant officers in defending proceedings, whether civil or criminal and
whatever their outcome, and other liabilities that may arise from their position, with the exception of conduct involving a
wilful breach of duty or improper use of information or position to gain a personal advantage. Premiums totalling $8,000
(2015: $8,000) were paid in respect of directors’ and officers’ liability cover. The insurance policies outlined above do not
contain details of the premiums paid in respect of individual officers of the Company.
INDEMNIFICATION OF AUDITORS
To the extent permitted by law, the Company has agreed to indemnify its auditors, Ernst and Young, as part of the terms
of its audit engagement agreement against claims by third parties arising from the audit (for an unspecified amount). No
payment has been made to indemnify Ernst and Young during or since the financial year.
AUDIT AND RISK COMMITTEE
The Audit and Risk Committee has a documented charter, approved by the Board. All members are non-executive directors.
The committee advises on the establishment and maintenance of a framework of internal control and appropriate ethical
standards for the management of the Group.
The members of the Audit Committee during the period were:
Mr John Fitzgerald, ACA, MAICD, Fellow of FINSIA - Chairman; Non-executive Director
Mr Seamus Cornelius, LLB, LLM - Non-Executive Director
Mr Anthony Kiernan, LLB - Non-Executive Director
The Audit and Risk Committee met twice during the year and the committee members’ attendance record is disclosed in
the table of Directors’ meetings in section of the Directors’ Report.
NON-AUDIT SERVICES
The Board has considered the non-audit services provided during the financial year by the auditor and is satisfied that the
provision of those non-audit services is compatible with, and did not compromise, the auditor’s independence requirements
of the Corporations Act 2001.
All non-audit services provided during the financial year were subject to the corporate governance procedures adopted by
the Company and have been reviewed by the Board to ensure they do not impact the integrity and objectivity of the auditor;
and the non-audit services provided do not undermine the general principles relating to auditor independence as set out in
APES 110 Code of Ethics for Professional Accountants, as they did not involve reviewing or auditing the auditor’s own
work, acting in a management or decision making capacity for the Company, acting as an advocate for the Company or
jointly sharing risks and rewards.
During the period, Ernst and Young, the Company’s auditors, performed the following services in addition to their statutory
duties:
Preparation and lodgement of income tax returns.
Corporate Advisory Services.
(a) Audit services
Ernst and Young
Rothsay Chartered Accountants
(b) Non-audit services
Ernst and Young – since appointment as auditor
Ernst and Young – prior to appointment as auditor
CORPORATE GOVERNANCE
2016
$
2015
$
33,621
-
33,621
33,103
-
33,103
30,300
11,500
41,800
31,750
51,293
83,043
The Company’s corporate governance statement can be found at the following URL: http://www.danakali.com.au/our-
business/corporate-governance
DANAKALI LIMITED
ABN 56 097 904 302
Page 28
15
Danakali Annual Report 2016DANAKALI LIMITED
Directors’ Report (Cont’d)
PROCEEDINGS ON BEHALF OF THE COMPANY
No person has applied to the Court under section 237 of the Corporations Act 2001 for leave to bring proceedings on behalf
of the Company, or to intervene in any proceedings to which the Company is a party, for the purpose of taking responsibility
on behalf of the company for all or any part of those proceedings.
No proceedings have been brought or intervened in or on behalf of the Company with leave of the Court under section 237
of the Corporations Act 2001.
AUDITOR’S INDEPENDENCE DECLARATION
A copy of the auditor's independence declaration as required under section 307C of the Corporations Act 2001 is set out
separately in this report.
REMUNERATION REPORT (AUDITED)
The Remuneration Report outlines the director and executive remuneration arrangement of the Company and the Group
in accordance with the requirements of the Corporations Act 2001 (Cth) and its Regulations. For the purposes of this report,
Key Management Personnel (KMP) of the Group are defined as those persons having authority and responsibility for
planning, directing and controlling the major activities of the Group, directly or indirectly, including any director (whether
executive or otherwise) of the Company. For the purposes of this report, the term ‘Executive’ includes the Chief Executive
Officer and senior executives of the Group.
The Key Management Personnel of Danakali Ltd and the Group during the financial year to 31 December 2016 were:
Directors
S I Cornelius
P M Donaldson
A W Kiernan
L R Cornelius
J D Fitzgerald
J Zhang
Named Executives
Non-Executive Chairman
Managing Director and Chief Executive Officer
Non-Executive Director (Resigned 6 February 2017)
Non-Executive Director
Non-Executive Director
Non-Executive Director (Appointed 17 June 2016)
C P Els
A D Just
S Tarrant
Chief Financial Officer (Company Secretary Appointed 1 February 2016)
Company Secretary (Resigned 1 February 2016)
Head of Finance (Resigned 22 April 2016)
All of the above persons were key management personnel during the financial year to 31 December 2016 unless otherwise
stated. The information provided in this remuneration report has been audited as required by section 308 (3C) of the
Corporations Act 2001.
Key Elements of Key Management Personnel/ Executive Remuneration Strategy
The remuneration strategy for Danakali Ltd is designed to provide rewards that achieve the following:
attract, retain, motivate and reward executives;
reward executives for Company and individual performance against targets set by reference to appropriate
benchmarks;
link reward with the strategic goals and performance of the Company;
provide remuneration that is competitive by market standards;
align executive interests with those of the Company’s shareholders; and
comply with applicable legal requirements and appropriate standards of governance.
The Company is satisfied that its remuneration framework reflects current business needs, shareholder views and
contemporary market practice and is appropriate to attract, motivate, retain and reward employees.
DANAKALI LIMITED
Page 29
ABN 56 097 904 302
16
Danakali Annual Report 2016DANAKALI LIMITED
Directors’ Report (Cont’d)
A summary of the key elements of the current remuneration arrangement is as follows:
Remuneration
Component
Fixed Remuneration
Item
Purpose
Base salary
Superannuation
contributions
Other benefits
Provide
competitive
remuneration with reference to
the role and responsibilities,
market and experience,
to
attract high calibre people.
Performance Based
Short Term Incentive (STI)
Cash bonus
achievement
Provide reward to executives
for
of
the
Group
individual
performance targets linked to
the
strategic
objectives.
Company’s
and
Link to
Performance
Executive performance and
remuneration packages are
reviewed at least annually by
the Board and Remuneration
and Nomination Committee.
The review process includes
consideration of the individual’s
performance in addition to the
overall performance of
the
Group.
Award of STI linked directly to
achievement of KPI’s and
performance targets.
Performance Based:
Long Term Incentive (LTI)
Shares
Options
Performance Rights Plan
Provide reward to executives
for their continued service and
their contribution to achieving
corporate objectives set by the
Board to ensure the long-term
growth of the Company.
Award of LTI linked directly to
strategic
achievement
Company objectives.
of
The Remuneration Report has been set out under the following headings:
a) Decision Making Authority for Remuneration
b) Principles Used to Determine the Nature and Amount of Remuneration
c) Voting and Comments Made at the Last Annual General Meeting
d) Details of Remuneration
e) Service Agreements
f) Details of Share Based Compensation
g) Equity Instruments Held by Key Management Personnel
h)
i) Other Transactions with Key Management Personnel
j) Additional Information
Loans to Key Management Personnel
a) Decision Making Authority for Remuneration
The Company’s remuneration policy and strategies are overseen by the Remuneration and Nomination Committee on
behalf of the Board. The Remuneration and Nomination Committee is responsible for making recommendations to the
Board on all aspects of remuneration arrangements for key management personnel including:
the Company’s remuneration policy and framework;
the remuneration arrangements for the Chief Executive Officer and other senior executives;
the terms and conditions of long term incentives and short term incentives for the Chief Executive Officer and other
senior executives;
the terms and conditions of employee incentive schemes; and
the appropriate remuneration to be paid to non-executive Directors.
The Remuneration and Nomination Committee Charter is approved by the Board and is published on the Company’s
website. Remuneration levels of the Directors and Key Management Personnel are set by reference to other similar sized
mining and exploration companies with similar risk profiles and are set to attract and retain executives capable of managing
the Group’s operations in Australia and overseas.
Remuneration levels for the Chief Executive Officer and key management personnel are determined by the Board based
upon recommendations from the Remuneration and Nomination Committee. Remuneration of non-executive directors is
determined by the Board within the maximum levels approved by the shareholders from time to time.
b) Principles Used to Determine the Nature and Amount of Remuneration
The Company’s remuneration practices are designed to attract, retain, motivate and reward high calibre people capable of
delivering the strategic objectives of the Company. The Company’s Key Management Personnel remuneration framework
aligns their remuneration with the achievement of strategic objectives and the creation of value for shareholders, and
conforms with market practice for delivery of reward.
The Remuneration and Nomination Committee ensures that the remuneration of Key Management Personnel is competitive
and reasonable, acceptable to shareholders and aligns remuneration with performance. The structure and level of
remuneration for key management personnel is conducted annually by the Remuneration and Nomination Committee
relative to the Company’s circumstances, size, nature of business and performance.
DANAKALI LIMITED
ABN 56 097 904 302
Page 30
17
Danakali Annual Report 2016DANAKALI LIMITED
Directors’ Report (Cont’d)
Remuneration of Non-Executive Directors
Fees and payments to non-executive Directors reflect the demands which are made on, and the responsibilities of the
directors. Non-executive Directors are remunerated with both cash salary and annual option grants to enable the company
to preserve cash reserves and to align the Directors interests to those of the shareholders. The Board views this approach
to be reasonable relative to the stage of development of its flagship project. Non-executive directors’ fees and payments
are reviewed annually by the Board. The Board at times receives advice from independent remuneration consultants to
ensure non-executive Directors fees and payments are appropriate and in line with the market. No advice was received
during the period.
The general principles of non-executive Directors compensation are:
Non-executive Directors are paid a base fee ($40,000 per annum) prior to any statutory superannuation payments;
Additional fees are paid to non-executive Directors who serve on the Audit and Risk and/or Nomination and
Remuneration committees;
Under the current remuneration structure and subject to shareholder approval, an annual grant of Options is made;
Any options granted and approved have a term of at least 3 years and will be struck at significant premium to the
30 day VWAP. This is typically 140%;
The amount of options proposed for each non-executive director is proportional to the equivalent underlying cash
fees; and
Adjustments may be made in the event that a specific non-executive Director’s contribution warrants an
adjustment. Such adjustments are at the recommendation of the board.
Chairman’s fees are determined independently to the fees of non-executive directors based on comparative roles in the
external market and the specific requirements that the Company has of the Chairman.
The Chairman is not present at any of the discussions relating to the determination of his own remuneration.
Fees for the Chairman and non-executive directors are determined within an aggregate directors’ fee pool limit of $400,000
as approved by shareholders on 17 November 2014. The disclosed Chairman and non-executive directors’ fees are
inclusive of committee fees.
Remuneration of Key Management Personnel
The Company’s remuneration and reward framework is designed to ensure reward structures are aligned with shareholders’
interest by:
being market competitive to attract and retain high calibre individuals;
rewarding high individual performance;
recognising the contribution of each key management personnel to the contributed growth and success of the
Company; and
ensuring that long term incentives are linked to shareholder value.
To achieve these objectives, the remuneration of key management personnel may comprise a fixed salary component and
an ‘at risk’ variable component linked to performance of the individual and the Company as a whole. Fixed remuneration
comprises base salary, superannuation contributions and other defined benefits. ‘At risk’ variable remuneration comprises
both short term and long term incentives.
The remuneration and reward framework for key management personnel may consist of the following areas:
i)
ii)
iii)
Fixed Remuneration
Variable Short Term Incentives
Variable Long Term Incentives
The combination of these would comprise the key management personnel’s total remuneration.
i)
Fixed Remuneration
The fixed remuneration for each senior executive is influenced by the nature and responsibilities of each role and
knowledge, skills and experience required for each position. Fixed remuneration provides a base level of
remuneration which is market competitive and comprises a base salary and statutory superannuation. It is structured
as a total employment cost package, which may be delivered as a combination of cash and prescribed non-financial
benefits at the executives’ discretion.
Key management personnel are offered a competitive base salary that comprises the fixed component of pay and
rewards. External remuneration consultants may provide analysis and advice to ensure base pay is set to reflect the
market for a comparable role. No external advice was taken this period. Base salary for key management personnel
is reviewed annually to ensure the executives’ pay is competitive with the market. The pay of key management
personnel is also reviewed on promotion. There is no guaranteed pay increase included in any key management
personnel’s contract.
DANAKALI LIMITED
Page 31
ABN 56 097 904 302
18
Danakali Annual Report 2016DANAKALI LIMITED
Directors’ Report (Cont’d)
ii)
Variable Remuneration – Short Term Incentives (STI)
The Danakali Ltd Short Term Incentive Scheme applies to executives in the Company and is designed to link any
STI payment with the achievement by each Key Management Personnel of specified key performance indicators
(KPI’s) which are in turn linked to the Company’s strategic objectives and targets.
A maximum of up to 50% of the fixed remuneration can be payable under the STI and the Board has the discretion
to reduce or suspend any bonus payments where Company circumstances render it appropriate.
Given the current phase of Danakali’s life cycle, the Board determined that the LTI is a more appropriate incentive
measure to align KMP performance with company objectives. In reference to this, no KPI’s were set and no STI’s
granted in the current period.
iii)
Variable Remuneration – Long Term Incentives (LTI)
Long term incentives have been provided to directors and employees through the issue of options and performance
rights.
The Danakali Ltd Performance Rights Plan (PRP) was re-approved by shareholders at the general meeting held 17
November 2014. The PRP provides incentives, which promote the long-term performance, growth and support of
the Company.
The PRP is designed to increase the range of potential incentives available to Directors and employees and to
recognise their contribution to the Company’s success.
Under the PRP, performance rights are granted over ordinary shares in the Company on an annual basis. The
performance rights were originally granted subject to the following vesting conditions:
Class 1:
308,000 upon completion of a Feasibility Study for the Colluli Potash Project (vested November 2015); and
308,000 upon completion of securing finance for the development of the Colluli Potash Project
Class 2:
75,000 upon signing of the ENAMCO agreements for the Colluli Potash Project (vested November 2014);
75,000 upon granting of a Mining License for the Colluli Potash Project (vested February 2017); and
75,000 completion of securing finance for the development of the Colluli Potash Project (forfeited 6 February
2017).
Class 4:
300,000 upon completion of a Prefeasibility Study and the release of the study results to market (vested
March 2015);
650,000 upon completion of a Definitive Feasibility Study and release of study results to market (vested
November 2015);
700,000 upon awarding of the Colluli mining licence (vested February 2017); and
800,000 upon commencement of construction of the production facility.
Details of options issued to key management personnel can be found in section f(i) below.
Details of performance rights issued to key management personnel can be found in section f(ii) below.
Further performance rights details can be found in Note 22.
All performance rights will automatically expire on the earlier of the expiry date or the date the holder ceases to be
an employee of the Company, unless the Board determines to vary the expiry date in the event the holder ceased
to be an employee because of retirement, redundancy, death or total and permanent disability and such other cases
the Board may determine. Performance rights granted under the PRP will carry no dividend or voting rights. When
the vesting conditions have been met, each performance right will be converted into one ordinary share.
c) Voting and Comments Made at the Last Annual General Meeting
The Company received approximately 96% of ‘yes’ votes on its Remuneration Report for the financial year ending 31
December 2016 and received no specific feedback on its Remuneration Report at the Annual General Meeting or
throughout the period.
d) Details of Remuneration
Details of the remuneration of the directors and other key management personnel of Danakali Ltd are set out in the following
table. Given the size and nature of operations of Danakali Ltd, there are no other employees who are required to have their
remuneration disclosed in accordance with the Corporations Act 2001.
DANAKALI LIMITED
ABN 56 097 904 302
Page 32
19
Danakali Annual Report 2016DANAKALI LIMITED
Directors’ Report (Cont’d)
Key management personnel of the Company for the financial year to 31 December 2016:
Financial Year to
31 December 2016
Short-Term
Salary
and Fees
$
Post-
Employment
Super-
annuation
$
LTI (d)
Share Based Payments
Shares
$
Options
$
Performance
Rights
$
Total
$
Options
percentage
of total
remuneration
%
Non-Executive Directors
S I Cornelius
A W Kiernan
L R Cornelius
J D Fitzgerald
J Zhang (a)
Executive Directors
P M Donaldson
Other Key
Management Personnel
C P Els
A D Just (b)
S Tarrant (c)
TOTAL
Note:
68,604
57,725
42,308
57,778
21,556
-
5,484
4,019
5,489
-
350,000
33,250
275,000
5,250
68,814
26,199
-
-
$947,035
$74,441
-
-
-
-
-
-
-
-
-
-
162,018
42,320
42,320
42,320
-
-
27,810
6,314
-
-
230,622
133,339
94,961
105,587
21,556
52,900
331,740
767,890
122,881
-
-
464,759
-
-
-
424,080
5,250
68,814
365,864
1,852,099
70
32
45
40
-
7
29
-
-
25
(a) Ms Zhang was appointed a non-executive director on 17 June 2016.
(b) Ms Just resigned as company secretary on 1 February 2016.
(c) Mr Tarrant provided his services through Mars Consulting Pty Ltd. Fees charged by Mars are on an arms-length basis. The
arrangement ended 22 April 2016.
(d) The recorded values of options will only be realised by the KMP’s in the event the Company’s share price exceeds the option
exercise price.
The recorded values of performance rights will only be realised by the KMP’s in the event the Company achieves its stated
objectives, which is expected to create further value for shareholders.
Key management personnel of the Company for the financial year to 31 December 2015:
Financial Year to
31 December 2015
Non-Executive
Directors
S I Cornelius
A W Kiernan
L R Cornelius
J D Fitzgerald (a)
Executive Directors
P M Donaldson
Other Key Management
Personnel
C P Els (b)
A D Just (c)
S Tarrant (d)
TOTAL
Note:
Short-Term
Salary
and Fees
$
Post-
Employment
Super-
annuation
$
LTI (e)
Share Based Payments
Shares
$
Options
$
Performance
Rights
$
Total
$
Options
percentage
of total
remuneration
%
72,000
60,000
45,000
51,607
-
5,700
4,275
4,903
350,006
33,251
17,981
63,000
339,207
998,801
1,635
-
-
49,764
-
-
-
-
-
-
-
28,000
28,000
-
-
-
-
8,310
4,358
72,000
74,010
53,633
159,705
-
216,215
-
380,561
763,818
19,139
-
-
-
-
-
38,755
63,000
367,207
178,844
393,229
1,648,638
-
-
-
74
-
-
49
-
-
11
(a) Mr Fitzgerald was appointed a non-executive director on 19 February 2015.
(b) Mr Els was appointed Chief Financial Officer on 3 December 2015 and Company Secretary on 1 February 2016.
(c) Ms Just provides her services through Grange Consulting Pty Ltd and resigned 1 February 2016. During this period, company
secretarial services were provided. Fees charged by Grange are on an arms-length basis.
(d) Mr Tarrant provides his services through Mars Consulting Pty Ltd. Fees charged by Mars are on an arms-length basis.
(e) The recorded values of options will only be realised by the KMP’s in the event the Company’s share price exceeds the option
exercise price. The recorded values of performance rights will only be realised by the KMP’s in the event the Company achieves
its stated objectives, which is expected to create further value for shareholders.
DANAKALI LIMITED
Page 33
ABN 56 097 904 302
20
Danakali Annual Report 2016DANAKALI LIMITED
Directors’ Report (Cont’d)
The relative proportions of remuneration that are linked to performance and those that are fixed are as follows:
Name
Non-Executive Directors
S I Cornelius
A W Kiernan
L R Cornelius
J D Fitzgerald
J Zhang
Executive Directors
P M Donaldson
Other Key Management Personnel
C P Els
A D Just
S Tarrant
e) Service Agreements
Financial Year to 31 December 2016
Fixed Remuneration
At risk – STI
At risk - LTI
30%
47%
49%
60%
100%
50%
71%
100%
100%
-
-
-
-
-
-
-
-
-
70%
53%
51%
40%
-
50%
29%
-
-
Remuneration and other terms of employment for the executive managers are formalised in employment contracts. Other
major provisions of the agreements relating to remuneration are set out below.
P M Donaldson, Managing Director and Chief Executive Officer:
No set term of agreement.
Base salary, for the financial year ended 31 December 2016 of $350,000 (2015: $350,000 per annum).
Payment of termination benefit on early termination by the Company, other than for gross misconduct, equal to
three months of the base salary.
Notice period of three months required to be given by the Employee for termination.
C P Els, Chief Financial Officer and Company Secretary:
No set term of agreement.
Base salary, for the financial year ended 31 December 2016 of $275,000 (2015: $275,000 per annum).
Notice period of three months, required to be given by either party for termination.
f) Details of Share Based Compensation
(i) Options
The terms and conditions of each grant of options affecting remuneration in the current or a future reporting period are as
set out in the following table:
Grant date
Expiry date
Vesting and first
exercise date
30 June 2016 (a)
4 November 2018
3 November 2015
3 November 2015 31 December 2016 (b) 4 November 2018
3 November 2015 31 December 2016 (c) 4 November 2018
31 March 2017 (d)
4 November 2018
3 November 2015
13 May 2016 (e)
4 November 2016 4 November 2016 (f) 4 November 2018
13 May 2018
13 May 2016
Total Options
Number of
Options
Exercise
price
200,000
200,000
300,000
300,000
$0.408
$0.408
$0.408
$0.408
2,500,000
$0.405
750,000
$0.550
4,250,000
Value per
option at
grant date
Vested and
exercisable
%
$0.126
$0.126
$0.126
$0.126
$0.085
$0.116
100%
-
-
-
100%
100%
Note:
(a) 200,000 options on the completion of equity raising during the first half of the 2016 financial year.
(b) 200,000 options on the securing of a debt funding term sheet.
(c) 300,000 options on completion of project financing.
(d) 300,000 options on the commencement of construction.
The performance conditions for items (a) – (d) were chosen as they are closely aligned to the Group’s objectives.
(e) The options were approved by shareholders at the Annual General meeting held on 13 May 2016. The options were issued in
recognition of skill and expertise brought to the Company and therefore, there were no conditions attached to the options.
(f) The options were approved by shareholders at the General meeting held on 4 November 2016. The options were issued in
recognition of skill and expertise brought to the Company and therefore, there were no conditions attached to the options.
Details of options over ordinary shares in the Company, provided as remuneration to key management personnel are set
out in the following table.
Options will automatically expire on the earlier of the expiry date or the date the holder ceases to be an employee of the
Company, unless the Board determines to vary the expiry date in the event the holder ceased to be an employee because
of retirement, redundancy, death or total and permanent disability and such other cases the Board may determine.
DANAKALI LIMITED
ABN 56 097 904 302
Page 34
21
Danakali Annual Report 2016DANAKALI LIMITED
Directors’ Report (Cont’d)
When exercisable, each option is convertible into one ordinary share. Further information on the options is set out in note
22.
Year in
which
options
vest
2016
2017
2017
2017
2016
2016
2016
2016
2016
2016
2016
Year of
grant
2015
2015
2015
2015
2016
2016
2016
2016
2016
2016
2016
Number of
options
granted
200,000
200,000
300,000
300,000
500,000
500,000
400,000
400,000
400,000
300,000
750,000
4,250,000
Value of
options at
grant date
$25,270
$25,270
$37,800
$37,800
$42,320
$42,320
$33.856
$33,856
$33,856
$25,392
$87,294
Number of
options
vested during
the period
200,000
-
-
-
500,000
500,000
400,000
400,000
400,000
300,000
750,000
3,450,000
Vested
and
exercisable
100%
-
-
-
100%
100%
100%
100%
100%
100%
100%
Number of
options
forfeited during
the period
-
-
-
-
-
-
-
-
-
-
-
Name
C P Els
C P Els
C P Els
C P Els
S I Cornelius
P M Donaldson
A W Kiernan
J D Fitzgerald
L R Cornelius
C P Els
S I Cornelius
Total Options
3,030,000 options held by key management personnel were exercised during the year, raising $1,005,400 for working
capital purposes.
(ii) Performance Rights
During the financial year, no performance rights were granted to key management personnel.
The terms and conditions of each grant of Performance Rights to key personnel in the current or a future reporting period
are as follows:
Year of
grant
2013
2013
2014
Performance rights granted
Class
Class 2
Class 1
Class 4
Number
225,000
100,000
2,450,000
Number of performance
rights vested
In prior
periods
75,000
50,000
950,000
In current
period
-
-
-
Total Unvested
67%
50%
61%
Name
A W Kiernan
L R Cornelius
P M Donaldson
The performance rights on issue to key management personnel, as set out above, vest, subject to the following vesting
conditions:
Class 1:
Class 2:
Class 4:
308,000 upon completion of a Feasibility Study for the Colluli Potash Project (vested November 2015); and
308,000 upon completion of securing finance for the development of the Colluli Potash Project
75,000 upon signing of the ENAMCO agreements for the Colluli Potash Project (vested November 2014);
75,000 upon granting of a Mining License for the Colluli Potash Project (vested February 2017); and
75,000 completion of securing finance for the development of the Colluli Potash Project (forfeited 6 February 2017).
300,000 upon completion of a Prefeasibility Study and the release of the study results to market (vested March
2015);
650,000 upon completion of a Definitive Feasibility Study and release of study results to market (vested November
2015);
700,000 upon awarding of the Colluli mining licence (vested February 2017); and
800,000 upon commencement of construction of the production facility.
There were no performance rights, held by key management personnel, forfeited during the financial year ended 31
December 2016.
DANAKALI LIMITED
Page 35
ABN 56 097 904 302
22
Danakali Annual Report 2016DANAKALI LIMITED
Directors’ Report (Cont’d)
g) Equity Instruments Held by Key Management Personnel
(i) Shares
No shares were granted as remuneration during the year ended 31 December 2016.
The number of shares in the Company held during the financial period by each director of Danakali Ltd and other key
management personnel of the Group, including their personally related parties, are set out in the following tables.
Financial Year to
31 December 2016
Shares
Balance at
31 December
2015
Granted as
compensation
Received
on exercise of
options
Received on
conversion of
performance
rights
On market
purchases/
(sales)
Balance at
31 December
2016
Directors
S I Cornelius
A W Kiernan
L R Cornelius
J D Fitzgerald
J Zhang (a)
P M Donaldson
Other Key Management
Personnel
C P Els
A D Just (b)
S Tarrant (c)
TOTAL
6,368,535
603,128
13,482,041
108,334
-
1,418,334
-
-
100,000
22,080,372
Note:
(a)
(b)
(c)
Appointed 17 June 2016
Resigned 1 February 2016
Resigned 22 April 2016
(ii) Options
-
-
-
-
-
-
-
-
-
1,230,000
500,000
1,000,000
-
-
300,000
-
3,030,000
-
-
-
-
-
-
-
-
-
-
894,511
100,000
1,200,000
150,000
-
8,493,046
1,203,128
15,682,041
258,334
-
100,000
1,818,334
110,000
-
-
110,000
-
n/a
2,554,511
27,564,883
During the financial year to 31 December 2016, the Company issued 3,250,000 options over unissued ordinary shares in
the Company to Key Management Personnel.
The numbers of options over ordinary shares in the Company held during the financial period by each director of Danakali
Ltd and other Key Management Personnel of the Group, including their personally related parties, are set out in the following
tables.
Financial Year to
31 December
2016
Balance at
31 December
2015
Granted
Other (d)
Compen-
sation
Exercised
Expired
Balance at
31 December
2016
Vested
and
exercisable Unvested
Directors
S I Cornelius
A W Kiernan
L R Cornelius
J D Fitzgerald
J Zhang (a)
P M Donaldson
Other
Management
Personnel
C P Els
A D Just (b)
S Tarrant (c)
3,500,000
2,500,000
2,000,000
750,000
-
5,000,000
125,000 1,250,000
400,000
50,000
500,000
75,000
-
50,000
400,000
400,000
-
500,000
(1,230,000)
(500,000)
(1,000,000)
-
(970,000)
(700,000)
2,675,000 2,675,000
1,750,000 1,750,000
-
-
1,900,000 1,900,000
1,225,000 1,225,000
-
(300,000)
-
(3,700,000)
-
-
1,550,000 1,550,000
-
-
-
-
-
-
1,000,000
-
-
-
-
-
300,000
-
-
-
-
-
-
-
-
1,300,000
500,000
800,000
-
-
-
-
-
-
TOTAL
14,750,000
800,000 3,250,000
(3,030,000)
(5,370,000)
10,400,000 9,600,000
800,000
Note:
(a) Appointed 17 June 2016
(b) Resigned 1 February 2016
(c) Resigned 22 April 2016
(d) Options granted were approved at the Annual General Meeting of the Company held 13 May 2016. The options were issued
subsequent to the Director’s participation in a placement to raise working capital.
DANAKALI LIMITED
ABN 56 097 904 302
Page 36
23
Danakali Annual Report 2016DANAKALI LIMITED
Directors’ Report (Cont’d)
(iii) Performance Rights held by Key Management Personnel
No performance rights were granted as remuneration during the year ended 31 December 2016.
Movements in Performance Rights held by Key Management Personnel are as set out in the following table:
Financial Year to
31 December 2015
Performance Rights
Balance
At 31 December
2015
Granted as
Remuneration
Vested
during the
period (a)
Balance
at 31 December
2016
Directors
S I Cornelius
A W Kiernan
L R Cornelius
J D Fitzgerald
P M Donaldson
Other Key Management Personnel
C P Els
A D Just
S Tarrant
TOTAL
-
150,000
50,000
-
1,500,000
-
-
-
1,700,000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
150,000
50,000
-
1,500,000
-
-
-
1,700,000
h) Loans to Key Management Personnel
There were no loans to key management personnel during the period.
i) Other Transactions with Key Management Personnel
There were no other transactions with key management personnel during the period.
j) Additional Information
The remuneration structure has been set up with the objective of attracting and retaining the highest calibre staff who
contribute to the success of the Company’s performance and individual rewards. The remuneration policies seek a balance
between the interests of stakeholders and competitive market remuneration levels. The overall level of key management
personnel compensation takes into account the performance of the Group over a number of years and the stage of activities
the Company is engaged in.
During the period, there was an active level of development activity, project permitting and generally progressing the Colluli
Potash Project. Given the remuneration paid during the period is commercially reasonable, the link between remuneration,
Company performance and shareholder wealth generation is tenuous, particularly in the exploration and development stage
of a mining company. Company performance is measured against a comparable list of companies operating in the same
market segment. There was no increase in key management personnel compensation during the period.
The Group is still in the exploration and development stage and revenue streams only relate to interest earned on investing
surplus funds from capital raisings. The net losses after tax reflect the ongoing costs of the Group’s exploration programs
and development on the Colluli Potash Project. The table below shows the performance of the Group over the last 5
reporting periods:
Financial Year
Basic EPS (Cents)
Share Price
(Loss)/ Income for
the period
31 Dec 2016
31 Dec 2015
(2.32)
$0.48
(4.01)
$0.29
31 Dec 2014 (a)
2.18
$0.19
30 Jun 2014
30 Jun 2013
0.16
$0.15
(4.20)
$0.20
($4,925,558)
($6,792,685)
$2,999,972
$3,355,983
($5,299,559)
Note:
(a) 31 December 2014 was a six-month transitional period while adjusting to a December year end.
- - END OF REMUNERATION REPORT - -
Signed in accordance with a resolution of the directors.
Seamus Cornelius
CHAIRMAN
Perth, 9 March 2017
DANAKALI LIMITED
Page 37
ABN 56 097 904 302
24
Danakali Annual Report 2016DANAKALI LIMITED
Directors’ Report (Cont’d)
Competent Persons and Responsibility Statements
Competent Persons Statement (Rock Salt Resource)
Colluli has a JORC 2012 compliant Measured, Indicated and Inferred Mineral Resource estimate of 347Mt @97% NaCl. The resource
contains 28Mt @ 97% NaCl of Measured Resources, 180Mt @ 97% NaCl of Indicated Resources and 139Mt @ 97% NaCl of Inferred
Resources.
The information relating to the Colluli Rock Salt Mineral Resource estimate was compiled by Mr. John Tyrrell. Mr. Tyrrell is a member of
the Australasian Institute of Mining and Metallurgy (AusIMM) and a full-time employee of AMC. Mr. Tyrrell has more than 25 years’
experience in the field of Mineral Resource estimation. He has sufficient experience relevant to the style of mineralisation and type of the
deposit under consideration, and in resource model development, to qualify as a Competent Person as defined in the JORC Code.
Mr Tyrrell consents to the inclusion of the information relating to the rock salt Mineral Resource in the form and context in which it appears
Competent Persons Statement (Sulphate of Potash Resource)
Colluli has a JORC 2012 compliant Measured, Indicated and Inferred Mineral Resource estimate of 1,289Mt @11% K20. The resource
contains 303Mt @ 11% K20 of Measured Resources, 951Mt @ 11% K20 of Indicated Resources and 35Mt @ 10% K20 of Inferred
Resources.
The information relating to the 2015 Colluli Mineral Resource estimate was compiled by Mr. John Tyrrell, under the supervision of Mr.
Stephen Halabura M. Sc. P. Geo. Fellow of Engineers Canada (Hon), Fellow of Geoscientists Canada, and as a geologist with over 25
years’ experience in the potash mining industry. Mr. Tyrrell is a member of the Australian Institute of Mining and Metallurgy and a full-time
employee of AMC. Mr. Tyrrell has more than 25 years’ experience in the field of Mineral Resource estimation.
Mr. Halabura is a member of the Association of Professional Engineers and Geoscientists of Saskatchewan, a Recognised Professional
Organisation (RPO) under the JORC Code and has sufficient experience relevant to the style of mineralisation and type of deposit under
consideration and to the activity which he is undertaking to qualify as a Competent Person as defined in the 2012 Edition of the Australasian
Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves (the JORC Code).
Mr. Tyrrell and Mr. Halabura consent to the inclusion of information relating to the 2015 Resource Statement in the form and context in
which it appears.
Competent Persons Statement (Sulphate of Potash Reserve)
The November 2015 Colluli Ore Reserve is reported according to the JORC Code and estimated at 1,113Mt @10% K2O Equiv. The Ore
Reserve is classed as 286Mt @ 11% K2O Equiv Proved and 827Mt @ 10% K2O Equiv Probable. The Competent Person for the estimate
is Mr Mark Chesher, a mining engineer with more than 30 years’ experience in the mining industry. Mr. Chesher is a Fellow of the AusIMM,
a Chartered Professional, a full-time employee of AMC Consultants Pty Ltd, and has sufficient open pit mining activity experience relevant
to the style of mineralisation and type of deposit under consideration to qualify as a Competent Person as defined in the JORC Code. Mr
Chesher consents to the inclusion of information relating to the Ore Reserve in the form and context in which it appears.
In reporting the Mineral Resources and Ore Reserves referred to in this public release, AMC Consultants Pty Ltd acted as an independent
party, has no interest in the outcome of the Colluli Project and has no business relationship with Danakali Ltd 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 Consultants Pty Ltd 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-
UmwelttechnikGmBHSondershausen, Germany utilising
flame emission spectrometry, atomic absorption spectroscopy and
ionchromatography. Kali- Umwelttechnik (KUTEC) Sondershausen1 have extensive experience in analysis of salt rock and brine samples
and is certified according by DIN EN ISO/IEC 17025 by the Deutsche AkkreditierungssystemPrüfwesen GmbH (DAR). The laboratory
2-, H2O) and X-ray
follows standard procedures for the analysis of potash salt rocks chemical analysis (K+, Na+, Mg2+, Ca2+, Cl-, SO4
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.
DANAKALI LIMITED
ABN 56 097 904 302
Page 38
25
Danakali Annual Report 2016DANAKALI LIMITED
Ernst & Young
11 Mounts Bay Road
Perth WA 6000 Australia
GPO Box M939 Perth WA 6843
Ernst & Young
11 Mounts Bay Road
Perth WA 6000 Australia
GPO Box M939 Perth WA 6843
Tel: +61 8 9429 2222
Fax: +61 8 9429 2436
ey.com/au
Tel: +61 8 9429 2222
Fax: +61 8 9429 2436
ey.com/au
Auditor’s Independence Declaration to the Directors of Danakali Limited
As lead auditor for the audit of Danakali Limited for the financial year ended 31 December 2016, I declare
Auditor’s Independence Declaration to the Directors of Danakali Limited
to the best of my knowledge and belief, there have been:
As lead auditor for the audit of Danakali Limited for the financial year ended 31 December 2016, I declare
no contraventions of the auditor independence requirements of the Corporations Act 2001 in
a)
to the best of my knowledge and belief, there have been:
relation to the audit; and
a)
b)
no contraventions of the auditor independence requirements of the Corporations Act 2001 in
no contraventions of any applicable code of professional conduct in relation to the audit.
relation to the audit; and
This declaration is in respect of Danakali Limited and the entities it controlled during the financial year.
b)
no contraventions of any applicable code of professional conduct in relation to the audit.
This declaration is in respect of Danakali Limited and the entities it controlled during the financial year.
Ernst & Young
Ernst & Young
Gavin Buckingham
Partner
Perth
Gavin Buckingham
9 March 2017
Partner
Perth
9 March 2017
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
Page 39
39
39
Danakali Annual Report 2016DANAKALI LIMITED
DANAKALI LTD
FINANCIAL
RESULTS
FOR THE YEAR ENDED
31 DECEMBER 2016
Page 40
Danakali Annual Report 2016DANAKALI LIMITED Consolidated Statement of Profit or Loss and Other
Comprehensive Income
FOR THE YEAR ENDED 31 DECEMBER 2016
Notes
2016
$
2015
$
REVENUE
Interest income
Accretion relating to the unwinding of discount on joint venture loan
4
10
109,537
1,554,925
149,149
1,571,789
OTHER INCOME
Research and Development tax rebate
Foreign exchange gain
Sundry
EXPENSES
Depreciation expense
Administration expenses
Loss on disposal of fixed asset
Share based payment expense
Loss on re-measurement of loan to joint venture carried at amortised
cost
Share of net loss of joint venture
LOSS BEFORE INCOME TAX
Income tax expense
LOSS FOR THE YEAR
-
224,230
-
177,441
661,400
933
(10,131)
(1,999,782)
(1,483)
(1,290,347)
(2,812,064)
(700,443)
(4,925,558)
(13,344)
(2,527,940)
(12,548)
(726,467)
-
(6,073,098)
(6,792,685)
-
-
(4,925,558)
(6,792,685)
5
22
10
10
7
OTHER COMPREHENSIVE INCOME
Items that may be reclassified to profit or loss
Share of foreign currency translation reserve relating to equity
accounted investment
OTHER COMPREHENSIVE INCOME FOR THE YEAR, NET OF TAX
10,14
269,925
269,925
1,312,700
1,312,700
TOTAL COMPREHENSIVE LOSS FOR THE YEAR
(4,655,633)
(5,479,985)
Earnings per share for loss attributable to the ordinary equity
holders of the Company (i):
Basic loss per share (cents per share)
Diluted loss per share (cents per share)
17
17
(2.35)
(2.35)
(3.86)
(3.86)
(i) The Placement Shares issued on 31 March 2016 were issued at a discount to the then market price. Accordingly, the earnings per share
for all periods up to the date on which the shares were issued has been adjusted for the bonus element of the share issue. The bonus
factor applied was 1.0367. Comparative earnings per share has been adjusted accordingly.
The above Consolidated Statement of Profit or Loss and Other Comprehensive Income should be read in conjunction
with the accompanying notes.
DANAKALI LIMITED
ABN 56 097 904 302
Page 41
27
Danakali Annual Report 2016DANAKALI LIMITED
Consolidated Statement of Financial Position
AS AT 31 DECEMBER 2016
CURRENT ASSETS
Cash
Trade and other receivables
Prepayments
TOTAL CURRENT ASSETS
NON-CURRENT ASSETS
Receivables
Investment in joint venture
Plant and equipment
TOTAL NON-CURRENT ASSETS
TOTAL ASSETS
CURRENT LIABILITIES
Trade and other payables
Provisions
TOTAL CURRENT LIABILITIES
NON-CURRENT LIABILITIES
Provisions
TOTAL NON-CURRENT LIABILITIES
TOTAL LIABILITIES
NET ASSETS
EQUITY
Issued capital
Reserves
Accumulated losses
TOTAL EQUITY
Notes
2016
$
2015
$
6
8
8
10
9
11
12
12
13
14
15
10,904,760
93,985
25,101
11,023,846
9,519,503
13,502,312
7,920
23,029,735
2,756,341
180,582
27,034
2,963,957
9,878,007
12,064,742
16,412
21,959,161
34,053,581
24,923,118
210,742
134,701
345,443
42,450
42,450
552,085
114,466
666,551
-
-
387,893
666,551
33,665,688
24,256,567
61,758,320
12,466,779
(40,559,411)
33,665,688
48,983,913
10,906,507
(35,633,853)
24,256,567
The above Consolidated Statement of Financial Position should be read in conjunction with the accompanying notes
DANAKALI LIMITED
ABN 56 097 904 302
Page 42
28
Danakali Annual Report 2016DANAKALI LIMITED
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Page 43
Danakali Annual Report 2016DANAKALI LIMITED
Consolidated Statement of Cash Flows
FOR THE YEAR ENDED 31 DECEMBER 2016
Notes
2016
$
2015
$
CASH FLOWS FROM OPERATING ACTIVITIES
Interest received
Realised foreign exchange gain
Payments to suppliers and employees
Sundry income
Research and Development tax rebate
NET CASH OUTFLOW FROM OPERATING ACTIVITIES
16
CASH FLOWS FROM INVESTING ACTIVITIES
Funding of joint venture
Payments for plant and equipment
NET CASH OUTFLOW FROM INVESTING ACTIVITIES
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issues of ordinary shares
Costs of capital raised
NET CASH INFLOW FROM FINANCING ACTIVITIES
NET INCREASE / (DECREASE) IN CASH
Cash at the beginning of the financial year
CASH AT THE END OF THE YEAR
104,964
169,987
(1,945,485)
-
-
(1,670,534)
171,422
-
(2,547,126)
933
177,441
(2,197,330)
(2,952,332)
(3,122)
(2,955,454)
(10,085,193)
(4,278)
(10,089,471)
13,360,664
(586,257)
12,774,407
8,148,419
2,756,341
6
10,904,760
8,162,061
(232,313)
7,929,748
(4,357,053)
7,113,394
2,756,341
The above Consolidated Statement of Cash Flows should be read in conjunction with the accompanying notes.
DANAKALI LIMITED
ABN 56 097 904 302
Page 44
30
Danakali Annual Report 2016DANAKALI LIMITED
Notes to the Consolidated Financial Statements
FOR THE YEAR ENDED 31 DECEMBER 2016
1. GENERAL INFORMATION
Danakali Ltd (‘Danakali or the ‘Company’) is a for profit company limited by shares, incorporated and domiciled in Australia,
and whose shares are publicly traded on the Australian Securities Exchange (ASX). The consolidated financial Report of
the Group as at, and for the year ended 31 December 2016 comprises the Company and its subsidiaries (together referred
to as the ‘Group’). The address of the registered office is Ground Floor, 31 Ventnor Avenue, West Perth, WA, 6005.
The financial statements are presented in the Australian currency.
The financial report of Danakali for the year ended 31 December 2016 was authorised for issue by the Directors on 9
March 2017. The directors have the power to amend and reissue the financial statements.
The nature of the operations and principal activities of the consolidated entity are described in the Directors’ Report.
2. BASIS OF PREPARATION
The principal accounting policies adopted in the preparation of the financial statements are set out below. These policies
have been consistently applied to all the periods presented, unless otherwise stated.
These general purpose financial statements have been prepared in accordance with Australian Accounting Standards,
other authoritative pronouncements of the Australian Accounting Standards Board, Australian Accounting Interpretations
and the Corporations Act 2001.
The consolidated financial statements of the Danakali Ltd Group also comply with International Financial Reporting
Standards (IFRS) as issued by the International Accounting Standards Board (IASB).
These financial statements have been prepared under the historical cost convention.
(a) Principles of consolidation
Subsidiaries are all entities over which the Group has control. The Group controls an entity when the Group is exposed
to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through
its power to direct the activities of the entity. Subsidiaries are fully consolidated from the date on which control is transferred
to the Group. They are de-consolidated from the date that control ceases.
The acquisition method of accounting is used to account for business combinations by the Group. Intercompany
transactions, balances and unrealised gains on transactions between Group companies are eliminated. Unrealised losses
are also eliminated unless the transaction provides evidence of an impairment of the transferred asset. Accounting policies
of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.
(b) Segment reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision
maker. The chief operating decision maker, who is responsible for allocating resources and assessing performance of the
operating segments, has been identified as the full Board of Directors.
(c) Foreign currency translation
(i) Functional and presentation currency
Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary
economic environment in which the entity operates (‘the functional currency’). The consolidated financial statements are
presented in Australian dollars, which is Danakali's functional and presentation currency.
(ii) Transactions and balances
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates
of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the
translation at period end exchange rates of monetary assets and liabilities denominated in foreign currencies are
recognised in profit or loss.
(iii) Foreign operations
The results and financial position of foreign operations (none of which has the currency of a hyperinflationary economy)
that have a functional currency different from the presentation currency are translated into the presentation currency as
follows:
assets and liabilities for each statement of financial position presented are translated at the closing rate at the
date of that statement of financial position;
income and expenses for each statement of comprehensive income are translated at average exchange rates
(unless that is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction
dates, in which case income and expenses are translated at the dates of the transactions); and
all resulting exchange differences are recognised in other comprehensive income.
When a foreign operation is sold or any borrowings forming part of the net investment are repaid, a proportionate share of
such exchange differences is reclassified to profit or loss, as part of the gain or loss on sale where applicable.
DANAKALI LIMITED
Page 45
ABN 56 097 904 302
31
Danakali Annual Report 2016DANAKALI LIMITED
Notes to the Consolidated Financial Statements (Cont’d)
FOR THE YEAR ENDED 31 DECEMBER 2016
(d) Revenue recognition
Interest revenue is recognised on a time proportionate basis that takes into account the effective yield on the financial
assets.
(e)
Income tax
The income tax expense or revenue for the period is the tax payable on the current period’s taxable income based on the
applicable income tax rate for each jurisdiction adjusted by changes in deferred tax assets and liabilities attributable to
temporary differences and to unused tax losses.
The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the end of the
reporting period in the countries where the Company’s subsidiaries operate and generate taxable income. Management
periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject
to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax
authorities.
Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases
of assets and liabilities and their carrying amounts in the financial statements. However, the deferred income tax is not
accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination
that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined
using tax rates (and laws) that have been enacted or substantially enacted by the reporting date and are expected to apply
when the related deferred income tax asset is realised or the deferred income tax liability is settled.
Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that
future taxable amounts will be available to utilise those temporary differences and losses.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets and
liabilities and when the deferred tax balances relate to the same taxation authority. Current tax assets and tax liabilities are
offset where the entity has a legally enforceable right to offset and intends either to settle on a net basis, or to realise the
asset and settle the liability simultaneously.
Current and deferred tax is recognised in profit or loss, except to the extent that it relates to items recognised in other
comprehensive income or directly in equity. In this case, the tax is also recognised in other comprehensive income or
directly in equity, respectively.
(f) Leases
Leases of property, plant and equipment where the Group, as lessee, has substantially all the risks and rewards of
ownership are classified as finance leases. Finance leases are capitalised at the lease’s inception at the fair value of the
leased property or, if lower, the present value of the minimum lease payments. The corresponding rental obligations, net
of finance charges, are included in other short-term and long-term payables. Each lease payment is allocated between the
liability and finance cost. The finance cost is charged to profit or loss over the lease period so as to produce a constant
periodic rate of interest on the remaining balance of the liability for each period. The property, plant and equipment acquired
under finance leases is depreciated over the shorter of the asset’s useful life and the lease term.
Leases where a significant portion of the risks and rewards of ownership are not transferred to the Group as lessee are
classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are
charged to profit or loss on a straight-line basis over the period of the lease.
(g)
Impairment of assets
Assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may
not be recoverable.
An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount.
The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of
assessing impairment, assets are consolidated at the lowest levels for which there are separately identifiable cash inflows
which are largely independent of the cash inflows from other assets (cash-generating units). Non-financial assets other
than goodwill that suffered an impairment are reviewed for possible reversal of the impairment at each reporting date.
(h) Cash and cash equivalents
For Consolidated Statement of Cash Flows presentation purposes, cash and cash equivalents includes cash on hand,
deposits held at call with financial institutions, other short-term highly liquid investments with original maturities of three
months or less that are readily convertible to known amounts of cash and which are subject to insignificant risk of changes
in value, and bank overdrafts.
(i) Trade and other receivables
Receivables are recognised and carried at original invoice amount less an allowance for any uncollectible debts. An
estimate for doubtful debts is made when collection of the full amount is no longer probable. Bad debts are written-off as
incurred.
DANAKALI LIMITED
ABN 56 097 904 302
Page 46
32
Danakali Annual Report 2016DANAKALI LIMITED
Notes to the Consolidated Financial Statements (Cont’d)
FOR THE YEAR ENDED 31 DECEMBER 2016
(j)
Investments and other financial assets
Classification
The Group classifies its investments in the following categories: financial assets at fair value through profit or loss, loans
and receivables, held-to-maturity investments and available-for-sale financial assets. The classification depends on the
purpose for which the investments were acquired. Management determines the classification of its investments at initial
recognition and, in the case of assets classified as held-to-maturity, re-evaluates this designation at each reporting date.
(i) Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an
active market. They are included in current assets, except for those with maturities greater than 12 months after the
reporting date which are classified as non-current assets. Loans and receivables are included in trade and other
receivables in the statement of financial position.
(k)
Investment in joint ventures
A joint venture is a type of joint arrangement whereby the parties that have joint control of the arrangement have rights to
the net assets of the joint venture. Joint control is the contractually agreed sharing of control of an arrangement, which
exists only when decisions about the relevant activities require unanimous consent of the parties sharing control.
The Group’s investment in a joint venture is accounted for using the equity method.
Under the equity method, the investment in a joint venture is initially recognised at cost. The carrying amount of the
investment is adjusted to recognise changes in the Group’s share of net assets of the joint venture since the acquisition
date. Goodwill relating to the joint venture is included in the carrying amount of the investment and is neither amortised nor
individually tested for impairment.
The statement of profit or loss reflects the Group’s share of the results of operations of the joint venture. Any change in
other comprehensive income of those investees is presented as part of the Group’s other comprehensive income. In
addition, when there has been a change recognised directly in the equity of the joint venture, the Group recognises its
share of any changes, when applicable, in the statement of changes in equity. Unrealised gains and losses resulting from
transactions between the Group and the joint venture are eliminated to the extent of the interest in the joint venture.
The aggregate of the Group’s share of profit or loss of a joint venture is shown on the face of the statement of profit or loss
outside operating profit and represents profit or loss after tax and non-controlling interests in the subsidiaries of the joint
venture.
The financial statements of the joint venture are prepared for the same reporting period as the Group. When necessary,
adjustments are made to bring the accounting policies in line with those of the Group.
After application of the equity method, the Group determines whether it is necessary to recognise an impairment loss on
its investment in its joint venture. At each reporting date, the Group determines whether there is objective evidence that
the investment in the joint venture is impaired. If there is such evidence, the Group calculates the amount of impairment
as the difference between the recoverable amount of the joint venture and its carrying value, then recognises the loss as
‘Share of profit of the equity accounted investment’ in profit or loss.
Upon loss of joint control over a joint venture, the Group measures and recognises any retained investment at its fair value.
Any difference between the carrying amount of the joint venture upon loss of joint control and the fair value of the retained
investment and proceeds from disposal is recognised in profit or loss.
(l) Plant and equipment
All plant and equipment is stated at historical cost less depreciation. Historical cost includes expenditure that is directly
attributable to the acquisition of the items.
Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only
when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item
can be measured reliably. The carrying amount of any component accounted for as a separate asset is de-recognised
when replaced. All other repairs and maintenance are charged to profit or loss during the reporting period in which they
are incurred.
Depreciation of plant and equipment is calculated using the reducing balance method to allocate their cost, net of their
residual values, over their estimated useful lives or, in the case of leasehold improvements and certain leased plant and
equipment, the shorter lease term. The rates vary between 20% and 40% per annum.
The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each reporting date.
An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater
than its estimated recoverable amount (note 2(g)).
Gains and losses on disposals are determined by comparing proceeds with carrying amount. These are included in profit
or loss. When revalued assets are sold, it is Group’s policy to transfer the amounts included in other reserves in respect of
those assets to retained earnings.
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Danakali Annual Report 2016DANAKALI LIMITED
Notes to the Consolidated Financial Statements (Cont’d)
FOR THE YEAR ENDED 31 DECEMBER 2016
(m) Exploration and evaluation costs
Acquired exploration and evaluation costs are capitalised. Ongoing exploration and evaluation costs are expensed in the
period they are incurred.
(n) Trade and other payables
These amounts represent liabilities for goods and services provided to the Group prior to the end of the financial period
which are unpaid. The amounts are unsecured, non-interest bearing and are paid on normal commercial terms.
(o) Employee benefits
(i) Wages and salaries and annual leave
Liabilities for wages and salaries, including non-monetary benefits, and annual leave expected to be settled within 12
months of the reporting date are recognised in other payables in respect of employees’ services up to the reporting date
and are measured at the amounts expected to be paid when the liabilities are settled.
(ii) Share-based payments
The Group provides benefits to employees (including directors) of the Group in the form of share-based payment
transactions, whereby employees render services in exchange for shares or rights over shares (‘equity-settled
transactions’) refer to note 22.
The cost of these equity-settled transactions with employees is measured by reference to the fair value at the date at which
they are granted. The fair value of options is determined by an internal valuation using a Black-Scholes option pricing
model. The fair value of performance rights determined by consideration of the Company’s share price at the grant date
and consideration of the specific non-market vesting conditions applicable to the performance rights.
The cost of equity-settled transactions is recognised, together with a corresponding increase in equity, over the period in
which the performance conditions are fulfilled, ending on the date on which the relevant employees become fully entitled
to the award (‘vesting date’).
The cumulative expense recognised for equity-settled transactions at each reporting date until vesting date reflects (i) the
extent to which the vesting period has expired and (ii) the number of options that, in the opinion of the directors of the
Company, will ultimately vest. This opinion is formed based on the best available information at balance date. No
adjustment is made for the likelihood of market performance conditions being met as the effect of these conditions is
included in the determination of fair value at grant date.
No expense is recognised for awards that do not ultimately vest, except for awards where vesting is conditional upon a
market condition.
Where an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any expense
not yet recognised for the award is recognised immediately. However, if a new award is substituted for the cancelled award,
and designated as a replacement award on the date that it is granted, the cancelled and new award are treated as if they
were a modification of the original award.
(p)
Issued capital
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are
shown in equity as a deduction, net of tax, from the proceeds.
(q) Earnings per share
(i) Basic earnings per share
Basic earnings per share is calculated by dividing the profit or loss attributable to owners of the Company, excluding any
costs of servicing equity other than ordinary shares, by the weighted average number of ordinary shares outstanding during
the financial period, adjusted for bonus elements in ordinary shares issued during the period.
(ii) Diluted earnings per share
Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account
the after income tax effect of interest and other financing costs associated with dilutive potential ordinary shares and the
weighted average number of shares assumed to have been issued for no consideration in relation to dilutive potential
ordinary shares.
(r) Critical accounting judgements, estimates and assumptions
The preparation of these financial statements requires the use of certain critical accounting estimates. It also requires
management to exercise its judgement in the process of applying the Group’s accounting policies. The areas involving a
higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial
statements are:
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Danakali Annual Report 2016DANAKALI LIMITED
Notes to the Consolidated Financial Statements (Cont’d)
FOR THE YEAR ENDED 31 DECEMBER 2016
(i) Impairment
The Group assesses impairment of all assets at each reporting date by evaluating conditions specific to the Group and to
the particular asset that may lead to impairment. Where an impairment trigger exists, the recoverable amount of the asset
is determined. As at 31 December 2016 the Group assessed that, no indication of impairment existed (31 December 2015:
Nil).
(ii) Interests in Joint Arrangements
The Group accounts for its 50% interest in CMSC as a joint venture using the equity method.
Danakali holds 3 of 5 CMSC Board seats, however in reference to certain material decisions which are reserved for Majority
Shareholder approval it has been determined that the interest in CMSC is more appropriately classified as an interest in a
joint venture and has been accounted for using the equity method. These shareholder voting rights are considered to be
substantive rights particularly in the early stages of the project development.
The assumptions applied in accounting for the interest in the joint venture includes determining the timing of cash receipts
and the discount rate applied. At 31 December 2016 a discount rate of 25% was applied, which is consistent with previous
years. The timing of cash receipts has been adjusted according to management’s best estimate and is currently estimated
to run to March 2020.
Further context is detailed in note 10.
(iii) Share based payment transactions
The Group measures the cost of equity-settled transactions with employees by reference to the fair value of the equity
instruments at the date at which they are granted. The fair value of options is determined by an internal valuation using a
Black-Scholes option pricing model, using the assumptions detailed in note 22.
The fair value of performance rights is determined by the share price at the date of valuation and consideration of the
probability of the vesting condition being met.
(s) Goods and Services Tax (GST)
Revenues, expenses and assets are recognised net of the amount of associated GST, unless the GST incurred is not
recoverable from the taxation authority. In this case, it is recognised as part of the cost of acquisition of the asset or as part
of the expense.
Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount of GST
recoverable from, or payable to, the taxation authority is included with other receivables or payables in the Consolidated
Statement of Financial Position.
Cash flows are presented on a gross basis. The GST components of cash flows arising from investing or financing activities
which are recoverable from, or payable to the taxation authority, are presented as operating cash flows.
(t) Government grants
Government grants are recognised where there is reasonable assurance that the grant will be received and all attached
conditions will be complied with. When the grant relates to an expense item, it is recognised as income on a systematic
basis over the periods that the related costs, for which it is intended to compensate, are expensed. When the grant relates
to an asset, it is recognised as income in equal amounts over the expected useful life of the related asset.
(u) Application of new accounting standards
All new accounting standards or amendments applicable to the Group and effective from 1 January 2016 have been
adopted. The adoption of these new and amended standards and interpretations did not result in any significant changes
to the Group’s accounting policies.
The accounting policies and methods of computation adopted in the preparation of the financial report are consistent with
those adopted and disclosed in the Group’s annual financial report period ended 31 December 2015.
(v) New accounting standards and interpretations not yet effective
Australian Accounting Standards that have recently been issued or amended but are not yet effective and have not been
adopted by the Group for the annual reporting year ended 31 December 2016 are outlined in the table below. The potential
effect of these Standards is yet to be fully determined.
Reference
Title
Summary
AASB 9
Financial Instruments
AASB 9 (December 2014) is a new standard which
replaces AASB 139. This new version supersedes
AASB 9 issued in December 2009 (as amended)
and AASB 9 (issued in December 2010) and
includes a model for classification and
measurement, a single, forward-looking ‘expected
Application date
of standard*
for Group*
1 January 2018
1 January 2018
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Danakali Annual Report 2016DANAKALI LIMITED
Notes to the Consolidated Financial Statements (Cont’d)
FOR THE YEAR ENDED 31 DECEMBER 2016
Reference
Title
Summary
Application date
of standard*
for Group*
loss’ impairment model and a substantially-
reformed approach to hedge accounting.
AASB 9 is effective for annual periods beginning
on or after 1 January 2018. However, the Standard
is available for early adoption. The own credit
changes can be early adopted in isolation without
otherwise changing the accounting for financial
instruments.
Classification and measurement
AASB 9 includes requirements for a simpler
approach for classification and measurement of
financial assets compared with the requirements of
AASB 139. There are also some changes made in
relation to financial liabilities.
The main changes are described below.
Financial assets
a) Financial assets that are debt instruments will
be classified based on (1) the objective of the
entity's business model for managing the
financial assets; (2) the characteristics of the
contractual cash flows.
b) Allows an irrevocable election on initial
recognition to present gains and losses on
investments in equity instruments that are not
held for trading in other comprehensive
income. Dividends in respect of these
investments that are a return on investment
can be recognised in profit or loss and there is
no impairment or recycling on disposal of the
instrument.
c) Financial assets can be designated and
measured at fair value through profit or loss at
initial recognition if doing so eliminates or
significantly reduces a measurement or
recognition inconsistency that would arise from
measuring assets or liabilities, or recognising
the gains and losses on them, on different
bases.
Financial liabilities
Changes introduced by AASB 9 in respect of
financial liabilities are limited to the measurement
of liabilities designated at fair value through profit
or loss (FVPL) using the fair value option.
Where the fair value option is used for financial
liabilities, the change in fair value is to be
accounted for as follows:
► The change attributable to changes in credit
risk are presented in other comprehensive
income (OCI)
► The remaining change is presented in profit or
loss
AASB 9 also removes the volatility in profit or loss
that was caused by changes in the credit risk of
liabilities elected to be measured at fair value. This
change in accounting means that gains or losses
attributable to changes in the entity’s own credit
risk would be recognised in OCI. These amounts
recognised in OCI are not recycled to profit or loss
if the liability is ever repurchased at a discount.
Impairment
The final version of AASB 9 introduces a new
expected-loss impairment model that will require
more timely recognition of expected credit losses.
Specifically, the new Standard requires entities to
account for expected credit losses from when
financial instruments are first recognised and to
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Danakali Annual Report 2016DANAKALI LIMITED
Notes to the Consolidated Financial Statements (Cont’d)
FOR THE YEAR ENDED 31 DECEMBER 2016
Reference
Title
Summary
Application date
of standard*
for Group*
AASB 15
Revenue from Contracts
with Customers
1 January 2018
1 January 2018
recognise full lifetime expected losses on a more
timely basis.
Hedge accounting
Amendments to AASB 9 (December 2009 and
2010 editions and AASB 2013-9) issued in
December 2013 included the new hedge
accounting requirements, including changes to
hedge effectiveness testing, treatment of hedging
costs, risk components that can be hedged and
disclosures.
Consequential amendments were also made to
other standards as a result of AASB 9, introduced
by AASB 2009-11 and superseded by AASB 2010-
7, AASB 2010-10 and AASB 2014-1 – Part E.
AASB 2014-7 incorporates the consequential
amendments arising from the issuance of AASB 9
in Dec 2014.
AASB 2014-8 limits the application of the existing
versions of AASB 9 ((AASB 9 (December 2009)
and AASB 9 (December 2010)) from 1 February
2015 and applies to annual reporting periods
beginning on after 1 January 2015.
AASB 15 Revenue from Contracts with Customers
replaces the existing revenue recognition
standards AASB 111 Construction Contracts,
AASB 118 Revenue and related Interpretations
(Interpretation 13 Customer Loyalty Programmes,
Interpretation 15 Agreements for the Construction
of Real Estate, Interpretation 18 Transfers of
Assets from Customers, Interpretation 131
Revenue—Barter Transactions Involving
Advertising Services and Interpretation 1042
Subscriber Acquisition Costs in the
Telecommunications Industry). AASB 15
incorporates the requirements of IFRS 15
Revenue from Contracts with Customers issued by
the International Accounting Standards Board
(IASB) and developed jointly with the US Financial
Accounting Standards Board (FASB).
AASB 15 specifies the accounting treatment for
revenue arising from contracts with customers
(except for contracts within the scope of other
accounting standards such as leases or financial
instruments). The core principle of AASB 15 is that
an entity recognises revenue to depict the transfer
of promised goods or services to customers in an
amount that reflects the consideration to which the
entity expects to be entitled in exchange for those
goods or services. An entity recognises revenue in
accordance with that core principle by applying the
following steps:
a) Step 1: Identify the contract(s) with a customer
b) Step 2: Identify the performance obligations in
the contract
c) Step 3: Determine the transaction price
d) Step 4: Allocate the transaction price to the
performance obligations in the contract
e) Step 5: Recognise revenue when (or as) the
entity satisfies a performance obligation
AASB 2015-8 amended the AASB 15 effective
date so it is now effective for annual reporting
periods commencing on or after 1 January 2018.
Early application is permitted. AASB 2014-5
incorporates the consequential amendments to a
number Australian Accounting Standards
(including Interpretations) arising from the
issuance of AASB 15. AASB 2016-3 Amendments
to Australian Accounting Standards – Clarifications
DANAKALI LIMITED
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Danakali Annual Report 2016DANAKALI LIMITED
Notes to the Consolidated Financial Statements (Cont’d)
FOR THE YEAR ENDED 31 DECEMBER 2016
Reference
Title
Summary
Application date
of standard*
for Group*
AASB 2014-10
Amendments to Australian
Accounting Standards –
Sale or Contribution of
Assets between an
Investor and its Associate
or Joint Venture
1 January 2018
1 January 2018
to AASB 15 amends AASB 15 to clarify the
requirements on identifying performance
obligations, principal versus agent considerations
and the timing of recognising revenue from
granting a licence and provides further practical
expedients on transition to AASB 15.
AASB 2014-10 amends AASB 10 Consolidated
Financial Statements and AASB 128 to address an
inconsistency between the requirements in AASB
10 and those in AASB 128 (August 2011), in
dealing with the sale or contribution of assets
between an investor and its associate or joint
venture. The amendments require:
a) A full gain or loss to be recognised when a
transaction involves a business (whether it is
housed in a subsidiary or not)
b) A partial gain or loss to be recognised when a
transaction involves assets that do not
constitute a business, even if these assets are
housed in a subsidiary.
AASB 2014-10 also makes an editorial correction
to AASB 10.
AASB 2015-10 defers the mandatory effective
date (application date) of AASB 2014-10 so that
the amendments are required to be applied for
annual reporting periods beginning on or after 1
January 2018** instead of 1 January 2016.
AASB 16
Leases
The key features of AASB 16 are as follows:
1 January 2019
1 January 2019
Lessee accounting
Lessees are required to recognise assets and
liabilities for all leases with a term of more than
12 months, unless the underlying asset is of
low value.
Assets and liabilities arising from a lease are
initially measured on a present value basis.
The measurement includes non-cancellable
lease payments (including inflation-linked
payments), and also includes payments to be
made in optional periods if the lessee is
reasonably certain to exercise an option to
extend the lease, or not to exercise an option
to terminate the lease.
AASB 16 contains disclosure requirements for
lessees.
Lessor accounting
AASB 16 substantially carries forward the
lessor accounting requirements in AASB 117.
Accordingly, a lessor continues to classify its
leases as operating leases or finance leases,
and to account for those two types of leases
differently.
AASB 16 also requires enhanced disclosures
to be provided by lessors that will improve
information disclosed about a lessor’s risk
exposure, particularly to residual value risk.
AASB 16 supersedes:
a) AASB 117 Leases
b) Interpretation 4 Determining whether an
Arrangement contains a Lease
c) SIC-15 Operating Leases—Incentives
d) SIC-27 Evaluating the Substance of
Transactions Involving the Legal Form of a
Lease
The new standard will be effective for annual
periods beginning on or after 1 January 2019.
Early application is permitted, provided the new
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Danakali Annual Report 2016DANAKALI LIMITED
Notes to the Consolidated Financial Statements (Cont’d)
FOR THE YEAR ENDED 31 DECEMBER 2016
Reference
Title
Summary
Application date
of standard*
for Group*
revenue standard, AASB 15 Revenue from
Contracts with Customers, has been applied, or is
applied at the same date as AASB 16.
AASB 2016-1
Amendments to Australian
Accounting Standards –
Recognition of Deferred
Tax Assets for Unrealised
Losses [AASB 112]
This Standard amends AASB 112 Income Taxes
(July 2004) and AASB 112 Income Taxes (August
2015) to clarify the requirements on recognition of
deferred tax assets for unrealised losses on debt
instruments measured at fair value.
1 January 2017
1 January 2017
AASB 2016-2
Amendments to Australian
Accounting Standards –
Disclosure Initiative:
Amendments to AASB 107
AASB 2016-5
Amendments to Australian
Accounting Standards –
Classification and
Measurement of Share-
based Payment
Transactions [AASB 2]
Annual Improvements to
IFRS Standards 2014–
2016 Cycle
Annual
Improvements
to IFRS
Standards
2014–2016
Cycle^
IFRIC
Interpretation
22^
IFRIC Interpretation 22
Foreign Currency
Transactions and Advance
Consideration
This Standard amends AASB 107 Statement of
Cash Flows (August 2015) to require entities
preparing financial statements in accordance with
Tier 1 reporting requirements to provide
disclosures that enable users of financial
statements to evaluate changes in liabilities arising
from financing activities, including both changes
arising from cash flows and non-cash changes.
This standard amends AASB 2 Share-based
Payment, clarifying how to account for certain
types of share-based payment transactions. The
amendments provide requirements on the
accounting for:
The effects of vesting and non-vesting
conditions on the measurement of cash-settled
share-based payments
Share-based payment transactions with a net
settlement feature for withholding tax
obligations
A modification to the terms and conditions of a
share-based payment that changes the
classification of the transaction from cash-
settled to equity-settled
This amending standard addresses the following:
IFRS 12 Disclosure of Interests in Other
Entities Clarification of the scope of the
Standard (effective date 1 January 2017)
IFRS 1 First-time Adoption of International
Financial Reporting Standards - Deletion of
short-term exemptions for first-time adopters
(effective date 1 January 2018)
IAS 28 Investments in Associates and Joint
Ventures - Measuring an associate or joint
venture at fair value. (effective date 1 January
2018)
IFRIC Interpretation 22 Foreign Currency
Transactions and Advance Consideration, which
addresses the exchange rate to use in
transactions that involve advance consideration
paid or received in a foreign currency, is effective 1
January 2018.
1 January 2017
1 January 2017
1 January 2018
1 January 2018
1 January 2017
1 January 2017
1 January 2018
1 January 2018
The Company is currently evaluating the impact of these new standards.
* Designates the beginning of the applicable annual reporting period unless otherwise stated
** In December 2015, the IASB postponed the effective date of the amendments indefinitely pending the outcome of its
research project on the equity method of accounting.
^ Currently only issued by the IASB but may be adopted by the AASB in future periods.
DANAKALI LIMITED
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Danakali Annual Report 2016DANAKALI LIMITED
Notes to the Consolidated Financial Statements (Cont’d)
FOR THE YEAR ENDED 31 DECEMBER 2016
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.
The Group’s non-current assets are geographically located in Eritrea.
4. REVENUE
Interest
5. EXPENSES
Profit /(loss) before income tax includes the following specific expenses:
Lease payments relating to operating leases
Share based payment expense
Depreciation
Employee Benefits
6. CASH
Cash at bank and in hand
2016
$
2015
$
109,537
149,149
2016
$
2015
$
116,691
1,290,347
10,131
1,181,957
111,396
726,467
13,344
807,600
2016
$
10,904,760
2015
$
2,756,341
Cash at bank earns interest at floating rates based on daily bank deposit rates.
Short-term deposits are made for varying periods of between one day and three months depending on the immediate cash
requirements of the Group, and earn interest at the respective short-term deposit rates.
7.
INCOME TAX
(a) Income tax recognised in profit or loss
Current tax
Deferred tax
Total tax benefit/(expense)
(b) Reconciliation of income tax expense to prima facie tax payable
Loss before income tax expense
Prima facie tax benefit at the Australian tax rate of 30% (2015: 30%)
Tax effect of amounts which are not deductible (taxable) in calculating taxable
income:
Share-based payments
Research and Development tax refund
Share of net loss of equity accounted associate
Accretion relating to the unwinding of discount on joint venture loan
Movements in unrecognised temporary differences and tax effect of current
year tax losses:
Income tax expense/(benefit)
2016
$
2015
$
-
-
-
-
-
-
(4,925,558)
(6,792,685)
(1,477,667)
(2,037,806)
387,104
-
210,133
(466,478)
1,346,908
-
217,940
(53,232)
1,821,929
(471,537)
522,706
-
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Danakali Annual Report 2016DANAKALI LIMITED
Notes to the Consolidated Financial Statements (Cont’d)
FOR THE YEAR ENDED 31 DECEMBER 2016
7.
INCOME TAX (Cont’d)
(c) Deferred Income Tax
Deferred income tax at 31 December relates to the following:
Statement of
Financial Position
2016
$
2015
$
Statement of
Comprehensive Income
2015
2016
$
$
(3,151)
(1,779)
(1,372)
6,682
53,145
6,600
182,609
4,660,393
34,340
6,000
323
3,960,812
(4,899,596)
-
(3,999,696)
-
18,805
600
182,286
699,581
(899,900)
-
15,260
(1,050)
(420)
502,234
(522,706)
-
Deferred Tax Liabilities:
Interest receivable
Deferred Tax Assets:
Provision for employee entitlements
Accrued expenditure
s.40-880 expenditure
Revenue tax losses
Deferred tax assets not brought to
account as realisation is not probable
(d) Deferred Tax Assets
On Income Tax Account:
Tax losses
Deferred tax assets offset against deferred tax liabilities
Deferred tax assets not brought to account
2016
$
2015
$
15,534,643
-
(15,534,643)
-
13,202,707
-
(13,202,707)
-
Net deferred tax assets have not been brought to account as it is not probable within the immediate future that tax profits
will be available against which deductible temporary differences and tax losses can be utilised.
8. TRADE AND OTHER RECEIVABLES
Current
Net GST receivable
Accrued interest
Trade debtors
Other receivables
Security bonds
Non-Current
Loan to Colluli Mining Share Company
2016
$
2015
$
28,546
10,504
652
2,283
52,000
93,985
119,694
5,931
1,375
440
53,142
180,582
9,519,503
9,519,503
9,878,007
9,878,007
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 an effective interest rate of 25%.
During the year ended 31 December 2016 the repayment profile of the receivable was changed to consider the results
generated by the completion of the definitive feasibility study on 30 November 2015 and timing of the completion of
construction. This resulted in a loss on the re-measurement of the loan amounting to $2,812,064.
The undiscounted underlying loan balance at 31 December 2016 is $24,993,066 (31 December 2015: $23,266,475).
DANAKALI LIMITED
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Danakali Annual Report 2016DANAKALI LIMITED
Notes to the Consolidated Financial Statements (Cont’d)
FOR THE YEAR ENDED 31 DECEMBER 2016
9. PLANT AND EQUIPMENT
Plant and equipment
Cost
Accumulated depreciation
Net book amount
Plant and equipment
Opening net book amount 1 January
Additions
Disposals
Depreciation charge
Closing net book amount 31 December
2016
$
2015
$
47,659
(39,739)
7,920
16,412
3,122
(1,483)
(10,131)
7,920
50,452
(34,040)
16,412
38,026
4,278
(12,548)
(13,344)
16,412
10. INVESTMENT IN JOINT VENTURE
The Group has an interest in the following joint arrangement:
Project
Activities
Equity Interest
Carrying Value
2016
%
2015
%
2016
$
2015
$
Colluli Potash Mineral Exploration
50
50
13,502,312
12,064,742
The group acquired an interest in Colluli Mining Share Company at the date of its incorporation on 5 March 2014. This
acquisition was in accordance with the Shareholders Agreement entered into with the Eritrean National Mining Corporation
(“ENAMCO”) and executed in November 2013. CMSC was incorporated in Eritrea, in accordance with the Shareholders
Agreement, to hold the Colluli project with Danakali 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 Limited. The balance of the allowable historic exploration costs transferred to CMSC
are recoverable via a shareholder loan account (see note 8).
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 31 December 2016.
Investment in joint venture – Colluli Mining Share Company
Reconciliation of movement in investments accounted for using the
equity method:
Opening carrying amount at 1 January
Additional investment during the year
Share of net losses for the year
Other comprehensive income for the year
Closing carrying amount at 31 December
2016
$
2015
$
13,502,312
12,064,742
2016
$
2015
$
12,064,742
1,868,088
(700,443)
269,925
13,502,312
8,674,357
8,150,783
(6,073,098)
1,312,700
12,064,742
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Danakali Annual Report 2016DANAKALI LIMITED
Notes to the Consolidated Financial Statements (Cont’d)
FOR THE YEAR ENDED 31 DECEMBER 2016
INVESTMENT IN JOINT VENTURE (Cont’d)
10.
Summarised financial information of joint venture:
Financial position (Aligned to Danakali accounting policies)
Current Assets:
Cash
Other current assets
Non-current assets
Fixed Assets
Mineral Property
Current liabilities
Trade & other payables and provisions
Non-current liabilities
Loan from Danakali Ltd
NET ASSETS
Group’s share of net assets
Reconciliation of Equity Investment:
Group’s share of net assets
Share of initial contribution on establishment of the Joint Venture
not recognised by Danakali
Outside shareholder interest in equity contributions by Danakali
Carrying amount at the end of the period
Financial performance
Interest expense relating to the unwinding of discount
Gain on re-measurement of loan
Exploration and evaluation expenditure
TOTAL COMPREHENSIVE LOSS FOR THE YEAR
Group’s share of total loss for the year
2016
$
2015
$
26,653
90,123
116,776
52,641
110,552
163,193
99,346
30,500,729
30,600,075
190,322
30,078,350
30,268,672
(151,648)
(151,648)
(288,408)
(288,408)
(9,519,503)
(9,519,503)
(9,878,007)
(9,878,007)
21,045,700
20,265,450
10,522,850
10,132,725
10,522,850
10,132,725
(4,305,107)
(4,305,107)
7,284,569
13,502,312
6,237,124
12,064,742
2016
$
2015
$
(1,554,925)
2,812,064
(2,658,024)
(1,400,885)
(1,571,789)
-
(10,574,408)
(12,146,197)
(700,443)
(6,073,098)
There were no material commitments or contingencies within Colluli Mining Share Company for the financial periods above.
During the year ended 31 December 2016 the repayment profile of the loan was changed to consider the results generated
by the completion of the definitive feasibility study on 30 November 2015 and timing of the completion of construction. This
resulted in a gain on the re-measurement of the loan amounting to $2,812,064.
11. TRADE AND OTHER PAYABLES
Trade payables
Accrued expenses
Other payables
DANAKALI LIMITED
Page 57
ABN 56 097 904 302
2016
$
2015
$
132,827
42,125
35,790
210,742
169,423
343,447
39,215
552,085
43
Danakali Annual Report 2016DANAKALI LIMITED
Notes to the Consolidated Financial Statements (Cont’d)
FOR THE YEAR ENDED 31 DECEMBER 2016
12. PROVISIONS
Current
Employee entitlements
Non-Current
Employee entitlements
2016
$
2015
$
134,701
114,466
42,450
177,151
-
114,466
Employee entitlements relate to the balance of annual leave and long service leave accrued by the Group’s employees.
Recognition and measurement criteria have been disclosed in note 2.
13. ISSUED CAPITAL
(a) Share capital
Ordinary shares fully paid
Total issued capital
(b) Movements in ordinary share capital
2016
2015
Number
of shares
$
Number
of shares
$
224,494,677
61,758,320
175,772,167
48,983,913
224,494,677
61,758,320
175,772,167
48,983,913
Balance at the beginning of the year
175,772,167
48,983,913
139,427,826
41,026,165
Issued during the year:
Issued at $0.205 per share
Issued at $0.220 per share
Issued at $0.250 per share
Issued at $0.278 per share on option exercise
Issued at $0.280 per share as performance shares
Issued at $0.295 per share
Issued at $0.310 per share
Issued at $0.330 per share
Issued at $0.340 per share on option exercise
Issued at $0.350 per share on option exercise
Costs of capital raised
Issued on vesting of performance rights
-
-
10,000,000
2,050,000
24,870,464
5,471,548
-
-
-
-
24,374,341
6,093,591
400,000
111,200
-
-
-
-
-
-
20,200,000
6,666,000
2,630,000
622,046
-
-
894,200
217,716
(586,257)
-
100,000
50,000
12,000
-
-
-
-
-
28,000
14,750
3,720
-
-
-
(232,313)
-
1,808,000
-
Balance at the end of the year
224,494,677
61,758,320
175,772,167
48,983,913
(c) Ordinary shares
Ordinary shares entitle the holder to participate in dividends and the proceeds on winding up of the Company in proportion
to the number of and amounts paid on the shares held.
On a show of hands every holder of ordinary shares present at a meeting in person or by proxy, is entitled to one vote,
and upon a poll each share is entitled to one vote.
Ordinary shares have no par value and the Company does not have a limited amount of authorised capital.
DANAKALI LIMITED
ABN 56 097 904 302
Page 58
44
Danakali Annual Report 2016DANAKALI LIMITED
Notes to the Consolidated Financial Statements (Cont’d)
FOR THE YEAR ENDED 31 DECEMBER 2016
13. ISSUED CAPITAL (Cont’d)
(d) Movements in options on issue
Balance at beginning of the year
Issued during the year:
Exercisable at $0.527, on or before 29 May 2018
Exercisable at $0.550, on or before 31 May 2018
Exercisable at $0.408, on or before 4 November 2018
Exercisable at $0.350, on or before 30 March 2018
Exercisable at $0.350, on or before 13 May 2018
Exercisable at $0.405, on or before 13 May 2018
Exercisable at $0.450, on or before 23 June 2018
Exercisable at $0.550, on or before 4 November 2018
Exercisable at $0.550, on or before 31 December 2018
Exercisable at $0.558, on or before 8 August 2019
Exercisable at $0.543, on or before 7 October 2018
Exercised, cancelled or expired during the year:
Expired, exercisable at $1.949, on or before 31 March 2015
Expired, exercisable at $0.699, on or before 30 June 2015
Expired, exercisable at $0.350, on or before 4 September 2015
Expired, exercisable at $1.449, on or before 30 November 2015
Expired, exercisable at $1.949, on or before 30 November 2015
Expired, exercisable at $0.599, on or before 31 January 2016
Expired, exercisable at $0.649, on or before 31 January 2016
Expired, exercisable at $0.949, on or before 31 January 2016
Exercised, exercisable at $0.278 on or before 17 November 2017
Exercised, exercisable at $0.340 on or before 29 November 2016
Expired, exercisable at $0.340, on or before 29 November 2016
Exercised, exercisable at $0.350 on or before 30 March 2018
Balance at end of the year
14. RESERVES
(a) Reserves
Share-based payments reserve
Balance at beginning of the year
Employee and contractor share options and performance rights (note 22)
Balance at end of the year
Foreign currency translation reserve
Balance at beginning of the year
Currency translation differences arising during the year/ period
Balance at end of the year
Total reserves
(b) Nature and purpose of reserves
2016
Options
2015
Options
16,350,000
28,050,000
-
-
-
11,635,232
800,000
2,700,000
200,000
750,000
1,000,000
1,000,000
800,000
-
-
-
-
-
(700,000)
(1,000,000)
(1,300,000)
(400,000)
(2,630,000)
(3,370,000)
(622,046)
25,213,186
750,000
600,000
1,000,000
-
-
-
-
-
-
-
-
(1,250,000)
(3,800,000)
(8,000,000)
(500,000)
(500,000)
-
-
-
-
-
-
-
16,350,000
2016
$
2015
$
9,137,189
1,290,347
10,427,536
1,769,318
269,925
2,039,243
8,438,722
698,467
9,137,189
456,618
1,312,700
1,769,318
12,466,779
10,906,507
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.
DANAKALI LIMITED
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ABN 56 097 904 302
45
Danakali Annual Report 2016DANAKALI LIMITED
Notes to the Consolidated Financial Statements (Cont’d)
FOR THE YEAR ENDED 31 DECEMBER 2016
15. ACCUMULATED LOSSES
Balance at beginning of the year
Loss for the year
Balance at end of the year
16. STATEMENT OF CASH FLOWS
(a) Reconciliation of net loss after income tax to net cash outflow from
operating activities
Net loss for the year
Non-Cash Items:
Depreciation of plant and equipment
Loss of disposal of plant and equipment
Share-based payment expense
Unrealised gain on receivable
Share of net loss of associate
Foreign exchange gain
Loss on re-measurement of loan to joint venture carried at amortised cost
Change in operating assets and liabilities:
Decrease/(increase) in trade and other receivables
Decrease/(increase) in trade and other payables
Increase/(decrease) in provisions
Net cash outflow from operating activities
2016
$
(35,633,853)
(4,925,558)
(40,559,411)
2015
$
(28,841,168)
(6,792,685)
(35,633,853)
2016
$
2015
$
(4,925,558)
(6,792,685)
10,131
1,483
1,290,347
(1,554,925)
700,443
(54,243)
2,812,064
71,163
(84,124)
62,685
(1,670,534)
13,344
12,548
726,467
(1,571,789)
6,073,098
(661,400)
-
(57,962)
10,184
50,865
(2,197,330)
(b) Funding of joint venture operations
Cash contribution to joint venture operations during the period
(2,952,332)
(10,085,193)
17. EARNINGS PER SHARE
(a) Reconciliation of earnings used in calculating earnings per share (EPS)
2016
$
2015
$
Loss attributable to the owners of the Company used in calculating basic and
diluted loss per share
(4,925,558)
(6,792,685)
(b) Weighted average number of shares used as the denominator
2016
No. of Shares
2015
No. of Shares
Weighted average number of ordinary shares used as the denominator in
calculating basic and diluted loss per share
202,482,410
165,132,675
As the Group incurred a loss for the period, the options on issue have an anti-dilutive effect, therefore the diluted EPS is
equal to the basic EPS. 25,213,186 (2015: 16,350,000) share options which could potentially dilute basic EPS in the future
have been excluded from the diluted EPS calculation because they are anti-dilutive for the current year presented.
Basic and diluted earnings per share for all periods prior to the issue of placement shares and free attaching options in
March 2016 have been restated by an adjustment factor of 1.0367 to account for the bonus element. Details of the shares
issued are outlined in note 13.
DANAKALI LIMITED
ABN 56 097 904 302
Page 60
46
Danakali Annual Report 2016DANAKALI LIMITED
Notes to the Consolidated Financial Statements (Cont’d)
FOR THE YEAR ENDED 31 DECEMBER 2016
18. FINANCIAL RISK MANAGEMENT
The Group’s activities expose it to market, liquidity and credit risks arising from its financial instruments.
The Group’s management of financial risk is aimed at ensuring net cash flows are sufficient to meet all of its financial
commitments and maintain the capacity to fund the Colluli project and ancillary exploration activities. The Board of
Directors has overall responsibility for the establishment and oversight of the risk management framework. Management
monitors and manages the financial risks relating to the operations of the Group through regular reviews of risks.
Market, liquidity (including foreign exchange and interest rate risks) and credit risks arise in the normal course of business.
These risks are managed under Board approved treasury processes and transactions.
The principal financial instruments as at reporting date include cash receivables and payables.
This note presents information about exposures to the above risks, the objectives, policies and processes for measuring
and managing risk, and the management of capital.
(a) Market risk
(i) Foreign exchange risk
Foreign exchange risk arises from future commercial transactions and recognised assets and liabilities denominated in a
currency that is not the entity’s functional currency and net investments in foreign operations. The Group has not formalised
a foreign currency risk management policy however, it monitors its foreign currency expenditure in light of exchange rate
movements. The international operations are at the start-up stage and there is limited exposure at the reporting date to
assets and liabilities denominated in foreign currencies. The loan of $9,519,503 (2015: $9,878,007) to Colluli Mining Share
Company is denominated in Eritrean Nakfa (Nakfa) which is pegged to the US Dollar.
The following table demonstrates the sensitivity to a reasonably possible change in Nakfa exchange rates, with all other
variables held constant. An increase in Nakfa Rate, reflects a strengthening of the Australian Dollar, which results in an
increased loss before tax. The Group’s exposure to foreign currency changes for all other currencies is not material.
Year to 31 December 2016
Year to 31 December 2015
(ii) Interest rate risk
Change in
Nakfa Rate
%
+5%
-5%
+5%
-5%
Effect on Loss
before tax
$
(475,975)
475,975
(493,900)
493,900
The Group is exposed to movements in market interest rates on cash. The Group’s policy is to monitor the interest rate
yield curve out to six months to ensure a balance is maintained between the liquidity of cash assets and the interest rate
return. The entire balance of cash - for the Group of $10,904,760 (31 December 2015: $2,756,341) is subject to interest
rate risk. The proportional mix of floating interest rates and fixed rates to a maximum of six months fluctuate during the
period depending on current working capital requirements. The weighted average interest rate received on cash by the
Group was 1.10% (31 December 2015: 2.25%).
Sensitivity analysis
At 31 December 2016, if interest rates had changed by -/+ 80 basis points from the weighted average rate for the period
with all other variables held constant, post-tax loss for the Group would have been $87,238 higher/lower (31 December
2015: $22,051 higher/lower) as a result of lower/higher interest income from cash and cash equivalents.
(b) Liquidity risk
The Group manages liquidity risk by continuously monitoring forecast and actual cash flows and ensuring sufficient cash
and marketable securities are available to meet the current and future commitments of the Group. Due to the nature of the
Group’s activities, being mineral exploration, the Group does not have ready access to credit facilities, with the primary
source of funding being equity raisings.
The Board of Directors constantly monitors the state of equity markets in conjunction with the Group’s current and future
funding requirements, with a view to initiating appropriate capital raisings as required.
The financial liabilities of the Group are confined to trade and other payables as disclosed in the Consolidated Statement
of Financial Position. All trade and other payables are non-interest bearing and due within 12 months of the reporting date.
(c) Credit risk
The Group’s significant concentration of credit risk is cash. The maximum exposure to credit risk at balance date is the
carrying amount of cash and trade and other receivables as disclosed in the Consolidated Statement of Financial Position
and Notes to the Consolidated Financial Statements.
DANAKALI LIMITED
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ABN 56 097 904 302
47
Danakali Annual Report 2016DANAKALI LIMITED
Notes to the Consolidated Financial Statements (Cont’d)
FOR THE YEAR ENDED 31 DECEMBER 2016
18. FINANCIAL RISK MANAGEMENT (Cont’d)
As the Group does not presently have any material debtors, lending or significant stock levels, a formal credit risk
management policy is not maintained.
Set out below is an overview of financial instruments, other than cash and short-term deposits, held by the group as at 31
December 2016:
Financial Assets:
Trade and other receivables
Total current
Other receivable
Total non-current
Total Assets
Financial liabilities:
Trade and other payables
Total current
Total Liabilities
Fair value
Loans and
receivables
$
through
profit and loss
$
through other
comprehensive
income
$
93,985
93,985
9,519,503
9,519,503
9,613,488
210,742
210,742
210,742
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
The current receivables and payables carrying values approximates fair values due to the short-term maturities of these
instruments.
The fair value of the long-term receivable is determined by discounting future cashflows using an estimated market
interest rate. The fair value disclosure is categorised as Level 3 in the fair value hierarchy as the estimated market
interest rate is an unobserved input in the valuation. An unobserved input is used to the extent that relevant observable
inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability
at measurement date.
19. CAPITAL MANAGEMENT
The Group’s objectives when managing capital are to safeguard its ability to continue as a going concern, so that it may
continue to provide returns for shareholders and benefits for other stakeholders.
The focus of the Group’s capital risk management is the current working capital position against the requirements of the
Group to meet exploration and project development programmes plus corporate overheads. The Group’s strategy is to
ensure appropriate liquidity is maintained to meet anticipated operating requirements, with a view to initiating appropriate
capital raisings as required.
The working capital position of the Group at 31 December 2016 and 31 December 2015 are as follows:
Cash and cash equivalents
Trade and other receivables
Prepayments
Trade and other payables and provisions
Working capital position
20. CONTINGENCIES
2016
$
10,904,760
93,985
25,101
(345,443)
10,678,403
2015
$
2,756,341
180,582
27,034
(666,551)
2,297,406
There are no material contingent liabilities or contingent assets of the Group at balance date.
DANAKALI LIMITED
ABN 56 097 904 302
Page 62
48
Danakali Annual Report 2016DANAKALI LIMITED
Notes to the Consolidated Financial Statements (Cont’d)
FOR THE YEAR ENDED 31 DECEMBER 2016
21. COMMITMENTS
Lease commitments: Group as lessee
Operating leases (non-cancellable):
Minimum lease payments
- within one year
-
Aggregate lease expenditure contracted for at reporting date but not
recognised as liabilities
later than one year but not later than five years
Technical services commitment:
Minimum payment
- within one year
-
later than one year but not later than five years
Total Commitments
Operating Leases:
2016
$
2015
$
47,885
-
47,885
114,924
50,120
165,044
1,214,793
-
1,214,793
-
-
-
1,262,678
165,044
The minimum future payments above relate to non-cancellable operating leases for offices. Subsequent to 31 December
2016 Danakali has signed for a new office lease arrangement for 12 months, commencing 1 March 2017 for a total annual
cost of $70,000.
Technical Services Commitment:
The payments above related to a contract for technical services to be provided in relation to the Colluli Project.
22. SHARE-BASED PAYMENTS
(b) Option Plans
The Group provides benefits to employees (including directors), contractors and consultants of the Group in the form of
share-based payment transactions, whereby employees, contractors and consultants render services in exchange for
options to acquire ordinary shares. All options issued have exercise prices ranging from $0.278 each to $0.558 each and
expiry dates ranging from 17 November 2017 to 7 October 2019.
Options granted carry no dividend or voting rights. When exercisable, each option is convertible into one ordinary share
of the Company with full dividend and voting rights. Set out below is a summary of the options granted.
Outstanding at the beginning of the year
Granted (a) (b)
Exercised
Expired
Outstanding at end of the year
Exercisable at end of the year
Note:
2016
2015
Number of
options
Weighted average
exercise price
Number of
options
Weighted average
exercise price
16,350,000
18,885,232
(3,652,046)
(6,370,000)
25,213,186
22,613,186
$0.420
$0.397
$0.335
$0.547
$0.384
$0.370
28,050,000
2,350,000
-
(14,050,000)
16,350,000
15,350,000
$0.546
$0.482
-
$0.683
$0.420
$0.421
(a) Options granted during the year to 31 December 2016 include:
-
-
1,000,000 options granted to Arlington Group Asset Management Ltd in consideration for services provided.
200,000 options granted to Mr C Wirth in consideration for services provided.
(b) Options granted during the year to 31 December 2015 includes 600,000 options granted to Arlington Group Asset Management
Ltd, for services provided to assist the Company in equity raising.
The weighted average remaining contractual life of share options outstanding at the end of the period was 1.38 years
(31 December 2015: 0.77 years), with exercise prices ranging from $0.278 to $0.558.
The weighted average fair value of the options granted during the period was $0.091 (31 December 2015: $0.172). The
price was calculated by using the Black-Scholes European Option Pricing Model applying the following inputs, to produce
the fair value per option:
DANAKALI LIMITED
Page 63
ABN 56 097 904 302
49
Danakali Annual Report 2016DANAKALI LIMITED
Notes to the Consolidated Financial Statements (Cont’d)
FOR THE YEAR ENDED 31 DECEMBER 2016
22. SHARE-BASED PAYMENTS (Cont’d)
Options Granted during the period to 31 December 2016:
Number
of Options
11,635,232
800,000
2,700,000
200,000
750,000
1,000,000
1,000,000
800,000
Grant Date Expiry Date
31/03/2016 31/03/2018
13/05/2016 13/05/2018
13//05/2016 13/05/2018
23/06/2016 23/06/2018
04/11/2016 04/11/2018
08/08/2016 31/12/2018
08/08/2016 08/08/2019
07/10/2016 07/10/2019
Fair Value
per Option
Exercise
Price
Share Price
at
Grant Date
Risk Free
Interest Rate
Estimated
Volatility
$0.071
$0.123
$0.106
$0.145
$0.146
$0.149
$0.169
$0.173
$0.350
$0.350
$0.405
$0.450
$0.550
$0.550
$0.558
$0.543
$0.225
$0.300
$0.300
$0.375
$0.410
$0.390
$0.390
$0.390
1.890%
1.590%
1.590%
1.720%
1.645%
1.490%
1.450%
1.650%
80%
80%
80%
80%
80%
80%
80%
80%
Options Granted during the period to 31 December 2015:
Number
of Options
750,000
600,000
1,000,000
Grant Date Expiry Date
29/05/2015 29/05/2018
02/10/2015 31/05/2018
03/11/2015 04/11/2018
Fair Value
per Option
Exercise
Price
Share Price
at
Grant Date
Risk Free
Interest Rate
Estimated
Volatility
$0.213
$0.136
$0.158
$0.527
$0.550
$0.408
$0.380
$0.295
$0.285
1.875%
1.805%
1.865%
100%
100%
100%
Historical volatility has been used as the basis for determining expected share price volatility as it assumed that this is
indicative of future trends, which may not eventuate. The life of the options is based on historical exercise patterns, which
may not eventuate in the future.
(c) Performance Rights Plan
The Performance Rights Plan was re-approved at the annual general meeting of the Company held 17 November 2014.
The purpose of the Plan is to provide recognition to employees and advisors of the Company and its subsidiaries for their
continued and ongoing support of the Company.
Under the Performance Rights Plan, shares are issued in the future subject, to the performance based vesting conditions
being met. 1,958,000 performance rights on issue at 31 December 2016 and 2015 had the following vesting conditions.
Class 1:
308,000 upon completion of securing finance for the development of the Colluli Potash Project.
Class 2:
75,000 upon granting of a Mining License for the Colluli Potash Project (vested February 2017); and
75,000 upon completion of securing finance for the development of the Colluli Potash Project (forfeited 6 February
2017).
Class 4:
700,000 upon awarding of the Colluli mining licence (vested February 2017); and
800,000 upon commencement of construction of the production facility.
Subject to achievement of either one of these performance conditions, one share will be issued for each Performance
Right that has vested.
There were no performance rights issued during the year to 31 December 2016 (31 December 2015: 255,000). Details
of performance rights on issue are set out in the following tables.
2016
Grant Date
Balance at 1
January 2016
Reissued during
the period
Vested and
converted to
shares
Cancelled upon
termination
Balance 31
December 2016
25 January 2012 (Class 1)
15 May 2012 (Class 1)
12 December 2012 (Class 2)
9 December 2014 (Class 4)
TOTAL
50,000
258,000
150,000
1,500,000
1,958,000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
50,000
258,000
150,000
1,500,000
1,958,000
DANAKALI LIMITED
ABN 56 097 904 302
Page 64
50
Danakali Annual Report 2016DANAKALI LIMITED
Notes to the Consolidated Financial Statements (Cont’d)
FOR THE YEAR ENDED 31 DECEMBER 2016
22. SHARE-BASED PAYMENTS (Cont’d)
2015
Grant Date
25 January 2012 (Class 1)
15 May 2012 (Class 1)
12 December 2012 (Class 2)
13 November 2014 (Class 3)
9 December 2014 (Class 4)
TOTAL
Note:
Balance at 1
January 2015
Reissued during
the period
100,000
277,000
150,000
550,000
2,450,000
3,527,000
-
255,000 (a)
-
-
-
Vested and
converted to
shares
(50,000)
(258,000)
-
(550,000)
(950,000)
Cancelled upon
termination
Balance 31
December 2015
-
(16,000)
-
-
-
(16,000)
50,000
258,000
150,000
-
1,500,000
1,958,000
255,000
(1,808,000)
(a) 255,000 class 1 performance rights were re-issued on the original terms, to non-related parties after being incorrectly cancelled on
14 October 2014.
(d) Expenses arising from share-based payment transactions
Total expenses arising from share-based payment transactions recognised during the period were as follows:
2016
$
-
1,290,347
1,290,347
2015
$
28,000
698,467
726,467
Shares
Options and Performance Rights issued to directors, employees and
contractors
23. RELATED PARTY TRANSACTIONS
(a) Parent entity
The ultimate parent entity within the Group is Danakali Limited.
(b) Subsidiary
Interests in the subsidiary is set out in note 25.
(c) Investment in Joint Venture
Transactions with Colluli Mining Share Company are set out in notes 8 and 10 of this report.
(d) Key management personnel compensation
Short-term benefits
Post-employment benefits
Share-based payments
There were no material related party transactions.
(d) Key management personnel placement participation
2016
$
947,035
74,441
830,623
2015
$
998,801
49,764
600,073
1,852,099
1,648,638
On 13 May 2016, subsequent to shareholder approval, related parties participated in a placement of ordinary shares at an
issue price of $0.22 per share to raise $352,000. In addition, one free attaching unlisted option was issued for every two
shares purchased under the placement. The unlisted options are exercisable at $0.35 on or before 13 May 2018.
Participation by related parties in the transaction detailed above, is set out in the following table.
Related Party
Position
Seamus Ian Cornelius
Paul Michael Donaldson
Anthony William Kiernan
Liam Raymond Cornelius
John Daniel Fitzgerald
Non-Executive Chairman
Managing Director
Non-Executive Director
Non-Executive Director
Non-Executive Director
Placement
Shares
Free Attaching
Unlisted Options
250,000
100,000
100,000
1,000,000
150,000
1,600,000
125,000
50,000
50,000
500,000
75,000
800,000
DANAKALI LIMITED
Page 65
ABN 56 097 904 302
51
Danakali Annual Report 2016DANAKALI LIMITED
Notes to the Consolidated Financial Statements (Cont’d)
FOR THE YEAR ENDED 31 DECEMBER 2016
24. REMUNERATION OF AUDITORS
During the period, the following fees were paid or payable for services provided by the auditor of the Company, its related
practices and non-related audit firms:
(a) Audit services
Ernst and Young
Rothsay Chartered Accountants
(b) Non-audit services
Ernst and Young – since appointment as auditor
Ernst and Young – prior to appointment as auditor
25. SUBSIDIARY
2016
$
2015
$
33,621
-
33,621
33,013
-
33,103
30,300
11,500
41,800
31,750
51,293
83,043
Interest in subsidiary
The consolidated financial statements incorporate the assets, liabilities and results of the following subsidiary in accordance
with the accounting policy:
Name
STB Eritrea Pty Ltd
Principal Activities
Investment in
Potash Exploration
Country of
Incorporation
Class of
Shares
Australia
Ordinary
2016
%
100
2015
%
100
Equity Holding
The proportion of ownership interest is equal to the proportion of voting power held.
26. PARENT ENTITY INFORMATION
The following information relates to the parent entity, Danakali Limited. The information presented here has been prepared
using accounting policies consistent with those presented in note 2.
Current assets
Non-current assets
Total assets
Current liabilities
Non-current liabilities
Total liabilities
Issued capital
Share-based payments reserve
Accumulated losses
Total equity
Loss for the year
Total Comprehensive loss for the year
27. DIVIDENDS
2016
$
11,023,845
23,029,735
34,053,580
345,443
42,450
387,893
2015
$
2,963,957
21,959,161
24,923,118
641,187
25,364
666,551
61,758,320
10,427,536
(38,520,169)
33,665,687
49,511,393
8,609,709
(33,864,535)
24,256,567
(4,655,632)
(4,655,632)
(18,444,653)
(18,444,633)
No dividends were paid during the financial period. No recommendation for payment of dividends has been made.
DANAKALI LIMITED
ABN 56 097 904 302
Page 66
52
Danakali Annual Report 2016DANAKALI LIMITED
Notes to the Consolidated Financial Statements (Cont’d)
FOR THE YEAR ENDED 31 DECEMBER 2016
28. EVENTS OCCURRING AFTER THE BALANCE DATE
On 9 January 2017, the company announced the appointment of Fluor as front end engineering design (FEED) and
optimisation lead for Colluli project. Please refer to the activities undertaken during 2016 of this report for more details.
On 1 February 2017, the company announced both the award of the Mining Licence and approval of the Mining Agreement.
Please refer to the activities undertaken during 2016 of this report for more details.
On 6 February 2017, the company announced the appointment of Mr Connochie as a non-executive director to the board.
Details of Mr Connochie experience and qualifications can be found earlier in the Directors’ Report. Mr Anthony Kiernan
resigned as a non-executive director of the company with effect from 6 February 2017.
DANAKALI LIMITED
Page 67
ABN 56 097 904 302
53
Danakali Annual Report 2016DANAKALI LIMITED
Directors’ Declaration
In the Directors’ opinion:
(a)
the financial statements and notes set out on pages 41 to 67 are in accordance with the Corporations Act 2001,
including:
(i) complying with Accounting Standards, the Corporations Regulations 2001 and other mandatory professional
reporting requirements; and
(ii) giving a true and fair view of the Group’s financial position as at 31 December 2016 and of its performance for
the financial period ended on that date;
there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become
due and payable; and
(b)
The directors have been given the declarations by the Chief Executive Officer and Chief Financial Officer required by
section 295A of the Corporations Act 2001.
This declaration is made in accordance with a resolution of the directors.
Seamus Cornelius
CHAIRMAN
Perth, 9 March 2017
DANAKALI LIMITED
ABN 56 097 904 302
Page 68
54
Danakali Annual Report 2016DANAKALI LIMITED Ernst & Young
11 Mounts Bay Road
Perth WA 6000 Australia
Ernst & Young
GPO Box M939 Perth WA 6843
11 Mounts Bay Road
Perth WA 6000 Australia
GPO Box M939 Perth WA 6843
Tel: +61 8 9429 2222
Fax: +61 8 9429 2436
ey.com/au
Tel: +61 8 9429 2222
Fax: +61 8 9429 2436
ey.com/au
Ernst & Young
11 Mounts Bay Road
Perth WA 6000 Australia
GPO Box M939 Perth WA 6843
Tel: +61 8 9429 2222
Fax: +61 8 9429 2436
ey.com/au
INDEPENDENT AUDITOR’S REPORT
INDEPENDENT AUDITOR’S REPORT
To the Shareholders of Danakali Limited
To the Shareholders of Danakali Limited
Report on the audit of the financial report
Report on the audit of the financial report
Opinion
Opinion
We have audited the financial report of Danakali Limited (the Company), including its subsidiaries (the
Group), which comprises the consolidated statement of financial position as at 31 December 2016, the
We have audited the financial report of Danakali Limited (the Company), including its subsidiaries (the
consolidated statement of profit or loss and other comprehensive income, the consolidated statement of
Group), which comprises the consolidated statement of financial position as at 31 December 2016, the
changes in equity and the consolidated statement of cash flows for the year then ended, notes comprising
consolidated statement of profit or loss and other comprehensive income, the consolidated statement of
a summary of significant accounting policies and other explanatory information and the Directors’
changes in equity and the consolidated statement of cash flows for the year then ended, notes comprising
Declaration.
a summary of significant accounting policies and other explanatory information and the Directors’
Declaration.
In our opinion:
In our opinion:
the accompanying financial report of the Group is in accordance with the Corporations Act 2001,
including:
the accompanying financial report of the Group is in accordance with the Corporations Act 2001,
including:
(i)
giving a true and fair view of the Group’s consolidated financial position as at 31 December 2016
and of its consolidated financial performance for the year ended on that date; and
giving a true and fair view of the Group’s consolidated financial position as at 31 December 2016
and of its consolidated financial performance for the year ended on that date; and
complying with Australian Accounting Standards and the Corporations Regulations 2001.
(i)
(ii)
(ii)
Basis for opinion
complying with Australian Accounting Standards and the Corporations Regulations 2001.
Basis for opinion
Basis for opinion
We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under
those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial
We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under
Report section of our report. We are independent of the Group in accordance with the Corporations Act
those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial
2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s
Report section of our report. We are independent of the Group in accordance with the Corporations Act
APES110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the
2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s
financial report in Australia; and we have fulfilled our other ethical responsibilities in accordance with the
APES110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the
Code.
financial report in Australia; and we have fulfilled our other ethical responsibilities in accordance with the
Code.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our opinion.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our opinion.
Key audit matters
Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our
audit of the financial report of the current year. These matters were addressed in the context of our
Key audit matters are those matters that, in our professional judgment, were of most significance in our
audit of the financial report as a whole, and in forming our opinion thereon, but we do not provide a
audit of the financial report of the current year. These matters were addressed in the context of our
separate opinion on these matters. For the matter below, our description of how our audit addressed the
audit of the financial report as a whole, and in forming our opinion thereon, but we do not provide a
matter is provided in that context.
separate opinion on these matters. For the matter below, our description of how our audit addressed the
matter is provided in that context.
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69
INDEPENDENT AUDITOR’S REPORT
To the Shareholders of Danakali Limited
Report on the audit of the financial report
Opinion
Declaration.
In our opinion:
including:
(i)
(ii)
We have audited the financial report of Danakali Limited (the Company), including its subsidiaries (the
Group), which comprises the consolidated statement of financial position as at 31 December 2016, the
consolidated statement of profit or loss and other comprehensive income, the consolidated statement of
changes in equity and the consolidated statement of cash flows for the year then ended, notes comprising
a summary of significant accounting policies and other explanatory information and the Directors’
the accompanying financial report of the Group is in accordance with the Corporations Act 2001,
giving a true and fair view of the Group’s consolidated financial position as at 31 December 2016
and of its consolidated financial performance for the year ended on that date; and
complying with Australian Accounting Standards and the Corporations Regulations 2001.
We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under
those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial
Report section of our report. We are independent of the Group in accordance with the Corporations Act
2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s
APES110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the
financial report in Australia; and we have fulfilled our other ethical responsibilities in accordance with the
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
Code.
our opinion.
Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our
audit of the financial report of the current year. These matters were addressed in the context of our
audit of the financial report as a whole, and in forming our opinion thereon, but we do not provide a
separate opinion on these matters. For the matter below, our description of how our audit addressed the
matter is provided in that context.
Danakali Annual Report 2016DANAKALI LIMITED
INDEPENDENT AUDITOR’S REPORT
INDEPENDENT AUDITOR’S REPORT
To the Shareholders of Danakali Limited
To the Shareholders of Danakali Limited
Report on the audit of the financial report
Report on the audit of the financial report
Opinion
Opinion
We have audited the financial report of Danakali Limited (the Company), including its subsidiaries (the
Group), which comprises the consolidated statement of financial position as at 31 December 2016, the
We have audited the financial report of Danakali Limited (the Company), including its subsidiaries (the
consolidated statement of profit or loss and other comprehensive income, the consolidated statement of
Group), which comprises the consolidated statement of financial position as at 31 December 2016, the
changes in equity and the consolidated statement of cash flows for the year then ended, notes comprising
consolidated statement of profit or loss and other comprehensive income, the consolidated statement of
a summary of significant accounting policies and other explanatory information and the Directors’
changes in equity and the consolidated statement of cash flows for the year then ended, notes comprising
Declaration.
a summary of significant accounting policies and other explanatory information and the Directors’
Declaration.
In our opinion:
including:
In our opinion:
the accompanying financial report of the Group is in accordance with the Corporations Act 2001,
the accompanying financial report of the Group is in accordance with the Corporations Act 2001,
including:
giving a true and fair view of the Group’s consolidated financial position as at 31 December 2016
and of its consolidated financial performance for the year ended on that date; and
giving a true and fair view of the Group’s consolidated financial position as at 31 December 2016
and of its consolidated financial performance for the year ended on that date; and
complying with Australian Accounting Standards and the Corporations Regulations 2001.
(i)
(i)
(ii)
(ii)
Basis for opinion
complying with Australian Accounting Standards and the Corporations Regulations 2001.
Basis for opinion
We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under
those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial
We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under
Report section of our report. We are independent of the Group in accordance with the Corporations Act
those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial
2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s
Report section of our report. We are independent of the Group in accordance with the Corporations Act
APES110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the
2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s
financial report in Australia; and we have fulfilled our other ethical responsibilities in accordance with the
APES110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the
Code.
financial report in Australia; and we have fulfilled our other ethical responsibilities in accordance with the
Code.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our opinion.
our opinion.
Key audit matters
Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our
audit of the financial report of the current year. These matters were addressed in the context of our
Key audit matters are those matters that, in our professional judgment, were of most significance in our
audit of the financial report as a whole, and in forming our opinion thereon, but we do not provide a
audit of the financial report of the current year. These matters were addressed in the context of our
separate opinion on these matters. For the matter below, our description of how our audit addressed the
audit of the financial report as a whole, and in forming our opinion thereon, but we do not provide a
matter is provided in that context.
separate opinion on these matters. For the matter below, our description of how our audit addressed the
matter is provided in that context.
Ernst & Young
11 Mounts Bay Road
Perth WA 6000 Australia
Ernst & Young
GPO Box M939 Perth WA 6843
11 Mounts Bay Road
Perth WA 6000 Australia
GPO Box M939 Perth WA 6843
Tel: +61 8 9429 2222
Fax: +61 8 9429 2436
ey.com/au
Tel: +61 8 9429 2222
Fax: +61 8 9429 2436
ey.com/au
Ernst & Young
11 Mounts Bay Road
Perth WA 6000 Australia
GPO Box M939 Perth WA 6843
Tel: +61 8 9429 2222
Fax: +61 8 9429 2436
ey.com/au
INDEPENDENT AUDITOR’S REPORT
We have fulfilled the responsibilities described in the Auditor’s Responsibilities for the Audit of the
To the Shareholders of Danakali Limited
Financial Report section of our report, including in relation to these matters. Accordingly, our audit
included the performance of procedures designed to respond to our assessment of the risks of material
Report on the audit of the financial report
misstatement of the financial statements. The results of our audit procedures, including the procedures
performed to address the matter below, provide the basis for our audit opinion on the accompanying
Opinion
financial report.
We have audited the financial report of Danakali Limited (the Company), including its subsidiaries (the
Accounting for the Group’s interest in Colluli Mining Share Company (“CMSC”)
Group), which comprises the consolidated statement of financial position as at 31 December 2016, the
consolidated statement of profit or loss and other comprehensive income, the consolidated statement of
changes in equity and the consolidated statement of cash flows for the year then ended, notes comprising
a summary of significant accounting policies and other explanatory information and the Directors’
Declaration.
How our audit addressed the key audit matter
Why significant
Our procedures included the following:
In our opinion:
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 the Shareholders
Agreement entered into with the Eritrean
National Mining Corporation (“ENAMCO”) and
executed in November 2013. CMSC was
incorporated in Eritrea, in accordance with the
Shareholders Agreement, to hold the Colluli
project, with Danakali and ENAMCO holding 50%
of the equity each.
the accompanying financial report of the Group is in accordance with the Corporations Act 2001,
including:
• We reviewed the applicable Shareholders
Agreement and the Group’s position paper
which concluded that it is appropriate for
Danakali’s investment in CMSC to be equity
accounted.
(i)
giving a true and fair view of the Group’s consolidated financial position as at 31 December 2016
and of its consolidated financial performance for the year ended on that date; and
• We assessed the Group’s calculations
supporting the measurement of the
investment and the shareholder loan. This
calculation included the discounting of the
complying with Australian Accounting Standards and the Corporations Regulations 2001.
shareholder loan balance based on the
Group’s current best estimate of when the
shareholder loan will be repaid.
The Group’s 50% interest in CMSC is accounted
for as a joint venture using the equity method.
Basis for opinion
(ii)
We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under
• We involved our valuation specialists to assess
those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial
the assumed discount rate having regard to
Report section of our report. We are independent of the Group in accordance with the Corporations Act
factors such as the project and country risk.
2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s
• We assessed the Group’s shareholder loan
APES110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the
financial report in Australia; and we have fulfilled our other ethical responsibilities in accordance with the
Code.
The accounting for the results of and investment
in CMSC is significant to our audit due to
complexity involved in measuring both the
investment as well as the shareholder loan
receivable. Specifically key assumptions
underpinning the measurement of these balances
relate to the timing as to when the Group
considers CMSC will have generated free
cashflows from the project to enable repayment
of monies loaned to them and an appropriate
discount rate to reflect the risk applicable to the
timing and repayment of the shareholder loan.
repayment assumptions having regard to the
current status of the project and the Group’s
best estimates of the timeline to finance,
develop, commission and produce free
cashflow from the project to repay the
shareholder loan.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our opinion.
• We assessed the arithmetical accuracy of the
Refer to note (1)(r)(ii) and notes 8 and 10 to the
financial report for further detail explaining the
key judgements underpinning the accounting
discussed in the two preceding paragraphs.
Key audit matters are those matters that, in our professional judgment, were of most significance in our
audit of the financial report of the current year. These matters were addressed in the context of our
• We obtained, and where applicable audited,
audit of the financial report as a whole, and in forming our opinion thereon, but we do not provide a
the results of CMSC and confirmed that
separate opinion on these matters. For the matter below, our description of how our audit addressed the
Danakali’s 50% interest in these results were
matter is provided in that context.
accounted for on an equity basis in the
financial statements of the Group.
At 31 December 2016, the Investment in
associates amounted to $13.5 million (refer to
Note 10 in the financial statements) and the
receivable from CMSC amounted to $9.5 million
(refer to Note 8 in the financial statements).
Group’s calculations, including where
applicable any foreign currency translations
embedded in the measurement process.
Key audit matters
• We considered whether there were any
impairment indicators to suggest that
Danakali’s investment in and shareholder loan
to CMSC may be impaired at balance date.
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A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
A member firm of Ernst & Young Global Limited
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
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69
69
69
Page 70
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Danakali Annual Report 2016DANAKALI LIMITED
Ernst & Young
11 Mounts Bay Road
Perth WA 6000 Australia
GPO Box M939 Perth WA 6843
Tel: +61 8 9429 2222
Fax: +61 8 9429 2436
ey.com/au
Ernst & Young
11 Mounts Bay Road
Perth WA 6000 Australia
GPO Box M939 Perth WA 6843
Tel: +61 8 9429 2222
Fax: +61 8 9429 2436
ey.com/au
INDEPENDENT AUDITOR’S REPORT
INDEPENDENT AUDITOR’S REPORT
Information other than the financial statements and auditor’s report
To the Shareholders of Danakali Limited
To the Shareholders of Danakali Limited
The Directors are responsible for the other information. The other information comprises the information
Report on the audit of the financial report
in the Group’s Annual Report for the year ended 31 December 2016, but does not include the financial
report and the auditor’s report thereon. We obtained the Directors report prior to the date of our
Opinion
auditor’s report. The commentary on the Potash Project Overview, Economic outcome of the DFS,
Development approach, Ownership and financing structure is expected to be made available to us after
We have audited the financial report of Danakali Limited (the Company), including its subsidiaries (the
the date of this auditor’s report.
Group), which comprises the consolidated statement of financial position as at 31 December 2016, the
consolidated statement of profit or loss and other comprehensive income, the consolidated statement of
Our opinion on the financial report does not cover the other information and we do not express any form
changes in equity and the consolidated statement of cash flows for the year then ended, notes comprising
of assurance conclusion thereon.
a summary of significant accounting policies and other explanatory information and the Directors’
Declaration.
In connection with our audit of the financial report, our responsibility is to read the other information and,
in doing so, consider whether the other information is materially inconsistent with the financial report or
In our opinion:
our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based upon the
work we have performed on the other information obtained prior to the date of the auditor’s report, we
the accompanying financial report of the Group is in accordance with the Corporations Act 2001,
conclude that there is a material misstatement of this other information, we are required to report that
including:
fact. We have nothing to report in this regard.
(i)
Directors’ responsibilities for the financial report
giving a true and fair view of the Group’s consolidated financial position as at 31 December 2016
and of its consolidated financial performance for the year ended on that date; and
giving a true and fair view of the Group’s consolidated financial position as at 31 December 2016
and of its consolidated financial performance for the year ended on that date; and
complying with Australian Accounting Standards and the Corporations Regulations 2001.
The Directors of the Company are responsible for the preparation of the financial report that gives a true
(ii)
and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for
such internal control as the Directors determine is necessary to enable the preparation of the financial
Basis for opinion
report that gives a true and fair view and is free from material misstatement, whether due to fraud or
error.
We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under
those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial
In preparing the financial report, the Directors are responsible for assessing the Group’s ability to
Report section of our report. We are independent of the Group in accordance with the Corporations Act
continue as a going concern, disclosing, as applicable, matters related to going concern and using the
2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s
going concern basis of accounting unless the Directors either intend to liquidate the Group or cease
APES110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the
operations, or have no realistic alternative but to do so.
financial report in Australia; and we have fulfilled our other ethical responsibilities in accordance with the
Code.
Auditor’s responsibilities for the audit of the financial report
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free
our opinion.
from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes
our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit
Key audit matters
conducted in accordance with Australian Auditing Standards will always detect a material misstatement
when it exists. Misstatements can arise from fraud or error and are considered material if, individually or
Key audit matters are those matters that, in our professional judgment, were of most significance in our
in the aggregate, they could reasonably be expected to influence the economic decisions of users taken
audit of the financial report of the current year. These matters were addressed in the context of our
on the basis of this financial report.
audit of the financial report as a whole, and in forming our opinion thereon, but we do not provide a
separate opinion on these matters. For the matter below, our description of how our audit addressed the
matter is provided in that context.
Report on the audit of the financial report
Opinion
We have audited the financial report of Danakali Limited (the Company), including its subsidiaries (the
Group), which comprises the consolidated statement of financial position as at 31 December 2016, the
consolidated statement of profit or loss and other comprehensive income, the consolidated statement of
changes in equity and the consolidated statement of cash flows for the year then ended, notes comprising
a summary of significant accounting policies and other explanatory information and the Directors’
the accompanying financial report of the Group is in accordance with the Corporations Act 2001,
Declaration.
In our opinion:
including:
(i)
(ii)
Basis for opinion
Code.
our opinion.
Key audit matters
complying with Australian Accounting Standards and the Corporations Regulations 2001.
We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under
those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial
Report section of our report. We are independent of the Group in accordance with the Corporations Act
2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s
APES110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the
financial report in Australia; and we have fulfilled our other ethical responsibilities in accordance with the
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
Key audit matters are those matters that, in our professional judgment, were of most significance in our
audit of the financial report of the current year. These matters were addressed in the context of our
audit of the financial report as a whole, and in forming our opinion thereon, but we do not provide a
separate opinion on these matters. For the matter below, our description of how our audit addressed the
matter is provided in that context.
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A member firm of Ernst & Young Global Limited
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71
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69
Danakali Annual Report 2016DANAKALI LIMITED
Information other than the financial statements and auditor’s report
To the Shareholders of Danakali Limited
The Directors are responsible for the other information. The other information comprises the information
Report on the audit of the financial report
in the Group’s Annual Report for the year ended 31 December 2016, but does not include the financial
Opinion
report and the auditor’s report thereon. We obtained the Directors report prior to the date of our
auditor’s report. The commentary on the Potash Project Overview, Economic outcome of the DFS,
Development approach, Ownership and financing structure is expected to be made available to us after
We have audited the financial report of Danakali Limited (the Company), including its subsidiaries (the
the date of this auditor’s report.
Group), which comprises the consolidated statement of financial position as at 31 December 2016, the
consolidated statement of profit or loss and other comprehensive income, the consolidated statement of
Our opinion on the financial report does not cover the other information and we do not express any form
changes in equity and the consolidated statement of cash flows for the year then ended, notes comprising
of assurance conclusion thereon.
a summary of significant accounting policies and other explanatory information and the Directors’
Declaration.
In connection with our audit of the financial report, our responsibility is to read the other information and,
in doing so, consider whether the other information is materially inconsistent with the financial report or
our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based upon the
In our opinion:
work we have performed on the other information obtained prior to the date of the auditor’s report, we
the accompanying financial report of the Group is in accordance with the Corporations Act 2001,
conclude that there is a material misstatement of this other information, we are required to report that
including:
fact. We have nothing to report in this regard.
(i)
giving a true and fair view of the Group’s consolidated financial position as at 31 December 2016
Directors’ responsibilities for the financial report
and of its consolidated financial performance for the year ended on that date; and
(ii)
The Directors of the Company are responsible for the preparation of the financial report that gives a true
complying with Australian Accounting Standards and the Corporations Regulations 2001.
and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for
Basis for opinion
such internal control as the Directors determine is necessary to enable the preparation of the financial
report that gives a true and fair view and is free from material misstatement, whether due to fraud or
error.
We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under
those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial
In preparing the financial report, the Directors are responsible for assessing the Group’s ability to
Report section of our report. We are independent of the Group in accordance with the Corporations Act
continue as a going concern, disclosing, as applicable, matters related to going concern and using the
2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s
going concern basis of accounting unless the Directors either intend to liquidate the Group or cease
APES110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the
operations, or have no realistic alternative but to do so.
financial report in Australia; and we have fulfilled our other ethical responsibilities in accordance with the
Code.
Auditor’s responsibilities for the audit of the financial report
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free
from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes
our opinion.
Key audit matters
our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit
conducted in accordance with Australian Auditing Standards will always detect a material misstatement
when it exists. Misstatements can arise from fraud or error and are considered material if, individually or
Key audit matters are those matters that, in our professional judgment, were of most significance in our
in the aggregate, they could reasonably be expected to influence the economic decisions of users taken
audit of the financial report of the current year. These matters were addressed in the context of our
on the basis of this financial report.
audit of the financial report as a whole, and in forming our opinion thereon, but we do not provide a
separate opinion on these matters. For the matter below, our description of how our audit addressed the
matter is provided in that context.
Ernst & Young
11 Mounts Bay Road
Perth WA 6000 Australia
GPO Box M939 Perth WA 6843
Tel: +61 8 9429 2222
Fax: +61 8 9429 2436
ey.com/au
Ernst & Young
11 Mounts Bay Road
Perth WA 6000 Australia
GPO Box M939 Perth WA 6843
Tel: +61 8 9429 2222
Fax: +61 8 9429 2436
ey.com/au
INDEPENDENT AUDITOR’S REPORT
INDEPENDENT AUDITOR’S REPORT
As part of an audit in accordance with Australian Auditing Standards, we exercise professional judgment
To the Shareholders of Danakali Limited
and maintain professional scepticism throughout the audit. We also:
Opinion
Report on the audit of the financial report
•
Identify and assess the risks of material misstatement of the financial report, whether due to fraud or
error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is
sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material
misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve
We have audited the financial report of Danakali Limited (the Company), including its subsidiaries (the
collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
Group), which comprises the consolidated statement of financial position as at 31 December 2016, the
consolidated statement of profit or loss and other comprehensive income, the consolidated statement of
• Obtain an understanding of internal control relevant to the audit in order to design audit procedures
changes in equity and the consolidated statement of cash flows for the year then ended, notes comprising
that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
a summary of significant accounting policies and other explanatory information and the Directors’
effectiveness of the entity’s internal control.
Declaration.
• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting
In our opinion:
estimates and related disclosures made by the Directors.
(i)
the accompanying financial report of the Group is in accordance with the Corporations Act 2001,
• Conclude on the appropriateness of the Directors’ use of the going concern basis of accounting in the
including:
preparation of the financial report. We also conclude, based on the audit evidence obtained, whether
a material uncertainty exists related to events and conditions that may cast significant doubt on the
giving a true and fair view of the Group’s consolidated financial position as at 31 December 2016
entity’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we
and of its consolidated financial performance for the year ended on that date; and
are required to draw attention in the auditor’s report to the disclosures in the financial report about
the material uncertainty or, if such disclosures are inadequate, to modify the opinion on the financial
report. However, future events or conditions may cause an entity to cease to continue as a going
concern.
complying with Australian Accounting Standards and the Corporations Regulations 2001.
(ii)
disclosures, and whether the consolidated financial statements represent the underlying transactions
and events in a manner that achieves fair presentation.
Basis for opinion
• Evaluate the overall presentation, structure and content of the financial report, including the
We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under
those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial
Report section of our report. We are independent of the Group in accordance with the Corporations Act
2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s
• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or
APES110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the
business activities within the Group to express an opinion on the financial report. We are responsible
financial report in Australia; and we have fulfilled our other ethical responsibilities in accordance with the
for the direction, supervision and performance of the Group audit. We remain solely responsible for
Code.
our audit opinion.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
We communicate with the Directors regarding, among other matters, the planned scope and timing of the
our opinion.
audit and significant audit findings, including any significant deficiencies in internal control that we
identify during our audit.
Key audit matters
We also provide the Directors with a statement that we have complied with relevant ethical requirements
regarding independence, and to communicate with them all relationships and other matters that may
Key audit matters are those matters that, in our professional judgment, were of most significance in our
reasonably be thought to bear on our independence, and where applicable, related safeguards.
audit of the financial report of the current year. These matters were addressed in the context of our
audit of the financial report as a whole, and in forming our opinion thereon, but we do not provide a
From the matters communicated to the Directors, we determine those matters that were of most
separate opinion on these matters. For the matter below, our description of how our audit addressed the
significance in the audit of the financial report of the current year and are therefore the key audit
matter is provided in that context.
matters. We describe these matters in our auditor’s report unless law or regulation precludes public
disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should
not be communicated in our report because the adverse consequences of doing so would reasonably be
expected to outweigh the public interest benefits of such communication.
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
A member firm of Ernst & Young Global Limited
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
Liability limited by a scheme approved under Professional Standards Legislation
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
A member firm of Ernst & Young Global Limited
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
Liability limited by a scheme approved under Professional Standards Legislation
69
71
69
Page 72
72
Danakali Annual Report 2016DANAKALI LIMITED
Ernst & Young
11 Mounts Bay Road
Perth WA 6000 Australia
GPO Box M939 Perth WA 6843
Tel: +61 8 9429 2222
Fax: +61 8 9429 2436
ey.com/au
ASX Additional Information
Additional information required by Australian Securities Exchange Ltd and not shown elsewhere in this report is as follows.
INDEPENDENT AUDITOR’S REPORT
Report on the remuneration report
To the Shareholders of Danakali Limited
Opinion on the remuneration report
Report on the audit of the financial report
We have audited the Remuneration Report included in pages 29 to 37 of the Directors' Report for the
Opinion
year ended 31 December 2016.
We have audited the financial report of Danakali Limited (the Company), including its subsidiaries (the
In our opinion, the Remuneration Report of Danakali Limited for the year ended 31 December 2016
Group), which comprises the consolidated statement of financial position as at 31 December 2016, the
complies with section 300A of the Corporations Act 2001.
consolidated statement of profit or loss and other comprehensive income, the consolidated statement of
changes in equity and the consolidated statement of cash flows for the year then ended, notes comprising
Responsibilities
a summary of significant accounting policies and other explanatory information and the Directors’
Declaration.
The Directors of the Company are responsible for the preparation and presentation of the Remuneration
Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an
In our opinion:
opinion on the Remuneration Report, based on our audit conducted in accordance with Australian
Auditing Standards.
the accompanying financial report of the Group is in accordance with the Corporations Act 2001,
including:
(i)
giving a true and fair view of the Group’s consolidated financial position as at 31 December 2016
and of its consolidated financial performance for the year ended on that date; and
Ernst & Young
(ii)
complying with Australian Accounting Standards and the Corporations Regulations 2001.
Basis for opinion
We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under
those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial
Gavin Buckingham
Report section of our report. We are independent of the Group in accordance with the Corporations Act
Engagement Partner
2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s
Perth
APES110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the
financial report in Australia; and we have fulfilled our other ethical responsibilities in accordance with the
9 March 2017
Code.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our opinion.
Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our
audit of the financial report of the current year. These matters were addressed in the context of our
audit of the financial report as a whole, and in forming our opinion thereon, but we do not provide a
separate opinion on these matters. For the matter below, our description of how our audit addressed the
matter is provided in that context.
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
A member firm of Ernst & Young Global Limited
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
Liability limited by a scheme approved under Professional Standards Legislation
Page 73
69
73
The information is current as at 31 March 2017.
(a) Distribution of equity securities
Analysis of numbers of equity security holders by size of holding:
1
1,001
5,001
10,001
100,001
TOTAL
-
-
-
-
1,000
5,000
10,000
100,000
and over
Holders
Securities
276,561
2,407,965
2,975,986
21,924,594
581
945
389
699
165
%
0.12%
1.06%
1.32%
9.69%
198,565,572
87.81%
100.00%
The number of shareholders holding less than a marketable parcel was 437.
(b) Twenty largest shareholders
The names of the twenty largest holders of quoted ordinary shares are:
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
JP Morgan Nominees Australia Ltd
Pershing Australia Nominees Pty Ltd (Well Efficient Limited)
Liam Raymond Cornelius
Seamus Cornelius
Montezuma Mining Company Ltd
HSBC Custody Nominees (Australia) Limited
Merrill Lynch (Australia) Nominees Pty Limited
Citicorp Nominees Pty Ltd
Paul Hartley Watts
Alpha Boxer Ltd
BNP Paribas Noms Pty Ltd
Ranguta Ltd
Paul Michael Donaldson
John Joseph Wallace
Grandor Pty Ltd
Dongarra Limited
National Nominees Ltd
ABN Amro Clearing Sydney Nominees Pty Ltd
Anthony & Norris Marite Maslin
Kam Lung Investments Development Company Limited
(c) Substantial shareholders
Corporations Act 2001 are:
Well Efficient Ltd
JP Morgan Asset Management (UK)
Liam Raymond Cornelius
(d) Voting rights
Listed ordinary shares
Number of shares
Percentage of
ordinary shares
43,294,807
30,000,000
15,682,041
8,498,184
7,527,369
7,513,194
7,158,058
5,320,000
4,185,000
4,147,436
3,941,482
3,432,250
2,518,334
2,470,983
2,241,568
2,064,917
2,064,398
2,038,790
2,010,000
1,656,352
19.14%
13.27%
6.93%
3.76%
3.33%
3.32%
3.17%
2.35%
1.85%
1.83%
1.74%
1.52%
1.11%
1.09%
0.99%
0.91%
0.91%
0.90%
0.89%
0.73%
157,765,163
69.76%
Number of Shares
30,000,000
20,200,000
15,682,041
The names of substantial shareholders who have notified the Company in accordance with section 671B of the
All ordinary shares (whether fully paid or not) carry one vote per share without restriction. Holders of unlisted options and
performance rights do not have voting rights
Danakali Annual Report 2016DANAKALI LIMITED
Ernst & Young
11 Mounts Bay Road
Perth WA 6000 Australia
GPO Box M939 Perth WA 6843
Tel: +61 8 9429 2222
Fax: +61 8 9429 2436
ey.com/au
ASX Additional Information
Additional information required by Australian Securities Exchange Ltd and not shown elsewhere in this report is as follows.
INDEPENDENT AUDITOR’S REPORT
Report on the remuneration report
To the Shareholders of Danakali Limited
Opinion on the remuneration report
Report on the audit of the financial report
We have audited the Remuneration Report included in pages 29 to 37 of the Directors' Report for the
Opinion
year ended 31 December 2016.
We have audited the financial report of Danakali Limited (the Company), including its subsidiaries (the
In our opinion, the Remuneration Report of Danakali Limited for the year ended 31 December 2016
Group), which comprises the consolidated statement of financial position as at 31 December 2016, the
complies with section 300A of the Corporations Act 2001.
consolidated statement of profit or loss and other comprehensive income, the consolidated statement of
changes in equity and the consolidated statement of cash flows for the year then ended, notes comprising
a summary of significant accounting policies and other explanatory information and the Directors’
Responsibilities
Declaration.
The Directors of the Company are responsible for the preparation and presentation of the Remuneration
Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an
In our opinion:
opinion on the Remuneration Report, based on our audit conducted in accordance with Australian
Auditing Standards.
the accompanying financial report of the Group is in accordance with the Corporations Act 2001,
including:
(i)
giving a true and fair view of the Group’s consolidated financial position as at 31 December 2016
and of its consolidated financial performance for the year ended on that date; and
Ernst & Young
(ii)
complying with Australian Accounting Standards and the Corporations Regulations 2001.
We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under
those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial
Gavin Buckingham
Report section of our report. We are independent of the Group in accordance with the Corporations Act
Engagement Partner
2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s
Perth
APES110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the
financial report in Australia; and we have fulfilled our other ethical responsibilities in accordance with the
9 March 2017
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
Basis for opinion
Code.
our opinion.
Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our
audit of the financial report of the current year. These matters were addressed in the context of our
audit of the financial report as a whole, and in forming our opinion thereon, but we do not provide a
separate opinion on these matters. For the matter below, our description of how our audit addressed the
matter is provided in that context.
The information is current as at 31 March 2017.
(a) Distribution of equity securities
Analysis of numbers of equity security holders by size of holding:
1
1,001
5,001
10,001
100,001
TOTAL
-
-
-
-
1,000
5,000
10,000
100,000
and over
Holders
581
945
389
699
165
Securities
276,561
2,407,965
2,975,986
21,924,594
198,565,572
%
0.12%
1.06%
1.32%
9.69%
87.81%
100.00%
The number of shareholders holding less than a marketable parcel was 437.
(b) Twenty largest shareholders
The names of the twenty largest holders of quoted ordinary shares are:
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
JP Morgan Nominees Australia Ltd
Pershing Australia Nominees Pty Ltd (Well Efficient Limited)
Liam Raymond Cornelius
Seamus Cornelius
Montezuma Mining Company Ltd
HSBC Custody Nominees (Australia) Limited
Citicorp Nominees Pty Ltd
Paul Hartley Watts
Alpha Boxer Ltd
Merrill Lynch (Australia) Nominees Pty Limited
BNP Paribas Noms Pty Ltd
Ranguta Ltd
Paul Michael Donaldson
John Joseph Wallace
ABN Amro Clearing Sydney Nominees Pty Ltd
Grandor Pty Ltd
Dongarra Limited
National Nominees Ltd
Anthony & Norris Marite Maslin
Kam Lung Investments Development Company Limited
Listed ordinary shares
Number of shares
43,294,807
30,000,000
15,682,041
8,498,184
7,527,369
7,513,194
7,158,058
5,320,000
4,185,000
4,147,436
3,941,482
3,432,250
2,518,334
2,470,983
2,241,568
2,064,917
2,064,398
2,038,790
2,010,000
1,656,352
Percentage of
ordinary shares
19.14%
13.27%
6.93%
3.76%
3.33%
3.32%
3.17%
2.35%
1.85%
1.83%
1.74%
1.52%
1.11%
1.09%
0.99%
0.91%
0.91%
0.90%
0.89%
0.73%
157,765,163
69.76%
(c) Substantial shareholders
The names of substantial shareholders who have notified the Company in accordance with section 671B of the
Corporations Act 2001 are:
Well Efficient Ltd
JP Morgan Asset Management (UK)
Liam Raymond Cornelius
(d) Voting rights
Number of Shares
30,000,000
20,200,000
15,682,041
All ordinary shares (whether fully paid or not) carry one vote per share without restriction. Holders of unlisted options and
performance rights do not have voting rights
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
A member firm of Ernst & Young Global Limited
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
Liability limited by a scheme approved under Professional Standards Legislation
69
73
Page 74
Danakali Annual Report 2016DANAKALI LIMITED
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Page 75
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Danakali Annual Report 2016DANAKALI LIMITED
ASX Additional Information
(f) Schedule of Interests in Mining Tenements
Tenement:
Colluli, Eritrea
License Type:
Mining Licenses
Nature of Interest:
Current Equity:
Owned
50%
DANAKALI LIMITED
ABN 56 097 904 302
3
Page 76
Danakali Annual Report 2016DANAKALI LIMITED
THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK
Page 77
Danakali Annual Report 2016DANAKALI LIMITED Page 78
Danakali Annual Report 2016DANAKALI LIMITED Danakali Ltd. Level 1, 234 Churchill Avenue Churchill Court Subiaco WA 6008
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