DNK.L Regulatory News (DNK)

QUARTERLY REPORT

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 (Colluli or the Project), located in Eritrea, East Africa. 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).

Highlights

§ First 'bank club' meeting held with multiple potential debt financiers to further due diligence, including meetings with Eritrean Government officials

§ CEO candidate shortlist established

§ Confirmation of DRA as preferred EPCM contractor[1]

§ Executive Chairman, Seamus Cornelius, and Chief Commercial Officer, Niels Wage, were hosted by a senior EuroChem delegation at EuroChem's NPK fertiliser production facility in Antwerp

§ Social & Environmental Management Plans (SEMPs) agreed and finalised following extensive review process[2]

§ Further significant positive developments in Eritrean-Ethiopian and wider Horn of Africa diplomatic relations

- Major economic powers and the United Nations have recognised and encouraged the progress

Key activities planned for the December 2018 Quarter

§ Assess shortlist and complete final interviews of CEO candidates

§ Finalisation of contracts with DRA, Inglett & Stubbs International and preferred mining contractor

§ Continue due diligence process for debt portion of project financing and work towards financier credit approvals

§ Continued development of operations readiness processes and systems to position Danakali and CMSC for development and production

Corporate

§ Admission to trading on the London Stock Exchange[3]

§ Numis confirmed as Corporate Broker to the Company[4]

§ Cash position of A$11.8M as at 30 September 2018

Project

Colluli is execution ready. Danakali and CMSC are focused on logistics and other technical collaboration aspects with offtake partner EuroChem, operational contracts, operations readiness, funding and corporate social responsibility initiatives.

Project financing - Progression of debt due diligence

There has been pleasing engagement from potential debt financiers during the period. Multiple potential debt financiers have provided expressions of interest, due diligence is well advanced, and meetings have been carried out with Eritrean Government officials as part of the due diligence requirements.

Debt process milestones

The Company continues to progress its equity strategy with the recent London Stock Exchange (LSE) dual listing acting as a key enabler. The Company is moving the Project's equity funding requirements forward through the following avenues:

§ carrying out extensive awareness exercises to further raise the profile of Danakali and Colluli;

§ build equity valuation and share trading liquidity;

§ mobilisation of institutional and strategic interest globally; and

§ moving towards financial close for Colluli Module I in close consultation with the debt funding process.

EuroChem - Continued development of offtake partnership[5]

Following the binding take-or-pay offtake agreement with EuroChem Trading GmbH (EuroChem) for up to 100% (minimum 87%) of Module I Sulphate of Potash (SOP) production from Colluli[6], Danakali's Executive Chairman and Chief Commercial Officer visited EuroChem's Antwerp, Belgium Nitrogen Phosphorus Potassium (NPK) fertiliser production facility in August 2018. Their visit was escorted by a senior EuroChem delegation, who provided valuable insight into NPK fertiliser production processes.

Chief Commercial Officer (CCO), Niels Wage, described the visit as "very positive and constructive, with great engagement from EuroChem team members". Danakali continues to make progress with the implementation of the EuroChem agreement with supply chain and product development underway.

EPCM and project execution - DRA confirmed as preferred EPCM contractor for Colluli[7]

CMSC has confirmed DRA as the preferred Engineering, Procurement, Construction & Management (EPCM) contractor for Colluli, a critical project execution milestone. DRA is a high quality multi-disciplinary global Project Management and Engineering group with strong African experience and EPCM delivery capability. The EPCM contract is a requirement of potential debt providers and reinforces that Colluli is execution ready.

DRA will be responsible for all aspects of design, project management, procurement, construction management and supervision as well as commissioning of the complete process plant and associated infrastructure, including provision of all temporary construction facilities. DRA will also be responsible for awarding major contracts such as early works, earthworks, structural, mechanical, piping, electrical and instrumentation works, laboratory and permanent camp (including life support, freight and logistics).

Following discussions among the CMSC joint venture partners (ENAMCO and Danakali) and with the Eritrean Ministry of Energy & Mines (the MoEM), CMSC has decided not to submit a notice of commencement of development by the end of October 2018 and will instead seek an extension. Assurances have been provided by the MoEM to CMSC that an extension will be provided. Danakali and ENAMCO continue to work closely together to further the Project.

Social and environmental - SEMPs finalised following extensive review process[8]

Following a period of consultation and further works, between the Eritrean Ministry of Land, Water & Environment and CMSC, the Social and Environmental Management Plans (SEMPs) finalised by CMSC have been signed off following an extensive review process. The SEMPs are a cornerstone of the environmental, social and safety management system being developed by CMSC and provide the foundation for compliance.

Eritrea

Diplomatic relations - Rapid diplomatic progress in the Horn of Africa

Significant further positive developments in Eritrean-Ethiopian relations post the preliminary developments reported by Danakali in July 2018. The restoration of diplomatic relations among Eritrea, Djibouti, Ethiopia and Somalia signalling an end to the region's conflict[9].

§ Prime Minister Abiy and President Isaias agreed to reopen embassies in the respective capitals and signed a "joint declaration of peace and friendship"[10]

§ The Eritrea-Ethiopia border was opened for the first time since 1998 in September, and the first Ethiopian ship docked in the Eritrean port of Massawa, carrying Eritrean zinc to China[11]

- Port and road upgrades planned

§ Eritrean Government is considering a port close to Colluli as Ethiopia rapprochement spurs foreign investment interest[12]

§ Eritrea and Ethiopia were hailed by Nobel laureate, Leymah Gbowee, on 2018 World Peace Day[13]

§ China's Sichuan Road to mine copper in Eritrea starting in 2019[14]

Continued progress in relations between Eritrea and Ethiopia, hailed by the UN, enhances the opportunities for increased and sustained economic development for Eritrea and represents a de-risking event for foreign investment.

Eritrean National Festival - CMSC hosted a booth at the annual Eritrean National Festival Expo in Asmara

CMSC recently participated in the Eritrean National Festival in Asmara, hosting a booth at the Expo to showcase Colluli. The Expo was held from 31 August to 8 September at the Expo Grounds in Asmara, Eritrea, with the theme "Peace for Sustainable Development". The Expo highlighted and celebrated the new era of peace and cooperation in the region. The Eritrean National Festival originated in Bologna, Italy in 1984 during the struggle for independence. Since Eritrean Liberation in 1991, the Festival integrates different Eritrean cultures and encourages national unity of Eritreans at home and abroad. The main objectives of the Eritrean National Festival are to showcase:

§ current developments happening in the country;

§ the different ethnic groups and their traditions; and

§ Eritrea's collective culture and history

Companies from different industries (both local and international) showcased their businesses, including mining companies at varying development and mining stages.

Corporate

CEO - CEO shortlist generated

The search for a new CEO is entering its final stage. A candidate shortlist is in place and final interviews are underway.

LSE dual listing - Trading commenced and Numis appointed as Corporate Broker

The Company's ordinary shares were admitted to the Standard Segment of the Official List of the Financial Conduct Authority and to trading on the LSE Main Market on 24 July 2018[15].

Further to Numis Securities (Numis) acting as Financial Adviser for Danakali's LSE dual listing, the Company confirmed the appointment of Numis as Corporate Broker to the Company[16].

Extensive shareholder and investor interest led to the development of a LSE dual listing FAQ document. It can be found on the Company's website: http://www.danakali.com.au/investor-relations/lse-listing-documents, along with other LSE dual listing materials.

One2One Proactive Investors Forum - High level of interest from UK investors

Executive Chairman, Seamus Cornelius, presented at the Proactive Investors One2One Investor Forum in London on 20 September 2018. The event was well attended and there was a high level of interest in Danakali. The presentation materials can be found on the ASX website: https://www.asx.com.au/asxpdf/20180920/pdf/43ygzgwtfcm5vm.pdf

Eritrea Breakfast - Open for business

Executive Chairman, Seamus Cornelius presented on 26 September 2018 at the Hannam & Partners 'Eritrea Breakfast' hosted in London. The event focused on the recent diplomatic and economic developments in Eritrea and the Horn of Africa. The presentation materials can be found on the ASX website: https://www.asx.com.au/asxpdf/20180926/pdf/43ymzvsxr2jhkv.pdf

Capital - Moderate expenditure ahead of project execution

Cash

Consolidated cash on hand was A$11.8M as at 30 September 2018.

Securities

During the September 2018 Quarter, the Company issued the following fully paid ordinary shares:

§ 356,049 shares issued in lieu of fees to its Financial Adviser in relation to admission to and trading on the LSE

§ 30,000 shares on vesting of performance rights (Class 6: 10,000; Class 8: 20,000)

At 30 September 2018, there were a total of 264,197,463 fully paid ordinary shares on issue.

At 30 September 2018, there were a total of 3,740,000 unlisted options on issue at various exercise prices and expiry dates. A total of 100,000 unlisted options with an exercise price of A$0.558 lapsed during the quarter. There were no new unlisted options issued during the September 2018 Quarter.

The following performance rights vested and were converted to shares during the September 2018 Quarter:

§ 10,000 Class 6 performance rights vested and converted to shares

§ 20,000 Class 8 performance rights vested and converted to shares

At 30 September 2018, there were a total of 1,343,000 performance rights on issue. There were no new performance rights issued or cancelled during the September 2018 Quarter.

Interests in mining tenements

The 7 Mining Licenses awarded to CMSC span over 60km2 of the 100km2 Mining Agreement area[17].

Tenement holdings

There was no change in tenement holding during the September 2018 Quarter.

For more information, please contact:

To see the full ASX announcement, including Appendix 5B, please visit the Company website: http://www.danakali.com.au/investor-relations/asx-announcements

Danakali Limited (ASX: DNK) (Danakali, or the Company) is an ASX-listed potash company focused on the development of the Colluli 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 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 Front End Engineering Design (FEED) 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 (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.

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. 

Colluli has a JORC-2012 compliant Measured, Indicated and Inferred Mineral Resource estimate of 1,289Mt @11% K20 Equiv. and 7% Kieserite. The Mineral Resource contains 303Mt @ 11% K20 Equiv. and 6% Kieserite of Measured Resource, 951Mt @ 11% K20 Equiv. and 7% Kieserite of Indicated Resource and 35Mt @ 10% K20 Equiv. and 9% Kieserite of Inferred Resource.

The information relating to the Colluli Mineral Resource estimate is extracted from the report entitled "Colluli Review Delivers Mineral Resource Estimate of 1.289Bt" disclosed on 25 February 2015 and the report entitled "In excess of 85 million tonnes of Kieserite defined within Colluli Project Resource adds to multi agri-commodity potential" disclosed on 15 August 2016, which are available to view at www.danakali.com.au. The Company confirms that it is not aware of any new information or data that materially affects the information included in the original market announcement and, in the case of estimates of Mineral Resources or Ore Reserves, that all material assumptions and technical parameters underpinning the estimates in the relevant market announcement continue to apply and have not materially changed. The Company confirms that the form and context in which the Competent Person's findings are presented have not been materially modified from the original market announcement.

Colluli Proved and Probable Ore Reserve is reported according to the JORC Code and estimated at 1,100Mt @ 10.5% K2O Equiv. The Ore Reserve is classified as 285Mt @ 11.3% K2O Equiv. Proved and 815Mt @ 10.3% K2O Equiv. Probable. The Colluli SOP Mineral Resource includes those Mineral Resources modified to produce the Colluli SOP Ore Reserves.

The information relating to the January 2018 Colluli Ore Reserve is extracted from the report entitled "Colluli Ore Reserve update" disclosed on 19 February 2018 and is available to view at www.danakali.com.au. The Company confirms that it is not aware of any new information or data that materially affects the information included in the original market announcement and, in the case of estimates of Mineral Resources or Ore Reserves, that all material assumptions and technical parameters underpinning the estimates in the relevant market announcement continue to apply and have not materially changed. The Company confirms that the form and context in which the Competent Person's findings are presented have not been materially modified from the original market announcement.

Colluli has a JORC-2012 compliant Measured, Indicated and Inferred Mineral Resource estimate of 347Mt @ 96.9% NaCl. The Mineral Resource estimate contains 28Mt @ 97.2% NaCl of Measured Resource, 180Mt @ 96.6% NaCl of Indicated Resource and 139Mt @ 97.2% NaCl of Inferred Resource.

The information relating to the Colluli Rock Salt Mineral Resource estimate is extracted from the report entitled "+300M Tonne Rock Salt Mineral Resource Estimate Completed for Colluli" disclosed on 23 September 2015 and is available to view at www.danakali.com.au. The Company confirms that it is not aware of any new information or data that materially affects the information included in the original market announcement and, in the case of estimates of Mineral Resources or Ore Reserves, that all material assumptions and technical parameters underpinning the estimates in the relevant market announcement continue to apply and have not materially changed. The Company confirms that the form and context in which the Competent Person's findings are presented have not been materially modified from the original market announcement.

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-Umwelttechnik GmBH, Sondershausen, Germany, utilising flame emission spectrometry, atomic absorption spectroscopy and ion chromatography. Kali-Umwelttechnik (KUTEC) has extensive experience in analysis of salt rock and brine samples and is certified according by DIN EN ISO/IEC 17025 by the Deutsche Akkreditierungsstelle 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.

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.