DNK.L Regulatory News (DNK)

Danakali releases 2020 Financial Report

Danakali Limited (ASX: DNK, LSE: DNK) (Danakali, or the Company), the potash company focused on the development of the Colluli Potash Project (Colluli, or the Project) in Eritrea, is pleased to announce its Full Year Results for the year ended 31 December 2020.

Key project highlights

· The Ministry of Energy & Mines accepted the Notice of Commencement of Mine Development for Colluli

· DRA Global, Colluli's EPCM Contractor, updated the FEED estimate and execution schedule.

· The use of beach wells as the water intake alternative was confirmed as a valid optimisation. Final test work underway to confirm details of the filtered sea water optimisation for the process plant.

· Aggreko was appointed as preferred power provider to provide full scope of support services for the supply, commissioning, and maintenance of the power plant, then transfer to Colluli, under 5-year BOOT contract.

· RA International was appointed as preferred contractor for supply of Accommodation, Support Services and other infrastructure buildings in support of the Colluli SOP Project development.

Key corporate highlights

· Dr Rod McEachern former Director for Process and Product Innovation at Nutrien and PotashCorp was appointed as Chief Operating Officer

· Three new directors appointed to the Board of Directors: Neil Gregson, previously held the position of Portfolio Manager at JP Morgan Asset Management Global Equities, London, Samaila Zubairu, President & CEO of AFC and Taiwo Adeniji, Senior Director for Investment Operations and Execution; both from African Finance Corporation (AFC).

· The first Sustainability Report which outlines the Company's ongoing and planned contributions of its Colluli Potash Project to the Sustainable Development in Eritrea was released.

Key financial highlights

· Cash position of A$9.7M as at 31 December 2020

Post-period highlights

· The Company announced that it will work with its preferred power provider, Aggreko on incorporating its renewable energy sources, solar, wind and geothermal for the generation of its future power of the Project with the view to becoming Zero Carbon in the production of Sulphate of Potash (SOP).

Corporate Governance Statement

The Corporate Governance Statement is available for download from the Company's website at https://www.danakali.com.au/images/stories/corporate-governance-statement/20210331_4_Corporate_Governance_Statement_2020.pdf

For more information, please contact:

DANAKALI LTD

ABN 56 097 904 302

AUDITED FINANCIAL REPORT

FOR THE YEAR ENDED

31 DECEMBER 2020

The following sections from the Financial Report are available on our website at www.danakali.com:

Auditor's Independence Declaration

Independent Auditor's Report

The directors present their report together with the financial statements of the consolidated entity being, Danakali Limited (Danakali or the Company) and its controlled entities (the Group) for the financial year ended 31 December 2020.

DIRECTORS

The names and details of the Company's directors in office during the financial period and until the date of this report are as follows. Where applicable, all current and former directorships held in listed public companies over the last three years have been detailed below. Directors were in office for this entire period unless otherwise stated.

The Company restructured its permanent sub-committees on 23 January 2020. The Audit Committee was reconstituted to become the Audit and Risk Committee, and the Technical and Risk Committee was ceased..

Names, qualifications, experience and special responsibilities:

Seamus Ian Cornelius

Non-Executive Chairman, LLB, LLM, initially appointed Non-Executive Chairman 15 July 2013, transitioned to Executive Chairman 14 June 2018, resumed Non-Executive Chairman role 25 June 2019, and transitioned to Executive Chairman 26 February 2021)

Mr Cornelius is a corporate lawyer and former partner of one of Australia's leading international law firms. He has a high degree of expertise in cross-border transactions, particularly in the resources and finance sectors.

Mr Cornelius was appointed as Non-Executive Chairman of the Company on 15 July 2013 and acted in the role of Executive Chairman from 14 June 2018 to 25 June 2019. As announced on 26 February 2021, Mr Cornelius was re-appointed as Executive Chairman.

Mr Cornelius is currently the Non-Executive Chairman of Buxton Resources Ltd (appointed 29 November 2010), Element 25 Limited (appointed 30 June 2011), and Duketon Mining Ltd (appointed 8 February 2013).

Special Responsibilities:

During the year Mr Cornelius was a member of the Audit and Risk Committee (and Audit Committee), a member of the Remuneration and Nomination Committee, and a member of the Technical and Risk Committee.

John Daniel Fitzgerald

Independent Non-Executive Director, CA, appointed 19 February 2015

Mr Fitzgerald has over 30 years of finance and corporate advisory experience in the resource sector.

Previously, he held senior positions at NM Rothschild and Sons, Investec Bank Australia, Commonwealth Bank, HSBC Precious Metals and Optimum Capital.

Mr Fitzgerald is a Non-Executive Director of Northern Star Resources Limited (appointed 30 November 2012) and Medallion Metals Limited (appointed 5 October 2020).

Previously Mr Fitzgerald was Non-Executive Chairman of Exore Resources Limited (23 December 2015 to 25 September 2020).

Mr Fitzgerald is a Chartered Accountant, a Fellow of the Financial Services Institute of Australasia (FINSIA) and a graduate member of the Australian Institute of Company Directors.

Special Responsibilities:

During the year Mr Fitzgerald was Chairman of the Audit and Risk Committee (and Audit Committee) and a member of the Remuneration and Nomination Committee.

Zhang Jing

Non-Executive Director, M.Sc, appointed 17 June 2016

Ms Zhang has more than 15 years of international trading and business development experience in China and previously held investment and project managerial roles in public listed companies.

Ms Zhang holds a Master's degree in International Consultancy and Accounting from the university of Reading in the United Kingdom.

Special Responsibilities:

None.

Robert Gordon Connochie

Independent Non-Executive Director, B.A. Sc, M.B.A., appointed 6 February 2017

Mr Connochie is a highly-experienced potash and mining specialist with over 40 years of industry experience. He brings extensive senior line management experience from the potash industry, including marketing, corporate development, evaluations, financing and acquisitions.

Previously, Mr. Connochie held positions as Chairman of Canpotex (a world leading potash exporter for over 40 years) and Chairman of Behre Dolbear Capital, Inc.

Further, Mr Connochie was Chairman and CEO of Potash Company of America, CEO Asia Pacific Potash, Director of Athabasca Potash, Chairman of the Phosphate and Potash Institute, Director of the Fertiliser Institute, and Director of the Saskachewan Potash Producers Association.

Special Responsibilities:

During the year Mr Connochie was a member of the Audit and Risk Committee (appointed on 25 August 2020), and a member of the Technical and Risk Committee.

Samaila Zubairu

Non-Executive Director, FCA, appointed 23 April 2020

Mr Zubairu is African Finance Corporation's (AFC) President and Chief Executive Officer. Previously, he was the CEO of Africapital Management Limited, where he established a joint venture with Old Mutual's African Infrastructure Investment Managers to develop a fund for infrastructure private equity across West Africa, and Chief Financial Officer for Dangote Cement Plc. Prior to that, he was the Treasurer for the Dangote Group during its transformation from a trading company to an industrial conglomerate. He has undertaken investments of over US$3 billion, financing green-field project finance, acquisitions, corporate transformation, privatization and equity capital market transactions.

Mr Zubairu is an Eisenhower Fellow and sits on the Eisenhower Fellowship's Global Network Council and the President's Advisory Council. He holds several non-executive board positions including being the advisory board member for KSE Africa, a leading operations and management provider of captive power plants in the mining sectors in Botswana and Nigeria. He is also a Fellow of the Institute of Chartered Accountants of Nigeria (FCA) and holds a BSc in Accounting from Ahmadu Bello University, Nigeria.

Special Responsibilities:

None.

Taiwo Adeniji

Non-Executive Director, HCIB, appointed 23 April 2020

Mr Adeniji is Senior Director for Investment Operations & Execution at AFC, where he has responsibility, amongst other things, for the institution's investments in oil & gas, and mining projects. Taiwo has had over 26 years of post-graduate and extensive professional and managerial experience in several areas of banking and finance. He has deep knowledge and extensive experience with infrastructure and mining policy issues, as well as the analysis, evaluation and financing of infrastructure and mining projects. Mr Adeniji has supervised AFC's investments in mining projects that spanned different products, including gold, copper, bauxite, and iron ore, as well as in different geographies, including countries in West, North and Central Africa. From 1994 to 2007, Mr Adeniji worked with the African Development Bank, focussing largely on infrastructure investments and financial sector development.

Mr Adeniji's academic background is in economics and finance. He is an Honorary Senior Member (HCIB) of the Chartered Institute of Bankers of Nigeria.

Special Responsibilities:

None.

Neil Gregson

Independent Non-Executive Director, Qualified Mining Engineer, appointed 3 August 2020

Mr Gregson is an experienced resource sector investor having spent over 30 years managing investments predominantly in mining and energy companies.

Mr Gregson's previous roles included portfolio manager in J.P. Morgan Asset Management's Global Equities Team based in London and responsible for global natural resource mandates. Prior investment roles were with CQS Asset Management as a Senior Portfolio Manager, with a focus on the natural resource sector and Credit Suisse Asset Management as Head of Emerging Markets and related sector funds.

Mr Gregson began his career holding various positions at mining companies, including a role as a mining investment analyst at South African company Gold Fields. He is a qualified mining engineer.

Mr Gregson is currently a Director of Uranium Royalty Corp. (appointed 14 October 2020) and Atalaya Mining Plc (appointed 10 February 2021).

Special Responsibilities:

During the year Mr Gregson was Chairman of the Remuneration and Nomination Committee (appointed on 25 August 2020).

Paul Michael Donaldson

Non-Executive Director, Master's Degree - Mining Engineering, Master's Degree - Business and Technology, BEng Chemical (Honours, University Medal), Assoc Dip. Applied Science (Metallurgy), initially appointed Chief Operating Officer 29 November 2012, transitioned to Chief Executive Officer 1 February 2013 and additionally appointed Managing Director 29 April 2014, transitioned from Chief Executive Office and Managing Director role to Non-Executive Director role on 21 December 2017, resigned 3 August 2020

Mr. Donaldson, in his previous role as the Company's CEO and Managing Director, redefined the product and development path and process for the Project, overseeing the pre-feasibility, definitive feasibility and FEED study phases. In December 2017, he transitioned to his role as Non-Executive Director. Mr Donaldson is also currently Chief Transformation Officer at Pacific National, Australia's largest rail operator.

Special Responsibilities:

In the period prior to his resignation, Mr Donaldson was a member of the Remuneration and Nomination Committee, and a member of the Technical and Risk Committee.

Andre Liebenberg

Independent Non-Executive Director, MBA, BSc (Elec) Eng., appointed 2 October 2017, resigned 3 August 2020

Mr Liebenberg is an experienced mining industry professional with extensive investor, market, finance, business development and leadership experience, and has spent over 25 years in private equity, investment banking, and held senior roles within QKR Corporation and BHP.

In addition to the CFO role at QKR Corporation, Mr. Liebenberg occupied senior executive roles within BHP including Head of Group Investor Relations, as well as CFO roles for the Energy Coal and Diamonds and Speciality Products divisions. These roles were based in London, Melbourne and Sydney.

Mr Liebenberg's experience within BHP also included key roles in the BHP merger with Billiton, the bid for Rio Tinto and the bid for Potash Corp. of Saskatchewan. Prior to BHP, Mr Liebenberg worked at UBS in London and Standard Bank Group in South Africa.

Mr Liebenberg is currently the Executive Director and Chief Executive Officer of Yellow Cake Plc (appointed 1 June 2018) and Non-Executive Director of Zeta Resources Limited (appointed 30 December 2019).

Special Responsibilities:

In the period prior to his resignation, Mr Liebenberg was the Chairman of the Remuneration and Nomination Committee, and a member of the Audit and Risk Committee (and Audit Committee).

COMPANY SECRETARY

Catherine Grant-Edwards and Melissa Chapman

Appointed Joint Company Secretary 7 July 2017

Ms Melissa Chapman (Certified Practicing Accountant (CPA), AGIA/ACIS, GAICD) and Ms Catherine Grant-Edwards (Chartered Accountant (CA)) were appointed as Joint Company Secretary on 7 July 2017. Ms Chapman and Ms Grant-Edwards are directors of Bellatrix Corporate Pty Ltd (Bellatrix), a company that provides company secretarial and accounting services to a number of ASX listed companies. Between them, Ms Chapman and Ms Grant-Edwards have over 30 years' experience in the provision of accounting, finance and company secretarial services to public listed resource and private companies in Australia and the UK, and in the field of public practice external audit.

INTERESTS IN SHARES, OPTIONS AND PERFORMANCE RIGHTS OF THE COMPANY

As at the date of this report, the interests of the directors in the shares, options and performance rights on issue by Danakali Limited were:

PRINCIPAL ACTIVITIES

The principal activity of the Group during the period was advancing the Colluli Potash Project in Eritrea, East Africa. There was no significant change in the nature of the Group's activities during the financial year ended 31 December 2020.

CORPORATE STRUCTURE

Danakali Limited is a company limited by shares that is incorporated and domiciled in Australia.

REVIEW OF OPERATIONS

PROJECT OVERVIEW

The Colluli Potash Project (Colluli, or the Project) is located in the Danakil Depression region of Eritrea, East Africa. Colluli is approximately 177km south-east of the capital, Asmara, and 180km from the port of Massawa, which is Eritrea's key import/export facility. The Project is a joint venture between the Eritrean National Mining Corporation (ENAMCO) and Danakali with each having 50% ownership of the joint venture company, the Colluli Mining Share Company (CMSC). CMSC is responsible for the development of the Project.

The Danakil Depression is an emerging potash province, which commences in Eritrea and extends south across the border into Ethiopia. It is one of the largest unexploited potash basins globally; over 6Bt of potassium bearing salts suitable for production of potash fertilisers have been identified in the region to date (ASX announcement 25 February 2015 and http://circumminerals.com/resources).

Colluli is located approximately 75km from the Red Sea coast providing unrivalled logistics potential. Colluli also boasts the shallowest known mineralisation globally. Mineralisation commences at just 16m below surface. In addition, the potassium bearing salts are present in solid form (in contrast with production of SOP from brines). Shallow access to salts in solid form provides Colluli with significant mining, logistics and, in turn, capital and operating cost advantages over other potash development projects globally. The Project also carries a significantly lower level of complexity as a consequence of predictable processing plant feed grade and predictable production rates due to low reliance on ambient conditions.

Shallow mineralisation makes the resource amenable to open cut mining: a proven, high productivity mining method. Open cut mining provides higher resource recoveries relative to underground and solution mining methods, is generally safer, and can be more easily expanded.

The Colluli resource comprises three potassium bearing salts in solid form: Sylvinite, Carnallitite and Kainitite. These salts are suitable for high yield, low energy production of Sulphate of Potash (SOP), which is a high-quality potash fertiliser carrying a price premium over the more common Muriate of Potash (MOP). SOP is chlorine free and is commonly applied to high value crops such as fruit, vegetables, nuts, and coffee. Economic resources for primary production of SOP are geologically scarce and there are few current primary producers.

The JORC-2012 compliant Mineral Resource for Colluli is estimated at 1.289Bt @ 11% K2O for 260Mt of contained SOP equivalent (ASX announcement 25 February 2015). The JORC-2012 compliant Ore Reserve estimate for Colluli is estimated at 1,100Mt @ 10.5% K2O for 203Mt of contained SOP equivalent (ASX announcement 19 February 2018). The Measured and Indicated Mineral Resources are inclusive of those Mineral Resources modified to produce the Ore Reserves.

Due to the massive resource, Colluli has the potential to produce a diverse and high volume of products however as a start up development, focus has been placed on the highest value commodity, SOP. Technical studies have been undertaken for the production of high-quality SOP. The final Colluli study, Front-End Engineering Design (FEED) (ASX announcement 29 January 2018), defined in initial SOP development:

· Module I - 472ktpa SOP production

· Module II - additional 472ktpa SOP production commencing in year 6

The above delivers a mine life of approximately 200 years, demonstrating the capacity of Colluli to further expand and support decades of growth beyond Modules I and II.

FEED demonstrates the robust project economics. The premium commodity combined with industry leading capital intensity and first quartile operating costs results in a Project Net Present Value (NPV10) of US$902M and Internal Rate of Return (IRR) of 29.9% (Post tax). The Danakali economic outcomes were an NPV10 of US$439M and IRR of 31.3% (Post tax and gearing).

Colluli's diversification potential beyond SOP includes the option to produce additional potash and salt products such as MOP, SOP-M, kieserite (MgSO4.H2O), gypsum (CaSO4.2H2O), magnesium chloride (MgCl2), and rock salt (NaCl). The Colluli SOP Mineral Resource also comprises an 85Mt Kieserite (magnesium sulphate) Mineral Resource (ASX announcement 15 August 2016). Kieserite is a suitable fertiliser for magnesium deficient soils. A 347Mt Rock Salt (sodium chloride) Mineral Resource (ASX announcement 23 September 2015) has also been established at Colluli. Unprocessed Rock Salt can be used in a number of chemical processes, for de-icing, and as a feed for the production of table salt.

Colluli has in place a 10 year take or pay Offtake (ASX announcement 12 June 2018), executed Senior Debt documentation for a $200M facility with African Finance Corporation (AFC) and African Export Import Bank (Afreximbank) (ASX announcement 23 December 2019) and issued US$21.5M of Danakali equity to AFC (ASX announcement 3 December 2019).

Project Execution

EPCM Phase 1 and 2 of project execution, which relates to the process plant and associated infrastructure work has been completed. The project now benefits from a more defined scope and de-risked design and the robustness of the FEED results have been confirmed. The capital estimate has been revised and remains within the FEED cost estimate (ASX announcement 2 September 2020).

Early procurement commenced during 2020 with the order of the Reverse Osmosis (RO) Plant. This equipment will be used to provide potable and construction water prior to the commissioning of the main Anfile Bay Water Intake Treatment Area (WITA) which will be developed to provide higher volumes of water to support SOP production. The Group has considered whether COVID-19 had an impact for the Group for the year ended 31 December 2020. As the Project is still in development and has not commenced operations, the impact is limited, however, there is an uncertainty in the impact of COVID-19 in the future as it relates to the extractive activities.

Mining Agreement Executed and Mining Licenses Awarded

CMSC is fully permitted, having entered into a mining agreement (Mining Agreement) with the Eritrean Ministry of Energy and Mines (MoEM) and was awarded mining licenses (Mining Licenses) for the exploitation of mineral resources within the Colluli tenements (ASX announcement 1 February 2017).

The Mining Agreement is applicable to the entire 1.3Bt JORC-2012 compliant Mineral Resource and provides exclusive rights to CMSC to apply for mining licenses to exploit the potassium, magnesium, calcium and sodium salts within the Resource, as well as bromine.

The award of the Mining Licenses follows the completion of a series of pre-requisites including the completion and submission of the DFS, submission of a comprehensive social and environmental impact assessment and associated management plans, a series of pre and post DFS stakeholder engagements with local and regional communities and stakeholders, and the signing of the Mining Agreement.

In accordance with the Mining Agreement, CMSC is obliged to spend US$200 million on infrastructure and mine development within the area of the Colluli project mining licences, and commence Commercial Production in the 36 months following the provision of formal Notice of Commencement of Mine Development (the Notice) to the Ministry of Energy and Mines (MoEM). The Notice, dated 16 December 2019, was accepted by MoEM on 21 July 2020 (ASX announcement 22 July 2020). The granted time by the MoEM to commence Commercial Production and spend US$200M on infrastructure and mine development is 36 months from submission of the Notice (15 December 2022).

A Social and Environmental Impact Assessment (SEIA) and associated Social and Environmental Management Plans (SEMPs) have been completed, consistent with the Equator Principles. Stakeholder engagements have been completed throughout the study phases, and the Project has strong support from local communities. Following a period of consultation and further works between the Eritrean Ministry of Land, Water & Environment and CMSC, the SEMPs were signed off by the Ministry in August 2018. The SEMPs are a cornerstone of the environmental, social and safety management system being developed by CMSC and provide the foundation for compliance.

The senior lenders have reviewed the SEIA and SEMPs and determined that the foundation of Social and Environmental compliance was robust which allowed execution of formal documentation for the US$200M facilities. The review also identified some outstanding documents, captured as an Environmental and Social Action Plan (ESAP), that required completion as a requisite to drawdown of the facilities. These specific outstanding documents are required in CMSC's SEMPs, procedures, forms and guidelines and once completed ensure alignment with the Equator Principles and the IFC Performance Standards. Throughout 2020, considerable efforts were made to close out the ESAP. As of December 31st, 2020, the Company had completed 85% of the ESAP requirements with plans in 2021 to have the process finalised well in advance of project construction.

Carbon Neutral SOP

Early assessment work on the solar and wind energy potential of Colluli has been completed and this has confirmed that both of these renewable energy sources can be incorporated into the future generation of power for the Project. Our initial goal is to create a responsible, environmentally friendly, zero carbon, premium fertilizer business that clearly links Colluli SOP with the production of nutritious crops, bolsters global food and nutrition security, and improves millions of lives.

MARKETING AND PROJECT FINANCE

Off-take

The company holds a binding take-or-pay offtake agreement with EuroChem Trading GmbH (EuroChem) for up to 100% of Module I SOP production from the Colluli Potash Project. EuroChem will take, pay, market and distribute up to 100% (minimum 87%) of Colluli Module I SOP production. The term of the agreement is 10 years from the date of commissioning of the Colluli SOP processing plant, with an option to extend for a further 3 years if agreed by EuroChem and CMSC. EuroChem is an outstanding partner with global reach and extensive fertiliser expertise and experience, and the agreement was instrumental in unlocking project funding.

Project Financing

Development finance institutions, Africa Finance Corporation (AFC) and African Export Import Bank (Afreximbank, together the Mandated Lead Arrangers), have executed documentation for the provision of US$200M in senior debt finance to CMSC (each Mandated Lead Arranger providing US$100M). The facility allows drawdown of CMSC senior debt on satisfaction of customary conditions precedent (ASX announcement 23 December 2019) for a project financing facility of this kind and includes all project approvals required to develop the project, and the balance of the equity contribution having been raised. There is no deadline for the completion of such conditions precedent however the project is required to be completed by the Longstop Date which is 31 March 2023.

In addition to CMSC senior debt, AFC made a strategic equity investment in Danakali for approximately 53M new Shares issued at A$0.60 per Share to raise A$31.8M (US$21.5M), which was completed on 10 December 2019. A second tranche totaling US$28.5 was planned to be executed in 2020 but in light of the rapid spread of COVID-19 and its significant impact on global financial markets, Tranche 2 was deferred to allow for the stabilisation of market and global conditions.

On 1 June 2020, it was announced that Danakali and AFC had agreed on a deadline extension of 21 November 2020 to satisfy remaining conditions precedent for Tranche 2 funding.

On 26 October 2020, the Company announced that it is unlikely that all such conditions precedent will be satisfied and as such, Tranche 2 will not complete in accordance with the terms of the Subscription Agreement.

The Company continues to work with AFC as part of a total funding solution for the Project.

The Company has engaged a range of advisers and brokers to support our funding requirements, including the appointment of AFC Advisory on an arm's length basis. We are pursuing multiple options in partnership with ENAMCO, including debt, equity and quasi-equity instruments.

Key Operational Contracts

The following operational contracts are key to advancing the project.

Mining - undergoing negotiations with preferred mining services provider

Earth Moving Worldwide (EMW) is the Company's preferred contractor for Colluli's mining services scope, which covers the pre-production period (development) plus the first 5 years of production. The scope includes the provision, operation and maintenance of excavation, haulage and dewatering equipment. EMW has extensive global experience in mining services, earthworks and water management and will provide the Project with strong commercial and technical support.

The Mining Services Contract is complete for all material matters. Execution of the contract will follow successful completion of the project financing.

Power - Finalising documentation

Aggreko have been appointed as preferred power supply contractor for a 12MW HFO power plant at Colluli. Under 5-year Built, Own, Operate Transfer (BOOT) contract, Aggreko will supply, commission, operate and maintain the power plant, then transfer the equipment to CMSC. Aggreko will provide the funding for the power solution which provides certainty over delivery of this preferred solution (ASX announcement 8 October 2020).

The Power Contract is complete for all material matters. Execution of the contract is expected during Q2 2021.

The early assessment work on the solar and wind energy potential of Colluli has been completed and this has confirmed that both of these renewable energy sources can be incorporated into the future generation of power for the Project. The Company will now work with Aggreko on further developing these solutions. Aggreko's ambition is to be carbon net zero, aligning with the Paris Climate Agreement, by helping its customers meet their sustainability targets.

Camp -Contracts near completion

A contract with RA International (RAI) to provide the camp is well advanced and early shipment of the accommodation camp and infrastructure building to Eritrea has been negotiated with RAI.Execution of the contract is expected during Q2 2021.

EPCM

The Company has engaged DRA Global (DRA) to support Project Execution through the provision of Engineering, Procurement, Construction and Management (EPCM) services. DRA is a high quality, multi-disciplinary global project management and engineering group with strong African experience and EPCM delivery capability. The scope of DRA's contract includes:

· all aspects of design, project management, procurement, construction management and supervision;

· commissioning of the complete process plant and associated infrastructure; and

· awarding and overseeing major contracts such as early works, earthworks, structural, mechanical, piping, electrical and instrumentation works, laboratory and permanent camp.

In addition, multinational professional services company Turner & Townsend has been engaged to support the Owner's Team.

Project Execution advanced during the year, most notably through the completion of the first two stages of the EPCM scope.

CORPORATE

Board Changes

Africa Finance Corporation (AFC) President and CEO, Samaila D. Zubairu, and AFC Senior Director for Investment Operations & Execution, Taiwo Adeniji, joined Danakali's Board as Non-Executive Directors on 23 April 2020.

On 3 August 2020, Mr Neil Gregson was appointed as a Non-Executive Director.

Mr Paul Donaldson and Mr Andre Liebenberg resigned as Non-Executive Directors on 3 August 2020.

Refer to events occurring after the balance date for board changes that have occurred subsequent to 31 December 2020.

Management Changes

New Chief Operating Officer (COO) appointed

Dr Rod McEachern, previously Director for Process and Product Innovation at Nutrien and PotashCorp, was appointed on 3 December 2020 as Danakali Chief Operating Officer (COO). Dr McEachern holds a Ph.D in Physical Chemistry from the University of Saskatchewan. Bringing with him significant experience in potash mining, production, harvesting, process engineering, logistics and safety, he has been given the responsibilities for the design and set up of operation readiness including safe and sustainable mining and processing operation for CMSC.

Dr McEachern's international potash experience spans three decades with his most recent roles in senior management as Director, Process and Product Innovation at Nutrien. He held prior roles with Potash Corp as Senior Director for Innovation and General Manager and held the Vice President of Operations role at Arab Potash in Amman, Jordan.

Refer to events occurring after the balance date for management changes that have occurred subsequent to 31 December 2020.

Shares

During the year, the Company issued the following fully paid ordinary shares:

§ 20,000 shares on vesting of performance rights (Class 5: 20,000)

§ 25,000 shares on vesting of performance rights (Class 6: 25,000)

§ 50,000 shares on vesting of performance rights (Class 8: 50,000)

§ 100,000 shares on vesting of performance rights (Class 9: 100,000)

At 31 December 2020, there were a total of 318,741,306 fully paid ordinary shares on issue.

Options

The following unlisted options were issued during the year:

§ 947,041 unlisted options at an exercise price of $0.00 each expiring 31 December 2021 to management in lieu of cash payments under the Company's short-term incentive scheme approved by the Board on 20 August 2020

§ 200,000 unlisted options at an exercise price of $0.664 each expiring 8 July 2023

A further 250,000 unlisted options at an exercise price of $0.501 each expiring 3 December 2023 were granted during the year and formally issued on 12 February 2021.

There were no unlisted options exercised and converted to shares during the year.

The following unlisted options lapsed during the year:

§ 500,000 unlisted options exercisable at $0.912 expired on 11 May 2020

§ 1,440,000 unlisted options exercisable at $0.940 expired on 19 May 2020

At 31 December 2020, there were a total of 5,211,1531 unlisted options on issue at various exercise prices and expiry dates.

Performance Rights

There were no new performance rights issued during the year.

The following performance rights vested and were converted to shares during the year:

§ 20,000 Class 5 performance rights

§ 25,000 Class 6 performance rights

§ 50,000 Class 8 performance rights

§ 100,000 Class 9 performance rights

The following performance rights were forfeited during the year:

§ 15,000 Class 7 performance rights2

§ 15,000 Class 8 performance rights

§ 800,000 Class 4 performance rights

At 31 December 2020, there were a total of 1,260,000 performance rights on issue in the following classes:

§ 280,000 Class 1 performance rights

§ 80,000 Class 5 performance rights

§ 900,000 Class 9 performance rights

1 Excludes 250,000 unlisted options at an exercise price of $0.501 each expiring 3 December 2023 that were granted during the year on 3 December 2020 and formally issued on 12 February 2021.

2 Comprises 15,000 class 7 performance rights that were subject to forfeiture at 31 December 2019 and removed from the register in January 2020.

Refer to events occurring after the balance date for details of performance rights forfeited subsequent to 31 December 2020.

Annual General Meeting

The Company's annual general meeting was held on 15 July 2020 (AGM). For more information, refer to the Notice of AGM and Results available via the Company's website.

Amended Constitution

An amended constitution was adopted by the Company following receipt of shareholder approval by special resolution at the AGM.

Environmental and Social Governance (ESG)

Danakali and CMSC have a strong commitment to sustainable development which is underpinned by the principles that mineral projects should be financially, technically and environmentally sound and socially responsible.

The Company has implemented a Sustainable Development Framework to address its ESG agenda and is aligned with its Corporate Governance Framework. The policies developed using this framework directly supported the management plans associated with the SEIA and SEMP for the project.

The Company released its inaugural sustainability report in 2020. This report details the policies and frameworks in place to ensure that the Company continues to operate in a sustainable manner. The Company plans to release annual sustainability reports with increased transparency as the project continues to grow and evolve. The annual sustainability reports will align with the Global Reporting Initiative once the Colluli project becomes operational.

The Company initiated an independent human rights due diligence study in 2020 to determine the potential risks and opportunities with respect to the Colluli Project. Stakeholder engagement, field work, capacity building and implementing potential mitigation measures is planned in 2021 in advance of project construction.

RESERVE AND RESOURCE OVERVIEW

Colluli has a JORC-2012 compliant resource of 1.289 billion tonnes as shown in Table 1 as at 31 December 2020. Apart from the inclusion of Kieserite (announced 15 August 2016), there have been no changes to the Mineral Resource since 25 February 2015.

The Colluli JORC-2012 compliant mineral resource estimate as at 31 December 2020 is as follows:

Table 1: Colluli Mineral Resource Estimate announced on 25 February 2015 with Kieserite added (announced on 15 August 2016)

Within the JORC-2012 compliant, 1.289 billion tonnes, Mineral Resource Estimate, the JORC-2012 compliant Ore Reserve Estimate for Colluli's potassium sulphate potash fertiliser is approximately 1.1 billion tonnes comprising 285 million tonnes of Proved and 815 million tonnes of Probable Ore Reserve and is shown below in Table 2. The Ore Reserve was updated in line with FEED outcomes (ASX announcement 19 February 2018). There have been no changes to the Mineral Resource since 19 February 2018.

The Colluli JORC-2012 compliant Ore Reserve estimate by potash mineral as at 31 December 2020 is as follows:

Table 2: JORC-2012 Colluli Potassium Sulphate Ore Reserve (announced on 29 January 2018 and 19 February 2018)

1 Equivalent K2SO4 (SOP) calculated by multiplying %K2O by 1.85.

In addition to potassium sulphate, substantial quantities of rock salt exist. A JORC-2012 compliant Rock Salt Mineral Resource Estimate of over 300 million tonnes has been completed for the area considered for mining in the DFS as shown in Table 3. There have been no changes to the Mineral Resource estimate since 23 September 2015.

As at 31 December 2020, the JORC-2012 compliant Rock Salt Mineral Resource is as follows:

Table 3: JORC 2012 Colluli Rock Salt Mineral Resource announced on 23 September 2015

SAFETY

Danakali is committed to ensuring all work activities are carried out safely with all practical measures taken to remove risks to health, safety and welfare of workers, contractors, authorised visitors, and anyone else who may be affected by the Group's activities.

Since the Company commenced exploration in 2010, no injuries have been reported. This safety performance, along with a strong safety culture, bodes well for the Company as it moves into the construction and production phases at Colluli.

ENVIRONMENT

The Group is subject to environmental regulation in respect to its exploration and development activities. Danakali aims to ensure the appropriate standard of environmental care is achieved, and in doing so, that it is aware of and is in compliance with relevant environmental legislation. There were no breaches of environmental legislation for the period under review.

EVENTS OCCURRING AFTER THE BALANCE DATE

Board and Management Changes

On 26 February 2021, the Company announced that the role of the Chief Executive Officer, held by Mr Niels Wage, had been made redundant as part of a reallocation of responsibilities.

Mr Seamus Cornelius was appointed as Executive Chairman on 26 February 2021.

Movements in Securities

On 29 January 2021, the Company issued 500,000 unlisted options at an exercise price of $0.527 expiring on 29 January 2023. On 24 March 2021, the Company issued 250,000 unlisted options at an exercise price of $0.78 expiring on 24 March 2023.

On 15 February 2021, the Company issued 947,041 fully paid ordinary shares upon the exercise of unlisted options at an exercise price of $0.00 expiring 31 December 2021 to management in lieu of cash payments under the Company's short-term incentive scheme approved by the Board on 20 August 2020. In addition, on 12 February 2021, the Company completed the formal issue of 250,000 unlisted options at an exercise price of $0.501 expiring 3 December 2023 (being options granted 3 December 2020).

On 26 February 2021, 900,000 performance rights (Class 9) were forfeited. This forfeiture resulted from the role of Chief Executive Officer being made redundant.

No other matters or circumstances have arisen since the end of the financial year which significantly affected or may significantly affect the operations of the Group, the results of those operations, or the state of affairs of the Group in future financial years.

ACTIVITIES PLANNED FOR 2021

The following key activities are scheduled over the coming year:

· Secure balance of funding to advance Colluli to Final Investment Decision

· Execute the remaining phases of the EPCM contracts and commence the detailed design work

· Finalise and execute the mining services, power provider and camp contracts

· Advance the Company's ESG objectives

· Close out the Conditions Precedent to allow draw down of the CMSC Senior Debt Facility

FINANCE REVIEW

The Group recorded a net loss after tax of $8,259,370 for the financial year to 31 December 2020 compared to a loss of $3,148,734 for the financial year to 31 December 2019. As the Group is still in the development stage, revenue streams mainly relate to interest earned on surplus funds from capital raisings held at bank. The net losses after tax reflect the remeasurement loss of the receivable at fair value arising from the change in the loan repayment profile, foreign exchange loss on the loan receivable denominated in USD and administrative costs incurred by the Group.

Total consolidated cash on hand at the end of the financial year was $9,738,794 (31 December 2019: $33,800,104).

Operating activities utilised $2,881,504 (31 December 2019: $2,538,695 utilised) of net cash flows. Net cash outflow from investing activities of $17,572,229 (31 December 2019: $4,407,612) was predominantly expenditure made to advance the Colluli Project in relation to:

· Executing Phase 1 and 2 of project execution

· Establishment of the Owners Team

· Early procurement of the Reverse Osmoses Plant

· Advancing key operational contracts

· Advancing the ESAP

· Payment of senior lender fees subsequent to the execution of documentation for US$200M of senior debt facilities on behalf of CMSC

Net cash outflow from financing activities of $3,302,478 in the financial year to 31 December 2020 was attributable to costs of capital accrued for in the previous financial year (31 December 2019: $32,286,301 funds received in respect of a placement of shares and the exercise of options).

SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS

There were no other significant changes in the Company's state of affairs other than that referred to in the financial statements or notes thereto.

DEVELOPMENTS AND EXPECTED RESULTS

Details of important developments occurring in this financial year have been covered in the Review of Operations section of the Directors' Report. The Group will continue to invest in the Colluli Potash Project to advance activities in the exploration, evaluation and development of the project with the objective of developing a significant mining operation. Any significant information or data will be released to the market and the shareholders pursuant to the Continuous Disclosure rules as and when they arise.

DIVIDENDS

No dividends were paid or declared during the financial year to 31 December 2020. No recommendation for payment of dividends has been made.

DIRECTORS' MEETINGS

The number of meetings of the Company's Board of Directors and permanent Board sub-committees held during the financial year ended 31 December 2020 and the number of meetings attended by each Director were:

1 The Audit Committee was reconstituted to become the Audit and Risk Committee on 23 January 2020. References to meetings held in the above table includes those of the Audit Committee.

2 The number of meetings attended include those attended by Mr Zubairu (2) or his representative (4).

3 The Technical and Risk Committee ceased on 23 January 2020. There were no meetings held during the current period.

OPTIONS

At the date of this report, unissued ordinary shares in respect of which options are outstanding are as follows:

No option holder has any right under the option to participate in any share issue of the Company or any other entity.

No options were granted to key management personnel of the Company since the end of the financial year.

PERFORMANCE RIGHTS

Details of performance rights over unissued shares in Danakali Ltd as at the date of this report are set out below:

Note:

(a) Performance rights forfeited as performance hurdles not met (15,000) and upon resignation of director and employee (815,000).

(b) Performance rights forfeited on 26 February 2021 upon termination of employment of Mr Niels Wage pursuant to redundancy.

No performance rights holder has any right to participate in any other share issue of the company or any other entity.

INDEMNIFICATION AND INSURANCE OF DIRECTORS AND OFFICERS

Indemnification

An indemnity agreement has been entered into with each of the directors and company secretary of the Company named earlier in this report. Under the agreements, the Company has agreed to indemnify those officers against any claim or for any expense or cost which may arise as a result of work performed in their respective capacities to the extent permitted by law. There is no monetary limit to the extent of this indemnity.

Insurance

During the period, the Company paid an insurance premium in respect of Directors' and Officers' insurance. The premiums relate to costs and expenses incurred by the relevant officers in defending proceedings, whether civil or criminal and whatever their outcome, and other liabilities that may arise from their position, with the exception of conduct involving a wilful breach of duty or improper use of information or position to gain a personal advantage. Premiums totalling $413,795 (2019: $213,272) were paid in respect of directors' and officers' liability cover. The insurance policies outlined above do not contain details of the premiums paid in respect of individual officers of the Company.

INDEMNIFICATION OF AUDITORS

To the extent permitted by law, the Company has agreed to indemnify its auditors, Ernst and Young, as part of the terms of its audit engagement agreement against claims by third parties arising from the audit (for an unspecified amount). No payment has been made to indemnify Ernst and Young during or since the financial year.

AUDIT PARTNER EXTENSION

On 25 October 2019, the Board granted approval pursuant to section 324DAC of the Corporations Act 2001 (Cth), for Mr Gavin Buckingham of Ernst & Young to play a significant role in the audit of the Company for an additional one financial year through to the financial year ending 31 December 2020.

The Board considered the matters set out in section 324DAB(3) of the Act and is satisfied that the approval:

i) is consistent with maintaining the quality of the audit provided to the Company; and

ii) would not give rise to a conflict of interest situation.

Reasons supporting this decision include:

§ the benefits associated with the continued retention of knowledge regarding key audit matters;

§ the Board being satisfied with the quality of Ernst & Young and Mr Buckingham's work as auditor; and

§ the Company's ongoing governance processes to ensure the independence of the auditor is maintained. 

NON‑AUDIT SERVICES

The Board has considered the non-audit services provided during the financial year by the auditor and is satisfied that the provision of those non-audit services is compatible with, and did not compromise, the auditor's independence requirements of the Corporations Act 2001.

All non-audit services provided during the financial year were subject to the corporate governance procedures adopted by the Company and have been reviewed by the Board to ensure they do not impact the integrity and objectivity of the auditor; and the non-audit services provided do not undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accountants, as they did not involve reviewing or auditing the auditor's own work, acting in a management or decision making capacity for the Company, acting as an advocate for the Company or jointly sharing risks and rewards.

During the period, Ernst and Young, the Company's auditors, performed the following services in addition to their statutory duties:

CORPORATE GOVERNANCE

The Company's corporate governance statement can be found at the following URL: http://www.danakali.com.au/our-business/corporate-governance.

RISK MANAGEMENT

The Company has established a Risk Management Policy which outlines the Board's expectations in relation to risk management, responsibilities, risk management objectives, and the principles of its risk management framework.

The Board, through the Audit and Risk Committee is responsible for overseeing the establishment and implementation of effective risk management and internal control systems to manage the Company's material business risks and for reviewing and monitoring the Company's application of those systems.

The Audit and Risk Committee continues to work closely with management to assess, monitor and review business risks and to carry out assessments of internal controls and processes for improvement opportunities. In support of this, the Committee receives reports from management on new and emerging risks and related controls and mitigation measures that management have implemented.

A summary of the material business risks of the Company is set out in the below table.

PROCEEDINGS ON BEHALF OF THE COMPANY

No person has applied to the Court under section 237 of the Corporations Act 2001 for leave to bring proceedings on behalf of the Company, or to intervene in any proceedings to which the Company is a party, for the purpose of taking responsibility on behalf of the company for all or any part of those proceedings.

No proceedings have been brought or intervened in or on behalf of the Company with leave of the Court under section 237 of the Corporations Act 2001.

AUDITOR'S INDEPENDENCE DECLARATION

A copy of the auditor's independence declaration as required under section 307C of the Corporations Act 2001 is set out separately in this report.

REMUNERATION REPORT (AUDITED)

The Remuneration Report outlines the director and executive remuneration arrangements of the Group in accordance with the requirements of the Corporations Act 2001 (Cth) and its Regulations. For the purposes of this report, Key Management Personnel (KMP) of the Group are defined as those persons having authority and responsibility for planning, directing and controlling the major activities of the Group, directly or indirectly, including any director (whether executive or otherwise) of the Company. For the purposes of this report, the term 'Executive' includes the Chief Executive Officer and key management personnel of the Group.

The Key Management Personnel of Danakali Ltd and the Group during the financial year to 31 December 2020 were:

All of the above persons were key management personnel during the financial year to 31 December 2020 unless otherwise stated. The information provided in this remuneration report has been audited as required by section 308 (3C) of the Corporations Act 2001.

Key Elements of Key Management Personnel Remuneration Strategy

The remuneration strategy for Danakali Ltd is designed to provide rewards that achieve the following:

· Attract, retain, motivate and reward KMP;

· Reward KMP for Company and individual performance against targets set by reference to appropriate benchmarks;

· Link reward with the strategic goals and performance of the Company;

· Provide remuneration that is competitive by market standards;

· Align executive interests with those of the Company's shareholders; and

· Comply with applicable legal requirements and appropriate standards of governance.

The Company is satisfied that its remuneration framework reflects current business needs, shareholder views and contemporary market practice and is appropriate to attract, motivate, retain and reward employees.

A summary of the key elements of the current remuneration arrangement is as follows:

The Remuneration Report has been set out under the following headings:

a) Decision Making Authority for Remuneration

b) Principles Used to Determine the Nature and Amount of Remuneration

c) Voting and Comments Made at the Last Annual General Meeting

d) Details of Remuneration

e) Service Agreements

f) Details of Share Based Compensation

g) Equity Instruments Held by Key Management Personnel

h) Loans to Key Management Personnel

i) Other Transactions with Key Management Personnel

j) Additional Information

a) Decision Making Authority for Remuneration

The Company's remuneration policy and strategies are overseen by the Remuneration and Nomination Committee on behalf of the Board. The Remuneration and Nomination Committee is responsible for making recommendations to the Board on all aspects of remuneration arrangements for key management personnel including:

· the Company's remuneration policy and framework;

· the remuneration arrangements for the Chief Executive Officer, Executive Chairman and other KMP;

· the terms and conditions of long-term incentives and short-term incentives for the Chief Executive Officer and other KMP;

· the terms and conditions of employee incentive schemes; and

· the appropriate remuneration to be paid to non-executive Directors.

The Remuneration and Nomination Committee Charter is approved by the Board and is published on the Company's website. Remuneration levels of the Directors and Key Management Personnel are set by reference to other similar sized mining and development companies with similar risk profiles and are set to attract and retain KMP capable of managing the Group's operations.

Remuneration levels for the Chief Executive Officer and key management personnel are determined by the Board based upon recommendations from the Remuneration and Nomination Committee. Remuneration of non-executive directors is determined by the Board within the maximum levels approved by the shareholders from time to time.

b) Principles Used to Determine the Nature and Amount of Remuneration

The Company's remuneration practices are designed to attract, retain, motivate and reward high calibre people capable of delivering the strategic objectives of the Company. The Company's Key Management Personnel remuneration framework aligns their remuneration with the achievement of strategic objectives and the creation of value for shareholders and conforms with market practice for delivery of reward.

The Remuneration and Nomination Committee ensures that the remuneration of Key Management Personnel is competitive and reasonable, acceptable to shareholders and aligns remuneration with performance. The structure and level of remuneration for key management personnel is conducted annually by the Remuneration and Nomination Committee relative to the Company's circumstances, size, nature of business and performance.

Remuneration of Non-Executive Directors

Fees and payments to non-executive Directors reflect the demands which are made on, and the responsibilities of the directors. Non-executive directors' fees and payments are reviewed annually by the Board. The Board at times receives advice from independent remuneration consultants to ensure non-executive Directors fees and payments are appropriate and in line with the market. No advice was received during the period.

The general principles of non-executive Directors compensation are:

· Non-executive Directors are paid a base fee prior to any statutory superannuation payments;

· Additional fees are paid to Directors who serve on the board sub-committees; and

· Adjustments may be made in the event that a specific non-executive Director's contribution warrants an adjustment. Such adjustments are at the recommendation of the board.

Fees for the non-executive directors are determined within an aggregate directors' fee pool limit of $500,000 as approved by shareholders on 27 May 2019. Effective from 27 May 2019, the base fee paid to each Non-Executive Director was increased from $40,000 to $60,000 per annum. In response to COVID-19, effective 1 May 2020 until 31 October 2020, the base fee paid to each Non-Executive Director was reduced from $60,000 to $48,000 per annum. Effective from 1 March 2021, Non-Executive Director base fees were reduced to $40,000 per annum.

Remuneration of Chairman

Chairman's fees are determined independently to the fees of non-executive directors based on comparative roles in the external market and the specific requirements that the Company has of the Chairman.

The Chairman is not present at any of the discussions relating to the determination of his own remuneration.

Remuneration of Non-Director Key Management Personnel

The Company's remuneration and reward framework is designed to ensure reward structures are aligned with shareholders' interest by:

· Being market competitive to attract and retain high calibre individuals;

· Rewarding high individual performance;

· Recognising the contribution of each Non-Director key management personnel to the contributed growth and success of the Company; and

· Ensuring that long term incentives are linked to shareholder value.

To achieve these objectives, the remuneration of Non-Director key management personnel may comprise a fixed salary component and an 'at risk' variable component linked to performance of the individual and the Company as a whole. Fixed remuneration comprises base salary, superannuation contributions and other defined benefits. 'At risk' variable remuneration comprises both short term and long-term incentives.

The remuneration and reward framework for Non-Director key management personnel may consist of the following areas:

i) Fixed Remuneration

ii) Variable Short-Term Incentives

iii) Variable Long-Term Incentives

The combination of these would comprise the Non-Director key management personnel's total remuneration.

i) Fixed Remuneration

The fixed remuneration for each senior executive is influenced by the nature and responsibilities of each role and knowledge, skills and experience required for each position. Fixed remuneration provides a base level of remuneration which is market competitive and comprises a base salary and statutory superannuation. It is structured as a total employment cost package, which may be delivered as a combination of cash and prescribed non-financial benefits at the executives' discretion.

Non-Director key management personnel are offered a competitive base salary that comprises the fixed component of pay and rewards. External remuneration consultants may provide analysis and advice to ensure base pay is set to reflect the market for a comparable role. No external advice was taken this period. Base salary for Non-Director key management personnel is reviewed annually to ensure the executives' pay is competitive with the market. The pay of Non-Director key management personnel is also reviewed on promotion. There is no guaranteed pay increase included in any Non-Director key management personnel's contract.

In response to COVID-19, effective 1 May 2020 until 31 October 2020, the fixed remuneration paid to each KMP was reduced by 20%.

ii) Variable Remuneration - Short Term Incentives (STI)

The Danakali Ltd Short-Term Incentive Scheme applies to executives in the Company and is designed to link any STI payment with the achievement by each Non-Director key Management Personnel of specified key performance indicators (KPI's) which are in turn linked to the Company's strategic objectives and targets.

The Board has the discretion to reduce or suspend any bonus payments where Company circumstances render it appropriate.

Information in relation to STI awarded for performance year FY19

In line with the recommendation from the Remuneration and Nomination Committee, the Board formally approved the results of the FY19 key performance indicators (KPIs) on 23 March 2020. Following board approval received in FY20, an offer of zero exercise price options (ZEP Options) was made to eligible employees, resulting in the formal issue of 947,041 ZEP Options occurring in the current year. The share based payment expense associated with the ZEP Options has been recognised in the current year.

The Board approved KPIs for prior 2019 year were linked to the following:

· Securing senior debt

· Securing funds from equity raising

· Operational readiness

· License to develop

Information in relation to STI awarded for performance year FY20

Following a review of performance against FY20 key performance indicators (KPIs), the Board determined that no STIs would be awarded in respect of FY20.

Information in relation to STI awarded for performance year FY21

The Board has approved KPIs for the upcoming 2021 year being:

· Secure balance of Colluli funding and maintain Senior Lender Support

· Successful completion of process test work

· Mining Services, Power Contract and Camp Contract signed subject to conditions precedent

· No ESG, Health and Safety or corporate governance incidents and no notice of licence breach.

iii) Variable Remuneration - Long Term Incentives (LTI)

The Company does not currently have a formal long term incentive plan approved by shareholders in place under which long term incentives are offered. No long term incentives have been provided to employees during the year.

In previous financial years, long term incentives have been provided to employees in the form of non-plan performance rights, and performance rights under the Performance Rights Plan (PRP). The PRP was re-approved by shareholders at the general meeting held 17 November 2014.

Details of options issued to Non-Director key management personnel in the previous years can be found in section f(i) below.

Details of performance rights issued to Non-Director key management personnel can be found in section f(ii) below.

Further performance rights details can be found in Note 22 to the financial statements.

All performance rights will automatically expire on the earlier of the expiry date or the date the holder ceases to be an employee of the Company, unless the Board determines to vary the expiry date in the event the holder ceased to be an employee because of retirement, redundancy, death or total and permanent disability and such other cases the Board may determine. Performance rights granted under the PRP will carry no dividend or voting rights. When the vesting conditions have been met, each performance right will be converted into one ordinary share.

c) Voting and Comments Made at the Last Annual General Meeting

The Company received approximately 98% of votes in favour of its Remuneration Report for the financial year ending 31 December 2020 and received no specific feedback on its Remuneration Report at the Annual General Meeting or throughout the period.

d) Details of Remuneration

Details of the remuneration of the directors and other Non-Director key management personnel of Danakali Ltd are set out in the following table. The disclosed directors' fees are inclusive of committee fees.

Key management personnel of the Company for the financial year to 31 December 2020:

Note:

(a) Company secretarial services are provided through Bellatrix Corporate Pty Ltd. Fees charged are on an arms-length basis. In response to COVID-19, fees were reduced by 10% over the six-month period from May to October 2020.

(b) The recorded values of options will only be realised by the KMP's in the event the Company's share price exceeds the option exercise price. The recorded values of performance rights will only be realised by the KMP's in the event the Company achieves its stated objectives, which is expected to create further value for shareholders.

(c) Long service leave reported in this table represents amounts accrued during the year.

(d) This amount refers to the share-based payment expense/(reversal) recorded in the statement of comprehensive income during the period in respect of the options and performance rights to KMP's (refer details below).

(e) In response to COVID-19, salaries were reduced by 20% over the six-month period from May to October 2020.

(f) In response to COVID-19, non-executive director base fees were reduced by 20% over the six-month period from May to October 2020.

(g) Refers to ZEP Options issued constituting a short term incentive (STI) award in respect of the FY19 year results (as detailed above).

(h) Performance related percentage calculated in reference to share based payments divided by total remuneration (excluding reversal amounts).

Key management personnel of the Company for the financial year to 31 December 2019:

Note:

(a) Mr S Cornelius transitioned from the role of Executive Chairman to Non-Executive Chairman on 25 June 2019.

(b) Mr Wage was appointed Chief Executive Officer 25 March 2019.

(c) Company secretarial services are provided through Bellatrix Corporate Pty Ltd. Fees charged are on an arms-length basis.

(d) The recorded values of options will only be realised by the KMP's in the event the Company's share price exceeds the option exercise price. The recorded values of performance rights will only be realised by the KMP's in the event the Company achieves its stated objectives, which is expected to create further value for shareholders.

(e) Amounts shown in salary and fees includes annual leave movements during the year.

(f) Long service leave reported in this table represents amounts accrued during the year.

(g) This amount refers to the share-based payment expense recorded in the statement of comprehensive income during the period in respect of the options and performance rights to KMP's (refer details below).

(h) Performance related percentage calculated in reference to share based payments divided by total remuneration (excluding reversal amounts).

The relative proportions of remuneration that are linked to performance and those that are fixed are as follows:

e) Service Agreements

Remuneration and other terms of employment for the executive managers are formalised in employment contracts. Other major provisions of the agreements relating to remuneration are set out below.

N Wage, Chief Executive Officer:

· Appointed 25 March 2019 to role of CEO

· Engaged as a permanent full-time employee

· Effective from 1 January 2020, Mr Wage's salary was increased to €257,500 per annum plus superannuation at the Australian statutory rate and health insurance for Mr Wage and his dependents

· In response to COVID-19, effective from 1 May 2020 until 31 October 2020, Mr Wage's salary was reduced by 20% to €206,000 per annum plus superannuation at the Australian statutory rate

· Notice period of six months, required to be given by either party for termination

S Tarrant, Chief Financial Officer

· Appointed 12 June 2017

· Engaged as a permanent full-time employee

· Effective from 1 January 2020, Mr Tarrant's salary was increased to $306,000 per annum inclusive of superannuation

· In response to COVID-19, effective from 1 May 2020 until 31 October 2020, Mr Tarrant's salary was reduced by 20% to $244,800 per annum inclusive of superannuation

· Notice period of three months, required to be given by either party for termination

f) Details of Share Based Compensation

(i) Options

During the year, the following options were issued to KMP's as part of remuneration:

§ 471,030 unlisted options with an exercise price of $0.00 each expiring 31 December 2021 (no vesting conditions due to options being issued in compensation for satisfaction of historical KPIs) to Mr Niels Wage,

§ 241,968 unlisted options with an exercise price of $0.00 each expiring 31 December 2021 (no vesting conditions due to options being issued in compensation for satisfaction of historical KPIs) to Mr Stuart Tarrant; and

representing the STI award as equity in lieu of cash in relation to performance against 31 December 2019 KPIs.

There were no new options granted to key management personnel during the year, other than listed above.

The terms and conditions of each grant of options constituting key management personnel remuneration that remain on issue to current key management personnel at 31 December 2020 are set out in the following table:

Note:

(a) Options vest subject to service condition being met

(b) No vesting conditions

Details of options over ordinary shares in the Company, provided as remuneration to key management personnel are set out in the following table.

There were no remuneration options exercised by key management personnel during the year.

Options will automatically expire on the earlier of the expiry date or the date the holder ceases to be an employee of the Company, unless the Board determines to vary the expiry date in the event the holder ceased to be an employee because of retirement, redundancy, death or total and permanent disability and such other cases the Board may determine.

When exercisable, each option is convertible into one ordinary share. Further information on the options is set out in note 22.

(ii) Performance Rights

There were no new performance rights granted to key management personnel during the year.

The terms and conditions of each grant of performance rights constituting key management personnel remuneration that remain on issue at 31 December 2020 are as set out in the following table:

(a) Includes 25,000 performance rights in respect of which the performance hurdle was met in the year ended 31 December 2019 and were formally converted 13 January 2020.

(b) Includes 15,000 performance rights in respect of which the performance hurdle failed to be met in the year ended 31 December 2019 and were formally forfeited 13 January 2020.

(c) Class 9 performance rights were granted on 30 May 2019. The fair value of rights at grant date was $0.75 per right. The rights do not have an expiry date, but unvested rights are subject to forfeiture upon employee ceasing to be employed. As at 31 December 2020, the unamortised value of the rights is $536,981. The 900,000 Class 9 performance rights which were on issue at 31 December 2020 were forfeited subsequent to year end.

The performance rights on issue to key management personnel, as set out above, vest, subject to the following vesting conditions:

These conditions were selected to incentivise the progression of the Project development.

Class 4:

· 300,000 upon completion of a Prefeasibility Study and the release of the study results to market (vested March 2015);

· 650,000 upon completion of a Definitive Feasibility Study and release of study results to market (vested November 2015);

· 700,000 upon awarding of the Colluli mining licence (vested February 2017); and

· 800,000 upon commencement of construction of the production facility. On 3 August 2020, Mr Paul Donaldson resigned as Non-executive Director and were forfeited as a result.

Class 6:

· 10,000 upon successful completion of a dual listing of the Company on the London stock exchange (vested during 2018 and shares issued July 2018);

· 15,000 upon Endeavour Financial being paid its first milestone success fee which is linked to a letter of finance support from a lending institution (vested October 2019); and

· 25,000 upon term sheets being signed for the project financing of the Colluli project (vested during December 2019 and shares issued January 2020).

Class 7:

· 10,000 upon market announcement of a binding offtake agreement to support debt funding of the project (vested during 2018 and shares issued June 2018);

· 10,000 upon market announcement on completion of FEED (vested during 2018 and shares issued March 2018);

· 15,000 upon completion of a strategic investment at greater than 30-day VWAP plus 10% (performance hurdle forfeited as not met at December 2019 and rights were formally removed from the register in January 2020); and

· 15,000 on signing a debt term sheet for project financing or debt is secured from a strategic investor (forfeited June 2019).

Class 9:

· 100,000 when CMSC commences early works at Colluli provided this occurs in 2019 (vested December 2019 and shares issued January 2020);

· 300,000 when construction at Colluli is considered to be 50% complete provided construction is materially on time and on budget and Danakali are meeting safety standards (forfeited subsequent to year end);

· 500,000 when CMSC commences commercial production at Colluli provided this is materially on time and on budget, meeting safety and product quality standards (forfeited subsequent to year end); and

· 100,000 when CMSC have shipped and been paid for 100,000t of SOP provided this occurs materially on time, meeting safety and product quality standards (forfeited subsequent to year end).

No performance rights held by key management personnel were forfeited during the year, other than those detailed above. Subsequent to year end, all the Class 9 performance rights were forfeited.

g) Equity Instruments Held by Key Management Personnel

(i) Shares

No shares were granted as remuneration during the year ended 31 December 2020.

The number of shares in the Company held during the financial period by each director of Danakali Ltd and other key management personnel of the Group, including their personally related parties, are set out in the following tables.

(a) At the date of resignation on 3 August 2020, Mr Donaldson held 2,957,751 shares.

(ii) Options

The numbers of options over ordinary shares in the Company held during the financial period by each director of Danakali Ltd and other Key Management Personnel of the Group, including their personally related parties, are set out in the following tables.

 (iii) Performance Rights held by Key Management Personnel

Movements in Performance Rights held by Key Management Personnel are as set out in the following table:

Note:

(a) Lapse of performance rights upon ceasing to be a Director pursuant terms of Performance Rights Plan.

(b) Performance rights lapsed subsequent to year end on 26 February 2021.

h) Loans to Key Management Personnel

There were no loans to key management personnel during the period.

i) Other Transactions with Key Management Personnel

There were no other transactions with key management personnel during the period.

j) Additional Information

The remuneration structure has been set up with the objective of attracting and retaining the highest calibre staff who contribute to the success of the Company's performance and individual rewards. The remuneration policies seek a balance between the interests of stakeholders and competitive market remuneration levels. The overall level of key management personnel compensation takes into account the performance of the Group over a number of years and the stage of activities the Company is engaged in.

During the period, corporate and project development activities were undertaken to progress the Colluli Potash Project. The remuneration paid during the period is commercially reasonable for a development stage mining company. Company performance is measured against a comparable list of companies operating in the same market segment.

The Group is still in the development stage and revenue streams only relate to interest earned on surplus funds from capital raisings held at bank. The net losses after tax reflect the remeasurement loss of the receivable at fair value arising from the change in the loan repayment profile, foreign exchange loss on the loan receivable denominated in USD and administrative costs incurred by the Group. The table below shows the performance of the Group over the last 5 reporting periods:

The Company continues to review its remuneration framework to ensure it reflects current business needs, shareholder views and contemporary market practice and remains appropriate to attract, motivate, retain and reward employees.

- - END OF REMUNERATION REPORT - -

MANAGEMENT REPORT AND RESPONSIBILITY STATEMENT

In accordance with the requirements set out in DTR4.1 of the Disclosure and Transparency Rules in the United Kingdom, the Directors' Report and Corporate Governance Statement, incorporated by reference, when taken as a whole, form the Management Report.

The Directors (as listed under Corporate Information) confirm to the best of their knowledge, that:

a) the consolidated financial statements and notes to the financial statements were prepared in accordance with applicable accounting standards, give a true and fair view of the assets, liabilities, financial position and profit and loss of the Group and the undertakings included in the consolidation taken as a whole; and

b) the Directors' Report includes a fair review the development and performance of the business and the position of the Group and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties they face.

Signed in accordance with a resolution of the directors.

Seamus Cornelius

EXECUTIVE CHAIRMAN

Perth, 31 March 2021

Competent Persons and Responsibility Statements

Competent Persons Statement (Sulphate of Potash and Kieserite Mineral Resource)

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. 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.

Competent Persons Statement (Sulphate of Potash Ore Reserve)

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 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. 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.

Competent Persons Statement (Rock Salt Mineral Resource)

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. 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.

AMC Consultants Pty Ltd (AMC) independence

In reporting the Mineral Resources and Ore Reserves referred to in this public release, AMC acted as an independent party, has no interest in the outcomes of Colluli and has no business relationship with Danakali other than undertaking those individual technical consulting assignments as engaged, and being paid according to standard per diem rates with reimbursement for out-of-pocket expenses. Therefore, AMC and the Competent Persons believe that there is no conflict of interest in undertaking the assignments which are the subject of the statements.

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-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.

Forward looking statements and disclaimer

The information in this document is published to inform you about Danakali and its activities. Danakali has endeavored 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 guaranteeing 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.

Consolidated Statement of Profit or Loss and Other Comprehensive Income

The above Consolidated Statement of Profit or Loss and Other Comprehensive Income should be read in conjunction with the accompanying notes.

Consolidated Statement of Financial Position

The above Consolidated Statement of Financial Position should be read in conjunction with the accompanying notes.

Consolidated Statement of Changes in Equity