ASX Release 26 October 2016‌

SEPTEMBER 2016 QUARTERLY REPORT

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.

HIGHLIGHTS

CONTINUED SUCCESSFUL ADVANCEMENT OF THE WORLD CLASS COLLULI POTASH PROJECT

• Colluli is the most fundable and economically attractive advanced stage greenfield sulphate of potash development in the world

• Mining license approvals progressing positively towards completion

• Successful $6.7m private placement to JP Morgan (UK)

• 85 million tonne Kieserite resource defined

• MOU's signed for 200kt per annum of SOPM

• Completed final round of post Definitive Feasibility Study (DFS) stakeholder engagements

• Completed Social and Environmental Impact Assessment (SEIA) engagements

• Completed Expressions of Interest (EoI) process for engineering, procurement and construction (EPC) contract for Colluli Project

• Completed successful Colluli site visits by shortlisted EPC companies

  PLANNED FOR DECEMBER QUARTER

• Continued engagement with relevant ministries on the advancement and award of the mining license

• Continuation of off-take and financing discussions

• Advancement of pre-construction activities

  CORPORATE

  • Strong cash position of A$10.6m at quarter end

  • Progressed off-take and project funding discussions

  • Appointment of Head of Marketing

  COLLULI POTASH PROJECT - THE PREMIER POTASH AND MULTI AGRI- COMMODITY OPPORTUNITY

  PROJECT OVERVIEW

  Colluli is 100% owned by the Colluli Mining Share Company ("CMSC"), a 50:50 joint venture between Danakali and the Eritrean National Mining Corporation ("ENAMCO"), and is one of the most advanced greenfield potash developments in the world. The current concession covers over 200km2.

  A positive definitive feasibility study for the project has been completed. The project is now progressing through mining approvals and funding.

  Since exploration commenced, a world class reserve comprising over 1.1 billion tonnes of potassium salts, and 350 million tonnes of high quality rock salt have been identified.

  The completed definitive feasibility study (DFS)A demonstrates a world class development, industry leading capital intensity, bottom quartile operating costs and unrivalled product diversification potential.

  Commercially proven and commonly used processing technology is planned to process the potassium bearing salts to produce sulphate of potash (SOP). SOP is a high quality, chloride free, potash type with limited production centres globally and carries a substantial price premium over the more common potash type, potassium chloride (MOP).

  The project development strategy is built on a modular approach that mitigates commercial risk and underpins a simple scalable development model.

  There are no habitants within the Colluli tenements and the development has strong support from regional communities.

  The Colluli definitive feasibility study demonstrates a large, long life, world class potash project with significant upside potential

  PROJECT UPDATE - CONTINUED SUCCESSFUL ADVANCEMENT OF COLLULI POTASH PROJECT

  During the quarter, Danakali Limited ("Danakali" or "the Company") maintained its operational focus on its world class Colluli Potash Project ("Colluli"), located in the Danakil basin in Eritrea, East Africa.

  Following the submission of the completed definitive feasibility study to the Eritrean Ministry of Energy and Mines (MoEM) in February, significant work has been completed that builds on a well-established track record of success for

  Danakali.

  Key activities completed for the quarter include:

• Mining License approvals well progressed - following the submission of the DFS, Social and Environmental Impact Assessment, Social and Environmental Management Plans, and completion of stakeholder engagements, the mining license has continued to progress well and is nearing completion.

• 85 million tonne kieserite resource - defined within Colluli resource

• Memorandums of Understanding (MOUs) signed for sulphate of Potash Magnesia (SOPM)

• Completed Expressions of Interest (EoI) process for engineering, procurement and construction (EPC)

• Site visit completed by shortlisted EPC bidders

• Power generation bids initiated

• Completed second round of post DFS stakeholder engagements

Photo: Ministry of Energy and Mines Site Visit

Photo: Massawa Port Visit

Photo: EPC bidding site visit

Mining License Approvals well progressed - advancing to completion

Following the submission of the DFS, Social Environmental Impact Assessment (SEIA) and Social and Environmental Management Plans (SEMP), and completion of post DFS stakeholder engagements, the mining license application has progressed well. Two committees have been established and completed reviews on the DFS, SEIA and SEMP documentation.

The due diligence review committee (DDRC) established by the Ministry of Energy and Mines (MoEM) completed a comprehensive review of the DFS. Representatives from the Colluli project team presented detailed formal responses to questions arising from the review, and gave a detailed presentation to the DDRC.

The engagement was positively received and all issues and questions raised were addressed to the satisfaction of the committee.

Photo: Ministry of Energy and Mines Site Visit Photo: Submission of the DFS earlier in2016

The Impact Review Committee (IRC) was formed by the Ministry of Land, Water and Environment, and conducted a comprehensive review of the Social and Environmental Impact Assessment and Social and Environmental Management Plans. A formal response has been submitted to the IRC based on a number of general queries raised as part of the review.

The next step in the process is the establishment of a mining agreement.