Business Study Report: Danakali LTD - Production, Environment

This report provides a comprehensive analysis of Danakali LTD, a company focused on the development of the Colluli Potash Project in Eritrea, East Africa. The report begins with an introduction to the business, including its founding, joint venture structure, and the extraction of potash. It then delves into the production costs and scale, detailing the company's use of fixed and variable factors of production, including machinery and labor, and the open-cut mining method. The report also examines the macro business environment, including government policies, inflation rates, and the company's export and import activities. Finally, it explores the sustainability practices of the business, including the impact of production externalities and the benefits of the Colluli project for local communities. The report concludes with a summary of the key findings and references.

BUSINESS STUDY
REPORT

Table of Contents
INTRODUCTION ..........................................................................................................................1
MAIN BODY ..................................................................................................................................1
1) Introduction to business..........................................................................................................1
2) Production costs and scale......................................................................................................4
3) Macro business environment..................................................................................................5
4) Sustainability practice of the business....................................................................................7
CONCLUSION ...............................................................................................................................8
REFERENCES................................................................................................................................9

INTRODUCTION
Business and Business Environment is the total of all individuals, institutions and several
other forces which are outside the control of a business organisation but still it depends upon
these factors. This is basically because overall business performance as well as sustainability is
highly impacted (Aguirre and Rodriguez, 2017). The forces which constitute of business
environment factors are suppliers, government, customers, economic conditions and several
other such factors. This report is based on Danakali LTD which was founded in 2001. Respective
organisation focused on the development of Colluli Potash Project which is located in Eritrea,
East Africa. The outcome of this report will consider several aspects related to respective
organisation. Like location and type of business, what the business produces and sells in
potential market, who are main customers and many other such factors. Furthermore, production
costs and scale of respective organisation will also be identified. Lastly consideration would be
made in order to understand macro environmental factors of business organisation.
MAIN BODY
1) Introduction to business
Danakali Limited was founded in 2001. The main focus of respective organisation is the
development of Colluli Potash Project. Business operation of Danakali LTD are carried from
Eritrea, East Africa. There is a 50-50 joint venture between Danakali Limited and Eritrean
National Mining company.
Moreover, it is a mining unit which significantly aims at extracting potash from colluli
which is located 75 km from red sea coast. This particular area of colluli has one of most
accessible potash deposits globally. Colluli Resource comprises of three bearing potassium salts
in solid form which are: sylvinite, carnallitite and kainitite (DANAKALI LTD (SBMSF), 2019).
Since 2010 the respective organisation is significantly producing tonnes of high grade
potassium bearing salts. The unique capability of Danakali LTD is that it is producing diversified
range of potash including muriate of potash, sulphate of potash magnesia and sulfate of potash.
Organisation is also offering industrial rock salt (Aleyan and et.al., 2018). Furthermore, sulphate
of potash is highly valued which is actually chloride free and premium potash fertiliser. Whereas
it contains both sulphur and potassium which are essential for crop nutrients. Colluli's products
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helps framer and support food security in Eritrea across Africa (DANAKALI LTD (SBMSF),
2019).
Danakali is engaged in offering mining services worldwide (Danakali Ltd, 2019). The
prime customers for respective organisation are companies which deals in agricultural based
products as well as those who produce FMCG products and several other big industries which
require sulphate of potash for further production. Moreover, products of respective organisation
are used by young farmers. It is a kind of fertilisers which essentially add nutrients to plant in
order to ensure crop yield are maximised and health of plant is preserved as much as possible
(André, Cho and Laine, 2018). Young business entrepreneurs are also important customer for
Danakali Ltd. Moreover, key demand areas where SOP is required are: China approximately
71kg/ha, USA approximately 57kg/ha, Europe 43 kg/ha. These are high SOP market areas where
Xkg/ha represents kilogram of SOP used per hectare on SOP favourable crops.
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Illustration 1: Colluli Project
Source: Colluli Potash Project, Danakil, 2019

Major competitors of Danakali ltd are Agrimin and Kalium Ltd. Wherein Agrimin is a
potash exporter in Australia and its prime objective is make a positive impact on country's
remote aboriginal communities through creation of several opportunities and attain sustainable
economic development. Whereas Kalium lakes it yet another competitor for Danakali Ltd.
Kalium is also producing sulphate of potash for both domestic as well as international markets
(Danakali’s advanced Colluli Potash Project in Eritrea is a cut above the rest, 2019).
Market Capitalisation refers to total value of a firm's shares of stock. Market cap of
Danakali Ltd is approximately $156.04 million. Furthermore, organisation aims at producing
425000 tonnes of potash. Whereas its competitors Agrimin has market cap of $68.72 million, it
also based in Australia. Kalium Lakes market cap consist of $48.72 million which aim at
producing SOP for foreign as well as domestic sale (ASX-listed Potash Stocks, 2019).
It can be significantly observed that the respective organisation faces perfect competition
as well as monopoly. Perfect competition is faced in context to sulphate of potash, there are
several similar company which are providing the same. Whereas Danakali Ltd is involved in
Colluli project which is handle by Danakali and Eritrean National mining company in 50-50 joint
venture.
Inelastic demand for sulphate of potash is witnessed under Eritrea this basically because
this is an important source for farmers in order to maximise productive potential of their land. In
short this fertiliser enormously help crops to increase yield. Furthermore, it has potentially been
observed that amount of agricultural land available to produce crops is decreasing. This is
basically because of growth of cities as well as town in key farming areas including China,
Africa and several other such countries (Buehler and Hamre, 2015). Therefore, agriculture either
has to move to other, less fertile areas or crease completely. This eventually require more
fertiliser in order to maintain production levels. Potash is basically main source of potassium for
plant. It is majorly required nutrient for plant growth, currently potash is more in demand than
ever before (Potash supply to exceed demand by 2020: report, 2019.)
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2) Production costs and scale
Production is result of combined efforts of factors of production. These factors can be
fixed or variable in nature. A fixed factor is the one whose quantity cannot be changed with
respond to desired changes in market conditions (Eriksson and Kovalainen, 2015). Quantity
remains the same even if level of output is more or less than zero. On the other hand, variable
factor is whose wherein quantity is usually changed with response to change in output.
With references to Danakali Ltd company extensively uses processing method for
production of SOP. Fixed factors of production used by respective organisation is machinery. A
proper processing is followed. It starts from mining, crushing, flotation, mixing, driving and ends
at logistic management. Open cut mining method in order to significantly produce potash is
adopted by respective organisation.
There are several number of attributes which are combined together in order to make
Colluli an outstanding opportunity. Following are the major forces which are potentially required
for Colluli and making it most attractive SOP and potash development in the world: Large
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Illustration 2: Demand Curve
Source: Potash supply to exceed demand by 2020: report, 2019.

Resources, SOP commodity of future, strong government support, highest purity product,
unmatched proximity to coast, close proximity to key growth markets, and several other such
factors.
Whereas variable factors of production is labour due to which quantity is changed with
response to change in output. Several problems are faced by Danakali Ltd with regard to labour,
this basically because local people living under Eritrea are not well educated and trained in order
to significantly perform all the business related activities. Moreover, before employing people
proper training and development program is conducted so that desired business objective is
achieved with proper efficiency. Danakil region of East Africa is an emerging potash province.
Around 6 billion tonnes of potassium salt bearing as been identified till date. Moreover, it has
been identified that Danakil region is major potash producing basin in the world. This region
contains several variety of potassium bearing salt.
Fixed factors of production are large and requires huge amount of cost in order to
maintain each factor with efficiency. However, firm optimal size is large and require huge
amount of ideal funds through which productivity within business is witnessed.
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Illustration 3: Colluli Mining Plan
Source: Colluli Potash Project, Danakli, 2019

3) Macro business environment
Macro business environment are those external factors which are uncontrollable in
nature. These factors highly influence decision making and affect business policies as well as
strategies. It primarily includes: demographics, legal, political, technology and several other such
factors.
Government policies of Eritrea take places in a framework of single-party presidential
republican totalitarian dictatorship. However, the economy of Eritrea has experienced sustainable
growth in recent years, worker’s remittances from abroad are estimated for approximately 32
percentage of gross domestic products. Eritrea have large amount of resources such as gold,
copper, marble as well as potash. Major business activities of Danakali Ltd are carried in Eritrea.
General level of inflation rate witnessed in Eritrea was recorded at 9% in 2018. Whereas
gross domestic product in Eritrea was observed approximately worth 6.72 billion US dollars.
Moreover, overall value of Eritrea basically represents 0.01 percent of overall world economy
(Eritrea GDP, 2019). Annual inflation rate of Australia has shown a rise to 1.6 percent in June
2019 from previous years. Moreover, consumer prices increased by 0.6 percent. Inflation rate in
Australia averaged to around 4.97 percent from 1951 until 2019. GPD rate was $270,104
million, Australia is observed as 13 in quarterly ranking. Economy is growing at a strong
annulate rate (GDP AUSTRALIA FIRST QUARTER OF 2019). Economy of Eritrea is in state
of developing and several activities are performed in order to potentially grow in market.
Danakali Ltd is exporting its products to several other countries in order to successfully
attain desired business objective with efficiency. As the respective business organisation is listed
on London stock exchange all financial transaction and currency exchange with potential
customers is done through dollars which is universally accepted (Hawking and Sellitto, 2015).
There are several issues which are eventually faced by Danakali Ltd while producing
sulphate of potash. Huge amount of skilled and well-trained workforce is essentially required in
order to extract SOP for Colluli. Moreover, business operations are highly impacted due
employee turnover. Unemployment rate under Eritrea is very high in context to Danakali Ltd
several issues are faced. This is because people are uneducated and not well trained to potentially
provide their services. Professional training to people living in Eritrea is provided by Danakali
Ltd in order significantly create several employment opportunities.
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Main product produced by Danakali Ltd is sulphate of potash which is sold in several
parts of world. Therefore, sales of respective product is normal. Potash is basically the cost
effective product in nature and is primarily used for fertilising rich crops yield. Potash is used as
highly effective fertilizer which is majorly required for crop growing regions. During the
recession period under economy demand for potash will never be affected because it is cost
effective and is highly recommended for plant growth.
Danakali ltd is engaged in exporting as well as importing goods from one part of country
to another country. Company exports sulphate of potash in major parts of the world. Whereas
several factors of production are imported from different countries. Monetary transaction used by
Danakali Ltd is ERN wherein 15 ERN is equals to 1 USD. From this exchange rate it can be
significantly observed that through exporting its goods as well as services to other parts of world
reasonable amount of profit is earned by respective organisation (Murphy, 2017). While
importing products loss is witnessed this because value of currency in Eritrea is low.
4) Sustainability practice of the business
Production externalities is usually measured in terms of difference between actual cost of
production and the real cost of production which is incurred on society. Moreover, impact of
production externalities can be positive as well as negative or combination of both. Major
examples of this may include depletion of natural resources as well as pollution (Napasri and
Yukongdi, 2015).
Eritrea have enormously impacted long term economic, social and community dividends
through Colluli project. Local communities and Eritrea have broadly stand out to benefit from
several jobs and skill development opportunities which are being available due to Colluli project
initiation in Eritrea. Creation of hundreds of permanent jobs for Eritrea nationals is observed.
Danakali ltd as well as Eritrean government focuses on sustainable development for the overall
development of company's potential stakeholders as well as respective country's economy.
Moreover, Eritrea is a maturing and focused oriented country which aims at capitalising that
Colluli project and potential to have large impact on supporting development. Respective
organisation is safe, stable and development focused through which project becomes a success.
Government of Eritrea highly focuses on several aspects in order to carry out business operations
with full efficiency. Some of the common areas where government focuses are: agricultural and
food security, human resource development, infrastructure development, education and several
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other such areas. Danakali ltd have effective as well as strong working relationship with Eritrean
government.
Positive impact is witnessed on the overall economic is observed through infrastructure,
job creation as well as taxes. Moreover, there are several social benefits which are ascertained
through this. The most common of them are: jobs creations for Eritrean people, skills
development, improvement infrastructure- roads, power and water, local business are also
benefited (Ritala and et.al., 2018). Several strategies are implemented in order to attain
sustainable development within business. Policies, management and plans where monitoring is
enforced are: human rights, communities, anti-corruption and several other such areas.
Colluli Potash Project has carried out extensive ongoing consultation with the local
communities in formulating overall development of colluli plans. Long term training for trades
and professionals is done in order to significantly make the respective project a global success.
The role which Eritrean Government played in making Colluli project successful is
unexceptional.
Consumption of goods produced by Danakali Ltd creates positive impact on overall
externalities. This essentially because sulphate of potash provides nutrients to plants through
which good crops are yield. If right amount of potash is not giving to plant margin of leaves
turns yellow and further brown in colour. A fine quality of potassium is provided in order to
prevent leaves of damage (Sekaran and Bougie, 2016). Therefore, there are no negative impact
of potash production. Rather potash is very necessary for agriculture purpose. Furthermore,
sulphate is one of best fertiliser and major source through which growth of plant is possible.
CONCLUSION
From the above report it can be concluded that business environment plays a very curial
role in determining the exact business condition. Moreover, business environment has great
impact on the overall working of a business organisation. These factor might be internal or
external forces which needs to be analysed timely so that accurate improvement might be taken.
Whereas through micro environmental factors it can be identified that for a business organisation
inflation rate, unemployment rate as well as gross domestic product highly influences working
situation of a company. Furthermore, several sustainability practice are also adopted by an
organisation in order to successfully carry out all business activities with full efficiency attain
accomplished objectives within allocated period of time.
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REFERENCES
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Online
DANAKALI LTD (SBMSF). 2019. [Online]. Available
through:<https://www.marketscreener.com/DANAKALI-LTD-22620964/company/>.
Danakali Ltd. 2019. [Online]. Available
through:<https://www.bloomberg.com/quote/DNK:AU>.
Danakali’s advanced Colluli Potash Project in Eritrea is a cut above the rest. 2019. [Online].
Available through:<https://www.proactiveinvestors.co.uk/companies/news/205297/
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Colluli Potash Project, Danakil. 2019. [Online]. Available through:<https://www.mining-
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