Danakali : Quarterly Activities Report and Appendix 5B

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ASX Release:	25 January 2022

Quarterly Report

F r the period ending 31 December 2021

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

Sulphate of Potash (SOP), the premium potash fertiliser.

Highlights

Project Growth Options

• DNK reviewed the potential growth option of Magnesium Chloride (MgCl2) at Colluli and personaldetermined Colluli will produce potentially economic MgCl2 from two sources at its Sulphate of Potash (SOP) production operation, as announced 7 December 2021. 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.

• Additionally, DNK reassessed the Sodium Chloride (NaCl) resource at Colluli and confirmed the presence of 347 Mt of Rock Salt resource (ASX Announcement 29 January 2018). Colluli will produce an estimated 128 Mt of Rock Salt in the first 60 years production rate of 1.8 million tpa from Modules 1 and 2 (ASX Announcement 29 January 2018). This creates another potential revenue stream for Colluli as Rock Salt prices rise 47% year on year from 2020-2021.

Project Financing

• SOP price updates provided by CRU indicated long term outlook for the weighted average netback price to Massawa was US$668/tonne.

For• Discussions with potential third-party investors, ENAMCO and senior lenders on Project funding requirements continue.

Corporate & Financial

• Cash balance of A$22.8M as of 31 December 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, 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: 367.3m

Share price: A$0.385

Market cap: A$141.4m

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Project & Corporate Update

Project

Magnesium Chloride

DNK announced 7 December 2021 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 of 1.1Bt(1) and the JORC-2012 compliant 85Mt of Kieserite resource(2) and JORC-2012 compliant Resource of 347Mt of Rock Salt @ 96.9%(5).

The test results outlined in ASX announcement 7 December 2021 demonstrate Colluli will produce 450,000 tonnes per annum of high purity MgCl2 as a direct by-product of Colluli's SOP production, that will be suitable for either potential export to regional markets or beneficiation. Bischofite brines from Module 1 and 2 from SOP production alone 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).

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.

Rock Salt

With the test work completed (ASX Announcement 17 June 2021) and the mine plan confirmed in FEED (ASX announcement 29 January 2018), mining during Modules 1 and 2 will produce an estimated 128Mt of Rock Salt at an annual production rate of 1.8mtpa (as previously announced), from the Upper Rock Salt layer with a JORC-2012 compliant resource of 347 Mt of Rock Salt at 96.9%. The Rock Salt will initially be stockpiled at site in preparation for export from the proposed Anfile Bay export terminal during the first 60 years. With the recent rise in Rock Salt prices (Announced 17 June 2021), and new end uses in battery technology being developed by CATL(3) DNK considers Colluli's Rock Salt as a potential economic resource. DNK consider FEED inaccurately described Rock Salt as a waste product from the mining process.

Rock Salt prices have risen rapidly on year-on-year basis by approximately 47% (see ASX Announcement 20 December 2021) with current average prices at US$50-$60/t. Interestingly for the Rock Salt market potential a new generation of sodium ion batteries are being developed that can reduce battery raw material production costs by approximately 30% compared to lithium-ion batteries (see ASX Announcement 20 December 2021).

Sodium ion-e cells are able to recharge faster than lithium-ion cells and operate better at low temperatures(3). Due to recent advancements in developing a new generation of sodium-ion batteries, Rock Salt is seen as a potential source of sodium needed for their mass production(4). Other primary applications for Rock Salt include its use for de-icing, water treatment and in the chemical, aluminium, oil, paper, textile, and food industries (see ASX Announcement 20 December 2021).

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Corporate & Project Financing

The long-term outlook for the weighted average netback price to Massawa for the target markets of Colluli SOP was established by CRU as US$668/t. CRU expected as at 14 October 2021 all specialty potash fertilizer prices to move higher through 2021-2023 with a pull back in prices from 2024-2027, then a steady price rise until 2040. The current NPV in the Colluli FEED study was based on a long-term SOP price of US$569/t.

Change of Directors

Mr Paul Donaldson agreed to accept the role of Non-Executive Director on 11 October 2021. Mr Donaldson has a very deep knowledge of Colluli having previously held positions in Danakali over an 8-year period from 2012 to 2020. Mr John Fitzgerald resigned as Non-Executive Director on 11 October 2021. Mr Fitzgerald's was appointed on 19 February 2015 and made significant contributions to Danakali as a Board member and Chairman of the Audit and Risk Committee and a member of the Remuneration and Nomination Committee.

Investment In Joint Venture

During the quarter the company invested an additional A$1.9M to further develop the project.

Capital

Cash

Consolidated cash on hand was A$22.8M as at 31 December 2021. Please refer to the Appendix 5B for the quarter which estimates that available funding is sufficient for more than 8 quarters.

Securities

As at 31 December 2021, there were a total of 368,334,346 fully paid ordinary shares on issue. There were no shares issued during the December 2021 Quarter.

As at 31 December 2021, there were a total of 15,264,112 unlisted options on issue at various exercise prices and expiry dates. No unlisted options were issued, exercised or lapsed during the December 2021 Quarter.

As at 30 December 2021, there were a total of 360,000 performance rights on issue. No performance rights were issued, converted or lapsed during the December 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 totalled A$0.12M. 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%

1. ASX Announcement 29 April 2021.
2. ASX Announcement 15 August 2016.
3. Source: Just Auto, Could CATL's sodium-ion battery be the next breakthrough in electric vehicle batteries?, October 2021, https://bit.ly/30nRLH4, retrieved November 2021.
4. Source: Asia Times, China EVs getting charged about sodium-ion batteries, July 16 2021, https://bit.ly/3wP0IFj, retrieved November 2021.
5. ASX Announcement 23 September 2015.

There was no change in tenement holding during the December 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) (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 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.

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