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Why the Danakali (ASX:DNK) share price is down 7% today

asx share price fall represented by lady in striped tshirt making sad face against orange background
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The Danakali Ltd (ASX: DNK) share price is sliding today, down 7.5% in late afternoon trading.

The potash miner, formerly known as South Boulder Mines, finds itself under pressure following this morning’s release of its investment update.

It’s been a challenging year for shareholders, who saw Danakali’s share price slump 50% during the COVID-19 market rout in February and March. Since the 23 March lows, shares have rebounded 24%, but remain down 36% year-to-date.

In comparison, the All Ordinaries Index (ASX: XAO) is down 6% so far in 2020.

What does Danakali do?

Danakali is a resource company focused on potash. Its aim is to develop its Colluli SOP Project in Eritrea, East Africa into a leading potash project providing potassium-bearing minerals for African and global agricultural production. Located 75km from the Red Sea, it’s one of the most accessible potash deposits globally.

The project is 100% owned by the Colluli Ming Share Company (CMSC), a 50:50 joint venture between the Eritrean National Mining Corporation (ENAMCO) and Danakali. Danakali expects that Colluli will provide a positive impact on infrastructure, job creation and sustainability in Eritrea.

Why did the Danakali share price slide today?

This morning’s ASX announcement provided investors with an update on the US$28.5 million (AU$40 million) Tranche 2 equity funding from the Africa Finance Corporation (AFC). Danakali stated it had been working in good faith with AFC. But the company now believes it’s unlikely it will be able to satisfy all the conditions precedent before the 21 November 2020 deadline.

It also reported that, despite not being able to complete Tranche 2 in accordance with the terms of the subscription agreement, AFC – Danakali’s largest shareholder – remains firmly committed to supporting the Colluli Project.

Commenting on the repayment snag, AFC’s CEO Samaila Zubairu said:

AFC’s mandate is to develop Africa and ensure that more of the value of the continent’s resources benefit the continent’s people through the creation of jobs and opportunities along with improving living standards.

AFC are fully committed to seeing the Colluli developed as quickly and safely as possible and look forward to working with key stakeholders, ENAMCO, Afreximbank and Danakali on this important objective and ensure the project is fully funded as soon as possible so production commences in 2022.

2022 is a little way off yet. But if Danakali can get the Colluli producing as planned, its share price could lift off from today’s 37 cents per share.

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Motley Fool contributor Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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