Danakali : Quarterly Report - Period Ending 30 June 2017

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

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

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

• Discussions with commercial lenders advanced

• Commissioning of the telecommunications tower at the Colluli site completed

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

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

• Earthworks tendering packages developed and distributed

• Completion of pre-construction geotechnical investigations at the Colluli site

• Optimisation of plant site and pond material volumes commenced

• Improvement in brine circuit configuration to potentially reduce pond sizes

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

• Completion of revised power consumption requirements for FEED production capacity

• Completion of comprehensive logistics survey for future construction activities

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

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

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

• Advancement of commercial terms and conditions for power generation

  Planned For September Quarter

• Progress negotiations towards final binding offtake agreements

• Advance discussions with commercial lenders

• Prioritisation of procurement packages and selection preferred vendors

• Commencement of evaluation of vendor packages for revised FEED capital costs

• Evaluate revised recovery pond sizes

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

• Progress draft contract and commercial terms for the power generation facility

• Assessment of the mining contractor proposals

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

  CORPORATE

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

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

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

• Appointment of Stuart Tarrant as Chief Financial Officer

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

  Figure 1: Colluli Process Plant Design

  PROJECT PROJECT UPDATE - FEED FURTHER ADVANCED AND KEY CONTRACTS UNDER DEVELOPMENT

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

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

  Project highlights include:

• Debottlenecking of plant configuration to deliver an additional 47kt per annum of SOP
• Optimisation of plant site and pond material volumes
• Refinement of mining schedules and Initiation of formal tendering process for the mining contract with the appointment of AMC consultants
• Selection and advancement towards commercial terms and conditions of Inglett and Stubbs International as the preferred power provider for the project
• Completion of pre-construction geotechnical investigations at the Colluli site
• Appointment of Turner & Townsend as project management consultants for the execution contract scope

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

1 ASX announcement, Colluli Definitive Feasibility Study Results, 30 November 2015

2 ASX announcement, FEED optimisation increases planned Sulphate of Potash production capacity at Colluli, 3 May 2017

In addition, the FEED team have developed optimised material volumes in concrete, steel and earthworks. The revised volumes are currently under evaluation by the FEED team. Optimisation of the plant structure and footprint has been supported by the completed modular construction and assembly strategy which balances off-site fabrication with site access and equipment logistics.

An aerial LIDAR survey, was also completed for the final site road access to the future mine site from the coastal road. This work is in addition to the detailed surveys completed during the DFS.

Figure 2: Optimised site layout and mobile maintenance workshop

Photo: Colluli exploration camp hosting site visit