* Eritrea wants mining to help to kick-start economy
* Potash project is 50:50 venture with state firm
* Talks ongoing for binding deals with potash buyers
By Edmund Blair
NAIROBI, May 3 (Reuters) - Australia mining group Danakali
Ltd DNK.AX has applied to Eritrea for a mining licence for its
Colluli Potash Project, which is expected to start production in
2019, the company's chief executive said.
Eritrea, which became independent from Ethiopia in 1991
after years of fighting, wants to establish a mining industry to
help to bolster its economy.
The country has deposits of gold, copper, zinc and
fertiliser-ingredient potash. Its first commercial-scale mine
began production in 2011.
Danakali Chief Executive Paul Donaldson said the aim was to
secure project development funding, commercial offtake contracts
and approvals to start construction.
"We anticipate being in production by 2019," he told
Reuters.
A formal application for a licence was submitted on Monday
for the potash project, a 50:50 joint venture with state-owned
mining firm ENAMCO, he said.
The aim is to develop it in two stages, each with production
of about 425,000 tonnes a year. The potash deposits are near the
coast, making exports easier than other mines further in land
that have to move ore or concentrate long distances to the main
port.
Danakali had already signed memorandums of understanding for
offtake agreements with potential buyers for a little more than
800,000 tonnes of sulphate of potash, Donaldson said.
He said the company had effectively got enough demand for
both stages of the project and was in talks to secure binding
agreements.
Eritrean miners have been digging for years for gold nuggets
on deposits that stretch along the Red Sea, a geological
formation known as the Arabian Nubian Shield.
But commercial-scale mining only began in 2011 from Bisha
mine, a joint venture between Canada's Nevsun Resources NSU.TO
and ENAMCO. The mine first produced gold and now produces copper
from deeper seams and will soon produce zinc.
Another gold mine, a venture between ENAMCO and a Chinese
firm, was due to start commercial production at the end of
March, following initial commissioning at the end of 2015.
The industry has faced hurdles in Eritrea. Executives say a
slide in commodity prices has made it tougher to raise funds,
particularly for an emerging player.
Bisha mine has also been faced allegations from rights
groups and former workers now outside the country that the
company used poorly paid workers who were on national service
during construction. The government and Nevsun deny this.
(Writing by Edmund Blair. Editing by Jane Merriman)