Danakali Limited 

DNK Details

Danakali Limited (ASX: DNK) is a dual-listed company, listed on ASX and LSE. It is involved in the development of the Colluli Potash Project in Eritrea. The company has a market capitalization of ~$164.63 million as on April 23, 2021.

Results Performance (Year ended 31 December 2020)

The Group’s net loss after tax for the full-year period stood at $8.25 million as compared to the loss of $3.15 million in the previous year, reflecting 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 total consolidated cash balance at the end of the period stood at $9.74 million as compared to $33.84 million in the previous year. The Board of Directors declared no dividend for the period.

Key Data (Source: Company Reports)

Outlook:

The Colluli Potash Project (Colluli, or the Project) is a joint venture between the Eritrean National Mining Corporation (ENAMCO) and Danakali with each having a 50% ownership stake. 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. The company 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 significant mining operations.

Risk:

The group is still in the development stage; its revenue streams constitute interest income and capital raising. Thus, Capex incurred on projects might continue to have a negative bearing on the profitability of the company in the near future.

Technical Overview:

Weekly Chart –

Source: Refinitiv (Thomson Reuters)

Note: Purple colour lines are Bollinger Bands® with the upper band suggesting overbought status while the lower band oversold status, and yellow lines are Fibonacci retracement lines which measure price rebound and backtrack. https://www.bollingerbands.com/

The stock has given a softer close at a low price of the ongoing week around the 38.2% retracement level of $0.496 at $0.500 thereby suggesting further downside for it. The technical indicator RSI with a reading around 56 and a curve at the end pointing down, signals softening of bullish momentum.

Going forward, the stock may have resistance around the 23.6% retracement level of $0.55 whereas support could be around the 50% retracement level of $0.45.

Stock Recommendation:

The company’s current ratio was 12.83x, better than the industry median of 1.33x, implying a decent liquidity position. The stock rose by ~21.17% in 3 months and by ~28.7% in 6 months. However, the stock has fallen by ~5.5% over the time span of 1 week. The stock has made a 52-week low and high of $0.260 and $0.640, respectively and it is trading slightly towards the 52-week higher levels.

Considering the aforesaid facts, we give a “Sell” recommendation on the stock at the current market price of A$0.500 per share, down by 2.913% on 23^rd April 2021.

DNK Daily Technical Chart (Source: Refinitiv (Thomson Reuters))

Note: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

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