Release date- 17072017 - Danakali Ltd (ASX: DNK) (Danakali or the Company) is pleased to provide this quarterly update on its Colluli Potash Project (Colluli or the Project), located in Eritrea, East Africa.

HIGHLIGHTS

CONTINUED SUCCESSFUL ADVANCEMENT OF THE WORLD CLASS COLLULI POTASH PROJECT

Increased expected production capacity following debottlenecking of plant configuration to deliver an additional 47kt per annum of SOP

Advancement of offtake discussions which are tracking to plan and are now advancing towards binding agreements

Discussions with commercial lenders advanced

Commissioning of the telecommunications tower at the Colluli site completed

FEED level evaluation of in-country infrastructure, construction facilities, concrete production facilities and road transport delivery capacity completed

Civil engineering site visit and in-country pre-construction evaluation completed

Earthworks tendering packages developed and distributed

Completion of pre-construction geotechnical investigations at the Colluli site

Optimisation of plant site and pond material volumes commenced

Improvement in brine circuit configuration to potentially reduce pond sizes

Refinement of mining schedules and initiation of formal tendering process for the mining contract

Completion of revised power consumption requirements for FEED production capacity

Completion of comprehensive logistics survey for future construction activities

Detailed procurement lists and tender packages for the FEED design developed and distributed

Appointment of Turner & Townsend as project management consultants for the execution contract scope

Appointment of Inglett and Stubbs as the preferred power provider for the project

Advancement of commercial terms and conditions for power generation

Planned For September Quarter

Progress negotiations towards final binding offtake agreements

Advance discussions with commercial lenders

Prioritisation of procurement packages and selection preferred vendors

Commencement of evaluation of vendor packages for revised FEED capital costs

Evaluate revised recovery pond sizes

Evaluate revised cut, fill and surface preparation for ponds and processing plant

Progress draft contract and commercial terms for the power generation facility

Assessment of the mining contractor proposals

Finalise the request for tender package for the EPC execution of the project

CORPORATE

Successfully completed a placement to large institutional investors to raise A$12.35m

Strong cash position of A$18.3m (30 June 2017)

Appointment of Tony Harrington as construction Project Manager to lead the execution phase of the Colluli project

Appointment of Stuart Tarrant as Chief Financial Officer

804,545 options exercised along with the issue of 1,840,000 options and 150,000 performance shares

PROJECT

PROJECT UPDATE - FEED FURTHER ADVANCED AND KEY CONTRACTS UNDER DEVELOPMENT

During the second quarter of 2017 the engineering and mining schedule optimisation phases were successfully completed and the key contracts including project execution, mining and power were progressed. The Colluli project has continued to attract well regarded and highly reputable contractors, consultants and service providers from across the globe.

As the Project advances towards the bidding and award of an EPC contract, Tony Harrington was appointed to the role of Project Construction Manager and has commenced working with Turner and Townsend on the EPC contract bidding documents.

Project highlights include:

Debottlenecking of plant configuration to deliver an additional 47kt per annum of SOP

Optimisation of plant site and pond material volumes

Refinement of mining schedules and Initiation of formal tendering process for the mining contract with the appointment of AMC consultants

Selection and advancement towards commercial terms and conditions of Inglett and Stubbs International as the preferred power provider for the project

Completion of pre-construction geotechnical investigations at the Colluli site

Appointment of Turner & Townsend as project management consultants for the execution contract scope

Positive progress advancing FEED, optimising design and unlocking plant capacity Global engineering, procurement and construction company, Fluor, has continued to successfully advance the front-end engineering design (FEED) of the Colluli Project. During the quarter, a systemic debottlenecking process delivered an outstanding result, with a 47ktpa increase in SOP production relative to the definitive feasibility study1 (DFS) design. This increased module capacity of 472ktpa will form the basis of the FEED2. All the material assumptions underpinning the production target, or the forecast financial information derived from the production target in that announcement, continue to apply and have not materially changed.

In addition, the FEED team have developed optimised material volumes in concrete, steel and earthworks. The revised volumes are currently under evaluation by the FEED team. Optimisation of the plant structure and footprint has been supported by the completed modular construction and assembly strategy which balances off-site fabrication with site access and equipment logistics. An aerial LIDAR survey, was also completed for the final site road access to the future mine site from the coastal road. This work is in addition to the detailed surveys completed during the DFS.

The FEED procurement and contracts team are nearing completion of the procurement cycle which includes final selection of equipment vendors and contractors. The bids, in conjunction with the optimised material volumes, will undergo a detailed interrogation process before forming the basis of the revised capital and operational cost estimates to be delivered with the final FEED report. The procurement packages form an integral input to the procurement led funding process which is being managed by Endeavour Financial. Site visits for contractors bidding on earthworks, concrete, installation and equipment logistics, were completed with the FEED team lead civil engineer supporting the delegation.

Mine optimisation complete and mining contract tendering underway

AMC Consultants were appointed early in the quarter to conduct refinement and optimisation work on the DFS mine schedule and to subsequently develop the contracting strategy and lead the formal mining contract tendering process.

Mine schedule optimisation and alignment to the revised plant feed rates, which support the increased production capacity of the designed plant, as described above, has been completed with additional input acquired from the completed geotechnical investigations recommended as part of the DFS. The detailed mine schedules are under evaluation and will be utilised in the mining contractor tendering process. Formal tendering for the mining contract has commenced following the expression of interest phase which confirmed a strong level of interest from mining contractors in Africa, Europe and India. Site visits are planned for early August to support the mining contract bids.

Preferred power provider selected and final optimisation of solution underway1

United States based Inglett and Stubbs International (ISI), a global provider of power generation, distribution and communications facilities, was appointed as the preferred power supplier for the Colluli Potash Project. The appointment followed a competitive tendering process based on a build, own, operate (BOOT) model. ISI are currently integrating the revised power demands of the improved FEED design with the power generation proposal as the commercial terms are progressed.

Pre-construction geotechnical activities completed for Colluli infrastructure A comprehensive pre-construction geotechnical campaign commenced on site in April and has been completed. On site and ongoing technical support was provided by Knight Piesold (KP). The scope of works completed was based on recommendations from the DFS and included 90 cone penetrometer tests, 150 mechanically excavated test pits, 130 dynamic cone penetrometer tests and 8 Shelby tube push tests.

The programme refined the geotechnical engineering properties of the soils and the delineating soil stratigraphy. This work both supports the refined brine recovery pond foundation designs and pond locations, as part of FEED and confirmed the suitability of the mine overburden soils for pond construction material to a higher level of granularity and confidence to the DFS. Significant characterisation work has been completed in prior studies.

Project management consultant to support project execution

Global construction and project management consultants, Turner & Townsend, were appointed in early June to define the full scope of the execution contract requirements for the Colluli Potash Project. Under the management of recently appointed construction Project Manager, Tony Harrington, Turner & Townsend have progressed the development of the request for tender package for the EPC execution of the project.

Colluli telecommunications tower commissioned

During the last quarter, the Eritrean Government completed the Colluli communication tower at the Colluli Mine Site (Image on right). The solar powered mobile phone relay station provides full mobile phone coverage across the Colluli site and along 30 Kms of the site access road. Over 80% of the transport corridor from Colluli to Massawa is now covered by mobile phone reception.

Reserve and resource

There have been no changes to the potassium bearing salt ore reserve since 30 November 2015 nor the rock salt mineral resource estimate since 23 September 2015.

PROJECT FINANCE UPDATE

Offtake

Danakali is progressing its well-defined offtake strategy. The strategy is being executed in line with the planned time line and commercial discussions are progressing well. Negotiations are moving towards final binding offtake agreements.

In line with the offtake strategy, binding agreements are expected to be finalised later in the year. Dialogue continues with a range of prominent offtake parties in Europe, Africa, America, and the Middle East including end-users, producers, and traders. Industry interest in securing Sulphate of Potash (SOP) offtake remains high, with the aggregate offtake volumes requested by parties significantly exceeding the Company's revised stage one production forecast of 472,000 tonnes of SOP per annum.

In May 2017, Danakali attended the IFA Annual Fertiliser Conference in Marrakesh. This is recognised as the most prominent fertiliser conference on the industry calendar, and attended by key industry participants from many parts of the globe. The event presented an opportunity to further progress negotiations with key industry players, and broaden the number of parties that are progressing discussions.

Danakali was elected to Associate Membership of IFA at the General Meeting held on 24 May 2017. Membership provides a range of benefits, including the opportunity to actively participate in the work of the Agriculture, Production and International Trade, Technical and SHE and Communications and Public Affairs Committees. Following the conference, requests were made from additional prospective offtake parties for Colluli SOP samples for testing in their respective laboratories. The feedback from parties following testing is consistent with previous feedback which confirms that the SOP produced from the Colluli resource and process meets the strict quality requirements of the industry.

Funding

During the June Quarter, the procurement packaging phase continued. The information collated is used to contact Export Credit Agencies (ECA's) to explore export credit loans and loan guarantees that is closely aligned with the procurement sourcing strategy.

Danakali and CMSC's debt advisor, Endeavour Financial (EF) have identified ECA's and Development Fund Institutions (DFI's) and discussions continue to develop in line with the procurement packaging. Danakali and EF are also engaging commercial lenders to complement the procurement based solution and maintain discussions with selected commercial lenders who have shown interest in providing funding for the Project.

In addition to the above, Danakali and CMSC continues to work closely with our equity advisors to optimise other opportunities that could form part of the overall funding solution.

CORPORATE

CASH

Consolidated cash on hand as at 30 June 2017 was A$18.3 million.

CORPORATE APPOINTMENT AND RESIGNATION

During the quarter, Mr. Tony Harrington was appointed as Project Manager for the construction phase of the World Class Colluli Potash Project.

Mr. Harrington has over 37 years' experience in the mining industry delivering EPC, lump sum and EPCM projects in the capacity of both client representative and service provider over a diverse range of commodities, with a wide range of mineral processing units, across multiple jurisdictions including East Africa, West Africa, Southern Africa, China, Continental Europe, UK and Australia.

Mr. Harrington has extensive experience in construction and assembly of surface infrastructure, materials handling systems, flotation circuits, pumping systems, tanks, cyclones, liberation circuits, thickeners and tailings storage facilities. He brings significant experience and an excellent track record in working in remote locations in developing jurisdictions.

During the quarter, Mr. Stuart Tarrant was appointed as Chief Financial Officer. Mr. Tarrant, formerly Head of Finance for DNK, is a fellow of the Association of Chartered Certified Accountants (ACCA) and a former accounting executive with both BHP and HWE Mining. Mr. Tarrant has extensive experience in the mining industry with core skills in financial modelling, financial systems deployment, procurement, budgeting, and cost analysis and optimisation.

Mr. Tarrant has established relationships with Endeavour Financial who are progressing the procurement led funding process for the project financing of the Colluli Sulphate of Potash Project, and was responsible for the development and integrity of the Colluli financial model underpinning the prefeasibility and definitive feasibility studies. Mr. Tarrant replaces Mr. Chris Els, who has resigned from DNK to pursue other opportunities.

EQUITY

Share Capital - Placement

During the quarter, the Company announced the completion of a $12.35 million capital raise via the issue of 19,920,645 shares under a placement to institutional and sophisticated investors in the United Kingdom and Australia. The shares were issued at A$0.62 per share.

Share Capital - Conversion of Unlisted Options

A total of 804,545 fully paid shares were issued on conversion of unlisted options, with various option prices and expiry dates, raising a total of $0.3 million during the quarter. Total issued capital at the end of the quarter was 246,875,868 fully paid ordinary shares.

Options

During the quarter 1,440,000 unlisted options with exercise price of $0.94, expiring 19 May 2020 were issued to the Board as approved by shareholders at the Annual General Meeting held 19 May 2017. In addition, 400,000 unlisted options exercisable at $0.96per option, expiring 20 June 2019 were issued.

During the quarter, the following unlisted options were converted to fully paid ordinary shares:

504,545 unlisted options with exercise price of $0.35, expiring 30 March 2018;

100,000 unlisted options with exercise price of $0.405, expiring 13 May 2018 and,

200,000 options with exercise price of $0.408, expiring 4 November 2018.

During the quarter 800,000 unlisted options (each option exercisable at $0.408 on or before 4 November 2018) have lapsed. The balance of unlisted options as at 30 June 2017 was 24,567,640 (various options prices and expiry dates).

Performance Rights

During the quarter 150,000 performance rights were issued to employees under the Company's Performance Rights Plan. No performance rights vested during the quarter. Outstanding performance rights as at 30 June 2017 was 1,258,000.

Investor Presentations

Danakali had the pleasure of presenting to the Sydney Resources Round-up a prominent conference at which Australia's miners and explorers present their stories to the richest investment centre in the country.

Brokers and investors from all over Australia come to the event and this presented an opportunity to articulate progress of the World Class Colluli Potash Project to the investment community.

INTERESTS IN MINING TENEMENTS

The exploration license for the Colluli Potash Project covers over 200km2 and the seven mining licenses awarded to CMSC span over 60km2 of the 100km2 Agreement area. Further details are provided below. There was no change in tenement holding during the quarter.

Contact:

Paul Donaldson

Tel: +61 8 6315 1444

About Danakali Ltd

Danakali is an ASX listed company and 50% owner of the Colluli Potash Project in Eritrea, East Africa. Danakali is currently developing the Colluli Potash Project with itsjoint venture partner Eritrean National Mining Corporation (ENAMCO). Danakali and ENAMCO each have a 50% ownership interest in the joint venture company, the Colluli Mining Share Company (CMSC).

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 amenable 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.

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 presentation are consistent with assumptions detailed in the Company's ASX announcements dated 25 February 2015, 4 March 2015, 19 May 2015, 23 September 2015, 30 November 2015, 15 August 2016 and 1 February 2017 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.