Corporate Information
Directors
Seamus Cornelius
Paul Donaldson
Zhang Jing
Samaila Zubairu
Taiwo Adeniji
Neil Gregson
(Executive Chairman)
(Independent Non-Executive Director)
(Non-Executive Director)
(Non-Executive Director)
(Non-Executive Director)
(Independent Non-Executive Director)
Executive Management
Greg MacPherson
(Chief Financial Officer)
Joint Company Secretary
Catherine Grant Edwards
Melissa Chapman
Registered Office and Principal Place of Business
Level 1, 2A / 300 Fitzgerald Street
NORTH PERTH WA 6006
Telephone: +61 (0)8 6266 8368
Bank
Commonwealth Bank Australia
225 St Georges Terrace
PERTH WA 6005
Auditors
Ernst and Young
11 Mounts Bay Road
PERTH WA 6000
Share Register (Australia)
Share Register (United Kingdom)
Computershare Investor Services Pty Limited
Level 11, 172 St Georges Terrace
PERTH WA 6000
Telephone: 1300 850 505 (Inside Australia)
Telephone: +61 (0)3 9415 4000 (Outside Australia)
Facsimile: +61 (0)3 9473 2500
www.computershare.com
Computershare Investor Services PLC
The Pavilions, Bridgwater Road
Bristol BS13 8AE, United Kingdom
Telephone: +44 (0) 370 702 0003
www.computershare.com
Website
www.danakali.com
Stock Exchange Listing
Danakali Limited Shares are listed on the Australian Stock Exchange (ASX:DNK).
American Depository Receipts
The Bank of New York Mellon sponsors DNK's Level 1 American Depository Receipts Program (ADR) in the United
States of America. DNK's ADRs are traded on the over-the-counter (OTC) securities market in the US under the
symbol DNKLY and CUSIP: 23585T101. One ADR represents one ordinary share in DNK.
US OTC Market information is available here:
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ADR Holders seeking information on their shareholding should contact: shrrelations@bnymellon.com OR
LONDON
Mark Lewis
mark.lewis@bnymellon.com
Telephone +44 207 163 7407
NEW YORK
Rick Maehr
richard.maehr@bnymellon.com
Telephone +1 212 815 2275
DANAKALI LIMITED ABN 56 097 904 302
1
Notes to the Consolidated Financial Statements
FOR THE YEAR ENDED 31 DECEMBER 2021
Executive Chairman’s Letter
Directors' Report
Auditor’s Independence Declaration
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 Auditor’s Report
ASX Additional Information
Page
3
6
32
33
34
35
36
37
63
64
70
DANAKALI LIMITED ABN 56 097 904 302
2
Executive Chairman’ Letter
Dear fellow shareholders and interested observers,
It is mid-March 2022 as I write this letter, which forms part of the Annual Report for 2021 covering Danakali’s activities and
financial information up to 31 December 2021. I think it is fair to say that 2021 was a challenging year in which to try and
develop the Colluli Potash Project (“Colluli”), which is located in the Danakil Depression, Eritrea.
Another way to say the same thing is to acknowledge that an ongoing global pandemic, regional geopolitical instability
highlighted (or lowlighted) by serious unrest and war in Ethiopia and in my opinion, completely indefensible and unjust US
Treasury Sanctions imposed on Eritrea, do not create a supportive environment for project development. As everyone will
be aware, the international scene has not improved in the first quarter of 2022.
Everyone in our industry knows that every project has its’ own challenges and that at the end of the day the board of
directors and executive team are responsible for dealing with those challenges. The rest of this letter will mention some of
what we achieved, explain how we dealt with the challenges and outline some of the challenges we see coming.
Progress in 2021
Danakali is developing Colluli in a 50/50 joint venture with the Eritrean National Mining Corporation (“ENAMCO”) and the
asset is owned by an Eritrean incorporated joint venture company known as Colluli Mining Share Company (“CMSC”). Our
key relationships in Eritrea with ENAMCO and the Ministry of Energy and Mines remain strong and supportive.
Colluli remains an outstanding asset because of its enormous size, very high grade, shallow, flat lying geometry, proximity
to the Red Sea coast, multi-decade growth potential and proximity to Africa, the Middle East, Europe and India.
The two key elements underpinning the value of Danakali’s investment in CMSC are the quality of Colluli as an asset and
the strength of our relationships with our partners and regulators in Eritrea.
The engineering and chemical test work we did in 2021 to further understand and define the optimal method for producing
Sulphate of Potash (“SOP”) from Colluli, along with the very substantial increase in potash prices has only made our
investment in Colluli more valuable. Our FEED study used a long-term forward price for SOP of US$569/t. The SOP price
is now well above this level at US$875 FCA NW Europe, as is the Muriate of Potash (“MOP”) price CIF NW Euro US$760/t.
I have heard critical comments from a few shareholders who are of the view that we have done too much test work at
Colluli. I totally disagree with this view and am happy to refer them to a couple of Australian SOP hopefuls and a polyhalite
project in England that charged ahead into construction without fully understanding their asset or process. The “charging
ahead” phase was greeted with enthusiasm and cheers only to end in tears falling to the sound of shareholder funds being
flushed down the proverbial. It is an inviolable rule of mining that a poor quality, poorly understood and low-grade asset is
not improved by hasty development regardless of it being in a popular jurisdiction. At the risk of repeating myself, which I
am happy to do in this instance, Colluli is a very high grade, very large, very well understood asset and not at all comparable
to any other SOP asset unless you are the type of person who thinks it is meaningful to compare a sandcastle at Cottesloe
Beach with Mount Everest.
I am very confident in the quality of Colluli as an asset and the strength and character of our relationships in Eritrea. It is
surprising to me that Eritrea is still such a poorly understood country and that it continues to be the target of widespread
vilification and fake news. Anyone who makes time to read a little about the history of Eritrea, the challenges they have
faced, their focus on being self-sufficient, independent and ensuring that National development is fair and equitable for all
can only be impressed. If you take a little more time and look at what they have achieved in key areas like health, education,
gender equality and social cohesion that effort will be well rewarded.
Share price performance
As a fairly large shareholder, our share price performance in 2021 does not make me happy. During 2021 I purchased
1.15 million shares at a weighted average price of 42c. As you may expect, among the many shareholder calls and emails
I received last year and into this year I have not received a lot of positive feedback about our share price. Like most
shareholders, I am not interested in share price performance relative to peers or a benchmark. Those measures are for
brokers and people who make money from managing other peoples’ money. Nonetheless, I have been persuaded to
include the next paragraph which provides, I am told, a more balanced perspective on our share price.
Danakali is a speculative stock and our share price has a volatility of greater than 45%. In 2021 this was evidenced in our
end of day share price closing as low as $0.29 and as high as $0.57. Our daily liquidity increased 170% year on year. In
terms of absolute returns in 2021 we witnessed a Danakali share price start the year at $0.31 and end the year at $0.43
which reflects an absolute annual return of 39%. During the year our daily VWAP was $0.47. Moreover, these figures
incorporate the early impact of the US Sanctions announced in November 2021. We also undertook a successful capital
raising of $20.3m at $0.43/share, issuing 47,296,231 new ordinary shares and received good support from our brokers and
long-term shareholders for the raise.
Thanks to the capital raise, we have a good cash position and are being very cautious with expenditure. Our efforts in 2022
will continue to be directly focussed on improving shareholder returns.
DANAKALI LIMITED ABN 56 097 904 302
3
Executive Chairman’ Letter
If you look at our share price performance for 2021 and the price increases in SOP over the same period as shown on the
chart below it is obvious the November 2021 sanctions had an impact and that something does not make sense.
US Sanctions
On 12 November 2021, the U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) designated four
Eritrean entities and two Eritrean individuals pursuant to Executive Order (E.O.) 14046 as subject to punitive sanctions in
response to the US Government’s view regarding the ongoing military conflict in Ethiopia. Although the sanctions do not
apply to ENAMCO, CMSC or Danakali, as entities, they have had a very serious impact on the conduct of business in
Eritrea and international trade and investment with Eritrea.
A direct commercial result of the sanctions has been that even an Australian incorporated public listed company such as
Danakali has had to change its domestic Australian commercial banking arrangements and set up new international
arrangements simply to transfer funds to our joint venture company CMSC, in Eritrea. We also have restrictions on
transferring US dollars which prevent us from conducting our business in the manner we have done for the past 13 years
and consequently, we have had to change the currency of our transfers.
A lot has been written and said about these sanctions and this is not the forum for a proper discussion about this issue. In
the absence of a proper discussion, I will simply state my view which is that these sanctions are unilateral, unjustified,
inconsistent with the UN Charter, intended to cause harm and discomfort to the people of Eritrea and have clearly had an
extremely chilling effect on foreign investment and trade in Eritrea. These sanctions continue a long and disgraceful history
of unjustified, highly politicised sanctions and targeted discrimination against Eritrea by countries in the so called Western
Liberal Democratic Alliance or more simply “The West”.
The OFAC sanctions operate as both political and U.S. domestic legal instruments and there is no readily available recourse
for those who are sanctioned against their ramifications.
Funding
The OFAC Sanctions coming on top of the global pandemic mean that CMSC has not made the progress it would like to
make on the development of Colluli. Even without the sanctions we were behind the original development timeline because
of the pandemic-induced difficulties in both raising capital and deploying the capital we have toward the development of
Colluli.
There is no point in mentioning what may have occurred but for the OFAC Sanctions. The OFAC Sanctions are a reality
that we are dealing with in cooperation with our partners ENACMO and relevant regulators in Eritrea.
It may be of interest to some to know that when I joined the Danakali board in mid-2013 as Chairman there were UN
Sanctions on Eritrea ostensibly to prevent the sale of arms to Eritrea but actually to deter foreign investment and trade.
Those UN Sanctions were lifted in late 2019 and CMSC signed the USS$200 million senior secured project finance facility
with Africa Finance Corporation (“AFC”) and Africa Export Import Bank (“Afreximbank”) almost immediately after they were
lifted. We received an equity investment of US$21.5m from AFC at 60cps and were working on the second tranche equity
investment when the COVID 19 pandemic hit hard in March 2020. This means that since mid-2013 until now we have had
about 4 months when we were not dealing with sanctions or a global pandemic.
DANAKALI LIMITED ABN 56 097 904 302
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Executive Chairman’ Letter
The Future
During the balance of 2022 we will continue to work closely with ENAMCO through CMSC to formalise discussions with the
Ministry of Energy and Mines and our project lenders (AFC and Afreximbank) on the best way to manage the development
timeline and the impact of the US sanctions. It is possible that CMSC will need to agree on an extension of the development
timeline with the lenders and the Ministry of Energy and Mines or deal with the delay in another way, perhaps by agreeing
on a force majeure or some other arrangement.
CMSC may also need to agree on amendments to the loan documents with the lenders to change the agreed currency
from USD to another currency and make changes to the conditions precedent to drawdown of the loan facility. Obviously,
this level of uncertainty must be managed but I remain confident in the following:
1. Ability of our small team to deal with these challenges and keep the market properly informed.
2. Outstanding quality of Colluli and the work we have done to properly understand it and the process for making
SOP from our ores.
3. Level of trust and character of our key relationships in Eritrea.
4. Future for Colluli and the hugely positive impact it will have for the people of Eritrea, across Africa and beyond,
including of course Danakali shareholders.
Our plan has always been to develop Colluli with ENAMCO through CMSC and to do it the “right way”. The independent
UNDP Report on Colluli published January 2019 under the title “Analysis of the Potential Contribution of Colluli Potash
Project to Sustainable Development Goals of Eritrea” is well worth reading if you want to understand the impact that Colluli
will have once it is developed.
Someone once said that anything worth doing is worth doing well. Someone should also have said that if you want to be
involved in doing something that will improve the lives of millions of people and in a small way begin to correct long standing
historical inequities, prejudice and exploitation it will take a lot more time and effort than you expect. This is certainly the
case with our efforts at Colluli.
One way or the other, Colluli is going to be developed and it is going to make a positive difference. It is an absolute honour
for me to be involved in Colluli and to have the opportunity to work with our partners in Eritrea and beyond. Our partners
ENAMCO and all the regulators in Eritrea including of course the Ministry of Energy and Mines have consistently worked
hard to support us and continue to do so. We are looking at all alternatives to fund and develop Colluli and working closely
with our partners to achieve this common goal.
In closing, I will take this opportunity to thank Danakali shareholders for their support and wish every shareholder and our
other supporters good health, safety and every success in 2022 and beyond.
Yours sincerely
Seamus Cornelius
Executive Chairman
DANAKALI LIMITED ABN 56 097 904 302
5
Directors’ Report
The directors present their report together with the financial statements of the consolidated entity being, Danakali Limited
(Danakali or the Company) and its controlled entities (the Group) for the financial year ended 31 December 2021.
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
Executive Chairman, LLB, LLM, initially appointed Non-Executive Chairman on 15 July 2013, transitioned to Executive
Chairman on 14 June 2018, resumed Non-Executive Chairman role on 25 June 2019, and transitioned to Executive
Chairman on 26 February 2021.
Mr Cornelius has extensive experience as 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 was appointed as Non-Executive Chairman of the Company on 15 July 2013 and acted in the role of Executive
Chairman from 14 June 2018 to 25 June 2019. As announced on 26 February 2021, Mr Cornelius was re-appointed as
Executive Chairman.
Mr Cornelius is currently the Non-Executive Chairman of Buxton Resources Ltd (appointed 29 November 2010), Element
25 Limited (appointed 30 June 2011), and Duketon Mining Ltd (appointed 8 February 2013).
Special Responsibilities:
During the year Mr Cornelius was a member of the Audit and Risk Committee and a member of the Remuneration and
Nomination Committee.
Paul Michael Donaldson
Independent Non-Executive Director, Master’s Degree - Mining Engineering, Master’s Degree - Business and Technology,
BEng Chemical (Honours, University Medal), Assoc Dip. Applied Science (Metallurgy), appointed 11 October 2021
Over 30 years’ experience in senior management at BHP, Danakali and Pacific National. Mr Donaldson held a series of
senior management roles spanning over 20 years with BHP Billiton where he managed large scale open-cut mining
operations, headed the BHP Carbon Steel Materials Technical Marketing Team, managed the Port Hedland iron ore facility,
as well as key roles in product and infrastructure planning across large scale supply chains.
He also has 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.
Mr. Donaldson, in his previous role as the Company’s CEO and Managing Director, redefined the product and development
path and process for the Project, overseeing the pre-feasibility, definitive feasibility and FEED study phases.
Special Responsibilities:
Since the date of his appointment on 11 October 2021, Mr Donaldson was Chairman of the Audit and Risk Committee and
a member of the Remuneration and Nomination 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 from the university of Reading in the United
Kingdom.
Special Responsibilities:
None.
DANAKALI LIMITED ABN 56 097 904 302
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Directors’ Report
Samaila Zubairu
Non-Executive Director, FCA, appointed 23 April 2020
Mr Zubairu is African Finance Corporation’s (AFC) President and Chief Executive Officer. Previously, he was the CEO of
Africapital Management Limited, where he established a joint venture with Old Mutual’s African Infrastructure Investment
Managers to develop a fund for infrastructure private equity across West Africa, and Chief Financial Officer for Dangote
Cement Plc. Prior to that, he was the Treasurer for the Dangote Group during its transformation from a trading company to
an industrial conglomerate. He has undertaken investments of over US$3 billion, financing green-field project finance,
acquisitions, corporate transformation, privatisation and equity capital market transactions.
Mr Zubairu is an Eisenhower Fellow and sits on the Eisenhower Fellowship’s Global Network Council and the President’s
Advisory Council. He holds several non-executive board positions including being the advisory board member for KSE
Africa, a leading operations and management provider of captive power plants in the mining sectors in Botswana and
Nigeria. He is also a Fellow of the Institute of Chartered Accountants of Nigeria (FCA) and holds a BSc in Accounting from
Ahmadu Bello University, Nigeria.
Special Responsibilities:
None.
Taiwo Adeniji
Non-Executive Director, HCIB, appointed 23 April 2020
Mr Adeniji is Senior Director for Investment Operations & Execution at AFC, where he has responsibility, amongst other
things, for the institution’s investments in oil & gas, and mining projects. Taiwo has had over 26 years of post-graduate and
extensive professional and managerial experience in several areas of banking and finance. He has deep knowledge and
extensive experience with infrastructure and mining policy issues, as well as the analysis, evaluation and financing of
infrastructure and mining projects. Mr Adeniji has supervised AFC’s investments in mining projects that spanned different
products, including gold, copper, bauxite, and iron ore, as well as in different geographies, including countries in West,
North and Central Africa. From 1994 to 2007, Mr Adeniji worked with the African Development Bank, focussing largely on
infrastructure investments and financial sector development.
Mr Adeniji’s academic background is in economics and finance. He is an Honorary Senior Member (HCIB) of the Chartered
Institute of Bankers of Nigeria.
Special Responsibilities:
None.
Neil Gregson
Independent Non-Executive Director, Qualified Mining Engineer, appointed 3 August 2020
Mr Gregson is an experienced resource sector investor having spent over 30 years managing investments predominantly
in mining and energy companies.
Mr Gregson’s previous roles included portfolio manager in J.P. Morgan Asset Management’s Global Equities Team based
in London and responsible for global natural resource mandates. Prior investment roles were with CQS Asset Management
as a Senior Portfolio Manager, with a focus on the natural resource sector and Credit Suisse Asset Management as Head
of Emerging Markets and related sector funds.
Mr Gregson began his career holding various positions at mining companies, including a role as a mining investment analyst
at South African company Gold Fields. He is a qualified mining engineer.
Mr Gregson is currently a Director of Uranium Royalty Corp. (appointed 14 October 2020) and Atalaya Mining Plc (appointed
10 February 2021).
Special Responsibilities:
During the year Mr Gregson was Chairman of the Remuneration and Nomination Committee.
Robert Gordon Connochie
Independent Non-Executive Director, B.A. Sc, M.B.A., appointed 6 February 2017, resigned 31 August 2021
Mr Connochie is a highly-experienced potash and mining specialist with over 40 years of industry experience. He brought
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.
DANAKALI LIMITED ABN 56 097 904 302
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Directors’ Report
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.
Special Responsibilities:
In the period prior to his resignation, Mr Connochie was a member of the Audit and Risk Committee.
John Daniel Fitzgerald
Independent Non-Executive Director, CA, appointed 19 February 2015, resigned 11 October 2021
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 a Non-Executive Director of Northern Star Resources Limited (appointed 30 November 2012) and Medallion
Metals Limited (appointed 5 October 2020).
Previously Mr Fitzgerald was Non-Executive Chairman of Exore Resources Limited (23 December 2015 to 25 September
2020).
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:
In the period prior to his resignation, Mr Fitzgerald was Chairman of the Audit and Risk Committee and a member of the
Remuneration and Nomination Committee.
COMPANY SECRETARY
Catherine Grant-Edwards and Melissa Chapman
Appointed Joint Company Secretary 7 July 2017
Ms Melissa Chapman (Certified Practicing Accountant (CPA), AGIA/ACIS, GAICD) and Ms Catherine Grant-Edwards
(Chartered Accountant (CA)) were appointed as Joint Company Secretary on 7 July 2017. Ms Chapman and Ms Grant-
Edwards are directors of Bellatrix Corporate Pty Ltd (Bellatrix), a company that provides company secretarial and
accounting services to a number of ASX listed companies. Between them, Ms Chapman and Ms Grant-Edwards have over
30 years’ experience in the provision of accounting, finance and company secretarial services to public listed resource and
private companies in Australia and the UK, and in the field of public practice external audit.
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 on issue by Danakali
Limited were:
Director
S Cornelius
Paul
Donaldson
Neil Gregson
Ordinary
Shares
14,641,126
1,145,693
Options over
Ordinary
Shares
2,000,000
-
80,000
-
PRINCIPAL ACTIVITIES
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 2021.
CORPORATE STRUCTURE
Danakali Limited is a company limited by shares that is incorporated and domiciled in Australia.
DANAKALI LIMITED ABN 56 097 904 302
8
Directors’ Report
REVIEW OF OPERATIONS
PROJECT OVERVIEW
The Colluli Potash Project (Colluli, or the Project) is located in the Danakil Depression region of Eritrea, East Africa. Colluli
is approximately 177km south-east of the capital, Asmara, and 180km from the port of Massawa, which is Eritrea’s key
import/export facility. The Project is a joint venture between the Eritrean National Mining Corporation (ENAMCO) and
Danakali with each having 50% ownership of the joint venture company, the Colluli Mining Share Company (CMSC). CMSC
is responsible for the development of the Project.
The Danakil Depression is an emerging potash province, which commences in Eritrea and extends south across the border
into Ethiopia. It is one of the largest unexploited potash basins globally; over 6Bt of potassium bearing salts suitable for
production of potash fertilisers have been identified in the region to date (ASX announcement 25 February 2015 and
http://circumminerals.com/resources).
Colluli is located approximately 75km from the Red Sea coast providing unrivalled logistics potential. Colluli also boasts the
shallowest known mineralisation globally. Mineralisation commences at just 16m below surface. In addition, the potassium
bearing salts are present in solid form (in contrast with production of SOP from brines). Shallow access to salts in solid form
provides Colluli with significant mining, logistics and, in turn, capital and operating cost advantages over other potash
development projects globally. The Project also carries a significantly lower level of complexity as a consequence of
predictable processing plant feed grade and predictable production rates due to low reliance on ambient conditions.
Shallow mineralisation makes the resource amenable to open cut mining: a proven, high productivity mining method. Open
cut mining provides higher resource recoveries relative to underground and solution mining methods, is generally safer,
and can be more easily expanded.
The Colluli resource comprises three potassium bearing salts in solid form: Sylvinite, Carnallitite and Kainitite. These salts
are suitable for high yield, low energy production of Sulphate of Potash (SOP), which is a high-quality potash fertiliser
carrying a price premium over the more common Muriate of Potash (MOP). SOP is chlorine free and is commonly applied
to high value crops such as fruit, vegetables, nuts, and coffee. Economic resources for primary production of SOP are
geologically scarce and there are few current primary producers.
The JORC-2012 compliant Mineral Resource for Colluli is estimated at 1.289Bt @ 11% K2O for 260Mt of contained SOP
equivalent (ASX announcement 25 February 2015). The updated JORC-2012 compliant Ore Reserve estimate for Colluli
at 29 January 2018 is estimated at 1,100Mt @ 10.5% K2O for 203Mt of contained SOP equivalent (ASX announcement 19
February 2018). The Measured and Indicated Mineral Resources are inclusive of those Mineral Resources modified to
produce the Ore Reserves.
Due to the massive resource, Colluli has the potential to produce a diverse and high volume of products however as a start-
up development, focus has been placed on the highest value commodity, SOP. Technical studies have been undertaken
for the production of high-quality SOP. The final Colluli study, Front-End Engineering Design (FEED) (ASX announcement
29 January 2018), defined in initial SOP development:
Module I – 472ktpa SOP production
Module II – additional 472ktpa SOP production commencing in year 6
The above delivers a mine life of approximately 200 years, demonstrating the capacity of Colluli to further expand and
support decades of growth beyond Modules I and II.
FEED for Module I and II at 29 January 2018 demonstrates the robust project economics. The premium commodity
combined with industry leading capital intensity and first quartile operating costs results in a Project Net Present Value
(NPV10) of US$902M and Internal Rate of Return (IRR) of 29.9% (Post tax). The Danakali economic outcomes were an
NPV10 of US$439M and IRR of 31.3% (Post tax and gearing).
Colluli’s diversification potential beyond SOP includes the option to produce additional potash and salt products such as
MOP, SOP-M, kieserite (MgSO4.H2O), gypsum (CaSO4.2H2O), magnesium chloride (MgCl2), and rock salt (NaCl). The
Colluli SOP Mineral Resource also comprises an 85Mt Kieserite (magnesium sulphate) Mineral Resource (ASX
announcement 15 August 2016). Kieserite is a suitable fertiliser for magnesium deficient soils. A 347Mt Rock Salt (sodium
chloride) Mineral Resource (ASX announcement 23 September 2015) has also been established at Colluli. Unprocessed
Rock Salt can be used in a number of chemical processes, for de-icing, and as a feed for the production of table salt.
Colluli has in place a 10 year take or pay Offtake (ASX announcement 12 June 2018), and executed Senior Debt
documentation for a $200 million facility with African Finance Corporation (AFC) and African Export Import Bank
(Afreximbank) (ASX announcement 23 December 2019).
Project Execution
EPCM Phase 1 and 2 of project execution, which relates to the process plant and associated infrastructure work has been
completed. The Project now benefits from a more defined scope and de-risked design and the robustness of the FEED
results have been further improved.
Early works have commenced with the procurement of the Reverse Osmosis and Sewage Treatment Plants. The
Earthworks, infrastructure and civil scopes are complete, and the EPCM have progressed with updating the plant design
following the improvement identified for the Mass Balance.
DANAKALI LIMITED ABN 56 097 904 302
9
Directors’ Report
As the Project is still in development and has not commenced operations, the impact of COVID-19 is limited, however there
is uncertainty regarding the impact that COVID-19 will have in the future as it relates to the extractive activities.
Significant progress in project execution is limited by the funds available and geopolitical restrictions resulting from the US
sanctions imposed by the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) on 12 November
2021. OFAC designated four entities and two individuals pursuant to Executive Order (E.O.) 14046 as subject to sanctions
in response to the US Government’s view regarding the ongoing military conflict in Ethiopia. Although the sanctions do not
apply to Danakali, ENAMCO or CMSC as entities, they have had an impact on the ordinary conduct of business by the
Company in Eritrea.
Mining Agreement Executed and Mining Licenses Awarded
CMSC is fully permitted, having entered into a mining agreement (Mining Agreement) with the Eritrean Ministry of Energy
and Mines (MoEM) and was awarded mining licenses (Mining Licenses) for the exploitation of mineral resources within
the Colluli tenements (ASX announcement 1 February 2017).
The Mining Agreement is applicable to the entire 1.3Bt JORC-2012 compliant Mineral Resource and provides exclusive
rights to CMSC to apply for mining licenses to exploit the potassium, magnesium, calcium and sodium salts within the
Resource, as well as bromine.
The award of the Mining Licenses follows the completion of a series of pre-requisites including the completion and
submission of the DFS, submission of a comprehensive social and environmental impact assessment and associated
management plans, a series of pre and post DFS stakeholder engagements with local and regional communities and
stakeholders, and the signing of the Mining Agreement.
In accordance with the Mining Agreement, CMSC is required to spend US$200 million on infrastructure and mine
development within the area of the Colluli project mining licences and commence Commercial Production in the 36 months
following the provision of formal Notice of Commencement of Mine Development (the Notice) to the MoEM. The Notice,
dated 16 December 2019, was accepted by MoEM on 21 July 2020 (ASX announcement 22 July 2020). The time granted
by the MoEM to commence Commercial Production and spend US$200 million on infrastructure and mine development is
36 months from submission of the Notice (namely, 15 December 2022). The Company continues to work closely with
ENAMCO through CMSC to formalise discussions with the MoEM on the best way to manage the development timeline
and the impact of the US sanctions. It is possible that CMSC may need to agree on an extension of the development
timeline with the MoEM or deal with the delay in another form. CMSC has a strong relationship with the MoEM and continues
to have regular engagement with the MoEM regarding the Project’s progress.
A Social and Environmental Impact Assessment (SEIA) and associated Social and Environmental Management Plans
(SEMPs) have been completed, consistent with the Equator Principles. Stakeholder engagements have been completed
throughout the study phases, and the Project has strong support from local communities. Following a period of consultation
and further works between the Eritrean Ministry of Land, Water & Environment and CMSC, the SEMPs were signed off by
the Ministry in August 2018. The SEMPs are a cornerstone of the environmental, social and safety management system
being developed by CMSC and provide the foundation for compliance.
Carbon Neutral SOP
Early assessment work on the solar and wind energy potential of Colluli has been completed and this has confirmed that
both of these renewable energy sources can be incorporated into the future generation of power for the Project. Our initial
goal is to create a responsible, environmentally friendly, zero carbon, premium fertiliser business that clearly links Colluli
SOP with the production of nutritious crops, to bolster global food and nutrition security, and to improve millions of lives.
MARKETING AND PROJECT FINANCE
Off-take
The Company holds a binding take-or-pay offtake agreement with EuroChem Trading GmbH (EuroChem) for up to 100%
of Module I SOP production from the Colluli Potash Project. EuroChem will take, pay, market and distribute up to 100%
(minimum 87%) of Colluli Module I SOP production. The term of the agreement is 10 years from the date of commissioning
of the Colluli SOP processing plant, with an option to extend for a further 3 years if agreed by EuroChem and CMSC.
EuroChem is an outstanding partner with global reach and extensive fertiliser expertise and experience, and the agreement
was instrumental in unlocking project funding.
Project Financing
Development finance institutions, Africa Finance Corporation (AFC) and African Export Import Bank (Afreximbank,
together the Senior Lenders), have executed documentation for the provision of US$200 million in senior debt finance to
CMSC (each Senior Lender providing US$100 million). The facility allows drawdown of CMSC senior debt on satisfaction
of customary conditions precedent (ASX announcement 23 December 2019) for a project financing facility of this kind and
includes all project approvals required to develop the Project, and the balance of the equity contribution having been raised.
There is no deadline for the completion of such conditions precedent however the Project is required to be completed by
the Longstop Date which is 31 March 2023.
We continue to work closely with our Senior Lenders (AFC and Afreximbank) to determine the best way to manage the
development timeline and the impact of the US sanctions. CMSC will probably need to agree to on an extension of the
longstop date with the Senior Lenders. The Senior Lenders fully support the Project and continue to provide their ongoing
support.
DANAKALI LIMITED ABN 56 097 904 302
10
Directors’ Report
During the year the Company successfully completed a placement through domestic and international institutions and
sophisticated investors to raise A$20.3 million before costs through the issue of 47,296,231 ordinary shares at A$0.43 per
share (ASX announcement 29 April 2021).
The Company has engaged a range of advisers and brokers to support our funding requirements, including the appointment
of AFC Advisory on an arm’s length basis. We are pursuing multiple options in partnership with ENAMCO, including debt,
equity and quasi-equity instruments.
On the 12 November 2021, the U.S. Department of Treasury’s Office of Foreign Assets Control (OFAC), placed sanctions
on certain Eritrean entities and individuals. These sanctions will likely impact parties that would normally invest in a
project of this nature. We continue to work with our banks, advisors and partners to mitigate the risks associated with the
sanctions to ensure that Danakali remains compliant and is able to continue with its mandate to complete the funding of
the Project.
Key Operational Contracts
The following operational contracts are key to advancing the Project.
Mining – undergoing negotiations with preferred mining services provider
Earth Moving Worldwide (EMW) is the Company’s preferred contractor for Colluli’s mining services scope, which covers
the pre-production period (development) plus the first 5 years of production. The scope includes the provision, operation
and maintenance of excavation, haulage and dewatering equipment. EMW has extensive global experience in mining
services, earthworks and water management and will provide the Project with strong commercial and technical support.
The Mining Services Contract is complete for all material matters. Execution of this contract will follow successful completion
of the project financing.
Power – Finalising documentation
Aggreko has been appointed as the preferred power supply contractor for a 12MW HFO power plant at Colluli. Under 5-
year Build, Own, Operate Transfer (BOOT) contract, Aggreko will supply, commission, operate and maintain the power
plant, then transfer ownership of the equipment to CMSC. Aggreko will provide the funding for the power plant which
provides certainty over delivery of this preferred solution (ASX announcement 8 October 2020).
The Power Contract is complete for all material matters. Execution of the contract will follow successful completion of the
project financing.
The early assessment work on the solar and wind energy potential of Colluli has been completed and this has confirmed
that both of these renewable energy sources can be incorporated into the future generation of power for the Project. The
Company will now work with Aggreko on further developing these solutions. Aggreko’s ambition is to be carbon net zero,
aligning with the Paris Climate Agreement, by helping its customers meet their sustainability targets.
Camp –Contracts near completion
A contract with RA International (RAI) to provide the camp and camp services is well advanced. The camp design and
scope is complete.
Execution of the contract will follow successful completion of the project financing.
EPCM
The Company has engaged DRA Global (DRA) to support Project Execution through the provision of Engineering,
Procurement, Construction and Management (EPCM) services. DRA is a high quality, multi-disciplinary global project
management and engineering group with strong African experience and EPCM delivery capability. The scope of DRA’s
contract includes:
all aspects of design, project management, procurement, construction management and supervision;
commissioning of the complete process plant and associated infrastructure; and
awarding and overseeing major contracts such as early works, earthworks, structural, mechanical, piping, electrical and
instrumentation works, laboratory and permanent camp.
In addition, multinational professional services company Turner & Townsend has been engaged to support the Owner’s
Team.
Execution of the contract for the full scope of work will follow successful completion of the project financing.
DANAKALI LIMITED ABN 56 097 904 302
11
Directors’ Report
CORPORATE
Board Changes
On 11 October 2021, Mr Paul Donaldson was appointed as an Independent Non-Executive Director.
Mr Robert Connochie and Mr John Fitzgerald resigned as Non-Executive Directors on 31 August 2021 and 11 October
2021, respectively.
Management Changes
Mr Niels Wage (CEO) was made redundant on 26 February 2021, with Mr Seamus Cornelius assuming his responsibilities
as Executive Chairman. (ASX announcement 26 February 2021).
Mr Stuart Tarrant (CFO) resigned on 13 April 2021. (ASX announcement 13 April 2021).
Refer to events occurring after the balance date for management changes that have occurred subsequent to 31 December
2021
London Stock Exchange
On 24 September 2021, the Company delisted from the London Stock Exchange to improve administrative efficiencies
(ASX announcement 11 August 2021).
Shares
The following shares were issued during the year:
947,041 shares issued upon exercise of unlisted options at an exercise price of $0.00.
47,565,999 shares issued at $0.43 each, pursuant to a placement to institutional and sophisticated investors and
senior Danakali executives (Placement).
1,080,000 shares issued at $0.43 each to directors (or their nominees) following receipt of shareholder approval
at the Company’s AGM held on 30 July 2021 (being on same terms as the Placement).
At 31 December 2021, there were a total of 368,334,346 fully paid ordinary shares on issue.
Options
The following unlisted options were issued during the year:
500,000 unlisted options at an exercise price of $0.527 each expiring 29 January 2023.
250,000 unlisted options at an exercise price of $0.780 each expiring 24 March 2023.
250,000 unlisted options at an exercise price of $0.501 each expiring 3 December 2023. (Granted on 3 December
2020, formally issued on 12 February 2021.)
2,000,000 unlisted options at an exercise price of $0.640 each expiring 30 July 2025 to the Executive Chairman,
as approved by the shareholders at the Company’s AGM held on 30 July 2021.
8,000,000 unlisted options at an exercise price of $0.640 each expiring 30 July 2025 to executive employees.
The following unlisted options were exercised and converted to shares during the year:
947,041 unlisted options at an exercise price of $0.00 each expiring 31 December 2021.
At 31 December 2021, there were a total of 15,264,112 unlisted options on issue at various exercise prices and expiry
dates.
Performance Rights
There were no new performance rights issued during the year.
No performance rights vested and were converted to shares during the year.
The following performance rights were forfeited during the year:
900,000 Class 9 performance rights
At 31 December 2021, there were a total of 360,000 performance rights on issue in the following classes:
280,000 Class 1 performance rights
80,000 Class 5 performance rights
Annual General Meeting
The Company’s annual general meeting was held on 30 July 2021 (AGM). For more information, refer to the Notice of AGM
and Results available via the Company’s website.
Amended Constitution
The Company’s Constitution was amended following receipt of shareholder approval at the AGM.
DANAKALI LIMITED ABN 56 097 904 302
12
Directors’ Report
Environmental and Social Governance (ESG)
Danakali and CMSC have 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.
The Company has implemented a Sustainable Development Framework to address its ESG agenda which is aligned with
its Corporate Governance Framework. The policies developed using this framework directly support the management plans
associated with the SEIA and SEMP for the Project.
The Company released its inaugural sustainability report in 2020. This report details the policies and frameworks in place
to ensure that the Company continues to operate in a sustainable manner. The Company plans to release annual
sustainability reports with increased transparency as the Project continues to grow and evolve. The annual sustainability
reports will align with the Global Reporting Initiative once the Colluli project becomes operational.
RESERVE AND RESOURCE OVERVIEW
Colluli has a JORC-2012 compliant resource of 1.289 billion tonnes as shown in Table 1 as at 31 December 2021. Apart
from the inclusion of Kieserite (ASX announcement 15 August 2016), there have been no changes to the Mineral
Resource since 25 February 2015.
The Colluli JORC-2012 compliant mineral resource estimate as at 31 December 2021 is as follows:
Table 1: Colluli SOP Mineral Resource estimate as announced on 25 February 2015
Rock Unit
Measured
Indicated
Inferred
Total
Tonnes
Equiv. Grade
(% K2O)
Tonnes
(Mt)
90
80
133
303
13
7
12
11
(Mt)
160
303
488
951
Equiv.
Grade
(% K2O)
13
8
12
11
Tonnes
(Mt)
15
15
5
35
Equiv.
Grade
(% K2O)
9
11
12
10
Tonnes
(Mt)
265
398
626
1,289
Equiv.
Grade
(% K2O)
12
8
12
11
Sylvinite
Carnallitite
Kainitite
Total
Table 2: Kieserite contained within the Colluli SOP Mineral Resource, by Resource Classification, as announced on 15
August 2016.
Rock Unit
Measured
Indicated
Inferred
Mt
90
80
133
303
Contained
Kieserite
(Mt)
0
16
2
18
Mt Contained
Kieserite
(Mt)
0
59
7
66
160
303
488
951
Mt Contained
Kieserite
(Mt)
0
3
0
3
15
15
5
35
Total
(Mt)
265
398
626
1,289
Sylvinite
Carnallitite
Kainitite
Total
Total
Contained
Kieserite
(Mt)
0
78
9
87
Kieserite
(%)
0.03
20
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 285
million tonnes of Proved and 815 million tonnes of Probable Ore Reserve and is shown below in Table 3. The Ore
Reserve was updated in line with FEED outcomes (ASX announcement 19 February 2018). There have been no changes
to the Mineral Resource and ore reserves since 19 February 2018.
The Colluli JORC-2012 compliant Ore Reserve estimate by potash mineral as at 31 December 2021 is as follows:
Table 3: JORC-2012 Colluli Potassium Sulphate Ore Reserve (announced on 29 January 2018 and 19 February 2018)
Proved
Probable
Total
Mt
77
77
K2O
Equiv %
15.0%
Mt
173
K2O
Equiv %
12.1%
6.9%
279
7.8%
Mt
250
356
K2O
Equiv %
K2SO4
Equiv %
K2SO4
Equiv Mt1
13.0%
7.6%
131
11.8%
363
11.2%
494
11.4%
Occurrence
Sylvinite
(KCl.NaCl)
Carnallitite
(KCl.MgCl2.H2O)
Kainitite
(KCl.MgSO4.H2O)
Total
815
1 Equivalent K2SO4 (SOP) calculated by multiplying %K2O by 1.85.
11.3%
285
10.3%
1,100
10.5%
18.5
203
DANAKALI LIMITED ABN 56 097 904 302
13
Directors’ Report
In addition to potassium sulphate, substantial quantities of rock salt exist. A JORC-2012 compliant Rock Salt Mineral
Resource Estimate of over 300 million tonnes has been completed for the area considered for mining in the DFS as shown
in Table 3. There have been no changes to the Mineral Resource estimate since 23 September 2015.
As at 31 December 2021, the JORC-2012 compliant Rock Salt Mineral Resource is as follows:
Table 4: JORC 2012 Colluli Rock Salt Mineral Resource announced on 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
Board and Management Changes
On 1 March 2022, Gregory MacPherson was appointed Chief Financial Officer.
Conflict between Russia and Ukraine
The Company has considered the impact the Russian and Ukraine conflict is having on the business. CMSC is not yet in
production and there are no strategic project supplies being sourced from the affected region therefore the direct and
immediate exposure is low. The off-take agreement with EuroChem will need to be closely monitored as the sanctions have
already affected the global fertilizer market. As at the date of this report, the CMSC off-take agreement has not been
impacted. The Group is in the process of raising equity to fund the Project and the conflict has increased global
uncertainties, which directly effects investor risk appetites. This will probably affect the investor pool and more specifically
the strategic investors from Russia. The Group continues to work with their various financial advisors to work through these
uncertain times. The changing global macroeconomic conditions may affect the Project costs however the increasing
fertilizer prices are providing a significant hedge to accommodate any CAPEX escalations. The Group will continue to
monitor the impact of the conflict on the business.
No other matters or circumstances have arisen since the end of the financial year which significantly affected or may
significantly affect the operations of the Group, the results of those operations, or the state of affairs of the Group in future
financial years.
ACTIVITIES PLANNED FOR 2022
The following key activities are scheduled over the coming year:
Consolidate EPCM work completed and update the CAPEX and OPEX costs from FEED, including the
operational improvements identified.
Secure adequate funding to advance Colluli Project.
Seek to extend the terms of CMSC Senior Debt Facility.
Subject to securing adequate funding:
o Execute the remaining phases of the EPCM contracts and commence the detailed design work
o Finalise and execute the mining services, power provider and camp contracts
o Advance the Company’s ESG objectives
DANAKALI LIMITED ABN 56 097 904 302
14
Directors’ Report
FINANCE REVIEW
The Group recorded a net loss after tax of $10,037,168 for the financial year to 31 December 2021 compared to a loss of
$8,259,370 for the financial year to 31 December 2020. As the Group is still in the development stage, revenue streams
mainly relate to interest earned on surplus funds from capital raisings held at bank. The net losses after tax reflect the
remeasurement loss of the receivable at fair value arising from the change in the loan repayment profile, foreign exchange
loss on the loan receivable denominated in USD and administrative costs incurred by the Group.
Total consolidated cash on hand at the end of the financial year was $22,884,417 (31 December 2020: $9,738,794).
Operating activities utilised $2,576,064 (31 December 2020: $2,881,504 utilised) of net cash flows. Net cash outflow from
investing activities of $4,730,504 (31 December 2020: $17,572,229) was predominantly expenditure made to advance the
Colluli Project in relation to:
Completing Phase 1and 2 of project execution and the commencement of early works.
Early procurement of the Reverse Osmoses & Sewerage Treatment Plant
Enhancements to the process design and Mass Balance requirements
Advancing key operational contracts
Payment of senior lender fees subsequent to the execution of documentation for US$200 million of senior debt
facilities on behalf of CMSC
Net cash inflow from financing activities of $18,807,947 in the financial year to 31 December 2021 was attributable to net
proceeds from issue of ordinary shares (31 December 2020: $3,302,478 outflow for costs of capital accrued for in the
previous financial year).
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 arise.
DIVIDENDS
No dividends were paid or declared during the financial year to 31 December 2021. No recommendation for payment of
dividends has been made.
DIRECTORS’ MEETINGS
The number of meetings of the Company’s Board of Directors and permanent Board sub-committees held during the
financial year ended 31 December 2021 and the number of meetings attended by each Director were:
Board of Directors
Audit and Risk Committee Remuneration and Nomination
Committee
Total meetings
held / eligible
to attend
Total
attended
Total meetings
held / eligible to
attend
Total
attended
Total meetings
held / eligible to
attend
Total
attended
12
12
12
12
12
1
11
10
12
7
71
7
9
1
11
7
2
-
-
-
-
-
2
2
2
-
-
-
-
-
2
2
6
-
-
-
6
1
5
-
6
-
-
-
6
1
5
-
Director
S Cornelius
J Zhang
S Zubairu
T Adeniji
N Gregson
P Donaldson
J Fitzgerald
R Connochie
1 The number of meetings attended include those attended by Mr Zubairu (0) or his representative (7).
DANAKALI LIMITED ABN 56 097 904 302
15
Directors’ Report
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 2021:
Issued, exercisable at $0.501, expiry date 3 December 2023 (Granted on 3 December 2020,
formally issued on 12 February 2021)
Issued, exercisable at $0.527, expiry date 29 January 2023
Issued, exercisable at $0.780, expiry date 24 March 2023
Exercised, exercisable at $0.00, expiry date 31 December 2021
Issued, exercisable at $0.640, expiry date 30 July 2025
Issued, exercisable at $0.640, expiry date 30 July 2025
Share options outstanding at 31 December 2021
Movements since the financial year ended 31 December 2021:
Expired, exercisable at $1.031 expiry date 24 January 2022
Expired, exercisable at $1.108, expiry date 13 March 2022
Expired, exercisable at $1.119, expiry date 28 March 2023
Total number of share options outstanding as at the date of this report
Expiry date
30 May 2022
3 December 2023
29 January 2023
24 March 2023
8 July 2023
30 July 2025
30 July 2025
Exercise price
$1.114
$0.501
$0.527
$0.780
$0.664
$0.640
$0.640
Total number of share options outstanding at the date of this report
Number of options
5,211,153
250,000
500,000
250,000
(947,041)
2,000,000
8,000,000
15,264,112
(1,469,312)
(583,000)
(561,800)
12,650,000
Number of options
1,450,000
250,000
500,000
250,000
200,000
2,000,000
8,000,000
12,650,000
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 KMP 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 financial year ended 31 December 2021:
Forfeited (a)
Performance rights outstanding at 31 December 2021
Movements since the financial year ended 31 December 2021:
None
Total number of performance rights as at the date of this report
Note:
Number of rights
1,260,000
(900,000)
360,000
-
360,000
(a) Performance rights forfeited on 26 February 2021 upon termination of employment of Mr Niels Wage pursuant to redundancy.
No performance rights holder has any right to participate in any other share issue of the Company or any other entity.
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 $425,676
(2020: $413,795) 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.
DANAKALI LIMITED ABN 56 097 904 302
16
Directors’ Report
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.
NON-AUDIT SERVICES
There were no non-audit services provided during the year.
All non-audit services provided would be subject to the corporate governance procedures adopted by the Company and
would be reviewed by the Board to ensure they do not impact the integrity and objectivity of the auditor; and the non-audit
services provided would not undermine the general principles relating to auditor independence as set out in APES 110
Code of Ethics for Professional Accountants (including Independence Standards), as they would 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 no services in addition to their statutory duties:
Tax compliance services
Fees for regulatory services
CORPORATE GOVERNANCE
2021
$
-
-
-
2020
$
10,792
61,800
72,592
The Company’s corporate governance statement can be found at the following URL: https://danakali.com.au/about-us/
RISK MANAGEMENT
The Company has established a Risk Management Policy which outlines the Board’s expectations in relation to risk
management, responsibilities, risk management objectives, and the principles of its risk management framework.
The Board, through the Audit and Risk Committee is responsible for overseeing the establishment and implementation of
effective risk management and internal control systems to manage the Company’s material business risks and for reviewing
and monitoring the Company’s application of those systems.
The Audit and Risk Committee continues to work closely with management to assess, monitor and review business risks
and to carry out assessments of internal controls and processes for improvement opportunities. In support of this, the
Committee receives reports from management on new and emerging risks and related controls and mitigation measures
that management have implemented.
A summary of the material business risks of the Company is set out in the below table.
RISK
MITIGATION / CONTROL
Strategic Risks
The Group is reliant on the success of a single asset
located in a remote region in Eritrea. Any adverse event
affecting the Colluli Potash Project (Project), either during
its development or following the commencement of
production, would have a material adverse effect on the
value of the business.
Changes to government, existing applicable laws and
regulations, more stringent interpretations of existing laws
or inconsistent interpretation or application of existing
laws by relevant authorities have the potential to
adversely impact business activities.
The imposition of sanctions by the U.S. Department of the
Treasury’s Office of Foreign Assets Control (OFAC)
against Eritrean designated entities has restricted the
Group’s ability to freely work through the US financial
systems.
Eritrea has limited local resources, infrastructure and
skills, has a less tested legislative and regulatory
framework compared to more established mining
jurisdictions and is generally perceived as a jurisdiction
where there is a high risk of corruption.
The Group has implemented a comprehensive risk
management framework to early detect and manage
adverse events that would affect the Project.
The Group maintains a strong relationship with a broad
base of government and community stakeholders to
monitor the political environment in Eritrea and to stay
ahead of any legislative and regulatory changes.
The Group’s public relations and investment strategies
promote the international awareness of the benefits of
doing business in Eritrea. As further investment is made
into the country further infrastructure can be developed.
The Group works closely with its banks and advisors and
has implemented various controls to ensure that the
Group works within the constraints of the US Sanctions.
The commencement of training programmes in
conjunction with Government and other mining
companies is planned to increase the number of skilled
and semi-skilled persons in Eritrea.
Whilst the Group has not experienced any corruption in
Eritrea, the Anti-Bribery & Corruption Policy provides the
framework for the appropriate conduct when dealing with
government officials. The Groups’ values further promote
the proper behaviour of its employees and contractors.
DANAKALI LIMITED ABN 56 097 904 302
17
Directors’ Report
RISK
MITIGATION / CONTROL
Financial Risks
The Group is yet to commence production and is in its
development phase, therefore the Company has no cash
generating assets which could put a strain on long -term
cash flows.
The Group has adopted robust financial management
practices to ensure that cash outflows are closely
governed and that future requirements remain adequate
to continue as a going concern.
The Group continues to execute its fund-raising strategies
to obtain the required capital to adequately fund the
Project and working capital of the business.
The Group is aware that the economics for the
development of the Project is strongly linked to the
market price of SOP and its ability to sell the product.
The Group continuously monitors the SOP market and
forecast demand to ensure that the economics of the
Project remain favourable.
The Group is aware of the requirement to raise additional
funding to finance the Project. Without the required fund
raising, the business will not be able to develop the
Project and long-term cashflow will become a concern.
The ability for CMSC to spend US$200 million on
infrastructure and mine development and commence
Commercial Production before 15 December 2022.
A natural risk mitigant exists against lower SOP prices in
the form of an industry cost curve, of which Colluli is
expected to be in the bottom quartile.
An offtake agreement with Eurochem has been executed
for up to 100% of the production for the first 10 years of
the Project. There is regular ongoing engagement with
Eurochem to continue to build the future partnership.
The Group has established a funding strategy to fund the
Project through debt and equity sources.
A US$200 million debt facility has been secured with
African Finance Corporation (AFC) and African Export-
Import Bank (Afreximbank). Drawdown on this facility is
subject to a number of conditions precedent. A detailed
plan is in-progress to close out these conditions to enable
drawdown as required by the Project. Discussions have
commenced with the Senior Lenders for the extension of
the long-stop date.
The Company continues to identify and engage further
strategic and institutional investors through its advisers
and brokers.
The Group continues to work closely with ENAMCO
through CMSC to formalise discussions with the MOEM
and our Senior Lenders on the best way to manage the
development timeline and the impact of the US sanctions.
It is possible that CMSC may need to agree on an
extension of the development timeline with the Senior
Lenders and the MoEM or deal with the delay perhaps by
agreeing on a force majeure or some other arrangement.
The MoEM continue to support CMSC and the company
continues to have regular engagement with the MoEM
regarding the Project’s progress.
The Group is aware that foreign exchange movements
and interest rate changes could affect the financial
performance of the Company.
The Group implements appropriate treasury management
processes and procedures to monitor and manage its
foreign exchange exposures.
On the 12 November 2021, OFAC, placed sanctions on
certain Eritrean entities and individuals. The sanctions
place restrictions on the financial systems in particular
with regards to trading in US dollars.
The Group seeks to pursue natural foreign exchange
hedges through the negotiation, where appropriate, of
USD denominated commercial contracts.
The senior debt funding facility is linked to the LIBOR rate
which is relatively stable and does not fluctuate
significantly. The Group monitors the transition of LIBOR
to SOFR to assess the impact, if any, of this change.
The Group has obtained legal advice on how to comply
with the US Sanctions and have put controls in place to
ensure compliance.
Where possible, the Company avoids the settlement of
transactions in US dollars.
The Group continues to work closely with its bankers,
advisors and partners to mitigate the risks associated with
the sanctions to ensure that Danakali remain compliant
DANAKALI LIMITED ABN 56 097 904 302
18
Directors’ Report
RISK
Compliance Risks
The Group is aware that the mining industry is subject to a
number of laws and governmental regulations which need
to be complied with. Non-compliance could result to the
loss of the Group’s mining licence.
MITIGATION / CONTROL
and are able to continue with its mandate to complete the
funding of the Project.
The Group has regular and effective engagement with the
Eritrean Ministry of Energy and Mines to ensure that it
remains compliant with regulatory requirements and that
the government is made aware of the Company’s
commitments to develop the Project.
Operation/ Project Risks
The Group is reliant on a number of key personnel. The
loss of one or more of its key personnel could have an
adverse impact on the business of the Group
The Group has developed succession plans to reduce the
exposure to the loss of any key personnel. In addition,
incentive plans have been implemented.
The Group is in the early stages of development and
therefore is exposed to various development risks.
The Group has identified a number of controls to reduce
its exposure to development risks.
The EPCM continues to identify risks associated with the
Project and maintains the project risk register which has
identified a number of controls which are to be
implemented during execution.
The Group has awarded contracts or preferential status to
reputable third-party contractors to develop and operate
the Project. The Company continues to engage with
parties as the Project develops.
The Group has detailed plans to develop these
infrastructures and continue to engage with reputable
contractors.
The Company has developed a business continuity plan
in the event of a business interruption event and
developed various controls to limit the impact of a
Pandemic.
The Group has appointed an in-country manager to
regularly engage with the government and community to
provide regular feedback on the development of the
Project.
The strategies to complete the funding package to
develop the Project are key to maintaining the Group’s
reputation.
The Group intends to comply with IFC Performance
Standards and Equator Principles.
The Group has implemented a number of policies and
procedures to ensure compliance with fair work and
human rights practices.
In recognition of the physical remoteness of the Project, a
well-equipped medical clinic is planned for on-site. The
business has engaged with an internationally recognised
health and safety consultant to assist in to further
developing these plans.
Emergency response plans and travel safety strategies
have been implemented.
The Group is reliant on third parties to develop and operate
the Project, including mining, EPCM, and power contracts.
The Project is reliant on developing its own infrastructure
including, processing plant, water and roads.
Health event that could impact the employee wellbeing or
disrupt business continuity.
Reputational Risks
The Group is aware of the risk that Community and
Government support could deteriorate if the Colluli project
does not commence in the near term.
The Group is aware of the external perception of Eritrea
with respect to political or economic instability.
Specifically, allegations of Human Rights violations.
Health & Safety
Physical development of the Project has not yet
commenced, however the Group is aware of the activities
and the environments in which the Project is located
present inherent hazards, including the risk of serious
injury or fatality while working on site.
The physical remoteness of Project increases the risk of
commuting to site and the availability of medical
assistance in the event of an incident.
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.
DANAKALI LIMITED ABN 56 097 904 302
19
Directors’ Report
AUDITOR’S INDEPENDENCE DECLARATION
A copy of the auditor's independence declaration as required under section 307C of the Corporations Act 2001 is set out
separately in this report.
REMUNERATION REPORT (AUDITED)
The Remuneration Report outlines the director and executive remuneration arrangements of 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 Executive Chairman, Chief Executive Officer
and Chief Financial Officer of the Group.
The KMP of Danakali Ltd and the Group during the financial year to 31 December 2021 were:
Directors
S Cornelius
J Zhang
S Zubairu
T Adeniji
N Gregson
P Donaldson
J Fitzgerald
R Connochie
Non-Director KMP
N Wage
S Tarrant
Executive Chairman (transitioned from Non-Executive Chairman on 26 February 2021)
Non-Executive Director
Non-Executive Director
Non-Executive Director
Non-Executive Director
Non-Executive Director (appointed 11 October 2021)
Non-Executive Director (resigned 11 October 2021)
Non-Executive Director (resigned 31 August 2021)
Chief Executive Officer (employment terminated 26 February 2021 pursuant to redundancy)
Chief Financial Officer (resigned 31 March 2021)
All of the above persons were KMP during the financial year to 31 December 2021 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 KMP Remuneration Strategy
The remuneration strategy for Danakali Ltd is designed to provide rewards that achieve the following:
Attract, retain, motivate and reward KMP;
Reward KMP 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.
A summary of the key elements of the remuneration arrangements during the period 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
Options
Provide reward to KMP for
the achievement of
individual and Group
performance targets linked
to the Company’s short-
term goals and strategic
objectives.
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 company
and individual KPI’s and
performance targets.
DANAKALI LIMITED ABN 56 097 904 302
20
Directors’ Report
Remuneration
Component
Performance Based:
Long Term Incentive (LTI)
Item
Purpose
Shares
Options
Performance Rights
Provide reward to KMP for
their continued service and
their contribution to
achieving corporate
objectives set by the Board
to ensure the long-term
growth of the Company.
Link to
Performance
Award of LTI linked directly
to achievement of strategic
Company objectives.
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 KMP
h)
i) Other Transactions with KMP
j) Additional Information
Loans to KMP
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 KMP including:
the Company’s remuneration policy and framework;
the remuneration arrangements for the Chief Executive Officer, Executive Chairman and other KMP;
the terms and conditions of long-term incentives and short-term incentives for the Chief Executive Officer,
Executive Chairman and other KMP;
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 KMP are set by reference to other similar sized mining and development
companies with similar risk profiles and are set to attract and retain KMP capable of managing the Group’s operations.
Remuneration levels for Executives 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 KMP 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 KMP is competitive and reasonable,
acceptable to shareholders and aligns remuneration with performance. The structure and level of remuneration for KMP is
conducted annually by the Remuneration and Nomination Committee relative to the Company’s circumstances, size, nature
of business and performance.
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’ 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 prior to any statutory superannuation payments;
Additional fees are paid to Directors who serve on the board sub-committees; 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.
Fees for the non-executive directors are determined within an aggregate directors’ fee pool limit of $500,000 as approved
by shareholders on 27 May 2019.
DANAKALI LIMITED ABN 56 097 904 302
21
Directors’ Report
Remuneration of Executive Chairman
Executive 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 Executive Chairman is not present at any of the discussions relating to the determination of his own remuneration.
During the year 2,000,000 unlisted options were issued to the Executive Chairman as part of his remuneration with an
exercise price of $0.640 each expiring 30 July 2025. These options vest and become exercisable immediately from date of
issue. While the options vest immediately, the exercise price has been set above the market share price to appropriately
motivate the Chairman to focus on the company's objectives to further the Colluli project.
Remuneration of Executives
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 executive 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 executive 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 executive 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 executive’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.
Executives 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 executives is reviewed annually to ensure
the executives’ pay is competitive with the market. The pay of executives is also reviewed on promotion. There is
no guaranteed pay increase included in any executive’s contract.
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 executive of specified key performance indicators (KPI’s) which are in
turn linked to the Company’s strategic objectives and targets. The Board has the discretion to reduce or suspend
any bonus payments where Company circumstances render it appropriate.
For FY21, no cash and share based payment STI was awarded to executive KMPs.
iii)
Variable Remuneration – Long Term Incentives (LTI)
During the year 2,000,000 unlisted options were issued to the Executive Chairman as part of his remuneration with
an exercise price of $0.640 each expiring 30 July 2025. These options vest and become exercisable immediately
from date of issue.
In previous financial years, long term incentives have been provided to employees in the form of non-plan
performance rights, and performance rights under the Performance Rights Plan (PRP). The PRP was re-approved
by shareholders at the general meeting held 17 November 2014.
Details of options issued to executives in the previous years can be found in section f(i) below.
Details of performance rights issued to executives can be found in section f(ii) below.
Further performance rights details can be found in Note 22 to the financial statements.
DANAKALI LIMITED ABN 56 097 904 302
22
Directors’ Report
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 98.25% of votes in favour of its Remuneration Report for the financial year ending 31 December
2021 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 KMP of Danakali Ltd are set out in the following table. The disclosed
directors’ fees are inclusive of committee fees.
DANAKALI LIMITED ABN 56 097 904 302
23
Directors’ Report
KMP of the Company for the financial year to 31 December 2021:
Financial Year to
31 December 2021
Short-Term
Benefits
Post-
Employment
Termination
Benefits
Share Based Payments
Total
Remuneration
Performance
related (c)
Salary
and Fees
$
Super-
annuation
$
Severance Pay
$
Shares
$
STI
Options(a) (b)
$
LTI
Options(a)(b)
$
Performance
Rights(a) (b)
$
Executive Directors
S Cornelius
Non-Executive Directors
P Donaldson
J Fitzgerald
J Zhang
R Connochie
N Gregson
S Zubairu
T Adeniji
Other Non-Director KMP
N Wage
S Tarrant
TOTAL
Note:
192,667 18,866
12,495 1,249
47,341 4,575
43,333
34,000
53,833
-
-
-
43,829
43,333
-
-
-
-
-
-
-
-
-
-
112,980 6,370
122,604 10,558
706,415 41,619
347,202(d)
-
347,202
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
248,992
-
-
-
-
-
-
-
-
-
$
%
460,524
54%
-
-
-
-
-
-
-
-
13,744
51,916
43,333
34,000
53,833
43,829
43,333
0%
0%
0%
0%
0%
0%
0%
0%
0%
9%
(138,019)
-
328,534
133,162
248,992
(138,019)
1,206,209
(a) 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.
(b) This amount refers to the share-based payment expense/(reversal) recorded in the statement of comprehensive income during the period in respect of the options and performance rights to KMP’s
(refer details below).
(c) Performance related percentage calculated in reference to share based payments divided by total remuneration (excluding reversal amounts).
(d) N Wage was made redundant on 26 February 2021 and received a redundancy payment.
DANAKALI LIMITED ABN 56 097 904 302
24
Directors’ Report
KMP of the Company for the financial year to 31 December 2020:
Financial Year to
31 December 2020
Short-Term
Benefits
Post-
Employment
Long Term
Benefits
Share Based Payments
Total
Remuneration
Performance
related (h)
Salary
and Fees
$
Super-
annuation
$
Long Service
Leave (c)
$
Shares
$
STI
Options(b)(f)(g)
$
LTI
Options(b)(d)
$
Performance
Rights(b) (d)
$
$
%
Non-Executive Directors
S Cornelius (g)
P Donaldson (g)
J Fitzgerald (g)
J Zhang (g)
R Connochie(g)
A Liebenberg (g)
N Gregson (g)
S Zubairu (g)
T Adeniji (g)
Other Non-Director KMP
N Wage (f)
S Tarrant (f)
C Grant-Edwards (a)(i)
M Chapman (a)(i)
TOTAL
Note:
91,985
42,465
70,000
54,000
56,485
47,763
25,268
35,067
35,067
450,993
254,970
37,950
37,950
1,239,963
7,546
4,034
6,650
-
-
-
-
-
-
40,569
23,119
-
-
81,918
-
-
-
-
-
-
-
-
-
12,562
5,307
-
-
17,869
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
3,567
-
-
(111,319)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
226,094
116,145
-
-
58,435
18,587
-
-
52,881
-
-
-
103,098
(64,820)
76,650
54,000
56,485
47,763
25,268
35,067
35,067
841,534
418,128
37,950
37,950
342,239
80,589
(58,438)
1,704,140
3%
0%
0%
0%
0%
0%
0%
0%
0%
40%
32%
0%
0%
27%
(a) Company secretarial services are provided through Bellatrix Corporate Pty Ltd. Fees charged are on an arms-length basis. In response to COVID-19, fees were reduced by 10% over the six-month
period from May to October 2020.
(b) 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.
(c) Long service leave reported in this table represents amounts accrued during the year.
(d) This amount refers to the share-based payment expense/(reversal) recorded in the statement of comprehensive income during the period in respect of the options and performance rights to KMP’s
(refer details below).
In response to COVID-19, salaries were reduced by 20% over the six-month period from May to October 2020.
In response to COVID-19, non-executive director base fees were reduced by 20% over the six-month period from May to October 2020.
(e)
(f)
(g) Refers to ZEP Options issued constituting a short term incentive (STI) award in respect of the FY19 year results (as detailed above).
(h) Performance related percentage calculated in reference to share based payments divided by total remuneration (excluding reversal amounts).
(i)
In FY2021, the position no longer met the definition of key management personnel
DANAKALI LIMITED ABN 56 097 904 302
25
Directors’ Report
The relative proportions of remuneration that are linked to performance and those that are fixed are as follows:
Name
Executive Directors
S Cornelius
Non-Executive Directors
J Fitzgerald
J Zhang
R Connochie
N Gregson
S Zubairu
T Adeniji
P Donaldson
Other Non-Director KMP
N Wage
S Tarrant
e) Service Agreements
Financial Year to 31 December 2021
Fixed Remuneration
At risk – STI
At risk - LTI
46%
100%
100%
100%
100%
100%
100%
100%
100%
100%
-
-
-
-
-
-
-
-
-
-
54%
-
-
-
-
-
-
-
-
-
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.
S Cornelius, Executive Chairman:
Appointed 26 February 2021
Engaged as a permanent part-time employee
Effective from 26 February 2021, Mr Cornelius remunerations was increased to $225,000 per annum plus
superannuation at the statutory rate. In addition, Mr Cornelius will be eligible to participate in the Company’s
incentive plans, the terms and operation of which are at the discretion of the Board and subject to shareholder
approval in the case of securities. (ASX Announcement: 26 March 2021)
N Wage, Chief Executive Officer:
Appointed 25 March 2019 to role of CEO
Engaged as a permanent full-time employee
Effective from 1 January 2020, Mr Wage’s salary was increased to €257,500 per annum plus superannuation at
the Australian statutory rate and health insurance for Mr Wage and his dependents
Notice period of six months, required to be given by either party for termination
Position made redundant on 26 February 2021.
S Tarrant, Chief Financial Officer
Appointed 12 June 2017
Engaged as a permanent full-time employee
Effective from 1 January 2020, Mr Tarrant’s salary was increased to $306,000 per annum inclusive of
superannuation
Notice period of three months, required to be given by either party for termination
Resigned on 13 April 2021.
f) Details of Share Based Compensation
(i) Options
During the year, the following options were issued to KMP as part of remuneration:
2,000,000 unlisted options with an exercise price of $0.640 each expiring 30 July 2025 (no vesting conditions) to
Mr Seamus Cornelius.
There were no new options granted to KMP during the year, other than listed above.
The terms and conditions of each grant of options constituting KMP remuneration that remain on issue to KMP at 31
December 2021 are set out in the following table:
Grant date
Vesting and first
exercise date
Expiry date
Number of
Options
Exercise
price
Value per
option at
grant date
Vested and
exercisable
%
30 July 2021
30 July 2021
30 July 2025
2,000,000
$0.640
$0.480
100%
Total Options
2,000,000
DANAKALI LIMITED ABN 56 097 904 302
26
Directors’ Report
Details of options over ordinary shares in the Company, provided as remuneration to KMP are set out in the following table.
Year
of
grant
2019
2019
2019
2021
Year in
which
options
vest
2020
2020
2020
2021
Number of
options
granted
301,040
1,450,000
583,000
2,000,000
4,334,040
Value of
options at
grant date
$37,234
$188,676
$93,970
$248,992
Unamortised
value of
options at 31
Dec 2021
-
-
-
-
Number of
options
vested
301,040
1,450,000
583,000
2,000,000
4,334,040
Vested
and
exercisable
100%
100%
100%
100%
Name
S Cornelius
N Wage
S Tarrant
S Cornelius
Total Options
471,030 unlisted options were exercised during the year at an exercise price of $0.00 each by Mr Niels Wage. The fair
value of these options at date of exercise was $174,281.
241,968 unlisted options were exercised during the year at an exercise price of $0.00 each by Mr Stuart Tarrant. The fair
value of these options at date of exercise was $94,368.
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.
When exercisable, each option is convertible into one ordinary share. Further information on the options is set out in note
22.
(ii) Performance Rights
There were no new performance rights granted to KMP during the year. 900,000 Class 9 performance rights previously
held by Mr Wage were forfeited during the year. There remain no performance rights held by KMP at 31 December 2021.
g) Equity Instruments Held by KMP
(i) Shares
No shares were granted as remuneration during the year ended 31 December 2021.
The number of shares in the Company held during the financial period by each director of Danakali Ltd and other KMP of
the Group, including their personally related parties, are set out in the following tables.
Financial Year to
31 December 2021
Balance at
31 December
2020
Granted as
compensation
Received
on exercise of
remuneration
options
Received /
entitled to
receive on
conversion of
performance
rights
On market
purchases/
(sales)
Other
Balance at
31
December
2021
Shares
Directors
S Cornelius (a)
J Zhang
N Gregson (a)
S Zubairu
T Adeniji
P Donaldson (b)
R Connochie (c)
J Fitzgerald (d)
Other KMP
N Wage (e)
S Tarrant (f)
C Grant-Edwards (g)
M Chapman (g)
TOTAL
Note:
13,491,126
-
-
-
-
-
-
526,453
100,000
229,857
13,156
13,156
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
471,030
241,968
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,000,000(a) 14,491,126
-
-
80,000(a)
-
-
1,145,693 (b)
-(c)
(526,453)(d)
(571,030)(e)
(471,825)(f)
(13,156)
(13,156)
80,000
-
-
1,145,693
-
-
-
-
-
-
14,373,748
-
712,998
-
-
630,073 15,716,819
(a) Mr Seamus Cornelius acquired 1,000,000 shares and Mr Neil Gregson acquired 80,000 shares at $0.43 each, being Director
participation in the Placement as approved by Shareholders at the AGM.
(b) At the date of his appointment on 11 October 2021 Mr Paul Donaldson held 1,145,693 shares.
(c) At the date of his resignation on 31 August 2021 Mr Robert Connochie held nil shares.
(d) At the date of his resignation on 11 October 2021 Mr John Fitzgerald held 526,453 shares.
(e) Upon redundancy on 26 February 2021 Mr Niels Wage held 571,030 shares.
(f) Mr Stuart Tarrant acquired 50,000 shares at $0.43 pursuant to the Placement. At the date of resignation on 13 April 2021 he held
521,825 shares.
(g) During the year this position no longer met the definition of KMP.
DANAKALI LIMITED ABN 56 097 904 302
27
Directors’ Report
(ii) Options
The numbers of options over ordinary shares in the Company held during the financial period by each director of Danakali
Ltd and other KMP of the Group, including their personally related parties, are set out in the following tables.
Financial Year to
31 December
2021
Balance at
31 December
2020
Granted
Exercised
Expired Cancelled
Other
Balance at
31 December
2021
Vested
and
exercisable
Unvested
Options
Directors
S Cornelius
P Donaldson
J Zhang
N Gregson
S Zubairu
T Adeniji
R Connochie
J Fitzgerald
Other KMP
N Wage
S Tarrant
TOTAL
Note:
301,040
2,000,000
-
-
-
-
-
-
-
1,921,030
824,968
-
-
-
-
-
-
-
-
-
3,047,038
2,000,000
-
-
-
-
-
-
-
-
(471,030)
(241,968)
(712,998)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
2,301,040
2,301,040
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(1,450,000)(a)
(583,000)(b)
(2,033,000)
2,301,040
2,301,040
-
-
-
-
-
-
-
-
-
-
-
(a) Upon redundancy on 26 February 2021 Mr Niels Wage held 1,450,000 options.
(b) At the date of resignation on 13 April 2021 Mr Stuart Tarrant he held 583,000 options.
(iii) Performance Rights held by KMP
Movements in Performance Rights held by KMP are as set out in the following table:
Financial Year to
31 December 2021
Performance Rights
Balance
at 31
December
2020
Granted as
Remuneration
Vested
Forfeited
Other
Unvested
Balance
at 31
December
2021
Directors
S Cornelius
P Donaldson
J Fitzgerald
J Zhang
R Connochie
N Gregson
S Zubairu
T Adeniji
Other KMP
N Wage(a)
S Tarrant
TOTAL
Note:
-
-
-
-
-
-
-
-
900,000
-
900,000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(900,000)
-
(900,000)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(a) Performance rights forfeited with redundancy on 26 February 2021.
h) Loans to KMP
There were no loans to KMP during the period.
i) Other Transactions with KMP
There were no other transactions with KMP during the period.
DANAKALI LIMITED ABN 56 097 904 302
28
Directors’ Report
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 KMP 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, corporate and project development activities were undertaken to progress the Colluli Potash Project.
The remuneration paid during the period is commercially reasonable for a development stage mining company. Company
performance is measured against a comparable list of companies operating in the same market segment.
The Group is still in the development stage and revenue streams only relate to interest earned on surplus funds from capital
raisings held at bank. The net losses after tax reflect the remeasurement loss of the receivable at fair value arising from the
change in the loan repayment profile, foreign exchange loss on the loan receivable denominated in USD and administrative
costs incurred by the Group. The table below shows the performance of the Group over the last 5 reporting periods:
Financial Year
Basic loss per share
(Cents)
Share Price
31 Dec 2021
31 Dec 2020
31 Dec 2019
31 Dec 2018
31 Dec 2017
(2.87)
$0.43
(2.59)
$0.315
(1.16)
$0.60
(2.66)
$0.74
(2.85)
$0.715
(Loss) for the period
($10,037,168)
($8,259,370)
($3,148,734)
($6,944,413)
($6,839,936)
The Company continues to review its remuneration framework to ensure it reflects current business needs, shareholder
views and contemporary market practice and remains appropriate to attract, motivate, retain and reward employees.
- - END OF REMUNERATION REPORT - -
DANAKALI LIMITED ABN 56 097 904 302
29
Directors’ Report
Competent Persons and Responsibility Statements
Competent Persons Statement (Sulphate of Potash and Kieserite Mineral Resource)
Colluli has a JORC-2012 compliant Measured, Indicated and Inferred Mineral Resource estimate of 1,289Mt @11% K20
Equiv. and 7% Kieserite. The Mineral Resource contains 303Mt @ 11% K20 Equiv. and 6% Kieserite of Measured
Resource, 951Mt @ 11% K20 Equiv. and 7% Kieserite of Indicated Resource and 35Mt @ 10% K20 Equiv. and 9% Kieserite
of Inferred Resource.
The information relating to the Colluli Mineral Resource estimate is extracted from the report entitled “Colluli Review Delivers
Mineral Resource Estimate of 1.289Bt” disclosed on 25 February 2015 and the report entitled “In excess of 85 million tonnes
of Kieserite defined within Colluli Project Resource adds to multi agri-commodity potential” disclosed on 15 August 2016,
which are available to view at www.danakali.com. The Company confirms that it is not aware of any new information or
data that materially affects the information included in the original market announcement and, in the case of estimates of
Mineral Resources or Ore Reserves, that all material assumptions and technical parameters underpinning the estimates in
the relevant market announcement continue to apply and have not materially changed. The Company confirms that the
form and context in which the Competent Person’s findings are presented have not been materially modified from the
original market announcement.
Competent Persons Statement (Sulphate of Potash Ore Reserve)
Colluli Proved and Probable Ore Reserve is reported according to the JORC Code and estimated at 1,100Mt @ 10.5% K2O
Equiv. The Ore Reserve is classified as 285Mt @ 11.3% K2O Equiv. Proved and 815Mt @ 10.3% K2O Equiv. Probable.
The Colluli SOP Mineral Resource includes those Mineral Resources modified to produce the Colluli SOP Ore Reserves.
The information relating to the Colluli Ore Reserve is extracted from the report entitled “Colluli Ore Reserve update”
disclosed on 19 February 2018 and is available to view at www.danakali.com. The Company confirms that it is not aware
of any new information or data that materially affects the information included in the original market announcement and, in
the case of estimates of Mineral Resources or Ore Reserves, that all material assumptions and technical parameters
underpinning the estimates in the relevant market announcement continue to apply and have not materially changed. The
Company confirms that the form and context in which the Competent Person’s findings are presented have not been
materially modified from the original market announcement.
Competent Persons Statement (Rock Salt Mineral Resource)
Colluli has a JORC-2012 compliant Measured, Indicated and Inferred Mineral Resource estimate of 347Mt @ 96.9% NaCl.
The Mineral Resource estimate contains 28Mt @ 97.2% NaCl of Measured Resource, 180Mt @ 96.6% NaCl of Indicated
Resource and 139Mt @ 97.2% NaCl of Inferred Resource.
The information relating to the Colluli Rock Salt Mineral Resource estimate is extracted from the report entitled “+300M
Tonne Rock Salt Mineral Resource Estimate Completed for Colluli” disclosed on 23 September 2015 and is available to
view at www.danakali.com. The Company confirms that it is not aware of any new information or data that materially affects
the information included in the original market announcement and, in the case of estimates of Mineral Resources or Ore
Reserves, that all material assumptions and technical parameters underpinning the estimates in the relevant market
announcement continue to apply and have not materially changed. The Company confirms that the form and context in
which the Competent Person’s findings are presented have not been materially modified from the original market
announcement.
AMC Consultants Pty Ltd (AMC) independence
In reporting the Mineral Resources and Ore Reserves referred to in this public release, AMC acted as an independent party,
has no interest in the outcomes of Colluli and has no business relationship with Danakali other than undertaking those
individual technical consulting assignments as engaged, and being paid according to standard per diem rates with
reimbursement for out-of-pocket expenses. Therefore, AMC and the Competent Persons believe that there is no conflict of
interest in undertaking the assignments which are the subject of the statements.
Quality control and quality assurance
Danakali exploration programs follow standard operating and quality assurance procedures to ensure that all sampling
techniques and sample results meet international reporting standards. Drill holes are located using GPS coordinates using
WGS84 Datum, all mineralisation intervals are downhole and are true width intervals.
The samples are derived from HQ diamond drill core, which in the case of carnallite ores, are sealed in heat-sealed plastic
tubing immediately as it is drilled to preserve the sample. Significant sample intervals are dry quarter cut using a diamond
saw and then resealed and double bagged for transport to the laboratory.
Halite blanks and duplicate samples are submitted with each hole. Chemical analyses were conducted by Kali-
Umwelttechnik GmBH, Sondershausen, Germany, utilising flame emission spectrometry, atomic absorption spectroscopy
and ion chromatography. Kali-Umwelttechnik (KUTEC) has extensive experience in analysis of salt rock and brine samples
DANAKALI LIMITED ABN 56 097 904 302
30
Directors’ Report
and is certified according by DIN EN ISO/IEC 17025 by the Deutsche Akkreditierungsstelle GmbH (DAR). The laboratory
2-, H2O)
follows standard procedures for the analysis of potash salt rocks chemical analysis (K+, Na+, Mg2+, Ca2+, Cl-, SO4
and X-ray diffraction (XRD) analysis of the same samples as for chemical analysis to determine a qualitative mineral
composition, which combined with the chemical analysis gives a quantitative mineral composition.
Forward looking statements and disclaimer
The information in this document is published to inform you about Danakali and its activities. Danakali has endeavored to
ensure that the information enclosed is accurate at the time of release, and that it accurately reflects the Company’s
intentions. All statements in this document, other than statements of historical facts, that address future production, project
development, reserve or resource potential, exploration drilling, exploitation activities, corporate transactions and events or
developments that the Company expects to occur, are forward looking statements. Although the Company believes the
expectations expressed in such statements are based on reasonable assumptions, such statements are not guaranteeing
of future performance and actual results or developments may differ materially from those in forward-looking statements.
Factors that could cause actual results to differ materially from those in forward-looking statements include market prices
of potash and, exploitation and exploration successes, capital and operating costs, changes in project parameters as plans
continue to be evaluated, continued availability of capital and financing and general economic, market or business
conditions, as well as those factors disclosed in the Company’s filed documents.
There can be no assurance that the development of Colluli will proceed as planned. Accordingly, readers should not place
undue reliance on forward looking information. Mineral Resources and Ore Reserves have been reported according to the
JORC Code, 2012 Edition. To the extent permitted by law, the Company accepts no responsibility or liability for any losses
or damages of any kind arising out of the use of any information contained in this document. Recipients should make their
own enquiries in relation to any investment decisions.
Mineral Resource, Ore Reserve, production target, forecast financial information and financial assumptions made in this
announcement are consistent with assumptions detailed in the Company’s ASX announcements dated 25 February 2015,
23 September 2015, 15 August 2016, 1 February 2017, 29 January 2018, and 19 February 2018 which continue to apply
and have not materially changed. The Company is not aware of any new information or data that materially affects
assumptions made.
No representation or warranty, express or implied, is or will be made by or on behalf of the Company, and no responsibility
or liability is or will be accepted by the Company or its affiliates, as to the accuracy, completeness or verification of the
information set out in this announcement, and nothing contained in this announcement is, or shall be relied upon as, a
promise or representation in this respect, whether as to the past or the future. The Company and each of its affiliates
accordingly disclaims, to the fullest extent permitted by law, all and any liability whether arising in tort, contract or otherwise
which it might otherwise have in respect of this announcement or any such statement.
The distribution of this announcement outside the United Kingdom may be restricted by law and therefore any persons
outside the United Kingdom into whose possession this announcement comes should inform themselves about and observe
any such restrictions in connection with the distribution of this announcement. Any failure to comply with such restrictions
may constitute a violation of the securities laws of any jurisdiction outside the United Kingdom.
Directors’ resolution
This report is signed in accordance with a resolution of the Board of Directors dated 28 March 2022.
Mr Seamus Cornelius
Executive Chairman
28 March 2022
DANAKALI LIMITED ABN 56 097 904 302
31
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
Auditor's independence declaration to the directors of Danakali Limited
As lead auditor for the audit of the financial report of Danakali Limited for the financial year ended 31
December 2021, I declare to the best of my knowledge and belief, there have been:
a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in
relation to the audit; and
b) no contraventions of any applicable code of professional conduct in relation to the audit.
c) No non-audit services provided that contravene 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
Pierre Dreyer
Partner
Perth
28 March 2022
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
32
Consolidated Statement of Profit or Loss and Other
Comprehensive Income
FOR THE YEAR ENDED 31 DECEMBER 2021
REVENUE AND OTHER INCOME
Interest revenue
Sundry
EXPENSES
Depreciation expense
Loss on disposal of plant and equipment
Administration expenses
Share based payment expense
Net gain/(loss) on financial assets classified at fair value through profit or
loss
Share of net gain/(loss) of joint venture
Foreign exchange gain/(loss)
LOSS BEFORE INCOME TAX
Income tax expense
LOSS FOR THE YEAR
Notes
2021
$
2020
$
4
9
9
5
22
8
10
7
43,142
-
71,841
117,500
(6,409)
(3,495)
(3,512,083)
(1,250,614)
(3,939)
(3,499)
(3,493,175)
(420,063)
(3,458,248)
(2,669,808)
(4,371,666)
15,242
2,522,205
(1,873,469)
(10,037,168)
(8,259,370)
-
-
(10,037,168)
(8,259,370)
OTHER COMPREHENSIVE INCOME
Items that may be reclassified to profit or loss in subsequent periods
Share of foreign currency translation reserve relating to equity accounted
investment
OTHER COMPREHENSIVE INCOME/(LOSS) FOR THE YEAR, NET OF
TAX
10,14
1,064,052
(1,550,097)
1,064,052
(1,550,097)
TOTAL COMPREHENSIVE LOSS FOR THE YEAR
(8,973,116)
(9,809,467)
Loss per share attributable to the ordinary equity holders of the
Company:
Basic loss per share (cents per share)
Diluted loss per share (cents per share)
17
17
(2.87)
(2.87)
(2.59)
(2.59)
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
33
Consolidated Statement of Financial Position
AS AT 31 DECEMBER 2021
CURRENT ASSETS
Cash and cash equivalents
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
2021
$
2020
$
6
8
8
10
9
11
12
12
13
14
15
22,884,417
96,481
61,977
23,042,875
10,597,238
34,916,132
26,829
45,540,199
9,738,794
103,045
411,808
10,253,647
12,504,442
34,194,212
12,401
46,711,055
68,583,073
56,964,702
1,240,888
108,796
1,349,684
726,271
73,002
799,273
48,200
48,200
65,684
65,684
1,397,884
864,957
67,185,189
56,099,745
127,866,319
15,107,903
(75,789,033)
67,185,189
109,058,372
12,793,237
(65,751,864)
56,099,745
The above Consolidated Statement of Financial Position should be read in conjunction with the accompanying notes.
DANAKALI LIMITED ABN 56 097 904 302
34
Consolidated Statement of Changes in Equity
FOR THE YEAR ENDED 31 DECEMBER 2021
Notes
Issued Capital
$
Share Based
Payments
$
Foreign Currency
Translation
$
Accumulated
Losses
$
Total Equity
$
Reserves
BALANCE AT 1 JANUARY 2021
Loss for the period
Other comprehensive income
Total comprehensive loss for the period
Transactions with owners in their capacity as owners:
Shares issued
Costs of capital raised
Share based payments
BALANCE AT 31 DECEMBER 2021
BALANCE AT 1 JANUARY 2020
Loss for the period
Other comprehensive Loss
Total comprehensive loss for the period
Transactions with owners in their capacity as owners:
Shares issued
Costs of capital raised
Share based payments
14
13
13
14
14
13
13
14
109,058,372
12,382,082
-
-
-
-
-
-
411,155
-
1,064,052
1,064,052
(65,751,864)
(10,037,168)
-
(10,037,168)
56,099,745
(10,037,168)
1,064,052
(8,973,116)
20,917,780
(2,109,833)
-
-
- 1,250,614
-
-
-
-
-
-
127,866,319
13,632,696
1,475,207
(75,789,033)
109,194,951
-
-
-
-
(136,579)
-
11,962,019
-
-
-
-
-
420,063
1,961,252
-
(1,550,097)
(1,550,097)
(57,492,494)
(8,259,370)
-
(8,259,370)
-
-
-
-
-
-
20,919,618
(2,111,671)
1,250,614
67,185,189
65,625,728
(8,259,370)
(1,550,097)
(9,809,467)
-
(136,579)
420,063
BALANCE AT 31 DECEMBER 2020
109,058,372
12,382,082
411,155
(65,751,864)
56,099,745
The above Consolidated Statement of Changes in Equity should be read in conjunction with the accompanying notes.
DANAKALI LIMITED ABN 56 097 904 302
35
Consolidated Statement of Cash Flows
FOR THE YEAR ENDED 31 DECEMBER 2021
CASH FLOWS FROM OPERATING ACTIVITIES
Interest received
Payments to suppliers and employees
43,142
(2,619,206)
NET CASH OUTFLOW USED IN OPERATING ACTIVITIES
16(a)
(2,576,064)
71,898
(2,953,402)
(2,881,504)
Notes
2021
$
2020
$
CASH FLOWS FROM INVESTING ACTIVITIES
Funding of joint venture
Payments for plant and equipment
NET CASH OUTFLOW USED IN INVESTING ACTIVITIES
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issues of ordinary shares
Payment of costs of capital raised
NET CASH INFLOW FROM FINANCING ACTIVITIES
NET INCREASE / (DECREASE) IN CASH
Cash at the beginning of the financial year
Net foreign exchange differences
CASH AT THE END OF THE YEAR
6
(4,706,172)
(24,332)
(17,566,388)
(5,841)
(4,730,504)
(17,572,229)
20,919,618
(2,111,671)
18,807,947
11,501,379
9,738,794
1,644,244
22,884,417
-
(3,302,478)
(3,302,478)
(23,756,211)
33,800,104
(305,099)
9,738,794
The above Consolidated Statement of Cash Flows should be read in conjunction with the accompanying notes.
DANAKALI LIMITED ABN 56 097 904 302
36
Notes to the Consolidated Financial Statements
FOR THE YEAR ENDED 31 DECEMBER 2021
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 2021 comprises the Company and its subsidiaries (together referred
to as the Group). The address of the registered office is Level 1, 2A / 300 Fitzgerald Street, North Perth, WA, 6006.
The financial statements are presented in the Australian currency.
The financial report of Danakali for the year ended 31 December 2021 was authorised for issue by the Directors on 28
March 2021. 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 consolidated 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 consolidated financial statements have been prepared under the historical cost convention, except for the loan to
the joint venture that has been measured at fair value.
(a) New standards, interpretations and amendments adopted by the Group
The Group applied all new and amended Accounting Standards and Interpretations that were effective as at 1 January
2021, including:
AASB 2020-8 Interest Rate Benchmark Reform – Phase 2 (Financial Instruments)
The amendment addressing the financial reporting effects of the Interbank offered rates (IBOR) reform. It focuses on issues
that might affect financial reporting upon replacement of existing interest rate benchmarks, and amends the requirements
in AASB 9 Financial Instruments, AASB 139 Financial Instruments: Recognition and Measurement, AASB 7 Financial
Instruments: Disclosures, AASB 4 Insurance Contracts and AASB 16 Leases.
At 1 January 2021 it was determined that the amendment had no material impact on the Group.
(b) 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 2021. The Group is currently in the process of
understanding the impact of the below new accounting standards and interpretation not yet effective. Once the implications
are understood, the Group will report in due course. The relevant standards are outlined in the table below.
Application date
of standard
for Group
1 January 2022
1 January 2022
Reference
Title
Summary
AASB 2014-
10
Amendments to
Australian
Accounting
Standards – Sale
or Contribution of
Assets between an
Investor and its
Associate or Joint
Venture
The amendments clarify that a full gain or
loss is recognised when a transfer to an
associate or joint venture involves a
business as defined in AASB 3 Business
Combinations. Any gain or loss resulting
from the sale or contribution of assets that
does not constitute a business, however, is
recognised only to the extent of unrelated
investors’ interests in the associate or joint
venture.
In December 2015, the IASB postponed the
effective date of the amendments to IFRS 10
and IAS 28 indefinitely pending the outcome
of its research project on the equity method
of accounting.
DANAKALI LIMITED ABN 56 097 904 302
37
Notes to the Consolidated Financial Statements
FOR THE YEAR ENDED 31 DECEMBER 2021
1 January 2023 1 January 2023
1 January 2022
1 January 2022
AASB
2020-1
Amendments to
AASs –
Classification of
Liabilities as
Current or Non-
current
AASB
2020-3
Amendments to
AASB 137 –
Onerous Contracts
– Cost of Fulfilling
a Contract
A liability is classified as current if the entity
has no right at the end of the reporting period
to defer settlement for at least 12 months
after the reporting period. The AASB recently
issued amendments to AASB 101
Presentation of Financial Statements to
clarify the requirements for classifying
liabilities as current or non-current.
Specifically:
The amendments specify that the
conditions which exist at the end of the
reporting period are those which will be
used to determine if a right to defer
settlement of a liability exists.
Management intention or expectation
does not affect classification of liabilities.
In cases where an instrument with a
conversion option is classified as a
liability, the transfer of equity
instruments would constitute settlement
of the liability for the purpose of
classifying it as current or non-current.
AASB 137 defines an onerous contract as a
contract in which the unavoidable costs of
meeting the obligations under the contract
exceed the economic benefits expected to
be received under it. Unavoidable cost is the
lower of the cost of fulfilling the contract and
any compensation or penalties arising from
failure to fulfil it.
AASB 137 does not specify which costs to
include in determining the cost of fulfilling a
contract. Consequently, AASB 137 was
amended to clarify that when assessing
whether a contract is onerous, the cost of
fulfilling the contract comprises all costs that
relate directly to the contract, which includes
both the:
Incremental costs of fulfilling that
contract (e.g., materials and labour); and
An allocation of other costs that relate
directly to fulfilling contracts (e.g.,
depreciation of property, plant and
equipment)
An entity shall apply these amendments to
contracts for which it has not yet fulfilled all
its obligations at the beginning of the annual
reporting period in which it first applies the
amendments (the date of initial application).
Comparative information is not restated.
Instead, the cumulative effect of initially
applying the amendments is recognised as
an adjustment to the opening balance of
retained earnings or other component of
equity, as appropriate, at the date of initial
application.
DANAKALI LIMITED ABN 56 097 904 302
38
Notes to the Consolidated Financial Statements
FOR THE YEAR ENDED 31 DECEMBER 2021
1 January 2022
1 January 2022
1 January 2023 1 January 2023
AASB
2020-3
Amendment to
AASB 9 – Fees in
the ‘10 per cent’
Test for
Derecognition of
Financial Liabilities
(Part of Annual
Improvements
2018–2020 Cycle)
AASB
2021-5
Amendments to
AASs - Deferred
Tax related to
Assets and
Liabilities arising
from a Single
Transaction
Under AASB 9, an existing financial liability
that has been modified or exchanged is
considered extinguished when the
contractual terms of the new liability are
substantially different, measured by the “10
per cent” test. That is, when the present
value of the cash flows under the new terms,
including any fees paid or received, is at
least 10 per cent different from the present
value of the remaining cash flows of the
original financial liability.
The amendment to AASB 9 clarifies that fees
included in the 10 per cent test are limited to
fees paid or received between the borrower
and the lender, including amounts paid or
received by them on the other’s behalf.
When assessing the significance of any
difference between the new and old
contractual terms, only the changes in
contractual cash flows between the lender
and borrower are relevant. Consequently,
fees incurred on the modification or
exchange of a financial liability paid to third
parties are excluded from the 10 per cent
test.
AASB 112 Income Taxes requires entities to
account for income tax consequences when
economic transactions take place, and not at
the time when income tax payments or
recoveries are made. Accounting for such
tax consequences, means entities need to
consider the differences between tax rules
and accounting standards. These differences
could either be:
Permanent – e.g., when tax rules do not
allow a certain expense to ever be
deducted
Or
Temporary – e.g., when tax rules treat an
item of income as taxable in a period
later than when included in the
accounting profit
Deferred taxes representing amounts of
income tax payable or recoverable in the
future must be recognised on temporary
differences unless prohibited by AASB 112 in
certain circumstances. One of these
circumstances, known as the initial
recognition exception, applies when a
transaction affects neither accounting profit
nor taxable profit, and is not a business
combination. Views differ about applying this
exception to transactions that, on initial
recognition, create both an asset and liability
(and could give rise to equal amounts of
taxable and deductible temporary
differences) such as:
Recognising a right-of-use asset and a
lease liability when commencing a lease
Recognising decommissioning,
restoration and similar liabilities with
corresponding amounts included in the
cost of the related asset
DANAKALI LIMITED ABN 56 097 904 302
39
Notes to the Consolidated Financial Statements
FOR THE YEAR ENDED 31 DECEMBER 2021
The amendments to AASB 112 clarify that
the exception would not normally apply. That
is, the scope of this exception has been
narrowed such that it no longer applies to
transactions that, on initial recognition, give
rise to equal amounts of taxable and
deductible temporary differences.
The amendments apply from the beginning
of the earliest comparative period presented
to:
All transactions occurring on or after that
date
Deferred tax balances, arising from
leases and decommissioning, restoration
and similar liabilities, existing at that date
The cumulative effect of initial application is
recognised as an adjustment to the opening
balance of retained earnings or other
component of equity, as appropriate.
Earlier application of the amendments is
permitted.
When the revised Conceptual Framework
was issued in 2018, its application to AASB 3
was excluded, requiring entities to apply the
definitions of an asset and a liability (and
supporting concepts) in the previous
Framework.
This exemption responded to concerns that,
in some cases, the revised definitions might
change which assets and liabilities qualify for
recognition in a business combination. As a
consequence, post-acquisition accounting
required by other standards could lead to
immediate derecognition of such assets or
liabilities, causing ‘day 2 gains or losses’ to
arise, which do not depict economic reality.
The IASB has now assessed the impact of
the revised definitions of assets and liabilities
in the Conceptual Framework to business
combinations, concluding that the problem of
day 2 gains or losses would be significant
only for liabilities that an acquirer accounts
for after acquisition by applying IAS 37
Provisions, Contingent Liabilities and
Contingent Assets or IFRIC 21 Levies.
The IASB updated IFRS 3 in May 2020 for
the revised definitions of an asset and a
liability and excluded the application of the
Conceptual Framework to liabilities and
contingent liabilities within the scope of IAS
37 or IFRIC 21.
The AASB released the equivalent
amendments to AASB 3 in June 2020.
An accounting policy may require items in
the financial statements to be measured
using information that is either directly
observable,or estimated. Accounting
estimates use inputs and measurement
techniques that require judgements and
assumptions based on the latest available,
reliable information.
AASB
2020-3
Amendments to
AASB 3 –
Reference to the
Conceptual
Framework11
AASB
2021-2
Amendments to
AASB 108 –
Definition of
Accounting
Estimates
1 January 2022 1 January 2022
1 January 2023 1 January 2023
DANAKALI LIMITED ABN 56 097 904 302
40
Notes to the Consolidated Financial Statements
FOR THE YEAR ENDED 31 DECEMBER 2021
The amendments to AASB 108 clarify the
definition of an accounting estimate, making
it easier to differentiate it from an accounting
policy. The distinction is necessary as their
treatment and disclosure requirements are
different. Critically, a change in an
accounting estimate is applied prospectively
whereas a change in an accounting policy is
generally applied retrospectively21.
The new definition provides that ‘Accounting
estimates are monetary amounts in financial
statements that are subject to measurement
uncertainty.’ The amendments explain that a
change in an input or a measurement
technique used to develop an accounting
estimate is considered a change in an
accounting estimate unless it is correcting a
prior period error.
For example, a change in a valuation
technique used to measure the fair value
of an investment property from market
approach to income approach would be
treated as a change in estimate rather
than a change in accounting policy.
In contrast, a change in an underlying
measurement objective, such as
changing the measurement basis of
investment property from cost to fair
value, would be treated as a change in
accounting policy.
The amendments did not change the existing
treatment for a situation where it is difficult to
distinguish a change in an accounting policy
from a change in an accounting estimate. In
such a case, the change is accounted for as
a change in an accounting estimate.
(c) Going concern
The financial statements have been prepared on a going concern basis which contemplates the continuity of normal
business activities and the realisation of assets and the settlement of liabilities in the ordinary course of business.
At the date of this report, the directors are satisfied there are reasonable grounds to believe that the Group will be able to
continue its planned activities and the Group will be able to meet its obligations as and when they fall due.
At balance date, the Group had cash and cash equivalents of $22,884,417 (31 December 2020: $9,738,794) and a net
working capital surplus of $21,693,191 (31 December 2020: $9,454,374). Whilst the existing cash reserves are sufficient
to cover the working capital requirements of the Group for the next 12 months, the Group has commenced execution of
the project development and as such, additional funding will be necessary to carry out these planned activities. The
directors are confident that the Group will be able to obtain the additional funding requirement to continue with the
development of the Project as evidenced by the execution of documentation for a conditional US$200 million debt facility.
The balance of the funding is being pursued through a mix of debt, equity and quasi-equity instruments for Danakali and
CMSC. Where such financing was likely to be delayed, as was experienced during 2021 in part due to the COVID-19
pandemic, the directors will seek to defer planned capital expenditure on the Project.
Under the mining agreement entered into between the Government of the State of Eritrea and CMSC dated 31 January
2017 (Mining Agreement), CMSC is required to spend US$200 million on infrastructure and mine development within the
area of the Colluli project mining licences and commence Commercial Production in the 36 months following the provision
of formal Notice of Commencement of Mine Development (the Notice) to the MoEM. The Notice, dated 16 December
2019, was accepted by MoEM on 21 July 2020 (ASX announcement 22 July 2020). The granted time by the MoEM to
commence Commercial Production and spend US$200 million on infrastructure and mine development is 36 months from
submission of the Notice (15 December 2022).
The ability for CMSC to spend US$200 million on infrastructure and mine development and commence commercial
production before 15 December 2022 is determined by two factors, available funding and the development schedule. With
regard to the availability of funding, as described above, the Group is engaged in sourcing necessary funding to close the
DANAKALI LIMITED ABN 56 097 904 302
41
Notes to the Consolidated Financial Statements
FOR THE YEAR ENDED 31 DECEMBER 2021
Project funding. With regard to the development schedule, the spend requirement is unlikely be met within the time period
which does give the MoEM the right to terminate the Mining Agreement. CMSC has a strong relationship with the MoEM
and continues to have regular engagement with the MoEM regarding the Project’s progress. Based on informal discussions
with the MoEM and the Group’s partners, and previous experience in Eritrea, the directors are satisfied that there are
reasonable grounds to believe that an extension will be granted in due course.
Should the Group not achieve the matters set out above, there would be uncertainty whether it would realise its assets in
the normal course of business and at the amounts stated in the financial report. The financial statements do not include
any adjustment relating to the recoverability or classification of recorded asset amounts or to the amounts or classification
of liabilities that might be necessary should the Group not be able to continue as a going concern.
(d) 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.
(e) 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.
(f) 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.
(g)
Interest revenue
Interest revenue is recognised using the effective interest rate method.
(h)
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.
DANAKALI LIMITED ABN 56 097 904 302
42
Notes to the Consolidated Financial Statements
FOR THE YEAR ENDED 31 DECEMBER 2021
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 at the reporting date. 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.
(i) Leases
Group as Lessee
The Group assesses at contract inception whether a contract is, or contains, a lease. That is, if the contract conveys the
right to control the use of an identified asset for a period of time in exchange for consideration.
(i) Right of use asset
The Group recognises right-of-use assets at the commencement date of the lease (i.e., the date the underlying asset is
available for use). Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses,
and adjusted for any remeasurement of lease liabilities. The cost of right-of-use assets includes the amount of lease
liabilities recognised, initial direct costs incurred, and lease payments made at or before the commencement date less any
lease incentives received. Unless the Group is reasonably certain to obtain ownership of the leased asset at the end of the
lease term, the recognised right-of-use assets are depreciated on a straight-line basis over the shorter of its estimated
useful life and the lease term. Right-of-use assets are subject to impairment.
(ii) Lease Liabilities
At the commencement date of the lease, the Group recognises lease liabilities measured at the present value of lease
payments to be made over the lease term. The lease payments include fixed payments (including in-substance fixed
payments) less any lease incentives receivable, variable lease payments that depend on an index or a rate, and amounts
expected to be paid under residual value guarantees. The lease payments also include the exercise price of a purchase
option reasonably certain to be exercised by the Group and payments of penalties for terminating a lease, if the lease term
reflects the Group exercising the option to terminate. The variable lease payments that do not depend on an index or a
rate are recognised as expense in the period on which the event or condition that triggers the payment occurs.
In calculating the present value of lease payments, the Group uses the incremental borrowing rate at the lease
commencement date if the interest rate implicit in the lease is not readily determinable. After the commencement date, the
amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. In
addition, the carrying amount of lease liabilities is remeasured if there is a modification, a change in the lease term, a
change in the in-substance fixed lease payments or a change in the assessment to purchase the underlying asset.
The Group recognised the lease payments as an expense on a straight line basis over the lease term.
The Group has elected not to recognise right of use assets and lease liabilities for short term leases and low value assets.
(iii) Short-term leases and leases of low-value assets
The Group applies the short-term lease recognition exemption for those leases that have a lease term of 12 months or less
from the commencement date and do not contain a purchase option. It also applies the lease of low-value assets
recognition exemption to leases of plant and equipment that are considered of low value. Lease payments on short-term
leases and leases of low-value assets are recognised as expense on a straight-line basis over the lease term.
(j)
Impairment of assets
Assets are reviewed for impairment annually to determine if 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.
DANAKALI LIMITED ABN 56 097 904 302
43
Notes to the Consolidated Financial Statements
FOR THE YEAR ENDED 31 DECEMBER 2021
(k) 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 and, 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.
(l) Receivables
(i) Initial recognition
Receivables are initially recognised and measured at fair value. Receivables that are held to collect contractual cash flows
and are expected to give rise to cash flows representing solely payments of principal and interest are classified and
subsequently measured at amortised cost. Receivables that do not meet the criteria for amortised cost are measured at
fair value through profit or loss (FVTPL). The loan to Colluli Mining Share Company is measured at FVTPL.
(ii) Subsequent measurement
Financial assets at amortised cost are subsequently measured using the effective interest (EIR) method and are subject
to impairment. Gains and losses are recognised in profit or loss when the asset is derecognised, modified or impaired.
Financial assets at fair value through profit or loss are carried in the statement of financial position at fair value with net
changes in fair value recognised in the statement of profit or loss.
(iii) Impairment
The group assesses on a forward looking basis, the expected credit losses associated with its debt instruments carried at
amortised cost. The amount of expected credit losses is updated at each reporting date to reflect changes in credit risk
since initial recognition of the respective financial instrument. The expected credit losses on financial assets are estimated
based on the Group’s historic credit loss experience, adjusted for factors that are specific to the debtors, general economic
conditions and an assessment of both the current as well as forecast conditions at the reporting date.
In relation to all other receivables measured at amortised cost, the Group applies the credit loss model. The expected
credit loss model requires the Group to account for expected credit losses and changes in those expected credit losses at
each reporting date to reflect changes in credit risk since initial recognition of the financial asset. In particular, the Group
measures the loss allowance at an amount equal to lifetime expected credit loss (“ECL”) if the credit risk on the instrument
has increased significantly since initial recognition. On the other hand, if the credit risk on the financial instrument has not
increased significantly since initial recognition, the Group measures the loss allowance for that financial instrument at an
amount equal to the ECL within the next 12 months.
The Group considers an event of default has occurred when a financial asset is more than 90 days past due or external
sources indicate that the debtor is unlikely to pay its creditors, including the Group. A financial asset is credit impaired
when there is evidence that the counterparty is in significant financial difficulty or a breach of contract, such as a default or
past due event has occurred. The Group writes off a financial asset when there is information indicating the counterparty
is in severe financial difficulty and there is no realistic prospect of recovering the contractual cash flow.
(m) Investment in joint venture
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
DANAKALI LIMITED ABN 56 097 904 302
44
Notes to the Consolidated Financial Statements
FOR THE YEAR ENDED 31 DECEMBER 2021
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.
(n) Plant and equipment
All plant and equipment are 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 straight-line basis so as to write off the net cost or other
revalued amount of each asset over its expected useful life to its estimated residual value.
The assets’ residual values and useful lives are reviewed, and adjusted prospectively 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.
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.
(o) Exploration and evaluation costs
Acquired exploration and evaluation costs are capitalised. Ongoing exploration and evaluation costs are expensed in the
period they are incurred.
(p) Development Expenditure costs
When proven mineral reserves are determined and an application for development has been submitted subsequent
development expenditure is capitalised as development capital, a non-current asset, provided commercial viability
conditions continue to be satisfied. Capitalised exploration and evaluation expenditure is reclassified into capitalised
development costs and evaluated for impairment annually. On completion of development, all capitalised development
costs including capitalised exploration and evaluation expenditure are transferred to mine properties and depreciation
commences.
(q) 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.
(r) Employee benefits
(i) Wages and salaries, annual leave and long service leave
Liabilities for wages and salaries, including non-monetary benefits, and other short terms benefits 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.
Long-term employee benefits are measured using the projected unit credit valuation method.
(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 options 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 is determined by consideration of the Company’s share price at the grant date.
The cost of equity-settled transactions is recognised, together with a corresponding increase in equity, over the period in
which the performance and service 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 or rights 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.
DANAKALI LIMITED ABN 56 097 904 302
45
Notes to the Consolidated Financial Statements
FOR THE YEAR ENDED 31 DECEMBER 2021
No expense is recognised for awards that do not ultimately vest, except for awards where vesting is conditional upon a
market condition or awards with non-vesting conditions.
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.
(s)
Interest-bearing loans and borrowings
All loans and borrowings are initially recognised at the fair value less directly attributable transaction costs.
After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the
effective interest rate method.
Borrowings are classified as current liabilities unless the Consolidated Entity has the unconditional right to defer settlement
of the liability for at least 12 months after the reporting date.
(t) Borrowing costs
Borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset (i.e. an asset that
necessarily takes a substantial period of time to get ready for its intended use or sale) are capitalised as part of the cost of
that asset. Borrowing costs are capitalised from the date that sufficient funding has been secured and unconditional and
the project development execution has started. This judgment will be reviewed periodically relative to the Project
development. All other borrowing costs are expensed in the period they occur. Borrowing costs consist of interest and
other costs that an entity incurs in connection with the borrowing of funds.
(u)
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.
(v) 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.
(w) 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:
(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. The investment in CMSC joint venture is tested for impairment when there
is objective evidence of impairment. At the 31 December 2021 the Group tested for impairment and concluded that no
impairment was required (31 December 2020: Nil).
(ii) Interest in Joint Arrangement and measurement of loan receivable
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, being a shareholder(s) holding at least a 75% interest in the share capital of CMSC. Neither
ENAMCO of STB Eritrea Pty Ltd (Danakali’s wholly owned subsidiary) hold a 75% shareholding in CMSC and as such
material decisions require unanimous approval of CMSC directors. Additionally, the annual budget for CMSC is required
to be approved by the shareholders with a simple majority. As each shareholder holds 50% of the shares, this is interpreted
as a simple majority therefore can only be achieved if both shareholders agree. This indicates there is no control by one
party. In light of the considerations mentioned, 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.
The assumptions applied in determining the fair value of the loan to the joint venture includes determining the timing of
cash receipts and the discount rate applied. The fair value of the loan has been measured using valuation techniques
under a discounted cash flow (DCF) model, as fair value cannot be measured on quoted prices in active markets. The
inputs to a DCF are taken from observable markets where possible, but where this is not feasible, a degree of judgment is
DANAKALI LIMITED ABN 56 097 904 302
46
Notes to the Consolidated Financial Statements
FOR THE YEAR ENDED 31 DECEMBER 2021
required in establishing fair value. Judgments include consideration of inputs including foreign exchange risk, interest rate
risk, credit risk, development risk and country risk. At 31 December 2021 a discount rate of 25% (31 December 2020:
21%) was applied, based on management’s judgement of the underlying risks. The timing of cash receipts has been
adjusted according to management’s best estimate and it is currently estimated that receipts commence in the September
2027 quarter (2020: June 2026 quarter).
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 grant and consideration of the probability
of the vesting condition being met.
(x) 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.
(y) 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.
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 development of the Colluli Potash Project 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, other than financial instruments are geographically located in Eritrea.
4. REVENUE
Interest
5. EXPENSES
Employee benefits (net of recharges)
Directors’ fees
Compliance and regulatory expenses
Lease payments relating to short term leases
Insurance
Investor and public relations
Other administration expenses
2021
$
2020
$
43,142
71,841
2021
$
1,318,633
495,521
227,710
60,219
378,372
218,177
813,551
2020
$
427,935
476,330
1,285,515
69,925
304,390
473,158
455,922
3,512,183
3,493,175
DANAKALI LIMITED ABN 56 097 904 302
47
Notes to the Consolidated Financial Statements
FOR THE YEAR ENDED 31 DECEMBER 2021
6. CASH AND CASH EQUIVALENTS
Cash at bank and on hand
Short term deposits
2021
$
22,884,417
-
22,884,417
2020
$
9,738,794
-
9,738,794
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 one month 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 30.0% (2020: 30.0%)
Adjustment of under-provision of deferred tax in prior year
Tax effect of amounts which are not deductible (taxable) in calculating taxable
income:
Share-based payments
Share of net (gain)/loss of joint venture
Net (gain)/loss on financial assets at fair value through profit or loss
Movements in unrecognised temporary differences and tax effect of current
year tax losses:
Income tax expense/(benefit)
(c) Deferred Income Tax
Deferred income tax at 31 December relates to the following:
2021
$
2020
$
-
-
-
-
-
-
(10,037,168)
(8,259,370)
(3,011,150)
525,085
(2,477,811)
(806,717)
375,184
1,311,500
1,037,474
(238,093)
126,019
(4,573)
800,942
2,362,139
-
-
Deferred Tax Liabilities:
Interest receivable
Unrealised foreign
exchange gain/loss
Deferred Tax Assets:
Provision for employee
entitlements
Accrued expenditure
Share issue expenses
Tax losses
Deferred tax assets not
brought to account as
realisation is not probable
Statement of
Financial Position
2020
2021
$
$
Statement of
Comprehensive Income
2021
$
2020
$
Statement of
Change in Equity
2021
$
2020
$
0
(17)
17
17
(763,643)
130,684
(894,327)
(194,166)
-
-
-
-
47,099
217,200
866,721
8,921,977
41,606
44,850
576,064
8,443,603
5,493
172,350
-
478,374
3,850
26,743
-
2,525,712
-
-
290,657
-
-
-
(210,346)
-
(9,289,354)
-
(9,236,790)
-
238,093
-
(2,362,156)
-
(290,657)
-
210,246
-
DANAKALI LIMITED ABN 56 097 904 302
48
Notes to the Consolidated Financial Statements
FOR THE YEAR ENDED 31 DECEMBER 2021
8. RECEIVABLES
Current
Net GST receivable
Accrued interest
Other receivables at amortised cost
Security bonds at amortised cost
Non-Current
Loan to Colluli Mining Share Company – at fair value
Carrying value of loans
2021
$
2020
$
22,530
-
1,112
72,839
96,481
47,962
57
26
55,000
103,045
10,597,238
10,597,238
12,504,442
12,504,442
Danakali’s wholly owned subsidiary, STB Eritrea Pty Ltd, is presently funding the Colluli Mining Share Company (CMSC)
for the development of the Colluli Potash Project and 50% of the funding is represented in the form of a shareholder loan.
Repayment of this loan, as defined in the CMSC Shareholders Agreement, will be made preferentially from future operating
cash flows. The shareholder loan is denominated in USD, non-interest bearing, unsecured and subordinate to any loans
from third party secured lenders, under which CMSC may enter into in order to fund the Project Development Capital. For
accounting purposes, the value of the loan has been discounted by applying a market interest rate of 25% (2020: 21%).
During the years ended 31 December 2021 and 31 December 2020, the repayment profile of the receivable was updated
to consider the timing of the completion of construction, timing of project financing and alignment to the indicative debt
financing terms. The remeasurement of the receivable at fair value resulted in a loss of $3,458,248 through profit or loss
(2020: loss of 2,669,808) (see note 10).
The undiscounted underlying loan balance at 31 December 2021 is $42,110,711 (USD 32,402,935) (31 December 2020:
$39,729,223 (USD 30,627,425). The above undiscounted loan balance in AUD are converted at the historical rates when
the USD loans were provided.
Reconciliation of movement in loan to Colluli Mining Share Company
Opening carrying amount at beginning of the year
Additional loans during the year
Foreign exchange gain/(loss)
Net gain/(loss) on financial assets at fair value through profit or loss
Closing carrying amount at end of the year
9. PLANT AND EQUIPMENT
Plant and equipment
Gross carrying value – at cost
Accumulated depreciation
Net book amount
Plant and equipment
Opening net book amount at beginning of the year
Additions
Disposals
Depreciation charge
Closing net book amount at end of the year
DANAKALI LIMITED ABN 56 097 904 302
2021
$
2020
$
12,504,442
676,637
874,406
(3,458,248)
10,597,238
15,204,815
1,537,805
(1,568,370)
(2,669,808)
12,504,442
2021
$
2020
$
44,691
(17,863)
26,829
12,401
25,917
(5,080)
(6,409)
26,829
26,511
(14,110)
12,401
13,998
5,841
(3,499)
(3,939)
12,401
49
Notes to the Consolidated Financial Statements
FOR THE YEAR ENDED 31 DECEMBER 2021
10. INVESTMENT IN JOINT VENTURE
The Group has an interest in the following joint arrangement:
Project
Activities
Equity Interest
Carrying Value
2021
%
2020
%
2021
$
2020
$
Colluli Potash Mineral Exploration
50
50
34,916,132
34,194,212
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.
Under the terms of the Shareholders Agreement, at the date of incorporation of CMSC, consideration for the acquisition of
shares in CMSC equated 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 2021.
Reconciliation of movement in investments accounted for using the
equity method:
Opening carrying amount at beginning of the year
Additional investment during the year
Share of net (loss)/profit for the year
Other comprehensive income for the year
Closing carrying amount at end of the year
Summarised financial information of joint venture:
Financial position (Aligned to Danakali accounting policies)
Current Assets:
Cash
Other current assets
Non-current assets
Fixed Assets
Development costs capitalised
Prepaid finance costs
Current liabilities
Trade & other payables and provisions
Non-current liabilities
Loan from Danakali Ltd – at amortised cost
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
DANAKALI LIMITED ABN 56 097 904 302
2021
$
2020
$
34,194,212
4,029,535
(4,371,666)
1,064,052
34,916,132
27,975,738
7,753,329
15,242
(1,550,097)
34,194,212
2021
$
2020
$
108,536
117,012
225,548
70,755
39,427,791
-
39,498,546
36,043
110,132
146,175
86,186
33,593,226
11,070,564
44,749,976
(546,552)
(546,552)
(3,622,125)
(3,622,125)
(11,195,361)
(11,195,361)
(10,706,959)
(10,706,959)
27,982,181
13,991,091
30,567,067
15,283,534
13,991,091
15,283,534
(4,305,107)
25,230,149
34,916,132
(4,305,107)
23,215,782
34,194,211
50
Notes to the Consolidated Financial Statements
FOR THE YEAR ENDED 31 DECEMBER 2021
Financial performance
Interest expense relating to the unwinding of discount on joint venture loan
(Loss)/gain on re-measurement of loan to joint venture carried at amortised
cost
General administrative costs
TOTAL COMPREHENSIVE INCOME/(LOSS) FOR THE YEAR
Group’s share of total gain/(loss) for the year
2021
$
2020
$
(2,660,556)
(3,397,462)
3,724,134
(9,806,911)
(8,743,333)
(4,371,666)
5,859,365
(2,431,419)
30,484
15,242
During the year ended 31 December 2021 no dividends were paid or declared (2020: Nil).
Colluli Mining Share Company has the following commitments or contingencies at 31 December 2021:
COMMITMENTS
Government
Under the mining agreement entered into between the Government of the State of Eritrea and Colluli Mining Share
Company (CMSC) dated 31 January 2017 (Mining Agreement), CMSC is obliged to spend US$200 million on
infrastructure and mine development within the area of the Colluli project mining licences and commence Commercial
Production in the 36 months following the provision of formal Notice of Commencement of Mine Development (the Notice)
to the Ministry of Energy and Mines (MoEM). The Notice, dated 16 December 2019, was accepted by MoEM on 21 July
2020 (ASX announcement 22 July 2020). The granted time by the MoEM to commence Commercial Production and spend
US$200 million on infrastructure and mine development is 36 months from submission of the Notice (15 December 2022).
The spend requirement is unlikely to be met within the time period which does give the MoEM the right to terminate the
Mining Agreement. CMSC has a strong relationship with the MoEM and continues to have regular engagement with the
MoEM regarding the Project’s progress.
Development
At 31 December 2021, development work had commenced including the engagement of DRA Global (DRA), CMSC’s
EPCM contractor. There were no material commitments on 31 December 2021.
Funding
CMSC successfully executed a mandate to provide fully underwritten debt finance facilities of US$200 million, subject to
condition precedents, to fund the construction and development of the Project (Debt). African development financial
institutions African Export-Import Bank (Afreximbank) and Africa Finance Corporation (AFC) are acting as Mandated Lead
Arrangers (MLAs).
Under the terms of the mandate, CMSC is responsible to pay all reasonable costs and expenses related to external
technical, financial, insurance, tax and legal consultants required by the MLAs to assist in the due diligence. The mandate
letter includes various fees, payable by CMSC to the MLAs, based on various future outcomes, including termination by
CMSC. In 2021, these transaction costs have been written-off as it is unlikely to meet the conditions precedent and there
is low probability that the Group will draw down from the facility from long stop date.
At 31 December 2021, CMSC has commitments of $0.4M in annual agent fees and $0.3M in due diligence costs.
CMSC will be liable for success fees of $3.5M (US$2.6M) (2020: $3.4M (US$2.6M)) to the financial advisors on the
drawdown of the facility. Concurrently, CMSC will also be liable for facility fees of $2.8m (US$2m) (2020: $2.6m (US$2m))
payable to the MLAs on the drawdown of the facility.
CONTINGENCIES
At 31 December 2021, CMSC had no contingency liabilities (2020: Nil).
11. TRADE AND OTHER PAYABLES
Trade payables
Accrued expenses
Other payables
2021
$
473,529
724,000
43,359
1,240,888
2020
$
483,282
149,500
93,489
726,271
DANAKALI LIMITED ABN 56 097 904 302
51
Notes to the Consolidated Financial Statements
FOR THE YEAR ENDED 31 DECEMBER 2021
12. PROVISIONS
Current
Employee entitlements
Non-Current
Employee entitlements
2021
$
2020
$
108,796
73,002
48,200
156,996
65,684
138,686
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
2021
2020
Number
of shares
$
Number
of shares
$
368,334,346 127,866,319
318,741,306 109,058,372
368,334,346 127,866,319
318,741,306 109,058,372
Balance at the beginning of the year
318,741,306 109,058,372
318,546,306 109,194,951
Issued during the year:
Issued at $0.43 per share pursuant to placement
47,565,999
20,453,380
-
Issued at $0.43 per share pursuant to director
participation in placement
Issued on vesting of performance rights
Exercise of options
Costs of capital raised(i)
Balance at the end of the year
1,080,000
-
947,041(iii)
464,400
-
-
-
(2,109,833)
-
195,000(ii)
-
-
368,334,346 127,866,319
318,741,306 109,058,372
-
-
-
-
(136,579)
(i)
(ii)
(iii)
Includes fees paid or payable to financial advisers in relation to funds raised pursuant to the Placement.
Includes 175,000 shares issued upon conversion of performance rights during the period in respect of which
the performance hurdle had been met during the year ended 31 December 2019. The balance of 20,000
shares relates the issue of shares upon conversion of performance rights in respect of which the
performance hurdle was met during the year ended 31 December 2020.
Shares issued on the exercise of unlisted options at $0.00 on or before 31 December 2021.
(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.
DANAKALI LIMITED ABN 56 097 904 302
52
Notes to the Consolidated Financial Statements
FOR THE YEAR ENDED 31 DECEMBER 2021
Ordinary shares have no par value and the Company does not have a limited amount of authorised capital.
(d) Movements in options on issue
Balance at beginning of the year
Issued during the year:
Exercisable at $0.501, on or before 3 December 2023
Exercisable at $0.527, on or before 29 January 2023
Exercisable at $0.78, on or before 24 March 2023
Exercisable at $0.64, on or before 30 July 2025
Exercisable at $0.00, on or before 31 December 2021
Exercisable at $0.664, on or before 8 July 2023
Exercised, lapsed or expired during the year:
Converted, exercisable at $0.00 on or before 31 December 2021
Expired, exercisable at $0.94 on or before 19 May 2020
Expired, exercisable at $0.912 on or before 11 May 2020
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
2021
Options
2020
Options
5,211,153
6,004,112
250,000
500,000
250,000
10,000,000
-
-
(947,041)
-
-
15,264,112
-
-
-
-
947,041
200,000
-
(1,440,000)
(500,000)
5,211,153
2021
$
2020
$
12,382,082
1,250,614
13,632,696
411,155
1,064,052
1,475,207
11,962,019
420,063
12,382,082
1,961,252
(1,550,097)
411,155
15,107,903
12,793,237
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.
15. ACCUMULATED LOSSES
Balance at beginning of the year
Loss for the year
Balance at end of the year
2021
$
(65,751,865)
(10,037,168)
(75,789,033)
2020
$
(57,492,494)
(8,259,370)
(65,751,864)
DANAKALI LIMITED ABN 56 097 904 302
53
Notes to the Consolidated Financial Statements
FOR THE YEAR ENDED 31 DECEMBER 2021
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
Share of net (gain)/loss of associate
Unrealised foreign exchange (gain)/loss
Net (gain)/loss on financial assets at fair value through profit or loss
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
2021
$
2020
$
(10,037,168)
(8,259,370)
6,409
3,495
1,250,614
4,371,666
(2,522,205)
3,458,248
359,951
514,617
18,310
(2,576,063)
3,939
3,499
420,063
(15,242)
1,873,469
2,669,808
175,497
233,999
12,834
(2,881,504)
(b) Funding of joint venture operations
Cash contribution to joint venture operations during the period
(4,706,172)
(17,566,388)
(c) Payments of leases
Payment of leases
17. EARNINGS PER SHARE
(a) Reconciliation of earnings used in calculating earnings per share (EPS)
60,219
69,925
2021
$
2020
$
Loss attributable to the owners of the Company used in calculating basic and
diluted loss per share
(10,037,168)
(8,259,370)
(b) Weighted average number of shares used as the denominator
2021
No. of Shares
2020
No. of Shares
Weighted average number of ordinary shares used as the denominator in
calculating basic and diluted loss per share
350,322,220
318,726,073
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. A total of 15,264,112 (2020: 5,461,1531) share options and 360,000 (2020: 1,260,000) performance
rights 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.
1 Includes 250,000 unlisted options at an exercise price of $0.501 each expiring 3 December 2023 that were granted during
the year on 3 December 2020 and formally issued on 12 February 2021.
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 (including foreign exchange and interest rate risks), liquidity 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.
DANAKALI LIMITED ABN 56 097 904 302
54
Notes to the Consolidated Financial Statements
FOR THE YEAR ENDED 31 DECEMBER 2021
(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 receivable of $10,597,238 (2020: $12,504,442) to Colluli Mining Share Company is denominated in US Dollars.
As at 31 December 2021, the Group held $0 (2020: $9,191,452) of cash and term deposits denominated in US Dollars.
Included within trade and other payables are $99,533 (2020: $18,281) trade payables and nil (2020: nil) accrued expenses
denominated in US Dollars.
The following table demonstrates the sensitivity to a reasonably possible change in US Dollar exchange rates, with all
other variables held constant. A strengthening of the Australian Dollar rate 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 2021
Year to 31 December 2020
(ii) Interest rate risk
Change in
USD Rate
%
+5%
-5%
+5%
-5%
Effect on Loss
before tax
$
(increase)
decrease
(524,885)
524,885
(1,083,881)
1,083,881
Effect on
Equity
$
(increase)
decrease
524,885
(524,885)
1,083,881
(1,083,881)
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 $22,884,417 (2020: $9,738,794) is subject to interest rate risk. The
floating interest rates fluctuate during the period depending on current working capital requirements. The weighted average
interest rate received on cash by the Group was 0.44% (2020: 0.44%).
Sensitivity analysis
At 31 December 2021, if interest rates had changed by -/+ 50 basis points (2020: +/- 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 $114,422
higher/lower (2020: $77,910 higher/lower) as a result of lower/higher interest income from cash and cash equivalents. .
For the interest rate risk relating to the loan at fair value through profit or loss, refer to note (d) below.
(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.
On the 12 November 2021, the U.S. Department of Treasury’s Office of Foreign Assets Control, placed sanctions on certain
Eritrean entities and individuals. These sanctions impact the way the Company is able to operate within the international
financial system. We have implemented various controls and practices to ensure that we adequately manage these risks.
We continue to work with our bankers, advisors and partners to mitigate the risks associated with the sanctions to ensure
that Danakali remain compliant and are able to continue operating in the normal course of business.
DANAKALI LIMITED ABN 56 097 904 302
55
Notes to the Consolidated Financial Statements
FOR THE YEAR ENDED 31 DECEMBER 2021
(c) Credit risk
The Group’s significant concentration of credit risk includes cash, which is held with a major Australian bank with AA3
credit rating, accordingly the credit risk exposure is minimal. In addition, there is a significant concentration of risk in relation
to the receivable from CMSC. The maximum exposure to credit risk at balance date is the carrying amount of cash and
receivables as disclosed in the Consolidated Statement of Financial Position and Notes to the Consolidated Financial
Statements.
Other than the loan to Colluli Mining Share Company which is carried at fair value, the Group does not presently have any
material debtors. A formal credit risk management policy is not maintained in respect of debtors.
(d) Fair values
Set out below is an overview of financial instruments, other than cash at bank and on hand and short-term deposits, held
by the group as at 31 December 2021:
Financial Assets:
Receivables
Total current
Receivable
Total non-current
Total Assets
Financial liabilities:
Trade and other payables
Total current
Total Liabilities
Fair value
through profit and
loss
$
through other
comprehensive
income
$
At amortised cost
$
96,481
96,481
-
-
-
-
10,597,238
10,597,238
96,481
10,597,238
1,240,888
1,240,888
1,240,888
-
-
-
-
-
-
-
-
-
-
-
Set out below is a comparison of the carrying amount and fair values of financial instruments as at 31 December 2021:
Financial Assets:
Receivables
Total current
Receivable
Total non-current
Total Assets
Financial liabilities:
Trade and other payables
Total current
Total Liabilities
Carrying Value
$
Fair Value
$
96,481
96,481
96,481
96,481
10,597,238
10,597,238
10,597,238
10,597,238
10,693,719
10,693,719
1,240,888
1,240,888
1,240,888
1,240,888
1,240,888
1,240,888
DANAKALI LIMITED ABN 56 097 904 302
56
Notes to the Consolidated Financial Statements
FOR THE YEAR ENDED 31 DECEMBER 2021
Set out below is an overview of financial instruments, other than cash at bank and on hand and short-term deposits, held
by the group as at 31 December 2020:
Financial Assets:
Receivables
Total current
Receivable
Total non-current
Total Assets
Financial liabilities:
Trade and other payables
Total current
Total Liabilities
Fair value
through profit and
loss
$
through other
comprehensive
income
$
At amortised cost
$
103,045
103,045
-
-
-
-
12,504,442
12,504,442
103,045
12,504,442
726,271
726,271
726,271
-
-
-
-
-
-
-
-
-
-
-
Set out below is a comparison of the carrying amount and fair values of financial instruments as at 31 December 2020:
Financial Assets:
Receivables
Total current
Receivable
Total non-current
Total Assets
Financial liabilities:
Trade and other payables
Total current
Total Liabilities
Carrying Value
$
Fair Value
$
103,045
103,045
103,045
103,045
12,504,442
12,504,442
12,504,442
12,504,442
12,607,487
12,607,487
726,271
726,271
726,271
726,271
726,271
726,271
The current receivables carrying values and payables carrying values approximates fair values due to the short-term
maturities of these instruments.
The fair value of the long-term receivable was determined by discounting future cashflows using a current market interest
rate of 25% which incorporates an appropriate adjustment for credit risk (2020: 21%). The timing of cash receipts has
been adjusted according to management’s best estimate and it is currently estimated that receipts commence in the
September 2027 quarter (2020: June 2026). The fair value measurement for 2021 and 2020 is categorised as Level 3
in the fair value hierarchy as the estimated market interest rate is an unobserved input in the valuation. The fair value of
the loan is sensitive to the discount rate applied. A 300bps (2020: 300bps) movement in the discount rate would change
the valuation by $1,493,199 (2020: $1,725,122).
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.
Capital managed by the Board includes Shareholder equity, which was $67,185,189 (2020: $56,099,745). 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.
DANAKALI LIMITED ABN 56 097 904 302
57
Notes to the Consolidated Financial Statements
FOR THE YEAR ENDED 31 DECEMBER 2021
20. CONTINGENCIES
There are no material contingent liabilities or contingent assets of the Group as at 31 December 2021 and 2020.
21. COMMITMENTS
Short-term lease commitments:
Minimum lease payments
- within one year
Advisory fees pursuant to contracts
Total Commitments
Operating Leases:
2021
$
2020
$
7,626
-
7,626
-
-
-
The minimum future payments above relate to non-cancellable leases for offices.
22. SHARE-BASED PAYMENTS
(a) Expenses arising from share-based payment transactions
Total expenses arising from share-based payment transactions recognised during the period were as follows:
Options issued to directors, employees and contractors
Performance Rights issued to directors, employees and contractors
(b) Options
2021
$
1,396,616
(146,002)
1,250,614
2020
$
582,012
(161,949)
420,063
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.
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 (being those the
subject of share-based payments).
Outstanding at the beginning of the year
Granted
Exercised
Lapsed / expired
Outstanding at end of the year
Exercisable at end of the year
2021
2020
Number of
options
5,461,153
10,750,000
(947,041)
-
15,264,112
15,264,112
Weighted average
exercise price
$0.879
$0.624
$0.000
-
$0.755
$0.755
Number of
options
6,004,112
1,397,041
-
(1,940,000)
5,461,153
5,011,153
Weighted average
exercise price
$1.035
$0.185
-
$0.933
$0.854(a)
$0.879
DANAKALI LIMITED ABN 56 097 904 302
58
Notes to the Consolidated Financial Statements
FOR THE YEAR ENDED 31 DECEMBER 2021
Movements within specific classes of unlisted options (being those the subject of share-based payments) during the year
is as follows:
Unlisted Options – Class
Exercise price $1.031 expiry date 24/01/2022
Exercise price $1.031 expiry date 24/01/2022
Exercise price $1.108 expiry date 13/03/2022
Exercise price $1.119 expiry date 28/03/2022
Exercise price $1.114 expiry date 30/05/2022
Exercise price $0.000 expiry date 31/12/2021
Exercise price $0.664 expiry date 08/07/2023
Exercise price $0.501 expiry date 03/12/2023(i)
Exercise price $0.527 expiry date 29/01/2023
Exercise price $0.780 expiry date 24/03/2023
Exercise price $0.640 expiry date 30/07/2025
Exercise price $0.640 expiry date 30/07/2025
Opening
balance
31 Dec 2020
1,168,272
301,040
583,000
561,800
1,450,000
947,041
200,000
250,000
-
-
-
-
Granted
Exercised
Lapsed /
Expired
-
-
-
-
-
-
-
-
500,000
250,000
2,000,000
8,000,000
-
-
-
-
-
(947,041)
-
-
-
-
-
-
5,461,153 10,750,000
(947,041)
Closing
balance
31 Dec 2021
1,168,272
301,040
583,000
561,800
1,450,000
-
200,000
250,000
500,000
250,000
2,000,000
8,000,000
15,264,112
-
-
-
-
-
-
-
-
-
-
-
-
-
(i) Refers to unlisted options granted on 3 December 2020, which were formally issued on 12 February 2021.
Remaining contractual life
The weighted average remaining contractual life of share options outstanding at the end of the period was 2.638 years
(31 December 2020: 2.653 years), with exercise prices ranging from $0.501 to $1.119.
Options granted during the year
A summary of options granted during the year ended 31 December 2021 is included in the following table and as detailed
below. The weighted average fair value of the options granted during the year ended 31 December 2021 was $0.126.
Details of options valued using the Black &Scholes Option Pricing Model to produce the fair value per option are as
follows:
Number
of Options
500,000
250,000
2,000,000
8,000,000
Grant
Date
Expiry Date
29/01/2021 29/01/2023
23/03/2021 24/03/2023
30/07/2021 30/07/2025
30/07/2021 30/07/2025
Fair Value
per Option
$0.141
$0.167
$0.125
$0.125
Exercise
Price
$0.527
$0.780
$0.640
$0.640
Share Price
at
Grant Date
$0.410
$0.510
$0.445
$0.445
Risk Free
Interest Rate
0.08%
0.10%
0.40%
0.40%
Estimated
Volatility
77.47%
82.98%
63.67%
63.67%
As detailed in the Company’s Annual Report, a short-term incentive (STI) scheme applies to executives in the Company
and is designed to link any STI payment with the achievement of specified key performance indicators (KPI’s) which are
in turn linked to the Company’s strategic objectives and targets.
A summary of options granted during the year ended 31 December 2020 is included in the following table. The weighted
average fair value of the options granted during the year ended 31 December 2020 was $0.507. The value was calculated
by using the Black &Scholes Option Pricing Model applying the following inputs, to produce the fair value per option:
Number
of Options
200,000
250,000
Grant
Date
Expiry Date
08/07/2020 08/07/2023
03/12/2020 03/12/2023
Fair Value
per Option
$0.135
$0.110
Exercise
Price
$0.664
$0.501
Share Price
at
Grant Date
$0.500
$0.365
Risk Free
Interest Rate
0.27%
0.23%
Estimated
Volatility
53.31%
59.27%
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.
DANAKALI LIMITED ABN 56 097 904 302
59
Notes to the Consolidated Financial Statements
FOR THE YEAR ENDED 31 DECEMBER 2021
(c) Performance Rights
Movements in the number of performance rights on issue during the year is as follows:
Performance Rights - Class Opening balance
Granted
Vested
Forfeited
Cancelled
Class 1 1
Class 5 1
Class 9
31 Dec 2020
280,000
80,000
900,000
1,260,000
-
-
-
-
-
-
-
-
-
-
(900,000)
(900,000)
-
-
-
-
Closing
balance
31 Dec 2021
280,000
80,000
-
360,000
1 Issued under the Performance Rights Plan which was re-approved at the annual general meeting of the Company held
17 November 2014.
Movements in the number of performance rights during the prior year is as follows:
Performance Rights - Class Opening balance
Granted
Vested
Forfeited
Cancelled
Class 1 1
Class 4 1
Class 5 1
Class 8 1
Class 9
31 Dec 2019
280,000
800,000
100,000
15,000
900,000
2,095,0002
-
-
-
-
-
-
-
-
(20,000)
-
-
(20,000)
Closing
balance
31 Dec 2020
280,000
-
80,000
-
900,000
-
(800,000)
-
-
-
-
-
-
(15,000)
-
(800,000)
(15,000)
1,260,000
1 Issued under the Performance Rights Plan which was re-approved at the annual general meeting of the Company held
17 November 2014.
2 The opening balance excludes: 25,000 performance rights in respect of which the performance hurdle had been met 23
December 2019 (formal conversion occurred 13 January 2020); 50,000 performance rights in respect of which the
performance hurdle had been met 3 December 2019 (formal conversion occurred 13 January 2020); and 100,000
performance rights in respect of which the performance hurdle had been met 20 December 2019 (formal conversion
occurred 28 January 2020).
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 note 8 and note 10 of this report.
(d) Key management personnel compensation
Short-term benefits
Post-employment and long-term benefits
Share-based payments
Termination benefits
2021
$
706,415
41,619
110,973
347,202
1,206,209
2020
$
1,239,963
99,787
364,390
-
1,704,140
DANAKALI LIMITED ABN 56 097 904 302
60
Notes to the Consolidated Financial Statements
FOR THE YEAR ENDED 31 DECEMBER 2021
(e) Transactions with directors, director related entities and other related parties
AFC is deemed to be a related party of the Company on the basis of significant influence. The related party status applies
from 23 April 2020, being when AFC held an interest of 14.4% (2020:16.6%) in the issued capital of the Company and the
date that Danakali appointed two AFC nominees to its Board of Directors.
AFC and Afreximbank, have executed documentation for the provision of US$200M in senior debt finance to CMSC (each
Mandated Lead Arranger providing US$100M). The facility allows drawdown of CMSC senior debt on satisfaction of
customary conditions precedent (refer ASX announcement 23 December 2019) for a project financing facility of this kind
and includes all project approvals required to develop the Project, and the balance of the equity contribution having been
raised.
AFC President and CEO, Samaila D. Zubairu, and AFC Senior Director for Investment Operations & Execution, Taiwo
Adeniji, joined Danakali’s Board as Non-Executive Directors on 23 April 2020. These appointments are in accordance with
the terms of the Subscription Agreement which provides AFC the right to appoint two nominees to the Board of Danakali
provided AFC’s Danakali ownership remains above certain thresholds. As at the date of release of this report, AFC holds
two out of seven board seats on the Company.
On 14 July 2020, the Company executed a mandate with AFC for the provision of capital raising advisory services. Pursuant
to the mandate, AFC will be entitled to receive an industry standard transaction fee on capital raising funds receipted by
the Company in respect of equity investors identified within the mandate with AFC.
There were no other material related party transactions.
24. REMUNERATION OF AUDITORS
During the year, the following fees were paid or payable for services provided by the auditor of the Company, its related
practices and non-related audit firms:
Assurance related
Tax compliance services
Fees for regulatory services
25. SUBSIDIARY
2021
$
2020
$
162,147
-
-
162,147
149,582
10,792
61,800
222,174
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
2021
%
100
2020
%
100
Equity Holding
The proportion of ownership interest is equal to the proportion of voting power held.
DANAKALI LIMITED ABN 56 097 904 302
61
Notes to the Consolidated Financial Statements
FOR THE YEAR ENDED 31 DECEMBER 2021
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
Net Assets
Issued capital
Share-based payments reserve
Accumulated losses
Total equity
Loss for the year
Total Comprehensive loss for the year
27. DIVIDENDS
2021
$
23,042,875
13,837,621
36,880,496
1,349,684
48,200
1,397,884
35,482,611
2020
$
10,253,645
20,435,046
30,688,691
799,273
65,684
864,957
29,823,734
127,866,319
13,632,696
(106,016,404)
35,482,611
109,058,372
12,382,082
(91,616,720)
29,823,734
(7,207,499)
(7,207,499)
(13,352,187)
(13,352,187)
No dividends were paid in 2021 and 2020. No recommendation for payment of dividends has been made.
28. EVENTS OCCURRING AFTER THE BALANCE DATE
Board and Management Changes
On 1 March 2022 Gregory MacPherson was appointed Chief Financial Officer.
Change to options
The following options expired after balance sheet date.
Unlisted Options – Class
Exercise price $1.031 expiry date 24/01/2022
Exercise price $1.031 expiry date 24/01/2022
Exercise price $1.108 expiry date 13/03/2022
Exercise price $1.119 expiry date 28/03/2022
Conflict between Russia and Ukraine
Number of Options
held at
31 December 2021
1,168,272
301,040
583,000
561,800
2,614,112
The Company has considered the impact the Russian and Ukraine conflict is having on the business. CMSC is not yet in
production and there are no strategic project supplies being sourced from the affected region therefore the direct and
immediate exposure is low. The off-take agreement with EuroChem will need to be closely monitored as the sanctions
have already affected the global fertilizer market. As at the date of this report, the CMSC off-take agreement has not been
impacted. The Group is in the process of raising equity to fund the Project and the conflict has increased global
uncertainties, which directly effects investor risk appetites. This will probably affect the investor pool and more specifically
the strategic investors from Russia. The Group continues to work with their various financial advisors to work through these
uncertain times. The changing global macroeconomic conditions may affect the Project costs however the increasing
fertilizer prices are providing a significant hedge to accommodate any CAPEX escalations. The Group will continue to
monitor the impact of the conflict on the business.
Other matters
No other matters or circumstances have arisen since the end of the financial year which significantly affected or may
significantly affect the operations of the Group, the results of those operations, or the state of affairs of the Group in future
financial years.
DANAKALI LIMITED ABN 56 097 904 302
62
Directors’ Declaration
In the Directors’ opinion:
(a)
the financial statements and notes of Danakali Limited for the financial year ended 31 December 2021 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 2021 and of its performance for
the year ended on that date;
(b)
(c)
the financial statements and notes also comply with International Financial Reporting Standards as disclosed in
note 2;
there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become
due and payable subject to achieving the matters set out in note 2(c); and
The directors have been given the declarations by the Executive Chairman 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
EXECUTIVE CHAIRMAN
Perth, 28 March 2022
DANAKALI LIMITED ABN 56 097 904 302
63
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 to the members of Danakali
Limited
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 2021,
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 to the financial statements, including a summary of significant accounting policies, and the
directors declaration.
In our opinion, the accompanying financial report of the Group is in accordance with the Corporations
Act 2001, including:
a. Giving a true and fair view of the Group’s financial position as at 31 December 2021 and of its
financial performance for the year ended on that date; and
b.
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
report section of our report. We are independent of the Group in accordance with the auditor
independence requirements of the Corporations Act 2001 and the ethical requirements of the
Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional
Accountants (including Independence Standards) (the Code) that are relevant to our audit of the
financial report in Australia. We have also 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.
Material uncertainty related to going concern
We draw attention to Note 2(c) in the financial report. The matters as set forth in Note 2(c) indicate
that a material uncertainty exists that may cast significant doubt on the Group’s ability to continue as
a going concern. Our opinion is not modified in respect of this matter.
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
64
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. In addition to the matter described in the Material uncertainty
related to going concern section, we have determined the matters described below to be the key audit
matters to be communicated in our report. For the matter below, our description of how our audit
addressed the matter is provided in that context.
We have fulfilled the responsibilities described in the Auditor’s responsibilities for the audit of the
financial report section of our report, including in relation to this matter. Accordingly, our audit
included the performance of procedures designed to respond to our assessment of the risks of
material misstatement of the financial report. The results of our audit procedures, including the
procedures performed to address the matters below, provide the basis for our audit opinion on the
accompanying financial report.
65
Accounting for the Group’s interest in Colluli Mining Share Company (“CMSC”)
Why significant
How our audit addressed the key audit matter
The Group acquired an interest in CMSC at the date of
CMSC’s incorporation on 5 March 2014. This
acquisition was in accordance with the Shareholders’
Agreement entered into with the Eritrean National
Mining Corporation (“ENAMCO”) which was executed
in November 2013. CMSC was incorporated in Eritrea,
in accordance with the Shareholders’ Agreement, to
hold the Colluli project, with Danakali and ENAMCO
each holding 50% of the equity.
The Group’s equity investment in CMSC is accounted
for as a joint venture using the equity method. In
addition to the equity investment in CMSC, the Group
has a shareholder loan receivable carried at fair value
through profit and loss.
Refer to note (2)(w)(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.
At 31 December 2021, the investment in CMSC
amounted to $34.9 million (refer to Note 10 in the
financial statements) and the shareholder loan
receivable from CMSC amounted to $10.6 million
(refer to Note 8 in the financial statements).
Management also identified that objective evidence of
impairment existed in relation to the Group’s
investment in CMSC as at 31 December 2021 (see
note 2(w)(i) to the financial report).
The accounting for the interests in CMSC is significant
to our audit due to the complexity involved in
measuring both the investment in CMSC as well as the
shareholder loan receivable. Specifically, key
assumptions underpinning the measurement of the
receivable 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 repayment of the
shareholder loan as well as the underlying credit risk.
Furthermore, determining whether objective evidence
of impairment existed in relation to the Group’s
investment in CMSC was a significant judgement, as
was the determination of recoverable amount for the
Group’s interest in CMSC.
Our procedures included the following:
► 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.
► We assessed the Group’s calculations supporting
the measurement of the investment and the
shareholder loan. This calculation included the
discounting of the shareholder loan balance
based on the Group’s current best estimate of
when the shareholder loan will be repaid.
► We involved our valuation specialists to assess
the assumed discount rate having regard to
factors such as the project risk, credit risk and
country risk.
► We assessed the Group’s 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 assessed the arithmetical accuracy of the
Group’s calculations, including where applicable
any foreign currency translations embedded in
the measurement process.
► We performed appropriate audit procedures over
the results of CMSC and confirmed that Danakali’s
50% interest in these results were accounted for
on an equity basis in the financial statements of
the Group.
► We assessed management’s determination that
objective evidence of impairment of the
Company’s investment in CMSC existed at the
balance date.
► We assessed management’s determination of the
recoverable amount of this investment for
reasonableness. This included comparing
management’s recoverable amount to a number
of benchmarks for determining indicative fair
value less costs of disposal. We compared the
carrying value of this investment to the
recoverable amount determined to ensure that
the carrying amount was not in excess of
recoverable amount at 31 December 2021.
► We assessed the adequacy of the Group’s
disclosures in the financial report relating to the
measurement and accounting for its investment
in, and loan to, CMSC including those relating to
impairment.
66
Information other than the financial report and auditor’s report thereon
The directors are responsible for the other information. The other information comprises the
information included in the Group’s 2021 annual report but does not include the financial report and
our auditor’s report thereon.
Our opinion on the financial report does not cover the other information and accordingly we do not
express any form of assurance conclusion thereon, with the exception of the Remuneration Report
and our related assurance opinion.
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 on the work we have performed, we conclude that there is a material misstatement of this
other information, we are required to report that fact. We have nothing to report in this regard.
Responsibilities of the directors for the financial report
The directors of the Company are responsible for the preparation of the financial report that gives a
true 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 report that gives a true and fair view and is free from material misstatement, whether due to
fraud or error.
In preparing the financial report, the directors are responsible for assessing the Group’s ability to
continue as a going concern, disclosing, as applicable, matters relating to going concern and using the
going concern basis of accounting unless the directors either intend to liquidate the Group or to cease
operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial report
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. Reasonable assurance is a high level of assurance, but is not a guarantee that an
audit conducted in accordance with the 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 in the aggregate, they could reasonably be expected to influence the economic
decisions of users taken on the basis of this financial report.
67
As part of an audit in accordance with the Australian Auditing Standards, we exercise professional
judgment and maintain professional scepticism throughout the audit. We also:
► 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 collusion, forgery, intentional omissions, misrepresentations, or the
override of internal control.
► Obtain an understanding of internal control relevant to the audit in order to design audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Group’s internal control.
► Evaluate the appropriateness of accounting policies used and the reasonableness of accounting
estimates and related disclosures made by the directors.
► Conclude on the appropriateness of the directors’ use of the going concern basis of accounting
and, based on the audit evidence obtained, whether a material uncertainty exists related to
events or conditions that may cast significant doubt on the Group’s ability to continue as a going
concern. If we conclude that a material uncertainty exists, we are required to draw attention in
our auditor’s report to the related disclosures in the financial report or, if such disclosures are
inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up
to the date of our auditor’s report. However, future events or conditions may cause the Group to
cease to continue as a going concern.
► Evaluate the overall presentation, structure and content of the financial report, including the
disclosures, and whether the financial report represents the underlying transactions and events
in a manner that achieves fair presentation.
► Obtain sufficient appropriate audit evidence regarding the financial information of the business
activities within the entity to express an opinion on the financial report. We are responsible for
the direction, supervision and performance of the audit. We remain solely responsible for our
audit opinion.
We communicate with the directors regarding, among other matters, the planned scope and timing of
the audit and significant audit findings, including any significant deficiencies in internal control that we
identify during our audit.
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 reasonably be thought to bear on our independence, and where applicable, actions
taken to eliminate threats or safeguards applied.
68
From the matters communicated to the directors, we determine those matters that were of most
significance in the audit of the financial report of the current year and are therefore the key audit
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.
Report on the audit of the Remuneration Report
Opinion on the Remuneration Report
We have audited the Remuneration Report included in the Directors’ report for the year ended 31
December 2021.
In our opinion, the Remuneration Report of Danakali Limited for the year ended 31 December 2021,
complies with section 300A of the Corporations Act 2001.
Responsibilities
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 opinion on the Remuneration Report, based on our audit conducted in
accordance with Australian Auditing Standards.
Ernst & Young
Pierre Dreyer
Partner
Perth
28 March 2022
69
ASX Additional Information
Additional information required by Australian Securities Exchange Ltd and not shown elsewhere in this report is as follows.
The information is current as at 4 March 2022.
(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
526
820
377
815
244
194,342
2,136,639
2,995,416
29,667,479
333,340,470
2,782
368,334,346
%
0.05%
0.58%
0.81%
8.05%
90.50%
100%
The number of shareholders holding less than a marketable parcel was 759.
(b) Twenty largest shareholders
The names of the twenty largest holders of quoted ordinary shares are:
1
2
3
4
5
6
7
8
AFC EQUITY INVESTMENTS LIMITED
CITICORP NOMINEES PTY LIMITED
BNP PARIBAS NOMINEES PTY LTD ACF CLEARSTREAM
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
BNP PARIBAS NOMS PTY LTD
MR LIAM RAYMOND CORNELIUS
BNP PARIBAS NOMINEES PTY LTD SIX SIS LTD
BNP PARIBAS NOMINEES PTY LTD
MERRILL LYNCH (AUSTRALIA) NOMINEES PTY LIMITED
DUKETON CONSOLIDATED PTY LTD
ELEMENT 25 LIMITED
9
10
11
12 WELL EFFICIENT LIMITED
MR SEAMUS CORNELIUS
13
SINO WEST ASSETS PTY LTD
14
MR SEAMUS IAN CORNELIUS
15
ALPHA BOXER LIMITED
16
MR ROHAIN IAN CORNELIUS
17
RANGUTA LIMITED
18
MRS NERIDA RUTH SCOTT
19
MR JOHN JOSEPH WALLACE
20
Listed ordinary shares
Number of shares
52,958,908
48,598,572
30,521,204
21,475,162
16,053,703
10,060,685
9,374,817
7,998,891
7,903,491
7,556,500
6,001,331
5,000,000
4,554,097
4,308,037
4,178,992
4,160,000
3,440,000
3,370,685
3,000,000
2,848,983
Percentage of
ordinary shares
14.38
13.19
8.29
5.83
4.36
2.73
2.55
2.17
2.15
2.05
1.63
1.36
1.24
1.17
1.13
1.13
0.93
0.92
0.81
0.77
(c) Substantial shareholders
The names of substantial shareholders who have notified the Company in accordance with section 671B of the
Corporations Act 2001 are:
253,364,058
68.79
AFC Equity Investments Limited (AFC Equity) and Africa Finance Corporation (AFC)
Well Efficient Ltd
(d) Voting rights
Number of Shares
52,958,908
35,000,000
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 LIMITED ABN 56 097 904 302
70
ASX Additional Information
(e) Unquoted securities
At 4 March 2022 the Company has on issue 13,794,800 unlisted options over ordinary shares and 360,000 performance rights.
The names of security holders holding more than 20% of an unlisted class of security are listed below.
Holder
Unlisted Options
Antony William Harrington
Niels Wage
Romaine International Consulting Inc.
Rod McEachern
Colin MacKay
Erin Community Interest Limited
Seamus Ian Cornelius
Mark Riseley
Gregory Ian MacPherson
Rod McEachern
Melissa Rose Tarrant
Holders individually less than 20%
Total
$1.108
13/03/2022
-
-
-
-
-
$1.119
28/03/2022
561,800
-
-
-
-
$1.114
30/05/2022
-
1,450,000
-
-
-
-
-
-
-
-
583,000
-
583,000
-
-
-
-
-
-
-
561,800
-
-
-
-
-
-
-
1,450,000
$0.664
08/07/2023
-
-
200,000
-
-
-
-
-
-
-
-
-
200,000
$0.501
03/12/2023
-
-
-
250,000
-
-
-
-
-
-
-
-
250,000
$0.527
29/01/2023
-
-
-
-
500,000
-
-
-
-
-
-
-
500,000
$0.780
24/03/2023
-
-
-
$0.640
30/07/2025
-
-
-
-
-
250,000
-
-
-
-
-
-
2,000,000
-
2,000,000
2,000,000
2,000,000
2,000,000
-
2,000,000
10,00,000
Holder
Mr Zeray Lake
Mascots International Ltd
Mr Tony Harrington
Holders individually less than 20%
Total
Performance Rights
Class 1
Class 5
75,000
85,000
-
120,000
280,000
-
-
80,000
-
80,000
(f) Schedule of Interests in Mining Tenements
Tenement:
License Type:
Nature of Interest:
Current equity
Colluli, Eritrea
Exploration License
Owned
50%
DANAKALI LIMITED ABN 56 097 904 302
71