Danakali : Quarterly Report - Period ending 30 June 2021

29 July 2021

onlyASX Release:

Quarterly Report

For the period ending 30 June 2021

Danakali Limited (ASX: DNK, LSE: DNK, Danakali, or the Company) is pleased to provide this quarterly update on the activities and financial position of the Company and its Colluli Potash Project located in Eritrea, East Africa. CMSC is progressing to become a leading producer and

usexporter of Sulphate of Potash (SOP), the premium potash type.

Highlights

Project

• Optimisation of the Water Intake and Treatment Area (WITA) simplifying infrastructure using sea water in processing was completed. Engineering design and estimation updates have

personal• commenced

Reverse Osmosis Plant (RO) manufacturing recommenced and the order of the Sewage Treatment Plant (STP) placed and manufacturing also commenced. Camp scope and terms materially agreed subject to relevant in country approvals and formal documentation

• On site Infrastructure design commenced by DRA in South Africa

Project Financing

• Received A$20.3m (before costs), from institutional and sophisticated investors and senior Danakali Executives. An additional A$466,400 will be received from Danakali Directors subject to Shareholder approval

• Discussions with ENAMCO, senior lenders and interested third parties on a full funding solution progressed

Environmental, Social and Governance (ESG)

For• The Company continues to advance the environmental and social management deliverables required as part of the lender requirements for project debt financing

Corporate & Financial

• Cash balance of A$25.7M as of 30 June 2021

The Colluli Potash Project (Project, Colluli) is 100% owned by Colluli Mining Share company (CMSC,) a 50:50 Joint Venture between Danakali Limited (DNK) and Eritrean National Mining Corporation (ENAMCO)

Codes:

ASX: DNK, LSE: DNK, SO3-FRA,SO3-BER. US Level 1 ADR's OTC-

DNKLY,

CUSIP.23585T101

Highlights:

The world's largest JORC compliant solid salt, Sulphate of Potash (SOP) reserve, 1.1Bt

Aiming to be the worlds first Zero Carbon SOP Producer

Development underway towards production

Financial facts:

Issued capital: 367.3m

Share price: A$0.43

Market cap: A$157.9m

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Project & Corporate Update

Project Update

CMSC commenced the early works program with instructions being issued to WEC Projects Pty Ltd in South Africa to complete the Reverse Osmosis (RO) plant and Sewerage Treatment Plant (STP) manufacturing and function testing ready for shipment to Eritrea.

Environmental & Social Governance

E&S Management System Development

CMSC operational management systems will align with the Equator Principles, IFC standard for Environmental and Social Performance and the World Bank Group Environment, Health and Safety Guidelines. During the quarter, the Company further advanced the Environmental and Social Action Plan (ESAP) requirements, which is now approximately 90% complete. ESAP closure is a one of the conditions precedents to the US$200m Senior Debt and the senior lenders are regularly engaged with regard to the progress.

Project

Process Test Work

Following completion of recent test work CMSC confirmed on 27 May 2021 that it will rely on a combination of beach well intake, and filtered seawater to the SOP production plant at the Colluli mine site. The proposed new Water Intake and Treatment Area (WITA) boasts having a smaller onshore and offshore footprint, significantly reducing the environmental impact. It will also require less opex. Renewable energy options are also being investigated to reduce, fuel costs and CO2 emissions. This is a game changing development in the Colluli Project production process using an unlimited source of Red Sea seawater.

CMSC also confirmed on 17 June 2021, the optimisation of the process plant design and mass balance using filtered seawater. The results proved that Colluli ore will produce predictable high grade (51.0% K20 SOP at low chloride levels (<1%)) at the stated 472,000 tonnes per annum from Module 1 & 2. These test work results reinforce the benefits at Colluli with its unique natural resources and in situ potassium that result in significant economic advantages.

Corporate

Danakali continues to review a number or funding options currently available to it, including institutional funding, placement instruments in addition to current corporate development options with key strategic players.

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In particular, discussions continue with DNK's senior debt lenders, African Finance Corporation and Afrieximbank toward an agreement in principle for increasing senior debt limits at the CMSC level.

Project Financing

On 12 May 2021, the Company completed a share placement to institutional and sophisticated investors raising A$21.3m (before costs) (Placement). An additional A$466,400 will be received from Danakali Directors subject to Shareholder approval.

Capital

Cash

Consolidated cash on hand was A$25.7M as at 30 June 2021. Please refer to the Appendix 5B for the quarter which estimates that available funding is sufficient for more than 18 quarters.

Securities

As at 30 June 2021, there were a total of 367,254,346 fully paid ordinary shares on issue. A total of 47,565,999 shares were issued during the June 2021 Quarter pursuant to the Placement.

As at 30 June 2021, there were a total of 5,264,112 unlisted options on issue at various exercise prices and expiry dates. No unlisted options were issued, exercised or lapsed during the June 2021 Quarter.

As at 30 June 2021, there were a total of 360,000 performance rights on issue. No performance rights were issued, converted or lapsed during the June 2021 Quarter.

Related Party Transactions

In accordance with ASX Listing Rule 5.3.5, payments to related parties of the Company and their associates during the quarter totaled A$0.131m. The Company advises that this relates to Director fees. Refer to the Remuneration Report in the Financial Report for further details on director remuneration.

Interests in mining tenements

The 7 Mining Licenses awarded to CMSC span over 60km2 of the 100km2 Mining Agreement area. There were no mining exploration activities undertaken during the quarter.

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Tenement holdings:

Tenement	Colluli, Eritrea
Nature of interest	Owned
License type	Mining Licenses
Current equity	50%

There was no change in tenement holding during the June 2021 Quarter.

For more information, please contact:

Danakali

Seamus Cornelius	Mark Riseley
Executive Chairman	Head of Corporate Development
[phone]	[phone]

Visit the Company's website: www.danakali.com

Follow Danakali on LinkedIn:www.linkedin.com/company/danakali-limited

Subscribe to Danakali on YouTube:www.youtube.com/channel/UChGKN4-M4lOvPKxs9b-IJvw

Announcement authorised for release by the board of Danakali.

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About Danakali

Danakali Limited (ASX: DNK, LSE: DNK) (Danakali, or the Company) is an ASX- and LSE-listed potash company focused on the development of the Colluli Sulphate of Potash Project (Colluli or the Project). The Project is 100% owned by the Colluli Mining Share Company (CMSC), a 50:50 joint venture between Danakali and the Eritrean National Mining Corporation (ENAMCO).

The Project is located in the Danakil Depression region of Eritrea, East Africa, and is ~75km from the Red Sea coast, making it one of the most accessible potash deposits globally. Mineralisation within the Colluli resource commences at just 16m, making it the world's shallowest known potash deposit. The resource is amenable to open cut mining, which allows higher overall resource recovery to be achieved, is generally safer than underground mining, and is highly advantageous for modular growth.

The Company has completed a Front-End Engineering Design (FEED) for the production of potassium sulphate, otherwise known as Sulphate of Potash or SOP. SOP is a chloride free, specialty fertiliser which carries a substantial price premium relative to the more common potash type; potassium chloride (or MOP). Economic resources for production of SOP are geologically scarce. The unique composition of the Colluli resource favours low energy input, high potassium yield conversion to SOP using commercially proven technology. One of the key advantages of the resource is that the salts are present in solid form (in contrast with production of SOP from brines) which reduces infrastructure costs and substantially reduces the time required to achieve full production capacity.

The resource is favourably positioned to supply the world's fastest growing markets. A binding take-or-pay offtake agreement has been confirmed with EuroChem Trading GmbH (EuroChem) for up to 100% (minimum 87%) of Colluli Module I SOP production.

Development Finance Institutions, Africa Finance Corporation (AFC) and African Export Import Bank (Afreximbank), have obtained formal credit approval to provide CMSC with US$200M in senior debt finance. The credit documentation was executed in December 2019, allowing drawdown of CMSC senior debt on satisfaction of customary conditions precedent. This represents the majority of funding required for the development and construction of the Colluli.

Project execution has commenced and the Company's vision is to bring Colluli into production using the principles of risk management, resource utilisation and modularity, using the starting module (Module I) as a growth platform to develop the resource to its full potential.

Forward looking statements and disclaimer

The information in this document is published to inform you about Danakali and its activities. Danakali has endeavoured 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 guarantees 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.

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