Danakali : Colluli Project Update - Magnesium Chloride (Re-release)

7 December 2021

onlyASX Release

Update: Magnesium Chloride

C lluli will produce significant tonnes of high purity Magnesium Chloride (MgCl2) as a by-product of its Sulphate of Potash production process.

Highlights
use
•	Colluli will produce potentially economic MgCl2 from two sources at its Sulphate of Potash (SOP)
	production operation. The value of MgCl2 and any derivative products including Magnesium Oxide
	(MgO) or Magnesium (Mg) does not form part of our current financial, economic or FEED studies.
• Colluli has two sources of Bischofite (MgCl2), the preferred being primary Bischofite brine from our
	process plant as a by-product of decomposition and the second, Bischofitite ore that will be mined
	and reports to tailings.
• The combined mined Bischofitite ore and processed Bischofite brine have a potential combined
personalhigh urity MgCl2 as a direct by-product of Colluli's SOP production, that will be suitable for either potential

production capacity of 55.8 Mt (See Figure 2) of MgCl2 in the first 60 years from Modules 1 and 2 lone.

• The Bischofite brine from the plant (27 Mt over 60 years) will report to the bischofite pond and is

DNK's first choice for selling MgCl2 as it is already purified from the production process.

• MgCl2 is a primary feedstock in the production of MgO and Mg.

Danakali Limited (ASX: DNK) (Danakali, the Company) is pleased to provide a market update together with rationale on the Magnesium Chloride market potential and export capacity from the Colluli Project. By way of background, DNK previously stated its JORC-2012 compliant SOP reserve (See Appendix A & B), of 1.1Bt(1) and the JORC-2012 compliant 85Mt (See Appendix D) of Kieserite resource(2) and JORC-2012 compliant 347Mt of Rock Salt @ 96.9%(3).

Colluli' s primary focus is to develop the Colluli Project to produce and export premium SOP to its target markets. As outlined below, the test results demonstrate Colluli will produce 450,000 tonnes per annum of

export to regional markets or beneficiation. Bischofite brines from Module 1 and 2 from SOP production Foralone will produce an estimated 27.0 Mt of MgCl2 in the first 60 years at an annual production rate of

450,000 tonnes (equivalent to 115 kT as Magnesium).

Development of the Production Target for Magnesium Chloride

The Mass Balance required for detailed design of the process plant for the Collulli Project was based on the original FEED study(1), and complemented by recent research performed at the Saskatchewan Research Council (SRC, Saskatoon, SK, Canada). The research at SRC focused on ore separation by flotation and resulted in optimization of the process with respect to crush size, collector type and dosage, amongst other things. Work at SRC was also performed to optimize the conversion of Leonite/KCl into SOP.

Results from the research at SRC have been incorporated into the process design resulting in the optimized Mass Balance. Programming for the Mass Balance was performed by Global Potash Solutions (GPS, Saskatoon, SK, Canada) using the software SysCAD. Production targets for the by-product Magnesium Chloride are based on the average operating conditions expected over the first 60 years of plant operation.

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, 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 world's first Zero Carbon SOP Producer

Development underway towards production

Financial facts:

Issued capital: 367.25m

Share price: A$0.42

Market cap: A$152.8m

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The Mass Balance provides annual production of 472,000 tonnes of SOP product using the following inputs:

Input	Input Million Tonnes Per Annum	Average Grade
Kainitite Ore	1.353	50.9%
Carnallitite Ore	1.212	38.6%
Sylvinitite Ore	0.810	23.2%
Seawater	1.803	Not applicable
Ground Water	0.714	Not applicable

The ore minerals will be recovered by open-cut mining after removal of the overlying layers of clastics, rock salt and Bischofite. The seawater will be sourced from the Red Sea and delivered to site by pipeline. The groundwater will be from pit dewatering as well as boreholes.

While processing the ore, Carnallite and Kainite are decomposed by water to generate the by-product Magnesium Chloride according to the reactions:

2 KCl∙MgSO4∙3H2O + x H2O → K2SO4∙MgSO4∙4H2O + MgCl2 + (2 + x) H2O

KainiteLeonite

KCl∙MgCl2∙6H2O + y H2O → KCl + MgCl2 + (6 + y) H2O

Carnallite

Plant operations results in conversion of the ores into SOP product, with a first-pass recovery (of potassium) of 41.7%. By-product brine from the processing plant is directed to a series of evaporation ponds which precipitate Kainite and Carnallite in sequence as outlined in FEED studies. These minerals are recovered and directed back to the plant to provide an overall recovery of 71.4%. Brine discharged from the Carnallite evaporation pond comprises the by-product Magnesium Chloride as a Bischofite brine. Module 1 of Colluli's plant operations generates 1.278 M tonnes of Bischofite brine annually, with a composition of 35.2% Magnesium Chloride (w/w%) which equates to 450,000 tonnes of MgCl2. In turn, 60 years production of MgCl2 is equivalent to 27Mt.

Estimation of the amount of Magnesium Chloride generated assumes that the underlying research work, as reflected in the Mass Balance, accurately represents performance of the full-scale plant.

Quantifying the production volumes of Magnesium Chloride does not impact the FEED(4) capital or operational costs (See Appendix C). A FEED(4) revalidation process is being undertake to incorporate the learnings of the Test Work, Water Intake Treatment Area (WITA) redesign and efficiencies of using salt

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water in the production process. DNK will incorporate any impact of COVID-19, inflation rates and transportation costs in the revalidation.

MgCl2 is used in the production of Magnesium Oxide (MgO) in addition to its other primary applications in the agriculture, chemical, steel, automotive and construction industries. MgO is a feedstock for Magnesium (Mg) metal production.

Danakali Chairman, Seamus Cornelius said: "Colluli is a tremendously large, rich and versatile ore body. We remain focused on funding the development of the Colluli Project to produce high quality SOP in the first instance, but we know that Colluli has the potential to produce many other valuable products. If an economic analysis of the beneficiation of our MgCl2 from the bischofite brine stacks up, our current mass balance equations suggests we could potentially produce up to 115ktpa of Mg from the MgCl2 produced from SOP module 1. Beneficiation to Mg will require substantial energy input which may be satisfied from the geothermal potential in the area".

1. ASX Announcement 29 April 2021.
2. ASX Announcement 15 August 2016.
3. ASX Announcement 23 September 2015.
4. ASX Announcement 29 January 2018

Figure 1: Magnesium bearing salts at Colluli.

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Figure 2: Bischofite Ore and Bischofite Brine Produced at Colluli and Potential MgCl2 Production in first 60 years.

Note: 28.8Mt of MgCl2 is the potential production capacity from the 61.4Mt Bischofite Ore returned to tailings from the mining process in the first 60 years.

This announcement authorised for release by the Board of Danakali Limited.

For more information, please contact:

Danakali

Seamus Cornelius	Mark Riseley
Executive Chairman	Head of Corporate Development & IR
[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

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About Danakali

Danakali Limited (ASX: DNK) (Danakali, or the Company) is an ASX 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

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