Engineering, Procurement And Construction Contract Bidding Process Commences For Colluli Project

ASX RELEASE 18 SEPTEMBER 2016

ENGINEERING, PROCUREMENT AND CONSTRUCTION CONTRACT BIDDING PROCESS COMMENCES FOR COLLULI PROJECT

HIGHLIGHTS

• EXPRESSIONS OF INTEREST PROCESS FOR THE ENGINEERING, PROCUREMENT AND CONSTRUCTION (EPC) CONTRACT FOR THE COLLULI PROJECT NOW COMPLETE

• Shortlist comprises companies with significant experience in Africa, Eritrea and Potash

• SITE VISIT FOR ENGINEERING FIRMS PLANNED IN EARLY OCTOBER

Danakali Limited ("Danakali", ASX:DNK) is pleased to announce the shortlisting of three firms that will progress to a competitive bidding process for the EPC contract for the Colluli Potash Project ("Colluli Project").

The shortlisted parties are internationally renowned engineering firms with a vast array of experience in Africa, Eritrea and Potash. The shortlisting follows an invitation for expressions of interest for the EPC contract which drew strong interest.

The firms will visit the Colluli Project in Eritrea in early October. In addition to visiting the future mine site, the firms will also hold discussions with in-country service providers, and conduct an examination of the logistics route between the Port of Massawa and the project, and the planned sea water pipeline corridor from Anfile Bay to the future Colluli mine site.

Managing Director, Paul Donaldson said "We are delighted with both the level and the quality of interest we have received for the EPC contract for the Colluli Project. We are looking forward to hosting the shortlisted parties at the site visit in early October. The Colluli Project is one of the most advanced and attractive greenfield sulphate of Potash projects globally. It has an exceptionally long expected mine life, unrivalled product diversification potential and significant upside.

We are happy to have successfully reached the significant and exciting milestone of initiating the formal bidding process with highly reputable and experienced groups for the EPC contract for the project."

About Colluli

In November 2015, Danakali released a highly positive DFS for Colluli which demonstrates industry leading capital intensity and lowest development costs relative to all SOP projects at DFS level in the world. Bottom quartile operating costs are predicted. Mine life is estimated at over 200 years at the DFS production rate, providing the project with substantial growth potential. The Colluli Mining Share Company has submitted an application for a mining license which is currently progressing through an approvals process.

The Colluli Mining Share Company is focussing on developing a multi-agri commodity and salt business using the principles of modularity, risk mitigation and full resource utilisation. The shallow mineralisation, close proximity to coast, highly favourable suite of potassium bearing salts and multi agri-commodity diversification potential combine to make Colluli positively unique. It is an unrivalled greenfield project and has no peer. Colluli is a multi-decade potash project in the world and demonstrates superior economic outcomes in comparison with other advanced potassium sulphate projects.

In 2015, a JORC 2012 compliant 300 million tonne high quality rock salt resource was quantified. The salt, which has an average grade of 97%, is intended to be extracted to access the potassium bearing salts.

The potassium bearing resource of the Danakil Depression has the unique capability to produce three of the four potash types in the global potash market which comprises potassium sulphate (sulphate of potash or SOP), potassium chloride (muriate of potash or MOP), potassium magnesium sulphate (sulphate of potash magnesia or SOP-M) and potassium nitrate (nitrate of potash or NOP).

For more information, please contact: For Media and Broker Enquiries:

Paul Donaldson Michael Cairnduff

Managing Director Cannings Purple

+61 8 6315 1444 +61 400 466 226

About Danakali Ltd

Danakali is an ASX listed company and 50% owner of the Colluli Potash Project in Eritrea, East Africa. The company is currently developing the Colluli Project in partnership with the Eritrean National Mining Company (ENAMCO).

The project is located in the Danakil Depression region of Eritrea, 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 potash deposit. The resource is amendable to open pit 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 definitive feasibility study for the production of potassium sulphate, otherwise known as SOP. SOP is a chloride free, specialty fertiliser which carries a substantial price premium relative to the more common potash type; potassium chloride. 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) with 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.

Our vision is to bring the Colluli project into production using the principles of risk management, resource utilisation and modularity, using the starting module as a growth platform to develop the resource to its full potential.

Competent Persons Statement (Rock Salt Resource)

Colluli has a JORC 2012 compliant Measured, Indicated and Inferred Mineral Resource estimate of 347Mt _at_97% NaCl. The resource contains 28Mt @ 97% NaCl of Measured Resources, 180Mt @ 97% NaCl of Indicated Resources and 139Mt @ 97% NaCl of Inferred Resources.

The information relating to the Colluli Rock Salt Mineral Resource estimate was compiled by Mr. John Tyrrell. Mr. Tyrrell is a member of the Australasian Institute of Mining and Metallurgy (AusIMM) and a full time employee of AMC. Mr. Tyrrell has more than 25 years' experience in the field of Mineral Resource estimation. He has sufficient experience relevant to the style of mineralisation and type of the deposit under consideration, and in resource model development, to qualify as a Competent Person as defined in the JORC Code.

Mr Tyrrell consents to the inclusion of the information relating to the rock salt Mineral Resource in the form and context in which it appears

Competent Persons Statement (Sulphate of Potash Resource)

Colluli has a JORC 2012 compliant Measured, Indicated and Inferred Mineral Resource estimate of 1,289Mt _at_11% K20. The resource contains 303Mt @ 11% K20 of Measured Resources, 951Mt @ 11% K20 of Indicated Resources and 35Mt @ 10% K20 of Inferred Resources.

The information relating to the 2015 Colluli Mineral Resource estimate was compiled by Mr. John Tyrrell, under the supervision of Mr. Stephen Halabura M. Sc. P. Geo. Fellow of Engineers Canada (Hon), Fellow of Geoscientists Canada, and as a geologist with over 25 years' experience in the potash mining industry. Mr. Tyrrell is a member of the Australian Institute of Mining and Metallurgy and a full time employee of AMC. Mr. Tyrrell has more than 25 years' experience in the field of Mineral Resource estimation.

Mr. Halabura is a member of the Association of Professional Engineers and Geoscientists of Saskatchewan, a Recognised Professional Organisation (RPO) under the JORC Code and has sufficient experience relevant to the style of mineralisation and type of deposit under consideration and to the activity which he is undertaking to qualify as a Competent Person as defined in the 2012 Edition of the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves (the JORC Code).

Mr. Tyrrell & Mr. Halabura consent to the inclusion of information relating to the 2015 Resource Statement in the form and context in which it appears.

Quality Control and Quality Assurance

Danakali Exploration programs follow standard operating and quality assurance procedures to ensure that all sampling techniques and sample results meet international reporting standards. Drill holes are located using GPS coordinates using WGS84 Datum, all mineralisation intervals are downhole and are true width intervals.

The samples are derived from HQ diamond drill core, which in the case of carnallite ores, are sealed in heat sealed plastic tubing immediately as it is drilled to preserve the sample. Significant sample intervals are dry quarter cut using a diamond saw and then resealed and double bagged for transport to the laboratory.

Halite blanks and duplicate samples are submitted with each hole. Chemical analyses were conducted by Kali-UmwelttechnikGmBHSondershausen, Germany utilising flame emission spectrometry, atomic absorption spectroscopy and ionchromatography. Kali- Umwelttechnik (KUTEC) Sondershausen1 have extensive experience in analysis of salt rock and brine samples and is certified according by DIN EN ISO/IEC 17025 by the Deutsche AkkreditierungssystemPrüfwesen GmbH (DAR). The laboratory follows standard procedures for the analysis of potash salt rocks chemical analysis (K+, Na+, Mg2+, Ca2+, Cl-, SO42-, H2O) and X- ray diffraction (XRD) analysis of the same samples as for chemical analysis to determine a qualitative mineral composition, which combined with the chemical analysis gives a quantitative mineral composition.

Forward Looking Statements and Disclaimer

The information in this document is published to inform you about Danakali Limited (the "Company" or "DNK") and its activities. DNK 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 the Colluli Project 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 and financial assumptions made in this document are consistent with assumptions detailed in the Company's ASX announcements dated 25 February 2015, 4 March 2015, 23 September 2015 and 30 November 2015 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.