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Danakali Limited Danakali 2018 Financial Report

20/03/2019 7:02am

UK Regulatory (RNS & others)


TIDMDNK

RNS Number : 4131T

Danakali Limited

20 March 2019

 
 Announcement   Wednesday, 20 March 2019 
=============  ========================= 
 

Danakali releases 2018 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 2018.

Key operational highlights

 
 
   *    Completion of the Front End Engineering Design (FEED) 
        Study, confirming Colluli as the most advanced stage 
        greenfield SOP project globally with industry leading 
        capital intensity, first quartile costs, a project 
        level NPV of US$902m and IRR of 29.9% for Module I & 
        II(1) 
 
 
   *    Updated JORC-2012 compliant Ore Reserve report for 
        Colluli completed as part of FEED(2) , estimating: 
 
 
  _ 1,100Mt @ 10.5% K(2) O Ore Reserve 
  _ 203Mt of contained SOP equivalent 
  _ Expected mine life of almost 200 years at FEED production rates 
   *    Signed binding take-or-pay offtake agreement with 
        global partner EuroChem Trading GmbH (EuroChem) for 
        up to 100% of Colluli Module I SOP production for an 
        initial 10-year term, with an option to extend a 
        further 3 years(3) 
 
 
   *    Successful admission to trading on the London Stock 
        Exchange (LSE) Main Market, helping to increase the 
        Company's reach to international institutions and 
        raise the profile of the Project(4) 
 
 
   *    Significant positive developments in 
        Eritrean-Ethiopian relations including signing of 
        peace treaty 
 
 
   *    CMSC's Social and Environmental Management Plans 
        (SEMPs) were agreed and finalised following an 
        extensive review process by the Eritrean Ministry of 
        Land, Water & Environment's Department of 
        Environment(5) 
 
 
   *    DRA Global confirmed as preferred Engineering 
        Procurement Construction & Management (EPCM) 
        contractor for Colluli(6) 
 

Key financial highlights

 
 
   *    Cash position of A$9.6M as at 31 December 2018 
 
 
   *    Executed non-binding indicative US$200M debt term 
        sheet and associated mandate with highly reputable 
        African development finance institutions (DFIs) the 
        African Export-Import Bank (Afreximbank) and Africa 
        Finance Corporation (AFC), to fund construction and 
        development of Colluli(7) . 
 

Post-period highlights

 
 
   *    UNDP report released outlining potential for Colluli 
        to boost the Eritrean economy and support the 
        implementation of 13 out of the 17 total UN 
        Sustainable Development Goals (SDGs) in the 
        country(8) 
 

Corporate Governance Statement

The Corporate Governance Statement is available for download from the Company's website at http://www.danakali.com.au/images/stories/corporate-governance-statement/20190318_Corporate_Governance_Statement.pdf

For more information, please contact:

 
Danakali 
Seamus Cornelius                      William Sandover 
 Executive Chairman                    Head of Corporate Development & 
 +61 8 6189 8635                       External Affairs 
                                       +61 499 776 998 
 Corporate broker - Numis Securities   UK IR/PR - Instinctif Partners 
John Prior / Matthew Hasson / James   David Simonson / Sarah Hourahane 
 Black /                               / Dinara Shikhametova 
 Paul Gillam                           danakali@instinctif.com 
 +44 (0)20 7260 1000                   +44 (0)207 457 2020 
 
 
 
   1 DNK announcement, 29-Jan-18 
   2 DNK announcement, 19-Feb-18 
   3 DNK announcement, 12-Jun-18 
   4 DNK announcement, 24-Jul-18 
   5 DNK announcement, 22-Aug-18 
   6 DNK announcement, 27-Sep-18 
   7 DNK announcement, 6-Dec-18 
   8 DNK announcement, 30-Jan-19, Danakali and its Board take no responsibility 
   for the content of the Report, nor does the Company or its Board 
   endorse or warrant the accuracy of any content of the Report 
 

- - -S - - -

DANAKALI LTD

ABN 56 097 904 302

AUDITED FINANCIAL REPORT

FOR THE YEARED

31 DECEMBER 2018

 
 The following sections from the Financial Report are available 
  on our website at www.danakali.com: 
 
  Auditor's Independence Declaration 
  Independent Auditor's Report 
 

Corporate Information

 
 Directors 
  Seamus Cornelius 
  Paul Donaldson                         (Executive Chairman) 
  Zhang Jing                             (Non-Executive Director) 
  Robert Connochie                       (Non-Executive Director) 
  John Fitzgerald                        (Independent Non-Executive Director) 
  Andre Liebenberg                       (Independent Non-Executive Director) 
                                         (Independent Non-Executive Director) 
 Executive Management                  Joint Company Secretary 
  Stuart Tarrant (Chief Financial       Catherine Grant Edwards 
  Officer)                              Melissa Chapman 
 Registered Office and Principal Place of Business 
  Level 11, 125 St George's Terrace 
  PERTH WA 6000 
  Telephone: +61 (0)8 6189 8635 
 Bank                                Auditors 
  National Australia Bank             Ernst and Young 
  Level 12, 100 St Georges Terrace    11 Mounts Bay Road 
  PERTH WA 6005                       PERTH WA 6000 
 Share Register (Australia)          Share Register (United Kingdom) 
  Computershare Investor Services     Computershare Investor Services 
  Pty Limited                         PLC 
  Level 11, 172 St Georges Terrace    The Pavilions, Bridgwater Road 
  PERTH WA 6000                       Bristol BS13 8AE, United Kingdom 
  Telephone: 1300 850 505 (Inside     Telephone: +44 (0) 370 702 0003 
  Australia) 
  Telephone: +61 (0)3 9415 4000 
  (Outside Australia)                 www.computershare.com 
  Facsimile: +61 (0)3 9473 2500 
  www.computershare.com 
 
 

To facilitate trading of Danakali's shares on the Standard Segment of the London Stock Exchange (LSE) Main Market, Danakali has established a Depositary Interest (DI) facility, under which it has appointed Computershare Investor Services Plc as the depositary. Securities of Australian issuers such as Danakali cannot be directly registered, transferred or settled through CREST (which is the electronic settlement system in the UK). The DI facility overcomes this by creating entitlements to Danakali's shares (the DIs), which are deemed to be UK securities and therefore admissible to CREST. The underlying shares are listed and traded on the Standard Segment of the LSE Main Market, while the DIs are transferred in CREST to settle those trades.

Website

www.danakali.com

Stock Exchange Listing

Danakali Limited Shares are listed on the Australian Stock Exchange (ASX:DNK) and the London Stock Exchange (LSE:DNK).

American Depository Receipts

 
 The Bank of New York Mellon sponsors DNK's Level 1 American Depository 
  Receipts Program (ADR) in the United States of America. DNK's ADRs 
  are traded on the over-the-counter (OTC) securities market in the 
  US under the symbol DNKLY and CUSIP: 23585T101. One ADR represents 
  one ordinary share in DNK. 
  US OTC Market information is available here: http://www.otcmarkets.com/stock/DNKLY/quote 
  DNK's ADR information can also be viewed here: https://www.adrbnymellon.com/?cusip=23585T101 
  ADR Holders seeking information on their shareholding should contact: 
  shrrelations@bnymellon.com OR 
  LONDON NEW YORK 
  Mark Lewis Rick Maehr 
  mark.lewis@bnymellon.com richard.maehr@bnymellon.com 
  Telephone +44 207 163 7407 Telephone +1 212 815 2275 
 

Director'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 2018.

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.

Names, qualifications, experience and special responsibilities:

Seamus Ian Cornelius

Executive Chairman, LLB, LLM, initially appointed Non-Executive Chairman 15 July 2013, transitioned to Executive Chairman 14 June 2018

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 has been based in China since 1993, and has advised global companies, banks, major resource companies and Chinese State-owned entities on resource project investments both within China and abroad.

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:

Mr Cornelius is a member of the Audit Committee and a member of the Technical and Risk Committee.

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

Mr Donaldson has over 25 years of experience in senior management roles at BHP Billiton. At BHP Billiton Mr Donaldson managed large scale, open cut mining operations, significant growth and sustaining capital projects, and complex pyro metallurgical, beneficiation and manufacturing processes. Mr Donaldson headed the BHP Carbon Steel Materials Technical Marketing Team, managed the Port Hedland iron ore facility as well as occupying key roles in product and infrastructure planning across large scale supply chains. Mr Donaldson also brings extensive experience in high-level business improvement and logistics from base metal operations and a high degree of integrated supply chain management, technical operational management and frontline leadership experience in the steel industry. 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:

Mr Donaldson is a Chairman of the Technical and Risk Committee and a member of the Remuneration and Nomination 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 Non-Executive Chairman of Exore Resources Limited (appointed 23 December 2015) and a Non-Executive Director of Northern Star Resources Limited (appointed 30 November 2012).

Previously Mr Fitzgerald was Non-Executive Chairman of Carbine Resources Limited (13 April 2016 to 23 March 2018).

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:

Mr Fitzgerald is Chairman of the Audit Committee and 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:

Mr Connochie is a member of the Technical and Risk Committee.

Andre Liebenberg

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

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 Billiton.

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 Billiton also included key roles in the BHP Billiton merger, the bid for Rio Tinto and the bid for Potash Corp. of Saskatchewan. Prior to BHP Billiton, 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.

Special Responsibilities:

Mr Liebenberg is Chairman of the Remuneration and Nomination Committee and a member of the 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:

 
                  Ordinary    Options over Ordinary   Performance 
 Director          Shares             Shares             Rights 
 S Cornelius     10,328,965                 300,000             - 
 P Donaldson      2,957,751                 100,000       800,000 
 J Fitzgerald       526,453                 250,000             - 
 Z Jing                   -                 100,000             - 
 R Connochie              -                 500,000             - 
 A Liebenberg             -                       -             - 
                -----------  ----------------------  ------------ 
 

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 2018.

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 Company (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 future logistics potential. The Project resides on the Eritrean side of the border, giving Colluli a significant advantage relative to all other potash development projects in the Danakil Depression, which need to ship from the Tadjoura Port in Djibouti - over 600km by road from the closest project on the Ethiopian side of the border.

Colluli boasts the shallowest mineralisation in the Danakil Depression. 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% K(2) O 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.

 
 Colluli will be developed to its full potential by adopting the 
  principles of risk management, resource utilisation and modularity, 
  using the first module as a platform for growth. The Colluli Front-End 
  Engineering Design (FEED) modules are: 
   *    Module I - 472ktpa SOP production 
 
 
   *    Module II - additional 472ktpa SOP production 
        commencing in year 6 
 

The massive Colluli Ore Reserve has significant capacity to underpin further expansions and support decades of growth beyond Modules I and II.

Colluli has significant diversification potential beyond SOP, including the option to produce additional potash and salt products such as MOP, SOP-M, kieserite (MgSO(4) .H(2) O), gypsum (CaSO(4) .2H(2) O), magnesium chloride (MgCl(2) ), 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 for de-icing, processed Rock Salt can be used as table salt.

A FEED for Colluli was undertaken to provide offtakers and funders with a high level of study detail and accuracy and is the final study stage before project execution. FEED firmly establishes Colluli as the most progressed, economically attractive, and fundable SOP greenfield development project globally (ASX announcement 29 January 2018). The FEED results reaffirm the outstanding project economics of Colluli. Industry leading capital intensity achieved in the DFS (ASX announcement 30 November 2015) further reduced as a result of lower development capital requirements for Module I and increased annual production rate. This, combined with forecast first quartile operating costs, resulted in a Project Net Present Value (NPV(10) ) of US$902M and Internal Rate of Return (IRR) of 29.9%. The Danakali economic outcomes were an NPV(10) of US$439M and IRR of 31.3%.

Mining Agreement Executed and Mining Licenses Awarded

The Project is fully permitted and ready to advance into engineering and construction upon securing funding.

CMSC 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.

A Social and Environmental Impact Assessment (SEIA) and associated Social and Environmental Management Plans (SEMPs) have been completed to ensure consistency 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 finalised by CMSC have were signed off in August 2018 following an extensive review process. The SEMPs are a cornerstone of the environmental, social and safety management system being developed by CMSC and provide the foundation for compliance.

MARKETING AND PROJECT FINANCE UPDATE

Off-take

A binding take-or-pay offtake agreement has been reached 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 is instrumental in unlocking project funding.

Project Financing

Danakali successfully executed a mandate to provide fully underwritten debt finance facilities of US$200M to fund the construction and development of the Colluli Potash Project. African development financial institutions African Export-Import Bank (Afreximbank) and Africa Finance Corporation (AFC) are acting as Mandated Lead Arrangers. The execution of the mandate is a critical project financing and execution milestone.

Following the execution of the US$200M debt mandate, remaining key debt funding milestones include the finalisation of key operational contracts and final credit approval from debt financiers. The Project is "shovel ready" and Danakali continues to evaluate strategies to raise final funding required to commence construction at Colluli.

Key Operational Contracts

The following operational contracts are defined as project documents, and are necessary to advance the completion of debt due diligence referred to above.

Mining - Mining contract technical and commercial evaluation complete

Following a comprehensive bidding process for the Colluli mining contract, the technical and commercial compliance process is complete. Participating bidders visited Eritrea, the Port of Massawa, and the future Colluli mine site. A comprehensive review of the Colluli mine plan and selected mining method was also undertaken.

The technical and commercial compliance was evaluated and confirmed by AMC Consultants.

The mining bids have been shortlisted to two competitive bids from highly qualified bidders. Commercial negotiations are currently in progress.

Power - Finalising negotiations with preferred power provider

Inglett and Stubbs International has been appointed as the preferred power provider with commercial terms materially agreed.

EPCM - Evaluations underway, preliminary negotiations expected in March 2019 Quarter

CMSC has confirmed DRA Global as the preferred Engineering, Procurement and Construction Management (EPCM) contractor for Colluli. DRA is a high quality multi-disciplinary global Project Management and Engineering group with strong African experience and EPCM delivery capability. The commercial and legal position is materially agreed.

CORPORATE

LSE Main Market Listing

The Company's ordinary shares were admitted to the Standard Segment of the Official List of the Financial Conduct Authority and to trading on the LSE Main Market at 8.00am BST on 24 July 2018 (LSE:DNK).

Board Changes

Mr Seamus Cornelius was appointed as Executive Chairman on 14 June 2018. Mr Cornelius has served as Non-Executive Chairman of Danakali since July 2013. He has a high degree of expertise in cross-border transactions, particularly in the resources and finance sectors.

Mr Cornelius is a member of the Company's Audit Committee, and Technical and Risk Committee, and is the Chairman of the CMSC (the 50:50 joint venture between Danakali and ENAMCO and 100% owner of the Colluli Potash Project. Mr Cornelius has to this point been an integral part of the Company's progression from Scoping Study through to Front End Engineering Design, signing of a Mining Agreement, awarding of Mining Licences, and, as announced on Tuesday, 12 June 2018, the achievement of a binding take-or-pay offtake agreement with EuroChem.

Management Changes

Mr Danny Goeman resigned as Chief Executive Officer (CEO) of the company with effect from 3 August 2018. The Company is well advanced in the recruitment of a new CEO.

 
 Shares 
  During the year, the Company issued the following fully paid ordinary 
  shares: 
   *    10,381,821 shares on exercise of unlisted options at 
        $0.35 each 
 
 
   *    400,000 shares on exercise of unlisted options at 
        $0.405 each 
 
 
   *    200,000 shares on exercise of unlisted options at 
        $0.450 each 
 
 
   *    738,346 shares on cashless exercise of 1,949,000 
        unlisted options at $0.405 each 
 
 
   *    116,586 shares on cashless exercise of 750,000 
        unlisted options at $0.527 each 
 
 
   *    458,338 shares on cashless exercise of 2,350,000 
        unlisted options at $0.550 each 
 
 
   *    65,000 shares on vesting of performance rights (Class 
        6: 10,000; Class 7: 20,000; Class 8: 35,000) 
 
 
   *    364,620 shares issued in lieu of fees to corporate 
        advisors 
 
 
  At 31 December 2018, there were a total of 264,422,398 fully paid 
  ordinary shares on issue. 
  Options 
  There were no unlisted options issued during the year. 
  The following unlisted options were exercised and converted to 
  shares during the year: 
   *    10,381,821 unlisted options exercised at $0.35 each 
        raising $3,633,637 
 
 
   *    400,000 unlisted options exercised at $0.405 each 
        raising $162,000 
 
 
   *    200,000 unlisted options exercised at $0.450 each 
        raising $90,000 
 
 
   *    1,949,000 unlisted options with an exercise price of 
        $0.405 were cashless exercised 
 
 
   *    750,000 unlisted options with an exercise price of 
        $0.527 were cashless exercised 
 
 
   *    2,350,000 unlisted options with an exercise price of 
        $0.550 were cashless exercised 
 
 
  The following unlisted options expired or lapsed during the year: 
   *    75,000 unlisted options at $0.350 each expired on 29 
        May 2018 
 
 
   *    100,000 unlisted options at $0.558 each lapsed on 3 
        August 2018 
 
 
  At 31 December 2018, there were a total of 2,990,000 unlisted options 
  on issue at various exercise prices and expiry dates. 
  Performance Rights 
  There were no performance rights issued during the year. 
  The following performance rights vested and were converted to shares 
  during the year: 
   *    10,000 Class 6 performance rights 
 
 
   *    20,000 Class 7 performance rights 
 
 
   *    35,000 Class 8 performance rights 
 
 
  The following performance rights lapsed during the year: 
   *    28,000 Class 1 performance rights 
 
 
  At 31 December 2018, there were a total of 1,315,000 performance 
  rights on issue in the following classes: 
   *    280,000 Class 1 performance rights 
 
 
   *    800,000 Class 4 performance rights 
 
 
   *    100,000 Class 5 performance rights 
 
 
   *    40,000 Class 6 performance rights 
 
 
   *    30,000 Class 7 performance rights 
 
 
   *    65,000 Class 8 performance rights 
 

Annual General Meeting

The Company's annual general meeting was held on 11 May 2018 (AGM). For more information, refer to the Notice of AGM and Results available via the Company's website.

Sustainable Development Framework

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 govern its Corporate Social Responsibilities (CSR) and Sustainability 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.

Danakali has committed to release a CSR report. This report details the policies and frameworks in place to ensure that Danakali continues to operate in a sustainable manner.

Danakali framework and policies are endorsed and adopted by joint venture partner, CMSC.

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 2018. 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 2018 is as follows:

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

 
                       Tonnes   Density   K(2) O Equiv.   Kieserite 
      Rock Unit          Mt     t/m(3)          %             % 
                      -------  --------  --------------  ---------- 
 Sylvinite              265       2.2          12%          0.03% 
                      -------  --------  --------------  ---------- 
 Upper Carnallitite      51       2.1          12%           3% 
                      -------  --------  --------------  ---------- 
 Lower Carnallitite     347       2.1          7%            22% 
                      -------  --------  --------------  ---------- 
 Kainitite              626       2.1          12%           1% 
                      -------  --------  --------------  ---------- 
 Total                 1,289      2.1          11%           7% 
                      -------  --------  --------------  ---------- 
 

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 and this update is included below (ASX announcement 19 February 2018).

The Colluli JORC-2012 compliant Ore Reserve estimate by potash mineral as at 31 December 2018 is as follows:

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

 
                      Proved          Probable                    Total 
                                                                        K(2)     K(2) 
                          K(2)             K(2)               K(2)      SO(4)    SO(4) 
                         O Equiv          O Equiv            O Equiv    Equiv    Equiv 
   Occurrence     Mt        %      Mt        %       Mt         %         %      Mt(1) 
                 ----  ---------  ----  ---------  ------  ---------  -------  ------- 
   Sylvinite 
   (KCl.NaCl)     77     15.0%     173    12.1%      250     13.0% 
                 ----  ---------  ----  ---------  ------  ---------  -------  ------- 
  Carnallitite 
  (KCl.MgCl(2) 
    .H(2) O)      77      6.9%     279     7.8%      356      7.6% 
                 ----  ---------  ----  ---------  ------  ---------  -------  ------- 
   Kainitite 
  (KCl.MgSO(4) 
    .H(2) O)      131    11.8%     363    11.2%      494     11.4% 
                 ----  ---------  ----  ---------  ------  ---------  -------  ------- 
     Total        285    11.3%     815    10.3%     1,100    10.5%      18.5     203 
                 ----  ---------  ----  ---------  ------  ---------  -------  ------- 
 

(1) Equivalent K(2) SO(4) (SOP) calculated by multiplying %K(2) O 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 2018, 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

 
 Classification    Tonnes   NaCl      K      Mg     CaSO(4)   Insolubles 
                    (Mt) 
 Measured            28     97.2%   0.05%   0.05%    2.2%       0.23% 
                  -------  ------  ------  ------  --------  ----------- 
 Indicated          180     96.6%   0.07%   0.06%    2.3%       0.24% 
                  -------  ------  ------  ------  --------  ----------- 
 Inferred           139     97.2%   0.05%   0.05%    1.8%       0.25% 
                  -------  ------  ------  ------  --------  ----------- 
 Total              347     96.9%   0.06%   0.05%    2.1%       0.24% 
                  -------  ------  ------  ------  --------  ----------- 
 

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

No 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 2019

 
 The following key activities are scheduled over the coming year: 
   *    Appointment of new Company CEO 
 
 
   *    Finalise credit approval from debt financiers 
 
 
   *    Finalise contract with preferred EPCM contractor DRA 
        Global 
 
 
   *    Determine preferred mining services contractor and 
        finalise negotiations 
 
 
   *    Finalise contract with preferred power provider 
        Inglett & Stubbs International 
 
 
   *    Finalise arrangements with commercial lenders 
 
 
   *    Finalise funding to advance Colluli to construction 
 

FINANCE REVIEW

The Group recorded a net loss after tax of $6,944,413 for the financial year to 31 December 2018 compared to a loss of $6,839,936 for the financial year to 31 December 2017. As the Group is still in the exploration and development stage, revenue streams mainly relate to interest earned on investing of surplus funds from capital raisings. The net losses after tax reflect the Groups' exploration and development expenditure on the Colluli Potash Project and ongoing administration costs.

Total consolidated cash on hand at the end of the financial year was $9,550,585 (31 December 2017: $15,559,980).

 
 Operating activities utilised $3,430,463 (31 December 2017: $1,279,679 
  utilised) of net cash flows. Net cash outflow from investing activities 
  of $6,464,570 (31 December 2017: $7,721,815) was primarily in relation 
  to expenditure made to advance the Colluli Project in relation 
  to: 
   *    Completion of the FEED 
 
 
   *    Completion of off-take agreement negotiations 
 
 
   *    Advancing financing negotiations 
 
 
   *    Advancing key operational contracts 
 

Net cash inflow from financing activities of $3,885,638 in the financial year to 31 December 2018 was attributable to consideration received upon exercise of options (31 December 2017: $13,656,714 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.

DIVIDS

No dividends were paid or declared during the financial year to 31 December 2018. No recommendation for payment of dividends has been made.

DIRECTORS' MEETINGS

The number of meetings of the Company's Board of Directors held during the financial year ended 31 December 2018 and the number of meetings attended by each Director were:

 
                   Board of Directors        Audit Committee            Remuneration            Technical and 
                                                                       and Nomination           Risk Committee 
                                                                          Committee 
                   Total        Total       Total        Total       Total        Total       Total        Total 
                  meetings     attended    meetings     attended    meetings     attended    meetings     attended 
                   held /                   held /                   held /                   held / 
                  eligible                 eligible                 eligible                 eligible 
 Director         to attend                to attend                to attend                to attend 
                -----------  ----------  -----------  ----------  -----------  ----------  -----------  ---------- 
 S Cornelius         13          13           2            2           -            -           1            1 
 P Donaldson         13          13           -            -           6            5           1            1 
 J Fitzgerald        13          12           2            2           6            6           -            - 
 J Zhang             13           8           -            -           -            -           -            - 
 R Connochie         13          12           -            -           -            -           1            1 
 A Liebenberg        13          10           2            2           6            6           -            - 
                -----------  ----------  -----------  ----------  -----------  ----------  -----------  ---------- 
 

OPTIONS

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

 
                                                              Number of options 
------------------------------------------------------------  ----------------- 
Balance at the beginning of the year                                 19,195,821 
Movements of share options during the financial year 
 ended 31 December 2018: 
  Exercised, exercisable at $0.405, expiry date 13 May 
   2018                                                             (2,349,000) 
  Exercised, exercisable at $0.350, expiry date 30 March 
   2018                                                             (9,656,821) 
  Exercised, exercisable at $0.350, expiry date 13 May 
   2018                                                               (725,000) 
  Exercised, exercisable at $0.527, expiry date 29 May 
   2018                                                               (750,000) 
  Exercised, exercisable at $0.550, expiry date 31 May 
   2018                                                               (600,000) 
  Exercised, exercisable at $0.450, expiry date 23 June 
   2018                                                               (200,000) 
  Exercised, exercisable at $0.550, expiry date 4 November 
   2018                                                               (750,000) 
  Exercised, exercisable at $0.550, expiry date 31 December 
   2018                                                             (1,000,000) 
  Cancelled, exercisable at $0.350, expiry date 13 May 
   2018                                                                (75,000) 
  Cancelled, exercisable at $0.558, expiry date 8 August 
   2019                                                               (100,000) 
  Share options outstanding at 31 December 2018                       2,990,000 
Movements since the financial year ended 31 December 
 2018: 
  Issued, exercisable at $1.031, expiry date 24 January 
   2022                                                               1,724,015 
Total number of share options outstanding as at the 
 date of this report                                                  4.714.015 
                                                              ----------------- 
 
 
         Expiry date                Exercise price        Number of options 
-----------------------------  -------------------------  ----------------- 
        8 August 2019                   $0.558                      900,000 
       7 October 2019                   $0.543                      250,000 
         19 May 2020                    $0.940                    1,440,000 
        20 June 2019                    $0.960                      400,000 
       24 January 2022                  $1.031                    1,724,015 
                                                          ----------------- 
Total number of share options outstanding at the date 
 of this report                                                   4,714,015 
                                                          ----------------- 
 

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

 
      The following remuneration options were granted (or agreed to be 
       granted subject to receipt of shareholder approval in the case 
       of director options) to key management personnel of the Company 
       since the end of the financial year and up to the date of this 
       report: 
        *    301,040 unlisted options at $1.031 each expiring 24 
             January 2022 to director Seamus Cornelius or his 
             nominee 
 
 
        *    583,000 unlisted options at $1.108 each expiring 13 
             March 2022 to nominee of Stuart Tarrant 
 

No other 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:

 
                                                       Number of rights 
-----------------------------------------------------  ---------------- 
Balance at the beginning of the year                          1,408,000 
Movements of performance rights during the financial 
 year ended 31 December 2018: 
  Issued                                                              - 
  Vested and Exercised (a)                                     (65,000) 
  Forfeited (b)                                                (28,000) 
  Performance rights outstanding at 31 December 2018          1,315,000 
Movements since the financial year ended 31 December 
 2018: 
  None                                                                - 
Total number of performance rights as at the date of 
 this report                                                  1,315,000 
                                                       ---------------- 
 

Note:

(a) Performance rights vested upon announcement of binding a offtake agreement (10,000 rights), associated with completion of FEED (20,000 rights), LSE listing (30,000 rights), and in respect of investor roadshows (5,000 rights).

   (b)   Performance rights forfeited in respect of former employees. 

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 $56,384 (2017: $35,625) 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.

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: 
 
       *    Preparation and lodgement of income tax returns 
 
 
       *    Assistance with preparation of employee share scheme 
            reporting 
 
 
       *    General tax advice 
 
 
       *    Corporate advisory services 
 
 
       *    LSE listing 
 
 
                                      2018     2017 
                                        $        $ 
-----------------------------------  -------  ------ 
(a) Audit services 
    Ernst and Young                   44,837  41,391 
                                      44,837  41,391 
                                     -------  ------ 
(b) Non-audit services 
    Ernst and Young - LSE listing    123,332       - 
    Ernst and Young - Other           55,973   6,000 
                                     179,305   6,000 
                                     -------  ------ 
 

CORPORATE GOVERNANCE

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

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 INDEPENCE 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 2018 were: 
  Directors 
  S Cornelius Executive Chairman (Transitioned from Non-Executive 
  Chairman to Executive Chairman 14 June 2018) 
  P Donaldson Non-Executive Director 
  J Fitzgerald Non-Executive Director 
  J Zhang Non-Executive Director 
  R Connochie Non-Executive Director 
  A Liebenberg Non-Executive Director 
 
  Named Key Management Personnel 
  D Goeman Chief Executive Officer (Appointed 21 December 2017) (Resigned 
  3 August 2018) 
  S Tarrant Chief Financial Officer 
  C Grant-Edwards Joint Company Secretary 
  M Chapman Joint Company Secretary 
 

All of the above persons were key management personnel during the financial year to 31 December 2018 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:

 
 Remuneration Component                  Item                            Purpose                      Link to 
                                                                                                    Performance 
 Fixed Remuneration                                             Provide competitive          Executive performance 
                            *    Base salary                    remuneration with             and remuneration 
                                                                reference to the              packages are reviewed 
                                                                role and responsibilities,    at least annually 
                            *    Superannuation contributions   market and experience,        by the Board and 
                                                                to attract high               Remuneration and 
                                                                calibre people.               Nomination Committee. 
                            *    Other benefits                                               The review process 
                                                                                              includes consideration 
                                                                                              of the individual's 
                                                                                              performance in 
                                                                                              addition to the 
                                                                                              overall performance 
                                                                                              of the Group. 
                         ------------------------------------  ---------------------------  -------------------------- 
 Performance Based                                              Provide reward               Award of STI linked 
  Short Term Incentive       *    Cash bonus                     to KMP for the               directly to achievement 
  (STI)                                                          achievement of               of KPI's and performance 
                                                                 individual and               targets. 
                                                                 Group performance 
                                                                 targets linked 
                                                                 to the Company's 
                                                                 strategic objectives. 
                         ------------------------------------  ---------------------------  -------------------------- 
 Performance Based:                                             Provide reward               Award of LTI linked 
  Long Term Incentive        *    Shares                         to KMP for their             directly to achievement 
  (LTI)                                                          continued service            of strategic Company 
                                                                 and their contribution       objectives. 
                             *    Options                        to achieving corporate 
                                                                 objectives set 
                                                                 by the Board to 
                             *    Performance Rights             ensure the long-term 
                                                                 growth of the 
                                                                 Company. 
                         ------------------------------------  ---------------------------  -------------------------- 
 
 
      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 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 exploration 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 are remunerated with both cash salary and option grants to enable the company to preserve cash reserves and to align the Directors interests to those of the shareholders. The Board views this approach to be reasonable relative to the stage of development of its flagship project. 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 ($40,000 
             per annum) prior to any statutory superannuation 
             payments; 
 
 
        *    Additional fees are paid to Directors who serve on 
             the board sub-committees; 
 
 
        *    Under the current remuneration structure and subject 
             to shareholder approval, a grant of Options may be 
             made; 
 
 
        *    Any options granted and approved will be struck at 
             significant premium to VWAP; 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 $400,000 as approved by shareholders on 17 November 2014.

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 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 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 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 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 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. 
   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 key management 
   personnel is reviewed annually to ensure the executives' pay is 
   competitive with the market. The pay of key management personnel 
   is also reviewed on promotion. There is no guaranteed pay increase 
   included in any key management personnel's contract. 
   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 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. 
   Given the current phase of Danakali's life cycle, the Board deems 
   that LTI's are the most appropriate incentive measure to align 
   KMP performance with company objectives. No KPI's were set and 
   no STI's granted in the current period. 
   iii) Variable Remuneration - Long Term Incentives (LTI) 
   At the 11 May 2019 AGM, the Company failed to obtain shareholder 
   approval of its proposed Long Term Incentive Plan (LTIP). There 
   were no long term incentives provided to directors and employees 
   during the current period under the LTIP or otherwise. 
   In previous financial years, long term incentives were provided 
   to directors and employees through the issue of options and performance 
   rights. The Company previously issued performance rights to its 
   employees (including KMP) under the Performance Rights Plan (PRP). 
   The PRP was re-approved by shareholders at the general meeting 
   held 17 November 2014. The PRP provided incentives, which promote 
   the long-term performance and growth of the Company. The performance 
   conditions were chosen to strengthen the links between the Company 
   objectives and the role performed by its Directors and employees. 
   The PRP was designed to increase the range of potential incentives 
   available to Directors and employees and to recognise their contribution 
   to the Company's success. 
   Under the PRP, performance rights were granted over ordinary shares 
   in the Company on an annual basis, up until 17 November 2017 (three 
   years from re-approval date of PRP). The vesting conditions in 
   respect of performance rights issued to KMP under the PRP that 
   are outstanding at 31 December 2018 are as follows: 
   Class 4: 
    *    800,000 upon commencement of construction of the 
         production facility. 
 
 
   Class 6: 
    *    15,000 upon Endeavour Financial being paid its first 
         milestone success fee which is linked to the granting 
         of Credit Approval for the Colluli project finance; 
         and 
 
 
    *    25,000 upon execution of Colluli project finance 
         facility documents. 
 
 
   Class 7: 
    *    15,000 upon completion of a strategic investment on 
         satisfactory terms; and 
 
 
    *    15,000 upon execution of Colluli project finance 
         facility documents. 
 
 
 
   Details of options issued to key management personnel can be found 
   in section f(i) below. 
   Details of performance rights issued to 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 99% of votes in favour of its Remuneration Report for the financial year ending 31 December 2017 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 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 2018:

 
Financial Year        Short-Term        Post-Employment  Long      LTI (d)                        Total      Options 
      to                                                 Term       Share Based Payments                     percentage 
  31 December                                            Benefits                                            of total 
     2018                                                                                                    remuneration 
                                                         Long 
                                                         Service 
                 Salary     Annual      Super-           Leave              Options  Performance 
                  and Fees   Leave (e)   annuation       (f)        Shares  (g)       Rights (g) 
                 $          $           $                $         $        $        $            $          % 
                 ---------  ----------  ---------------  --------  -------  -------  -----------  ---------  ------------ 
 Non-Executive 
  Directors 
 S Cornelius 
  (a)               43,269           -                -         -        -        -            -     43,269             - 
 P Donaldson       171,819           -            6,293         -        -        -        3,600    181,712             - 
 J Fitzgerald       56,154           -            5,335         -        -        -            -     61,489             - 
 J Zhang            38,987           -                -         -        -        -            -     38,987             - 
 R Connochie        44,987           -                -         -        -        -            -     44,987             - 
 A Liebenberg       64,987           -                -         -        -   17,101            -     82,088           21% 
 Executive 
 Directors 
 S Cornelius 
  (a)              110,878           -                -         -        -        -            -    110,878             - 
Other Key 
Management 
Personnel 
 D Goeman (b)      225,406           -           14,729   (8,178)        -        -            -    231,957             - 
 S Tarrant         261,082       9,915           24,146    10,377        -        -        3,880    309,400             - 
 C 
  Grant-Edwards 
  (c)               43,000           -                -         -        -        -            -     43,000             - 
 M Chapman (c)      43,000           -                -         -        -        -            -     43,000             - 
 TOTAL           1,103,569       9,915           50,503     2,199        -   17,101        7,480  1,190,767            1% 
 
 
   Note: 
    (a) Mr S Cornelius transitioned from the role of Non-Executive Chairman to Executive Chairman on 
    14 June 2018. 
    (b) Mr Goeman resigned as Chief Executive Officer on 3 August 2018. At resignation Mr Goeman retained 
    900,000 unlisted vested options exercisable at $0.558 expiring 8 August 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) Annual leave amount included in this table refers to movements during the year. 
    (f) Long service leave amount included in this table refers to movements 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 Director Options and performance rights (refer details 
    below). 
 

Key management personnel of the Company for the financial year to 31 December 2017:

 
Financial Year        Short-Term        Post-Employment  Long      LTI (j)                         Total      Options 
      to                                                 Term       Share Based Payments                      percentage 
  31 December                                            Benefits                                             of total 
     2017                                                                                                     remuneration 
                                                         Long 
                                                         Service 
                 Salary     Annual      Super-           Leave                        Performance 
                  and Fees   Leave (k)   annuation       (l)        Shares  Options    Rights 
                 $          $           $                $         $        $         $            $          % 
                 ---------  ----------  ---------------  --------  -------  --------  -----------  ---------  ------------ 
 Non-Executive 
  Directors 
 S Cornelius        88,762           -                -         -        -    60,734            -    149,496            41 
 P Donaldson 
  (a)                1,534           -              146         -        -         -            -      1,680             - 
 J Fitzgerald       56,298           -            5,348         -        -    50,612            -    112,258            45 
 J Zhang            41,013           -                -         -        -    20,245            -     61,258            33 
 R Connochie 
  (b)               39,944           -                -         -        -   101,224            -    141,168            72 
 A Liebenberg 
  (c)               13,622           -                -         -        -         -            -     13,622             - 
 L Cornelius 
  (d)               39,049           -            3,710         -        -    38,465        7,050     88,274            44 
 A Kiernan (e)       5,667           -              538         -        -         -        4,500     10,705             - 
 Executive 
 Directors 
 P Donaldson 
  (a)              347,481       4,235           29,452  (25,917)        -    20,245  266,189 (m)    641,685             3 
Other Key 
Management 
Personnel 
 D Goeman (f)      252,878      18,336           24,023     6,533        -    99,330            -    401,100            25 
 S Tarrant (g)     133,846       9,942           12,715     2,417        -         -       49,513    208,433             - 
 C 
  Grant-Edwards 
  (h)                9,000           -                -         -        -         -            -      9,000             - 
 M Chapman (h)       9,000           -                -         -        -         -            -      9,000             - 
 C Els (i)         161,564           -           13,637   (5,403)        -  (78,691)            -     91,107          (82) 
 TOTAL           1,199,658      32,513           89,569  (22,370)        -   312,164      327,252  1,938,786            16 
 
 
  Note: 
   (a) Mr Donaldson transitioned from role of Executive Director to Non-Executive Director 21 December 
   2017. Annual leave entitlements owing to Mr Donaldson at date of transition of $105,536 were paid 
   out in January 2018. 
   (b) Mr Connochie was appointed Non-Executive Director 6 February 2017. 
   (c) Mr Liebenberg was appointed Non-Executive Director 2 October 2017. 
   (d) Mr L Cornelius resigned as Non-Executive Director 17 November 2017. The share price on the 
   date of resignation was $0.70. At resignation Mr Cornelius retained 50,000 Class 1 performance 
   rights, 400,000 unlisted options exercisable at $0.405 expiring 13 May 2018, 190,000 unlisted options 
   exercisable at $0.94 expiring 19 May 2020 and 500,000 unlisted option exercisable at $0.35 expiring 
   30 March 2018. The value of Mr Cornelius's options and performance rights had been fully amortised 
   at the date of resignation. 
   (e) Mr Kiernan resigned as Non-Executive Director 6 February 2017. The share price on the date 
   of resignation was $0.745. At resignation Mr Kiernan retained 75,000 Class 2 performance rights, 
   400,000 unlisted options exercisable at $0.405 expiring 13 May 2018, 50,000 unlisted options exercisable 
   at $0.35 expiring 13 May 2018 and 1,300,000 unlisted option exercisable at $0.278 expiring 17 November 
   2017. The value of Mr Kiernan's options and performance rights had been fully amortised at the 
   date of resignation. 
   (f) Mr Goeman was appointed Chief Executive Officer 21 December 2017. 
   (g) Mr Tarrant was appointed Chief Financial Officer 12 June 2017. 
   (h) Ms Grant-Edwards and Ms Chapman were appointed joint Company Secretary 7 July 2017. Company 
   secretarial services are provided through Bellatrix Corporate Pty Ltd. Fees charged are on an arms-length 
   basis. 
   (i) Mr Els resigned as Chief Financial Officer on 12 June 2017 and Company Secretary 7 July 2017. 
   The options held by Mr Els at resignation were cancelled. 
   (j) 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. 
   (k) Annual leave amount included in this table refers to movements during the year. 
   (l) Long service leave amount included in this table refers to movements during the year. 
   (m) The amount disclosed in the 31 December 2017 financial report was $394,800 which was based 
   on an incorrect calculation. This comparative figure has been adjusted to reflect the value based 
   on the corrected calculation. 
 

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

 
                                    Financial Year to 31 December 2018 
           Name             Fixed Remuneration   At risk - STI   At risk - LTI 
                           -------------------  --------------  -------------- 
 Non-Executive Directors 
 S Cornelius                       100%                -               - 
 P Donaldson                       98%                 -              2% 
 J Fitzgerald                      100%                -               - 
 J Zhang                           100%                -               - 
 R Connochie                       100%                -               - 
 A Liebenberg                      79%                 -              21% 
 Executive Directors 
 S Cornelius                       100%                -               - 
 Other Key Management 
  Personnel 
 D Goeman                          100%                -               - 
 S Tarrant                         99%                 -              1% 
 C Grant-Edwards                   100%                -               - 
 M Chapman                         100%                -               - 
                           -------------------  --------------  -------------- 
 

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.

 
     S Cornelius, Executive Chairman (Transitioned from Non-Executive 
      to Executive Chairman 14 June 2018): 
       *    Under an executive services agreement for the 
            provision of executive duties, the term of which will 
            be three months after the appointment of a new CEO, 
            Mr Cornelius received: 
 
 
      o For the period 14 June 2018 to 31 October 2018: $40,875 
      o For the period 1 November 2018 to 31 December 2018: $23,667 
       *    In addition, Mr Cornelius remains entitled to receive 
            his pre-existing director fees (approximately $89,000 
            per annum) 
 
 
      S Tarrant, Chief Financial Officer 
       *    Appointed 12 June 2017 
 
 
       *    Original agreement was for a fixed term expiring 31 
            August 2018. Effective 1 June 2018, Mr Tarrant was 
            engaged as a permanent full-time employee under a 
            revised employment agreement. 
 
 
       *    For the period 1 January 2018 to 31 May 2018: Base 
            salary of $240,000 per annum plus statutory 
            superannuation 
 
 
       *    For the period 1 June 2018 to 31 December 2018: 
            Remuneration of $300,000 per annum inclusive of 
            statutory superannuation 
 
 
       *    Notice period of three months, required to be given 
            by either party for termination 
 
 
      D Goeman, Chief Executive Officer: 
       *    Appointed 21 December 2017 (Resigned 3 August 2018) 
 
 
       *    No set term of agreement 
 
 
       *    Base salary of $330,000 per annum plus statutory 
            superannuation 
 
 
       *    Notice period of six months, required to be given by 
            either party for termination 
 

f) Details of Share Based Compensation

(i) Options

On 19 October 2018, the Directors agreed to issue 500,000 unlisted options with no vesting conditions to Mr Andre Liebenberg at an exercise price of $0.912 each and an expiry date of 11 May 2020, subject to receipt of shareholder approval (Director Options).

Shareholder approval for the issue of the Director Options will be sought at an upcoming general meeting of the Company. The grant date is therefore after the period in which services have begun to be rendered. Therefore, the grant date fair value presented in the 31 December 2018 financial statements is provisional, estimated by reference to the period end share price. Once the date of the grant is known, this provisional estimate of the grant date fair value will be revised.

There were no new options granted to key management personnel during the year, other than the 500,000 options granted to a director, subject to receipt of shareholder approval (the Director Options).

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 2018 are set out in the following table. The Director Options have been included in this table:

 
                                                                                Value 
                    Vesting and                                               per option        Vested 
                   first exercise                     Number      Exercise     at grant    and exercisable 
   Grant date           date         Expiry date     of Options     price        date             % 
                    19 May 2017 
  19 May 2017            (a)         19 May 2020     1,250,000     $0.940      $0.202            100% 
                 -----------------  -------------  ------------  ---------  ------------  ----------------- 
   19 October       On or before                      500,000 
      2018           31 May 2019     11 May 2020        (b)        $0.912      $0.105             - 
                 -----------------  -------------  ------------  ---------  ------------  ----------------- 
 Total Options                                       1,750,000 
-------------------------------------------------  ------------  ---------  ------------  ----------------- 
 Note: 
  (a) The options were issued in recognition of skill and expertise 
  brought to the Company and therefore, there were no conditions 
  attached to the options. 
  (b) Options will be issued following receipt of shareholder approval. 
  The options are to be issued in recognition of skill and expertise 
  brought to the Company and therefore, there will be no conditions 
  attached to the options. 
  Details of options over ordinary shares in the Company, provided 
  as remuneration to key management personnel are set out in the 
  following table. 
  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. 
 
 
 
                                                                                                             Number 
                                  Year                       Value        Number of                         of options 
                                in which      Number       of options       options                         forfeited 
                     Year        options     of options     at grant     vested during       Vested           during 
 Name              of grant       vest        granted         date        the period     and exercisable    the period 
 S Cornelius         2017         2017        300,000       $60,734        300,000            100%              - 
                 -----------  -----------  ------------  ------------  ---------------  ----------------  ------------ 
 P Donaldson         2017         2017        100,000       $20,245        100,000            100%              - 
                 -----------  -----------  ------------  ------------  ---------------  ----------------  ------------ 
 J Fitzgerald        2017         2017        250,000       $50,612        250,000            100%              - 
                 -----------  -----------  ------------  ------------  ---------------  ----------------  ------------ 
 Z Jing              2017         2017        100,000       $20,245        100,000            100%              - 
                 -----------  -----------  ------------  ------------  ---------------  ----------------  ------------ 
 R Connochie         2017         2017        500,000      $101,224        500,000            100%              - 
                 -----------  -----------  ------------  ------------  ---------------  ----------------  ------------ 
 A Liebenberg        2018         2019        500,000       $52,476           -                 -               - 
                 -----------  -----------  ------------  ------------  ---------------  ----------------  ------------ 
 Total Options                               1,750,000                    1,250,000                             - 
-----------------------------------------  ------------  ------------  ---------------  ----------------  ------------ 
 

A total of 2,900,000 remuneration options were cashless exercised by key management personnel during the year, as follows:

 
 Name                           Cashless Exercise 
                    Number      Amount     Number     Fair value 
                   of options    paid     of shares    of shares 
                   exercised              acquired     acquired 
                 ------------  -------  -----------  ----------- 
 S Cornelius       1,250,000      -       405,781      $290,750 
                 ------------  -------  -----------  ----------- 
 P Donaldson        500,000       -       189,417      $123,500 
                 ------------  -------  -----------  ----------- 
 J Fitzgerald      1,150,000      -       268,119      $171,550 
                 ------------  -------  -----------  ----------- 
 Total Options     2,900,000      -       863,317      $585,800 
---------------                -------  -----------  ----------- 
 

(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 2018 are as set out in the following table:

 
                                Performance rights      Number of performance       Performance 
                                      granted               rights vested         rights cancelled 
                     Year                               In prior    In current                         Total 
      Name         of grant     Class       Number       periods      period                          Unvested 
                              ---------  -----------  -----------  ----------- 
                                Class 
 P M Donaldson       2014          4      2,450,000    1,650,000        -                -              33% 
                                Class 
 S Tarrant           2017          6        50,000         -          10,000             -              80% 
                                Class 
 S Tarrant           2017          7        50,000         -          20,000             -              60% 
                 -----------  ---------  -----------  -----------  -----------  ------------------  ---------- 
     The performance rights on issue to key management personnel, as 
      set out above, vest, subject to the following vesting conditions: 
      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. 
 
 
      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; and 
 
 
       *    25,000 upon term sheets being signed for the project 
            financing of the Colluli project. 
 
 
      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%; and 
 
 
       *    15,000 on signing a debt terms sheet for project 
            financing or debt is secured form a strategic 
            investor. 
 
 
      No performance rights held by key management personnel were forfeited 
      during the year. 
 

g) Equity Instruments Held by Key Management Personnel

(i) Shares

No shares were granted as remuneration during the year ended 31 December 2018.

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.

 
Financial          Balance        Granted        Received        Received      On market   Other (c)     Balance 
 Year to              at            as         on exercise    on conversion    purchases/                   at 
 31 December      31 December  compensation         of        of performance    (sales)                31 December 
 2018                2017                      remuneration       rights                                   2018 
                                               options (b) 
 Shares 
 Directors 
 S Cornelius        9,798,184              -         405,781               -            -    125,000      10,328,965 
 P Donaldson        2,718,334              -         189,417               -            -     50,000       2,957,751 
 J Fitzgerald         258,334              -         268,119               -            -          -         526,453 
 J Zhang                    -              -               -               -            -          -               - 
 R Connochie                -              -               -               -            -          -               - 
 A Liebenberg               -              -               -               -            -          -               - 
 Other Key 
  Management 
  Personnel 
 D Goeman 
  (a)                       -              -               -               -            -          -               - 
 S Tarrant            200,874              -               -          30,000     (41,017)          -         189,857 
 C 
 Grant-Edwards              -              -               -               -            -          -               - 
 M Chapman                  -              -               -               -            -          -               - 
 TOTAL             12,975,726              -         863,317          30,000     (41,017)    175,000      14,003,026 
 Note: 
  (a) Upon his resignation on 3 August 2018, Mr Goeman held nil shares 
  (b) Via cashless exercise 
  (c) Shares issued upon traditional exercise of non-remuneration 
  unlisted options at $0.35 expiry date 13 May 2018 
 
 

(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.

 
Financial          Balance     Granted   Exercised     Expired       Other      Balance         Vested      Unvested 
 Year to              at                              / Cancelled                  at            and 
 31 December      31 December                                                  31 December   exercisable 
 2018                2017                                                         2018 
 
 Options 
 
 Directors 
 S Cornelius        1,675,000        -  (1,375,000)             -          -       300,000         300,000         - 
 P Donaldson          650,000        -    (550,000)             -          -       100,000         100,000         - 
 J Fitzgerald       1,475,000        -  (1,150,000)      (75,000)          -       250,000         250,000         - 
 J Zhang              100,000        -            -             -          -       100,000         100,000         - 
 R Connochie          500,000        -            -             -          -       500,000         500,000         - 
 A Liebenberg 
  (a)                       -  500,000            -             -          -       500,000               -   500,000 
 Other Key 
  Management 
  Personnel 
 D Goeman 
  (b)               1,000,000        -            -     (100,000)  (900,000)             -               -         - 
 S Tarrant                  -        -            -             -          -             -               -         - 
 C                                   -                                     - 
 Grant-Edwards              -                     -             -                        -               -         - 
 M Chapman                  -        -            -             -          -             -               -         - 
                 ------------  -------  -----------  ------------  ---------  ------------  --------------  -------- 
 TOTAL              5,400,000  500,000  (3,075,000)     (175,000)  (900,000)     1,750,000       1,250,000   500,000 
                 ------------  -------  -----------  ------------  ---------  ------------  --------------  -------- 
 Note: 
  (a) Refers to 500,000 unlisted options with no vesting conditions 
  granted to director at an exercise price of $0.912 each and an 
  expiry date of 11 May 2020, subject to receipt of shareholder approval 
  (the Director Options). 
  (b) Upon his resignation on 3 August 2018, Mr Goeman held 900,000 
  vested options. 
 
 

(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:

 
Financial Year           Balance          Granted           Vested      Cancelled    Other    Unvested 
 to                       At 31 December   as Remuneration                                    Balance 
 31 December 2018         2017                                                                at 31 December 
                                                                                              2018 
 Performance Rights 
 Directors 
 S Cornelius                           -                 -         -            -        -                    - 
 P Donaldson                     800,000                 -         -            -        -              800,000 
 J Fitzgerald                          -                 -         -            -        -                    - 
 J Zhang                               -                 -         -            -        -                    - 
 R Connochie                           -                 -         -            -        -                    - 
 A Liebenberg                          -                 -         -            -        -                    - 
 Other Key 
  Management Personnel 
 D Goeman (a)                          -                 -         -            -        -                    - 
 S Tarrant                       100,000                 -  (30,000)            -        -               70,000 
 C Grant-Edwards                       -                 -         -            -        -                    - 
 M Chapman                             -                 -         -            -        -                    - 
                         ---------------  ----------------  --------  -----------  -------  ------------------- 
 TOTAL                           900,000                 -  (30,000)            -        -              870,000 
                         ---------------  ----------------  --------  -----------  -------  ------------------- 
 Note: 
  (a) Upon his resignation on 3 August 2018, Mr Goeman held nil performance 
  rights 
 
 

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, there was a high level of corporate and project development activity to progress the Colluli Potash Project. The remuneration paid during the period is commercially reasonable for an exploration and 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 exploration and development stage and revenue streams only relate to interest earned on investing surplus funds from capital raisings. The net losses after tax reflect the ongoing costs of the Group's exploration programs and development on the Colluli Potash Project. The table below shows the performance of the Group over the last 5 reporting periods:

 
      Financial         31 Dec 2018    31 Dec 2017    31 Dec 2016    31 Dec 2015    31 Dec 2014 
         Year                                                                           (a) 
 Basic (loss)/income 
  EPS (Cents)              (2.66)         (2.85)         (2.35)         (4.01)         2.18 
                       -------------  -------------  -------------  -------------  ------------ 
 Share Price               $0.740         $0.715         $0.48          $0.29          $0.19 
                       -------------  -------------  -------------  -------------  ------------ 
 (Loss)/income 
  for the period        ($6,944,413)   ($6,839,936)   ($4,925,558)   ($6,792,685)   $2,999,972 
                       -------------  -------------  -------------  -------------  ------------ 
 

Note:

(a) 31 December 2014 was a six-month transitional period while adjusting to a December year end.

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.

- - OF REMUNERATION REPORT - -

Signed in accordance with a resolution of the directors.

Seamus Cornelius

EXECUTIVE CHAIRMAN

Perth, 20 March 2019

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% K(2) 0 Equiv. and 7% Kieserite. The Mineral Resource contains 303Mt @ 11% K(2) 0 Equiv. and 6% Kieserite of Measured Resource, 951Mt @ 11% K(2) 0 Equiv. and 7% Kieserite of Indicated Resource and 35Mt @ 10% K(2) 0 Equiv. and 9% Kieserite of Inferred Resource.

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

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% K(2) O Equiv. The Ore Reserve is classified as 285Mt @ 11.3% K(2) O Equiv. Proved and 815Mt @ 10.3% K(2) O Equiv. Probable. The Colluli SOP Mineral Resource includes those Mineral Resources modified to produce the Colluli SOP Ore Reserves.

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

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.au. The Company confirms that it is not aware of any new information or data that materially affects the information included in the original market announcement and, in the case of estimates of Mineral Resources or Ore Reserves, that all material assumptions and technical parameters underpinning the estimates in the relevant market announcement continue to apply and have not materially changed. The Company confirms that the form and context in which the Competent Person's findings are presented have not been materially modified from the original market announcement.

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(+) , Mg(2+) , Ca(2+) , Cl(-) , SO(4) (2-) , H(2) O) 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 endeavoured to ensure that the information enclosed is accurate at the time of release, and that it accurately reflects the Company's intentions. All statements in this document, other than statements of historical facts, that address future production, project development, reserve or resource potential, exploration drilling, exploitation activities, corporate transactions and events or developments that the Company expects to occur, are forward looking statements. Although the Company believes the expectations expressed in such statements are based on reasonable assumptions, such statements are not guarantees of future performance and actual results or developments may differ materially from those in forward-looking statements.

Factors that could cause actual results to differ materially from those in forward-looking statements include market prices of potash and, exploitation and exploration successes, capital and operating costs, changes in project parameters as plans continue to be evaluated, continued availability of capital and financing and general economic, market or business conditions, as well as those factors disclosed in the Company's filed documents.

There can be no assurance that the development of Colluli will proceed as planned. Accordingly, readers should not place undue reliance on forward looking information. Mineral Resources and Ore Reserves have been reported according to the JORC Code, 2012 Edition. To the extent permitted by law, the Company accepts no responsibility or liability for any losses or damages of any kind arising out of the use of any information contained in this document. Recipients should make their own enquiries in relation to any investment decisions.

Mineral Resource, Ore Reserve, production target, forecast financial information and financial assumptions made in this announcement are consistent with assumptions detailed in the Company's ASX announcements dated 25 February 2015, 23 September 2015, 15 August 2016, 1 February 2017, 29 January 2018, and 19 February 2018 which continue to apply and have not materially changed. The Company is not aware of any new information or data that materially affects assumptions made.

No representation or warranty, express or implied, is or will be made by or on behalf of the Company, and no responsibility or liability is or will be accepted by the Company or its affiliates, as to the accuracy, completeness or verification of the information set out in this announcement, and nothing contained in this announcement is, or shall be relied upon as, a promise or representation in this respect, whether as to the past or the future. The Company and each of its affiliates accordingly disclaims, to the fullest extent permitted by law, all and any liability whether arising in tort, contract or otherwise which it might otherwise have in respect of this announcement or any such statement.

The distribution of this announcement outside the United Kingdom may be restricted by law and therefore any persons outside the United Kingdom into whose possession this announcement comes should inform themselves about and observe any such restrictions in connection with the distribution of this announcement. Any failure to comply with such restrictions may constitute a violation of the securities laws of any jurisdiction outside the United Kingdom.

Consolidated Statement of Profit or Loss and Other Comprehensive Income

FOR THE YEARED 31 DECEMBER 2018

 
                                                            2018         2017 
------------------------------------------------ 
                                                  Notes       $            $ 
------------------------------------------------  -----  -----------  ----------- 
 
REVENUE 
Interest revenue calculated using the effective 
 interest rate method                               4        172,252      221,189 
Accretion relating to the unwinding of 
 discount on joint venture loan                     8              -    1,362,780 
Sundry                                                         1,959        4,218 
 
EXPENSES 
Depreciation expense                                         (8,282)      (3,588) 
Administration expenses                             5    (2,747,713)  (1,684,367) 
Share based payment expense                        22       (91,257)    (988,573) 
Loss on re-measurement of loan to joint 
 venture carried at amortised cost                  8              -    (216,909) 
Net loss on financial assets at fair value 
 through profit or loss                             8    (4,862,775)            - 
Share of net loss of joint venture                 10      (389,239)  (5,111,085) 
Foreign exchange gain/(loss)                                 980,642    (423,601) 
LOSS BEFORE INCOME TAX                                   (6,944,413)  (6,839,936) 
 
Income tax expense                                  7              -            - 
                                                         -----------  ----------- 
LOSS FOR THE YEAR                                        (6,944,413)  (6,839,936) 
 
OTHER COMPREHENSIVE INCOME 
Items that may be reclassified to profit 
 or loss in subsequent periods 
Share of foreign currency translation reserve 
 relating to equity accounted investment          10,14      873,940    (933,753) 
                                                         -----------  ----------- 
OTHER COMPREHENSIVE INCOME FOR THE YEAR, 
 NET OF TAX                                                  873,940    (933,753) 
 
TOTAL COMPREHENSIVE LOSS FOR THE YEAR                    (6,070,473)  (7,773,689) 
                                                         ===========  =========== 
 
 
Earnings per share for loss attributable 
 to the ordinary equity holders of the Company: 
    Basic loss per share (cents per share)         17         (2.66)       (2.85) 
    Diluted loss per share (cents per share)       17         (2.66)       (2.85) 
 
 
 

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

 
                                           2018          2017 
                                Notes       $             $ 
------------------------------  -----  ------------  ------------ 
CURRENT ASSETS 
Cash and cash equivalents         6       9,550,585    15,559,980 
Receivables                       8         108,477       174,321 
Prepayments                                  17,474        50,094 
TOTAL CURRENT ASSETS                      9,676,536    15,784,395 
                                       ------------  ------------ 
 
NON--CURRENT ASSETS 
Receivables                       8       9,283,670    12,216,952 
Investment in joint venture      10      19,829,489    13,811,946 
Plant and equipment               9          22,952        15,110 
TOTAL NON--CURRENT ASSETS                29,136,111    26,044,008 
                                       ------------  ------------ 
 
TOTAL ASSETS                             38,812,647    41,828,403 
                                       ------------  ------------ 
 
CURRENT LIABILITIES 
Trade and other payables         11         223,854     1,097,087 
Provisions                       12          86,180       166,219 
TOTAL CURRENT LIABILITIES                   310,034     1,263,306 
                                       ------------  ------------ 
 
NON-CURRENT LIABILITIES 
Provisions                       12          58,903        27,811 
                                       ------------  ------------ 
TOTAL NON-CURRENT LIABILITIES                58,903        27,811 
 
TOTAL LIABILITIES                           368,937     1,291,117 
                                       ------------  ------------ 
 
NET ASSETS                               38,443,710    40,537,286 
                                       ============  ============ 
EQUITY 
Issued capital                   13      79,576,117    75,415,034 
Reserves                         14      13,211,353    12,521,599 
Accumulated losses               15    (54,343,760)  (47,399,347) 
                                       ------------  ------------ 
TOTAL EQUITY                             38,443,710    40,537,286 
                                       ============  ============ 
 

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

Consolidated Statement of Changes in Equity

FOR THE YEARED 31 DECEMBER 2018

 
                                                                       Reserves 
------------------------------------  ----- 
                                                             Share Based  Foreign Currency  Accumulated 
                                             Issued Capital    Payments      Translation       Losses     Total Equity 
                                      Notes        $              $              $               $             $ 
------------------------------------  -----  --------------  -----------  ----------------  ------------  ------------ 
 
BALANCE AT 1 JANUARY 2018                        75,415,034   11,416,109         1,105,490  (47,399,347)    40,537,286 
Loss for the period                                       -            -                 -   (6,944,413)   (6,944,413) 
Other comprehensive income             14                 -            -           873,940             -       873,940 
                                             --------------  -----------  ----------------  ------------  ------------ 
Total comprehensive income for the 
 period                                                   -            -           873,940   (6,944,413)   (6,070,473) 
 
  Transactions with owners in their 
  capacity as owners: 
Shares issued                          13         4,161,083            -                 -             -     4,161,083 
Costs of capital raised                13                 -            -                 -             -             - 
Options and performance rights 
 issued                                14                 -    (184,186)                 -             -     (184,186) 
                                             --------------  -----------  ----------------  ------------  ------------ 
BALANCE AT 31 DECEMBER 2018                      79,576,117   11,231,923         1,979,430  (54,343,760)    38,443,710 
                                             ==============  ===========  ================  ============  ============ 
 
 
BALANCE AT 1 JANUARY 2017                        61,758,320   10,427,536         2,039,243  (40,559,411)    33,665,688 
Loss for the period                                       -            -                 -   (6,839,936)   (6,839,936) 
Other comprehensive income             14                 -            -         (933,753)             -     (933,753) 
                                             --------------  -----------  ----------------  ------------  ------------ 
Total comprehensive income for the 
 period                                                   -            -         (933,753)   (6,839,936)   (7,773,689) 
 
  Transactions with owners in their 
  capacity as owners: 
Shares issued                          13        14,328,083            -                 -             -    14,328,083 
Costs of capital raised                13         (671,369)            -                 -             -     (671,369) 
Options and performance rights 
 issued                                14                 -      988,573                 -             -       988,573 
                                             --------------  -----------  ----------------  ------------  ------------ 
BALANCE AT 31 DECEMBER 2017                      75,415,034   11,416,109         1,105,490  (47,399,347)    40,537,286 
                                             ==============  ===========  ================  ============  ============ 
 

The above Consolidated Statement of Changes in Equity should be read in conjunction with the accompanying notes.

Consolidated Statement of Cash Flows

FOR THE YEARED 31 DECEMBER 2018

 
                                                          2018         2017 
---------------------------------------------- 
                                                Notes       $            $ 
----------------------------------------------  -----  -----------  ----------- 
CASH FLOWS FROM OPERATING ACTIVITIES 
Interest received                                          171,783      231,693 
Realised foreign exchange gain                              38,504       71,924 
Payments to suppliers and employees                    (3,640,750)  (1,583,296) 
NET CASH OUTFLOW USED IN OPERATING ACTIVITIES    16    (3,430,463)  (1,279,679) 
                                                       -----------  ----------- 
 
CASH FLOWS FROM INVESTING ACTIVITIES 
Funding of joint venture                               (6,448,446)  (7,711,037) 
Payments for plant and equipment                          (16,124)     (10,778) 
NET CASH OUTFLOW USED IN INVESTING ACTIVITIES          (6,464,570)  (7,721,815) 
                                                       -----------  ----------- 
 
CASH FLOWS FROM FINANCING ACTIVITIES 
Proceeds from issues of ordinary shares                  3,885,638   14,328,083 
Costs of capital raised                                          -    (671,369) 
NET CASH INFLOW FROM FINANCING ACTIVITIES                3,885,638   13,656,714 
                                                       -----------  ----------- 
 
NET INCREASE / (DECREASE) IN CASH                      (6,009,395)    4,655,220 
Cash at the beginning of the financial 
 year                                                   15,559,980   10,904,760 
CASH AT THE OF THE YEAR                       6      9,550,585   15,559,980 
                                                       ===========  =========== 
 

The above Consolidated Statement of Cash Flows should be read in conjunction with the accompanying notes.

Notes to the Consolidated Financial Statements

FOR THE YEARED 31 DECEMBER 2018

   1.    GENERAL INFORMATION 

Danakali Ltd (Danakali or the Company) is a for profit company limited by shares, incorporated and domiciled in Australia, and whose shares are publicly traded on the Australian Securities Exchange (ASX) and the London Stock Exchange (LSE). The consolidated financial report of the group as at, and for the year ended 31 December 2018 comprises the Company and its subsidiaries (together referred to as the Group). The address of the registered office is Level 11, 125 St George's Terrace, Perth, WA, 6000.

The financial statements are presented in the Australian currency.

The financial report of Danakali for the year ended 31 December 2018 was authorised for issue by the Directors on 20 March 2019. The directors have the power to amend and reissue the financial statements.

The nature of the operations and principal activities of the consolidated entity are described in the Directors' Report.

   2.    BASIS OF PREPARATION 

The principal accounting policies adopted in the preparation of the financial statements are set out below. These policies have been consistently applied to all the periods presented, unless otherwise stated.

These general purpose consolidated financial statements have been prepared in accordance with Australian Accounting Standards, other authoritative pronouncements of the Australian Accounting Standards Board, Australian Accounting Interpretations and the Corporations Act 2001.

The consolidated financial statements of the Danakali Ltd Group also comply with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB).

These financial statements have been prepared under the historical cost convention, except for the loan to the joint venture that has been measured at fair value.

   (a)    New standards, interpretations and amendments adopted by the Group 

The Group applied all new and amended Accounting Standards and Interpretations that were effective as at 1 January 2018, including:

AASB 9 Financial Instruments (AASB 9)

The Group has adopted AASB 9 retrospectively with the date of initial application being 1 January 2018. In accordance with the transitional provisions in AASB 9, comparative figures have not been restated which continues to be reported under AASB 139 Financial Instruments: Recognition and Measurement ("AASB 39"). AASB 9 replaces parts of AASB 139, bringing together all three aspects of the accounting for financial instruments: classification and measurement; impairment; and hedge accounting. The accounting policies have been updated to reflect the application of AASB 9 for the period from 1 January 2018 (see note 2(l) for details of the new accounting policy for receivables).

Classification and Measurement

Under AASB 9, debt instruments are subsequently measured at fair value through profit or loss (FVPL), amortised cost, or fair value through other comprehensive income (FVOCI). The classification is based on two criteria: the Group's business model for managing the assets; and whether the instruments' contractual cash flows represent 'solely payments of principal and interest' on the principal amount outstanding (the 'SPPI criterion'). The SPPI test is applied to the entire financial asset, even if it contains an embedded derivative. Consequently, a derivative embedded in a debt instrument is not accounted for separately.

At the date of initial application, existing financial assets and liabilities of the Group were assessed in terms of the requirements of AASB 9. The assessment was conducted on instruments that had not been derecognised as at 1 January 2018. In this regard, the Group has determined that the adoption of AASB 9 has impacted the classification of financial instruments at 1 January 2018 as follows:

 
 Class of financial instrument   Original measurement      New measurement category 
  presented in the statement      category under AASB139    under AASB 9 (from 
  of financial position           (prior to 1 January       1 January 2018) 
                                  2018) 
 Cash and cash equivalents       Loans and receivables     Financial assets at 
                                                            amortised cost 
                                ------------------------  ------------------------- 
 Trade and other receivables     Loans and receivables     Financial assets at 
                                                            amortised cost 
                                ------------------------  ------------------------- 
 Loan receivable                 Loans and receivables     Financial assets at 
                                                            Fair Value Through 
                                                            Profit and Loss 
                                ------------------------  ------------------------- 
 Trade and other payables        Financial liability       Financial liabilities 
                                  at amortised cost         at amortised cost 
                                ------------------------  ------------------------- 
 

The change in classification of financial instruments has not resulted in any re-measurement adjustments at 1 January 2018 and has had no impact on the measurement of carrying value of the amount disclosed.

The loan to Colluli Mining Share Company (see note 8) failed the SPPI test due to the limited recourse nature of the loan. Accordingly, on adoption of AASB 9, the loan has been classified as a financial asset at FVPL.

Impairment of financial assets

In relation to the financial assets carried at amortised cost, AASB 9 requires an expected credit loss model to be applied as opposed to an incurred credit loss model under AASB 39. The expected credit loss model requires the Group to account for expected credit losses and changes in those expected credit losses at each reporting date to reflect changes in credit risk since initial recognition of the financial asset. In particular, AASB 9 requires the Group to measure the loss allowance at an amount equal to lifetime expected credit loss ("ECL") if the credit risk on the instrument has increased significantly since initial recognition. On the other hand, if the credit risk on the financial instrument has not increased significantly since initial recognition, the Group is required to measure the loss allowance for that financial instrument at an amount equal to the ECL within the next 12 months.

As at 1 January 2018, the directors of the Company reviewed and assessed the Group's existing financial assets for impairment using reasonable and supportable information. The result of the assessment is as follows:

 
 Items existing as           Credit risk attributes 
  at 1 January 2018                                                    Cumulative additional 
  that are subject                                                      loss allowance 
  to the impairment                                                     recognised on 
  provisions of AASB                                                    1 January 2018 
  9                                                                     $'000: 
 Cash and cash equivalents   All bank balances are assessed                      - 
  and deposits                to have low credit risk as they 
                              are held with a reputable financial 
                              institution with a Moody's Credit 
                              Rating of AA3. 
                            ----------------------------------------  ---------------------- 
 Security Bond               The security is assessed to                          - 
                              have low credit risk as they 
                              are held with a reputable institution. 
                            ----------------------------------------  ------------------------ 
 Receivables at amortised    As these receivables have short                      - 
  cost                        term maturities, the Group has 
                              concluded that the lifetime 
                              ECL for these assets would be 
                              negligible and therefore no 
                              loss allowance was required 
                              at 1 January 2018. 
                            ----------------------------------------  ------------------------ 
 

Hedge accounting

The Group has not applied hedge accounting.

AASB 15 Revenue from Contracts with Customers (AASB 15)

The Group has adopted AASB 15 with the date of initial application being 1 January 2018.

AASB 15 supersedes AASB 118 Revenue, AASB 111 Construction Contracts and related Interpretations and it applies to all revenue arising from contracts with customers, unless those contracts are in the scope of other standards. The new standard establishes a five-step model to account for revenue arising from contracts with customers. Under AASB 15, revenue is recognised at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer.

At 1 January 2017 and at 1 January 2018 it was determined that the adoption of AASB 15 had no impact on the Group as the entity does not generate revenue.

AASB 2016-5 Amendments to Australian Accounting Standards - Classification and Measurement of Share-based Payment Transactions

The Group has adopted AASB 2016-5 with the date of initial application being 1 January 2018.

 
      This standard amends AASB 2 Share-based Payment, clarifying how 
       to account for certain types of share-based payment transactions. 
       The amendments provide requirements on the accounting for: 
        *    The effects of vesting and non-vesting conditions on 
             the measurement of cash-settled share-based payments 
 
 
        *    Share-based payment transactions with a net 
             settlement feature for withholding tax obligations 
 
 
        *    A modification to the terms and conditions of a 
             share-based payment that changes the classification 
             of the transaction from cash-settled to 
             equity-settled 
 

At 1 January 2017 and at 1 January 2018 it was determined that the adoption of AASB 2016-5 had no impact on the Group as the Group had no share-based payment transactions with features described in the amendment.

AASB Interpretation 22 Foreign Currency Transactions and Advance Consideration

The Group has adopted Interpretation 22 with the date of initial application being 1 January 2018.

The Interpretation clarifies that in determining the spot exchange rate to use on initial recognition of the related asset, expense or income (or part of it) on the derecognition of a non-monetary asset or non-monetary liability relating to advance consideration, the date of the transaction is the date on which an entity initially recognises the non-monetary asset or non-monetary liability arising from the advance consideration. If there are multiple payments or receipts in advance, then the entity must determine a date of the transaction for each payment or receipt of advance consideration.

At 1 January 2017 and at 1 January 2018 it was determined that the adoption of Interpretation 22 had no impact on the Group.

   (b)    New accounting standards and interpretations not yet effective 

Australian Accounting Standards that have recently been issued or amended but are not yet effective and have not been adopted by the Group for the annual reporting year ended 31 December 2018 are outlined in the table below. The potential effect of these Standards is yet to be fully determined.

 
   Reference         Title                                 Summary                                Application date 
                                                                                                   of        for Group 
                                                                                                standard* 
                                                                                              ------------  ---------- 
  AASB 2014-10    Amendments     The amendments clarify that                                    1 January    1 January 
                  to              a full gain or loss is recognised                                2022         2022 
                  Australian      when a transfer to an associate 
                  Accounting      or joint venture involves 
                  Standards -     a business as defined in 
                  Sale or         AASB 3 Business Combinations. 
                  Contribution    Any gain or loss resulting 
                  of Assets       from the sale or contribution 
                  between         of assets that does not 
                  an Investor     constitute a business, however, 
                  and its         is recognised only to the 
                  Associate       extent of unrelated investors' 
                  or Joint        interests in the associate 
                  Venture         or joint venture. 
                                  AASB 2015-10 deferred the 
                                  mandatory effective date 
                                  (application date) of AASB 
                                  2014-10 so that the amendments 
                                  were required to be applied 
                                  for annual reporting periods 
                                  beginning on or after 1 
                                  January 2018 instead of 
                                  1 January 2016. AASB 2017-5 
                                  further defers the effective 
                                  date of the amendments made 
                                  in AASB 2014-10 to periods 
                                  beginning on or after 1 
                                  January 2022. 
                 -------------  ------------------------------------------------------------  ------------  ---------- 
    AASB 16       Leases         The key features of AASB                                       1 January    1 January 
                                 16 are as follows:                                                2019         2019 
                                 Lessee accounting 
                                  *    Lessees are required to recognise right-of-use assets 
                                       and lease liabilities for all leases with a term of 
                                       more than 12 months, unless the underlying asset is 
                                       of low value. 
 
 
                                  *    Assets and liabilities arising from a lease are 
                                       initially measured on a present value basis. The 
                                       measurement includes non-cancellable lease payments 
                                       (including inflation-linked payments), and also 
                                       includes payments to be made in optional periods if 
                                       the lessee is reasonably certain to exercise an 
                                       option to extend the lease, or not to exercise an 
                                       option to terminate the lease. 
 
 
                                  *    AASB 16 contains disclosure requirements for lessees. 
 
 
                                 Lessor accounting 
                                  *    AASB 16 substantially carries forward the lessor 
                                       accounting requirements in AASB 117. Accordingly, a 
                                       lessor continues to classify its leases as operating 
                                       leases or finance leases, and to account for those 
                                       two types of leases differently. 
 
 
                                  *    AASB 16 also requires enhanced disclosures to be 
                                       provided by lessors that will improve information 
                                       disclosed about a lessor's risk exposure, 
                                       particularly to residual value risk. 
 
 
                                 AASB 16 supersedes: 
                                 a) AASB 117 Leases 
                                 b) Interpretation 4 Determining 
                                 whether an Arrangement contains 
                                 a Lease 
                                 c) SIC-15 Operating Leases-Incentives 
                                 d) SIC-27 Evaluating the 
                                 Substance of Transactions 
                                 Involving the Legal Form 
                                 of a Lease 
                                 The new standard will be 
                                 effective for annual periods 
                                 beginning on or after 1 
                                 January 2019. The Group 
                                 has not yet performed its 
                                 detailed assessment on the 
                                 impact of this new standard 
                                 on the basis that it is 
                                 not material to the financial 
                                 statements. 
                 -------------  ------------------------------------------------------------  ------------  ---------- 
      AASB        Uncertainty    The Interpretation clarifies                                   1 January    1 January 
 Interpretation   over Income    the application of the recognition                                2019         2019 
    23, and       Tax            and measurement criteria 
    relevant      Treatments     in AASB 112 Income Taxes 
    amending                     when there is uncertainty 
   standards                     over income tax treatments. 
                                 The Interpretation specifically 
                                 addresses the following: 
                                  *    Whether an entity considers uncertain tax treatments 
                                       separately 
 
 
                                  *    The assumptions an entity makes about the examination 
                                       of tax treatments by taxation authorities 
 
 
                                  *    How an entity determines taxable profit (tax loss), 
                                       tax bases, unused tax losses, unused tax credits and 
                                       tax rates 
 
 
                                  *    How an entity considers changes in facts and 
                                       circumstances. 
                 -------------  ------------------------------------------------------------  ------------  ---------- 
  AASB 2017-7     Amendments     This Standard amends AASB                                      1 January    1 January 
                  to              128 Investments in Associates                                    2019         2019 
                  Australian      and Joint Ventures to clarify 
                  Accounting      that an entity is required 
                  Standards -     to account for long-term 
                  Long-term       interests in an associate 
                  Interests       or joint venture, which 
                  in              in substance form part of 
                  Associates      the net investment in the 
                  and Joint       associate or joint venture 
                  Ventures        but to which the equity 
                                  method is not applied, using 
                                  AASB 9 Financial Instruments 
                                  before applying the loss 
                                  allocation and impairment 
                                  requirements in AASB 128. 
                 -------------  ------------------------------------------------------------  ------------  ---------- 
  AASB 2018-1     Australian     The amendments clarify certain                                 1 January    1 January 
                  Amendments      requirements in:                                                 2019         2019 
                  to               *    AASB 3 Business Combinations and AASB 11 Joint 
                  Australian            Arrangements - previously held interest in a joint 
                  Accounting            operation 
                  Standards 
                  - Annual 
                  Improvements     *    AASB 112 Income Taxes - income tax consequences of 
                  2015-2017             payments on financial instruments classified as 
                  Cycle                 equity 
 
 
                                   *    AASB 123 Borrowing Costs - borrowing costs eligible 
                                        for capitalisation. 
                 -------------  ------------------------------------------------------------  ------------  ---------- 
    Not yet       Conceptual     The revised Conceptual Framework                               1 January    1 January 
     issued       Framework       includes some new concepts,                                      2020         2020 
     by the       for             provides updated definitions 
      AASB        Financial       and recognition criteria 
                  Reporting       for assets and liabilities 
                  and             and clarifies some important 
                  relevant        concepts. It is arranged 
                  amending        in eight chapters, as follows: 
                  standards        *    Chapter 1 - The objective of financial reporting 
 
 
                                   *    Chapter 2 - Qualitative characteristics of useful 
                                        financial information 
 
 
                                   *    Chapter 3 - Financial statements and the reporting 
                                        entity 
 
 
                                   *    Chapter 4 - The elements of financial statements 
 
 
                                   *    Chapter 5 - Recognition and derecognition 
 
 
                                   *    Chapter 6 - Measurement 
 
 
                                   *    Chapter 7 - Presentation and disclosure 
 
 
                                   *    Chapter 8 - Concepts of capital and capital 
                                        maintenance 
 
 
 
                                  Amendments to References 
                                  to the Conceptual Framework 
                                  in IFRS Standards has also 
                                  been issued, which sets 
                                  out the amendments to affected 
                                  standards in order to update 
                                  references to the revised 
                                  Conceptual Framework. The 
                                  changes to the Conceptual 
                                  Framework may affect the 
                                  application of IFRS in situations 
                                  where no standard applies 
                                  to a particular transaction 
                                  or event. In addition, relief 
                                  has been provided in applying 
                                  IFRS 3 and developing accounting 
                                  policies for regulatory 
                                  account balances using IAS 
                                  8, such that entities must 
                                  continue to apply the definitions 
                                  of an asset and a liability 
                                  (and supporting concepts) 
                                  in the 2010 Conceptual Framework, 
                                  and not the definitions 
                                  in the revised Conceptual 
                                  Framework. 
                 -------------  ------------------------------------------------------------  ------------  ---------- 
  AASB 2018-7     Definition     This Standard amends AASB                                      1 January    1 January 
                  of              101 Presentation of Financial                                    2020         2020 
                  Material        Statements and AASB 108 
                  (Amendments     Accounting Policies, Changes 
                  to AASB 101     in Accounting Estimates 
                  and AASB        and Errors to align the 
                  108)            definition of 'material' 
                                  across the standards and 
                                  to clarify certain aspects 
                                  of the definition. The amendments 
                                  clarify that materiality 
                                  will depend on the nature 
                                  or magnitude of information. 
                                  An entity will need to assess 
                                  whether the information, 
                                  either individually or in 
                                  combination with other information, 
                                  is material in the context 
                                  of the financial statements. 
                                  A misstatement of information 
                                  is material if it could 
                                  reasonably be expected to 
                                  influence decisions made 
                                  by the primary users. 
                 -------------  ------------------------------------------------------------  ------------  ---------- 
 
   (c)    Going concern 

The financial statements have been prepared on a going concern basis which contemplates the continuity of normal business activities and the realisation of assets and the settlement of liabilities in the ordinary course of business.

At balance date, the Group had cash and cash equivalents of $9,550,585 (31 December 2017: $15,559,980) and a net working capital surplus of $9,366,502 (31 December 2017: $14,521,089). Whilst the existing cash reserves are sufficient to cover the working capital requirements of the Group for the next 12 months, it is anticipated that the Group will commence execution of the project development during this period and as such, additional funding will be necessary to carry out these planned activities.

Under the mining agreement entered into between the Government of the State of Eritrea and Colluli Mining Share Company (CMSC) dated 31 January 2017 (Mining Agreement), CMSC is obliged to spend US$200 million on infrastructure and mine development within the area of the Colluli project mining licences in the 36 months following the provision of formal notice to the Ministry of Energy and Mines that development has commenced. The notice, not a primary obligation under the mining agreement, was scheduled to be submitted by 30 October 2018 and then 31 December 2018. CMSC will now submit the notice once sufficient funding has been raised to allow the advancement of infrastructure and mine development.

At the date of this report, the directors are satisfied there are reasonable grounds to believe that the Group will be able to continue its planned activities and the Group will be able to meet its obligations as and when they fall due. The directors are confident that the Group will be able to obtain the additional funding requirement via equity raising and the securing of debt. If it appeared that such financing was likely to be delayed, the directors would seek to defer its planned capital expenditure on the project and, if necessary, seek an extension of the deadline to meet its expenditure obligations pursuant to the Colluli Mining Agreement.

Should the Group not achieve the matters set out above, there is uncertainty whether the Group would continue as a going concern and therefore whether it would realise its assets and extinguish its liabilities in the normal course of business and at the amounts stated in the financial report. The financial statements do not include any adjustment relating to the recoverability or classification of recorded asset amounts or to the amounts or classification of liabilities that might be necessary should the Group not be able to continue as a going concern.

   (d)    Principles of consolidation 

Subsidiaries are all entities over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases.

The acquisition method of accounting is used to account for business combinations by the Group. Intercompany transactions, balances and unrealised gains on transactions between Group companies are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the transferred asset. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.

   (e)    Segment reporting 

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The chief operating decision maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the full Board of Directors.

   (f)     Foreign currency translation 

(i) Functional and presentation currency

Items included in the financial statements of each of the Group's entities are measured using the currency of the primary economic environment in which the entity operates ('the functional currency'). The consolidated financial statements are presented in Australian dollars, which is Danakali's functional and presentation currency.

(ii) Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at period end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in profit or loss.

 
      (iii) Foreign operations 
       The results and financial position of foreign operations (none 
       of which has the currency of a hyperinflationary economy) that 
       have a functional currency different from the presentation currency 
       are translated into the presentation currency as follows: 
        *    assets and liabilities for each statement of 
             financial position presented are translated at the 
             closing rate at the date of that statement of 
             financial position; 
 
 
        *    income and expenses for each statement of 
             comprehensive income are translated at average 
             exchange rates (unless that is not a reasonable 
             approximation of the cumulative effect of the rates 
             prevailing on the transaction dates, in which case 
             income and expenses are translated at the dates of 
             the transactions); and 
 
 
        *    all resulting exchange differences are recognised in 
             other comprehensive income. 
 

When a foreign operation is sold or any borrowings forming part of the net investment are repaid, a proportionate share of such exchange differences is reclassified to profit or loss, as part of the gain or loss on sale where applicable.

   (g)    Interest revenue 

Interest revenue is recognised using the effective interest rate method.

   (h)    Income tax 

The income tax expense or revenue for the period is the tax payable on the current period's taxable income based on the applicable income tax rate for each jurisdiction adjusted by changes in deferred tax assets and liabilities attributable to temporary differences and to unused tax losses.

The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the end of the reporting period in the countries where the Company's subsidiaries operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.

Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements at the reporting date. However, the deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the reporting date and are expected to apply when the related deferred income tax asset is realised, or the deferred income tax liability is settled.

Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets and liabilities and when the deferred tax balances relate to the same taxation authority. Current tax assets and tax liabilities are offset where the entity has a legally enforceable right to offset and intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously.

Current and deferred tax is recognised in profit or loss, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case, the tax is also recognised in other comprehensive income or directly in equity, respectively.

   (i)      Leases 

Leases of property, plant and equipment where the Group, as lessee, has substantially all the risks and rewards of ownership are classified as finance leases. Finance leases are capitalised at the lease's inception at the fair value of the leased property or, if lower, the present value of the minimum lease payments. The corresponding rental obligations, net of finance charges, are included in other short-term and long-term payables. Each lease payment is allocated between the liability and finance cost. The finance cost is charged to profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The property, plant and equipment acquired under finance leases is depreciated over the shorter of the asset's useful life and the lease term.

Leases where a significant portion of the risks and rewards of ownership are not transferred to the Group as lessee are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to profit or loss on a straight-line basis over the period of the lease.

   (j)      Impairment of assets 

Assets are reviewed for impairment annually to determine if events or changes in circumstances indicate that the carrying amount may not be recoverable.

An impairment loss is recognised for the amount by which the asset's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are consolidated at the lowest levels for which there are separately identifiable cash inflows which are largely independent of the cash inflows from other assets (cash-generating units). Non-financial assets other than goodwill that suffered an impairment are reviewed for possible reversal of the impairment at each reporting date.

   (k)    Cash and cash equivalents 

For Consolidated Statement of Cash Flows presentation purposes, cash and cash equivalents includes cash on hand, deposits held at call with financial institutions and, other short--term highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to insignificant risk of changes in value.

   (l)      Receivables (new policy applied from 1 January 2018 due to adoption of AASB 9) 

(i) Initial recognition

Receivables are initially recognised and measured at fair value. Receivables that are held to collect contractual cash flows and are expected to give rise to cash flows representing solely payments of principal and interest are classified and subsequently measured at amortised cost. Receivables that do not meet the criteria for amortised cost are measured at fair value through profit or loss. This latter category includes the loan to Colluli Mining Share Company.

(ii) Subsequent measurement

Financial assets at amortised cost are subsequently measured using the effective interest (EIR) method and are subject to impairment. Gains and losses are recognised in profit or loss when the asset is derecognised, modified or impaired.

Financial assets at fair value through profit or loss are carried in the statement of financial position at fair value with net changes in fair value recognised in the statement of profit or loss.

(iii) Impairment

The group assesses on a forward looking basis the expected credit losses associated with its debt instruments carried at amortised cost. The amount of expected credit losses is updated at each reporting date to reflect changes in credit risk since initial recognition of the respective financial instrument. The expected credit losses on financial assets are estimated based on the Group's historic credit loss experience, adjusted for factors that are specific to the debtors, general economic conditions and an assessment of both the current as well as forecast conditions at the reporting date.

In relation to all other receivables measured at amortised cost, the Group applies the credit loss model. The expected credit loss model requires the Group to account for expected credit losses and changes in those expected credit losses at each reporting date to reflect changes in credit risk since initial recognition of the financial asset. In particular, the Group measures the loss allowance at an amount equal to lifetime expected credit loss ("ECL") if the credit risk on the instrument has increased significantly since initial recognition. On the other hand, if the credit risk on the financial instrument has not increased significantly since initial recognition, the Group measures the loss allowance for that financial instrument at an amount equal to the ECL within the next 12 months.

The Group considers an event of default has occurred when a financial asset is more than 90 days past due or external sources indicate that the debtor is unlikely to pay its creditors, including the Group. A financial asset is credit impaired when there is evidence that the counterparty is in significant financial difficulty or a breach of contract, such as a default or past due event has occurred. The Group writes off a financial asset when there is information indicating the counterparty is in severe financial difficulty and there is no realistic prospect of recovering the contractual cash flow.

   (m)   Receivables (old policy applied to 31 December 2017) 

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for those with maturities greater than 12 months after the reporting date which are classified as non-current assets. Loans and receivables are measured at amortised cost and are included in receivables in the statement of financial position.

   (n)    Investment in joint venture 

A joint venture is a type of joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the joint venture. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require unanimous consent of the parties sharing control.

The Group's investment in a joint venture is accounted for using the equity method.

Under the equity method, the investment in a joint venture is initially recognised at cost. The carrying amount of the investment is adjusted to recognise changes in the Group's share of net assets of the joint venture since the acquisition date. Goodwill relating to the joint venture is included in the carrying amount of the investment and is neither amortised nor individually tested for impairment.

The statement of profit or loss reflects the Group's share of the results of operations of the joint venture. Any change in other comprehensive income of those investees is presented as part of the Group's other comprehensive income. In addition, when there has been a change recognised directly in the equity of the joint venture, the Group recognises its share of any changes, when applicable, in the statement of changes in equity. Unrealised gains and losses resulting from transactions between the Group and the joint venture are eliminated to the extent of the interest in the joint venture.

The aggregate of the Group's share of profit or loss of a joint venture is shown on the face of the statement of profit or loss outside operating profit and represents profit or loss after tax and non-controlling interests in the subsidiaries of the joint venture.

The financial statements of the joint venture are prepared for the same reporting period as the Group. When necessary, adjustments are made to bring the accounting policies in line with those of the Group.

After application of the equity method, the Group determines whether it is necessary to recognise an impairment loss on its investment in its joint venture. At each reporting date, the Group determines whether there is objective evidence that the investment in the joint venture is impaired. If there is such evidence, the Group calculates the amount of impairment as the difference between the recoverable amount of the joint venture and its carrying value, then recognises the loss as 'Share of profit of the equity accounted investment' in profit or loss.

Upon loss of joint control over a joint venture, the Group measures and recognises any retained investment at its fair value. Any difference between the carrying amount of the joint venture upon loss of joint control and the fair value of the retained investment and proceeds from disposal is recognised in profit or loss.

   (o)    Plant and equipment 

All plant and equipment is stated at historical cost less depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the items.

Subsequent costs are included in the asset's carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. The carrying amount of any component accounted for as a separate asset is de-recognised when replaced. All other repairs and maintenance are charged to profit or loss during the reporting period in which they are incurred.

Depreciation of plant and equipment is calculated using the straight-line basis so as to write off the net cost or other revalued amount of each asset over its expected useful life to its estimated residual value.

The assets' residual values and useful lives are reviewed, and adjusted prospectively if appropriate, at each reporting date.

An asset's carrying amount is written down immediately to its recoverable amount if the asset's carrying amount is greater than its estimated recoverable amount.

Gains and losses on disposals are determined by comparing proceeds with carrying amount. These are included in profit or loss. When revalued assets are sold, it is Group's policy to transfer the amounts included in other reserves in respect of those assets to retained earnings.

   (p)    Exploration and evaluation costs 

Acquired exploration and evaluation costs are capitalised. Ongoing exploration and evaluation costs are expensed in the period they are incurred.

   (q)    Trade and other payables 

These amounts represent liabilities for goods and services provided to the Group prior to the end of the financial period which are unpaid. The amounts are unsecured, non-interest bearing and are paid on normal commercial terms.

   (r)     Employee benefits 

(i) Wages and salaries, annual leave and long service leave

Liabilities for wages and salaries, including non-monetary benefits, and other short terms benefits expected to be settled within 12 months of the reporting date are recognised in other payables in respect of employees' services up to the reporting date and are measured at the amounts expected to be paid when the liabilities are settled.

The liability for long service leave is recognised in the provision for employee benefits and measured as the present value of expected future payments to be made in respect of services provided by employees up to the reporting date.

(ii) Share-based payments

The Group provides benefits to employees (including directors) of the Group in the form of share-based payment transactions, whereby employees render services in exchange for options or rights over shares ('equity-settled transactions') refer to note 22.

The cost of these equity-settled transactions with employees is measured by reference to the fair value at the date at which they are granted. The fair value of options is determined by an internal valuation using a Black-Scholes option pricing model. The fair value of performance rights determined by consideration of the Company's share price at the grant date.

The cost of equity-settled transactions is recognised, together with a corresponding increase in equity, over the period in which the performance and service conditions are fulfilled, ending on the date on which the relevant employees become fully entitled to the award ('vesting date').

The cumulative expense recognised for equity-settled transactions at each reporting date until vesting date reflects (i) the extent to which the vesting period has expired and (ii) the number of options or rights that, in the opinion of the directors of the Company, will ultimately vest. This opinion is formed based on the best available information at balance date. No adjustment is made for the likelihood of market performance conditions being met as the effect of these conditions is included in the determination of fair value at grant date.

No expense is recognised for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition or awards with non-vesting conditions.

Where an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any expense not yet recognised for the award is recognised immediately. However, if a new award is substituted for the cancelled award and designated as a replacement award on the date that it is granted, the cancelled and new award are treated as if they were a modification of the original award.

   (s)    Issued capital 

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds.

   (t)     Earnings per share 

(i) Basic earnings per share

Basic earnings per share is calculated by dividing the profit or loss attributable to owners of the Company, excluding any costs of servicing equity other than ordinary shares, by the weighted average number of ordinary shares outstanding during the financial period, adjusted for bonus elements in ordinary shares issued during the period.

(ii) Diluted earnings per share

Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account the after-income tax effect of interest and other financing costs associated with dilutive potential ordinary shares and the weighted average number of shares assumed to have been issued for no consideration in relation to dilutive potential ordinary shares.

   (u)    Critical accounting judgements, estimates and assumptions 

The preparation of these financial statements requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group's accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements are:

(i) Impairment

The Group assesses impairment of all assets at each reporting date by evaluating conditions specific to the Group and to the particular asset that may lead to impairment. The major assets are tested for impairment when there is objective evidence of impairment. As at 31 December 2018 the Group assessed that, no indicator of impairment existed (31 December 2017: Nil).

(ii) Interest in Joint Arrangement and measurement of loan receivable

The Group accounts for its 50% interest in CMSC as a joint venture using the equity method.

Danakali holds 3 of 5 CMSC Board seats, however in reference to certain material decisions which are reserved for Majority Shareholder approval it has been determined that the interest in CMSC is more appropriately classified as an interest in a joint venture and has been accounted for using the equity method. These shareholder voting rights are considered to be substantive rights particularly in the early stages of the project development.

The assumptions applied in determining the fair value of the loan to the joint venture includes determining the timing of cash receipts and the discount rate applied. The fair value of the loan has been measured using valuation techniques under a discounted cash flow (DCF) model, as fair value cannot be measured on quoted prices in active markets. The inputs to a DCF are taken from observable markets where possible, but where this is not feasible, a degree of judgment is required in establishing fair value. Judgements include consideration of inputs including foreign exchange risk, interest rate risk, and credit risk. At 31 December 2018 a discount rate of 25% was applied, based on management's judgement of the underlying risks. The timing of cash receipts has been adjusted according to management's best estimate and it is currently estimated that receipts commence in the December 2023 quarter.

Further context is detailed in note 10.

(iii) Share based payment transactions

The Group measures the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at the date at which they are granted. The fair value of options is determined by an internal valuation using a Black-Scholes option pricing model, using the assumptions detailed in note 22.

The fair value of performance rights is determined by the share price at the date of grant and consideration of the probability of the vesting condition being met.

(iv) Fair value measurement of financial instruments

When the fair values of financial assets and financial liabilities recorded in the statement of financial position cannot be measured based on quoted prices in active markets, their fair value is measured using valuation techniques including the discounted cash flow (DCF) model. The inputs to these models are taken from observable markets where possible, but where this is not feasible, a degree of judgement is required in establishing fair values. Judgements include considerations of inputs such as discount rate, exchange rate, repayment terms etc. Changes in assumptions relating to these factors could affect the reported fair value of financial instruments. See note 8 for further disclosures.

(v) Provision for Expected Credit Loss (ECL)

The accounting estimates and judgments related to the impairment of receivables is a critical accounting estimate because the underlying assumptions used for assessed impairment can change from period to period and may significantly affect the Group's results of operations.

In assessing assets for impairments, management judgment is required, particularly in relation to economic and financial conditions, the timing of the completion of construction, timing of project financing and alignment to the indicative debt financing terms and changes to expected cash flows can occur.

The determination for a provision for expected credit loss is determined using the credit loss model. THe use of this model incorporates numerous estimates and judgements. The group performs a regular review of the models and underlying data and assumptions.

   (v)    Goods and Services Tax (GST) 

Revenues, expenses and assets are recognised net of the amount of associated GST, unless the GST incurred is not recoverable from the taxation authority. In this case, it is recognised as part of the cost of acquisition of the asset or as part of the expense.

Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount of GST recoverable from, or payable to, the taxation authority is included with other receivables or payables in the Consolidated Statement of Financial Position.

Cash flows are presented on a gross basis. The GST components of cash flows arising from investing or financing activities which are recoverable from, or payable to the taxation authority, are presented as operating cash flows.

   (w)   Government grants 

Government grants are recognised where there is reasonable assurance that the grant will be received, and all attached conditions will be complied with. When the grant relates to an expense item, it is recognised as income on a systematic basis over the periods that the related costs, for which it is intended to compensate, are expensed. When the grant relates to an asset, it is recognised as income in equal amounts over the expected useful life of the related asset.

   3.    SEGMENT INFORMATION 

The Group operates in the mining industry in Eritrea. For management purposes, the Group is organised into one main operating segment which involves the exploration of minerals in Eritrea. All of the Group's activities are interrelated and discrete financial information is reported to the Board (Chief Operating Decision Maker) as a single segment.

Accordingly, all significant operating decisions are based upon analysis of the Group as one segment. The financial results from this segment are equivalent to the financial statements of the Group as a whole.

The Group's non-current assets are geographically located in Eritrea.

   4.    REVENUE 
 
             2018     2017 
               $        $ 
----------  -------  ------- 
Interest    172,252  221,189 
            -------  ------- 
 
 
   5.    EXPENSES 
 
                                            2018       2017 
                                              $          $ 
----------------------------------------  ---------  --------- 
Employee benefits (net of recharges)        309,176    267,256 
Director fees                               439,612    295,631 
Compliance and regulatory expenses (a)    1,386,915    392,626 
Lease payments relating to operating 
 leases                                      91,893    144,152 
Other administration expenses               520,117    584,702 
                                          ---------  --------- 
                                          2,747,713  1,684,367 
                                          ---------  --------- 
 

(a) Expenditure in the areas of legal, consultants and other compliance and regulatory expenses increased during the year as a result of the LSE listing and corporate transactions.

   6.    CASH AND CASH EQUIVALENTS 
 
                             2018        2017 
                               $           $ 
-------------------------  ---------  ---------- 
Cash at bank and in hand   9,550,585  15,559,980 
                           ---------  ---------- 
 

Cash at bank earns interest at floating rates based on daily bank deposit rates.

Short-term deposits are made for varying periods of between one day and three months depending on the immediate cash requirements of the Group and earn interest at the respective short-term deposit rates.

   7.    INCOME TAX 
 
                                               2018  2017 
                                                 $     $ 
---------------------------------------------  ----  ---- 
(a) Income tax recognised in profit or loss 
Current tax                                       -     - 
Deferred tax                                      -     - 
Total tax benefit/(expense)                       -     - 
                                               ====  ==== 
 

(b) Reconciliation of income tax expense to prima facie tax payable

 
Loss before income tax expense                         (6,944,413)  (6,839,936) 
                                                       -----------  ----------- 
 
Prima facie tax benefit at the Australian 
 tax rate of 27.5% (2017: 27.5%)                       (1,909,712)  (1,880,982) 
Adjustment of under-provision of deferred 
 tax in prior year                                       (433,978)            - 
Tax effect of amounts which are not deductible 
 (taxable) in calculating taxable income: 
    Share-based payments                                    25,096      271,858 
    Share of net loss of equity accounted associate        107,041    1,405,548 
    Accretion relating to the unwinding of discount 
     on joint venture loan                                       -    (315,115) 
    Net loss on financial assets at fair value 
     through profit or loss                              1,337,263            - 
Movements in unrecognised temporary differences 
 and tax effect of current year tax losses:                874,290      518,691 
Income tax expense/(benefit)                                     -            - 
                                                       ===========  =========== 
 

(c) Deferred Income Tax

Deferred income tax at 31 December relates to the following:

 
                                  Statement of             Statement of 
                               Financial Position       Comprehensive Income 
                               2018         2017         2018         2017 
                                 $            $            $            $ 
--------------------------  -----------  -----------  -----------  ---------- 
Deferred Tax Liabilities: 
  Interest receivable             (129)            -        (129)       3,151 
 
Deferred Tax Assets: 
  Provision for employee 
   entitlements                  39,898       53,358     (13,460)         213 
  Accrued expenditure             1,973       12,309     (10,336)       5,709 
  s.40-880 expenditure          188,041      270,029     (81,988)      87,420 
  Revenue tax losses          5,228,743    4,248,669      980,074   (411,724) 
Deferred tax assets 
 not brought to account 
 as realisation is not 
 probable                   (5,458,526)  (4,584,365)    (874,161)     315,231 
                            -----------  -----------  -----------  ---------- 
                                      -            -            -           - 
                            ===========  ===========  ===========  ========== 
 
   8.    RECEIVABLES 
 
                                              2018        2017 
                                                $           $ 
------------------------------------------  ---------  ---------- 
Current 
Net GST receivable                             31,863     112,705 
Accrued interest                                  469           - 
Other receivables                               1,895       2,366 
Security bonds                                 74,250      59,250 
                                            ---------  ---------- 
                                              108,477     174,321 
                                            ---------  ---------- 
Non-Current 
Loan to Colluli Mining Share Company - at 
 fair value                                 9,283,670           - 
Loan to Colluli Mining Share Company - at 
 amortised cost                                     -  12,216,952 
                                            ---------  ---------- 
Carrying value of loans                     9,283,670  12,216,952 
Impairment of receivables                           -           - 
                                            ---------  ---------- 
                                            9,283,670  12,216,952 
                                            ---------  ---------- 
 

Danakali's wholly owned subsidiary, STB Eritrea Pty Ltd, is presently funding the Colluli Mining Share Company (CMSC) for the development of the Colluli Potash Project and 50% of the funding is represented in the form of a shareholder loan.

Repayment of this loan, as defined in the CMSC Shareholders Agreement, will be made preferentially from future operating cash flows. The shareholder loan is denominated in USD, non-interest bearing, unsecured and subordinate to any loans from third party secured lenders, under which CMSC may enter into in order to fund the Project Development Capital. For accounting purposes, the value of the loan has been discounted by applying a market effective interest rate of 25% (2017: effective interest rate of 25%).

During the year ended 31 December 2018, the repayment profile of the receivable was updated to consider the timing of the completion of construction, timing of project financing and alignment to the indicative debt financing terms. This resulted in a loss on financial assets at fair value through profit or loss of $4,862,775 (see note 10).

During the year ended 31 December 2017, the repayment profile of the receivable was updated to consider the results generated by the completion of the Front-End Engineering Design (FEED) on 29 January 2018 and timing of the completion of construction. This resulted in a loss on the re-measurement of the loan amounting to $216,909 (see note 10).

The undiscounted underlying loan balance at 31 December 2018 is $33,571,559 (USD 23,676,610) (31 December 2017: $27,176,517) (USD 21,216,239).

 
                                                     2018             2017 
                                                       $                $ 
------------------------------------------------  -----------  ------------------ 
Reconciliation of movement in loan to Colluli 
 Mining Share Company 
Opening carrying amount at beginning of the 
 year                                              12,216,952           9,519,503 
Additional loans during the year                      987,356           1,881,697 
Foreign exchange gain/(loss)                          942,137           (330,121) 
Loss on re-measurement of loan to joint venture 
 carried at amortised cost                                  -           (216,909) 
Accretion relating to the unwinding of discount 
 on joint venture loan                                      -           1,362,780 
Net loss on financial assets at fair value 
 through profit or loss                           (4,862,775)                   - 
                                                  -----------  ------------------ 
Closing carrying amount at end of the year          9,283,670          12,216,952 
                                                  -----------  ------------------ 
 
   9.    PLANT AND EQUIPMENT 
 
                                           2018      2017 
                                             $         $ 
---------------------------------------  --------  -------- 
Plant and equipment 
Gross carrying value - at cost             74,561    58,437 
Accumulated depreciation                 (51,609)  (43,327) 
Net book amount                            22,952    15,110 
                                         ========  ======== 
 
Plant and equipment 
Opening net book amount at beginning 
 of the year                               15,110     7,920 
Additions                                  16,124    10,778 
Disposals                                       -         - 
Depreciation charge                       (8,282)   (3,588) 
Closing net book amount at end of the 
 year                                      22,952    15,110 
                                         ========  ======== 
 
   10.   INVESTMENT IN JOINT VENTURE 

The Group has an interest in the following joint arrangement:

 
                                 Equity Interest       Carrying Value 
                                  2018     2017       2018        2017 
Project        Activities           %        %          $           $ 
--------  --------------------  --------  -------  ----------  ---------- 
Colluli 
 Potash   Mineral Exploration         50       50  19,829,489  13,811,946 
--------  --------------------  --------  -------  ----------  ---------- 
 

The group acquired an interest in Colluli Mining Share Company (CMSC) at the date of its incorporation on 5 March 2014. This acquisition was in accordance with the Shareholders Agreement entered into with the Eritrean National Mining Corporation (ENAMCO) and executed in November 2013. CMSC was incorporated in Eritrea, in accordance with the Shareholders Agreement, to hold the Colluli project with Danakali and ENAMCO holding 50% of the equity each.

Under the terms of the Shareholders Agreement, at the date of incorporation of CMSC, consideration for the acquisition of shares in CMSC equated to half of the allowable historical exploration costs transferred to CMSC by STB Eritrea Pty Ltd, a wholly owned subsidiary of Danakali Limited. The balance of the allowable historic exploration costs transferred to CMSC are recoverable via a shareholder loan account (see note 8).

The Group's 50% interest in CMSC is accounted for as a joint venture using the equity method. The following tables summarise the financial information of the Group's investment in CMSC at 31 December 2018.

 
                                                 2018        2017 
                                                   $           $ 
--------------------------------------------  ----------  ----------- 
Reconciliation of movement in investments 
 accounted for using the equity method: 
Opening carrying amount at beginning of the 
 year                                         13,811,946   13,502,312 
Additional investment during the year          5,532,842    6,354,472 
Share of net (loss)/profit for the year        (389,239)  (5,111,085) 
Other comprehensive income for the year          873,940    (933,753) 
                                              ----------  ----------- 
Closing carrying amount at end of the year    19,829,489   13,811,946 
                                              ----------  ----------- 
 

Summarised financial information of joint venture:

 
                                                          2018          2017 
                                                            $             $ 
-----------------------------------------------------  -----------  ------------ 
Financial position (Aligned to Danakali accounting 
 policies) 
Current Assets: 
  Cash                                                     110,666        43,901 
  Other current assets                                     104,928        83,582 
                                                       -----------  ------------ 
                                                           215,594       127,483 
                                                       -----------  ------------ 
Non-current assets 
  Fixed Assets                                             135,013       108,727 
  Mineral Property                                      31,125,894    27,610,315 
                                                       -----------  ------------ 
                                                        31,260,907    27,719,042 
                                                       -----------  ------------ 
Current liabilities 
  Trade & other payables and provisions                  (311,850)     (250,832) 
                                                       -----------  ------------ 
                                                         (311,850)     (250,832) 
                                                       -----------  ------------ 
Non-current liabilities 
  Loan from Danakali Ltd - at amortised cost           (9,283,670)  (12,216,952) 
                                                       -----------  ------------ 
                                                       (9,283,670)  (12,216,952) 
                                                       -----------  ------------ 
 
NET ASSETS                                              21,880,981    15,378,741 
                                                       ===========  ============ 
 
Group's share of net assets                             10,940,491     7,689,371 
                                                       ===========  ============ 
 
Reconciliation of Equity Investment: 
Group's share of net assets                             10,940,491     7,689,371 
Share of initial contribution on establishment 
 of the Joint Venture not recognised by Danakali       (4,305,107)   (4,305,107) 
Outside shareholder interest in equity contributions 
 by Danakali                                            13,194,105    10,427,682 
                                                       -----------  ------------ 
Carrying amount at the end of the period                19,829,489    13,811,946 
                                                       -----------  ------------ 
 
 
                                                     2018          2017 
                                                       $             $ 
------------------------------------------------  -----------  ------------ 
Financial performance 
Interest expense relating to the unwinding 
 of discount on joint venture loan                (3,859,850)   (1,362,780) 
Gain on re-measurement of loan to joint venture 
 carried at amortised cost                          8,722,625       216,909 
Exploration and evaluation expenditure            (5,641,253)   (9,076,298) 
                                                  -----------  ------------ 
TOTAL COMPREHENSIVE LOSS FOR THE YEAR               (778,478)  (10,222,169) 
                                                  -----------  ------------ 
 
Group's share of total loss for the year            (389,239)   (5,111,085) 
                                                  ===========  ============ 
 

During the year ended 31 December 2018 no dividends were paid or declared (2017: Nil).

Colluli Mining Share Company has the following commitments or contingencies at 31 December 2018:

Government

Under the mining agreement entered into between the Government of the State of Eritrea and Colluli Mining Share Company (CMSC) dated 31 January 2017, CMSC is obliged to spend US$200 million on infrastructure and mine development within the area of the Colluli project mining licences in the 36 months following the provision of formal notice to the Ministry of Energy and Mines that development has commenced.

Funding

CMSC successfully executed a mandate to provide fully underwritten debt finance facilities of US$200M to fund the construction and development of the Project. African development financial institutions African Export-Import Bank (Afreximbank) and Africa Finance Corporation (AFC) are acting as Mandated Lead Arrangers (MLAs).

Under the terms of the mandate, CMSC is responsible to pay all reasonable costs and expenses related to external technical, financial, insurance, tax and legal consultants required by the MLAs to assist in the due diligence. The mandate letter includes various fees, payable by CMSC to the MLAs, based on various future outcomes, including termination by CMSC.

   11.   TRADE AND OTHER PAYABLES 
 
                    2018      2017 
                      $         $ 
-----------------  -------  --------- 
Trade payables     122,362    925,470 
Accrued expenses    65,868    103,453 
Other payables      35,624     68,164 
                   223,854  1,097,087 
                   =======  ========= 
 
   12.   PROVISIONS 
 
                         2018     2017 
                           $        $ 
----------------------  -------  ------- 
Current 
Employee entitlements    86,180  166,219 
 
Non-Current 
Employee entitlements    58,903   27,811 
                        -------  ------- 
                        145,083  194,030 
                        =======  ======= 
 

Employee entitlements relate to the balance of annual leave and long service leave accrued by the Group's employees. Recognition and measurement criteria have been disclosed in note 2.

   13.   ISSUED CAPITAL 
 
                                                                          2018                     2017 
                                                                   Number                   Number 
                                                                  of shares       $        of shares       $ 
---------------------------------------------------------------  -----------  ----------  -----------  ---------- 
(a) Share capital 
Ordinary shares fully paid                                       264,422,398  79,576,117  251,697,687  75,415,034 
                                                                 -----------  ----------  -----------  ---------- 
Total issued capital                                             264,422,398  79,576,117  251,697,687  75,415,034 
                                                                 ===========  ==========  ===========  ========== 
(b) Movements in ordinary share 
 capital 
Balance at the beginning of the 
 year                                                            251,697,687  75,415,034  224,494,677  61,758,320 
  Issued during the year: 
 
      *    Issued at $0.278 per share on option exercise                   -           -    4,600,000   1,278,800 
 
      *    Issued at $0.350 per share on option exercise          10,381,821   3,633,640    1,356,365     474,728 
 
      *    Issued at $0.405 per share on option exercise             400,000     162,000      351,000     142,155 
 
      *    Issued at $0.408 per share on option exercise                   -           -      200,000      81,600 
 
      *    Issued at $0.450 per share on option exercise             200,000      90,000            -           - 
 
      *    Issued at $0.652 per share via cashless exercise of 
           1,949,000 options with an exercise price of $0.405        738,346           -            -           - 
 
      *    Issued at $0.624 per share via cashless exercise of 
           750,000 options with an exercise price of $0.527          116,586           -            -           - 
 
      *    Issued at $0.648 per share via cashless exercise of 
           1,600,000 options with an exercise price of $0.550        241,974           -            -           - 
 
      *    Issued at $0.773 per share via cashless exercise of 
           750,000 options with an exercise price of $0.550          216,364           -            -           - 
 
      *    Issued on vesting of performance rights                    65,000           -      775,000           - 
 
      *    Issued at $0.755 per share in lieu of advisor fees                    268,817 
           (refer note 22(b))                                        356,049         (a)            -           - 
 
      *    Issued at $0.773 per share in lieu of advisor fees 
           (refer note 22(b))                                          8,571   6,626 (b) 
 
      *    Issued at $0.620 per share pursuant to placement                -           -   19,920,645  12,350,800 
 
      *    Costs of capital raised                                         -           -            -   (671,369) 
                                                                 -----------  ----------  -----------  ---------- 
Balance at the end of the year                                   264,422,398  79,576,117  251,697,687  75,415,034 
                                                                 ===========  ==========  ===========  ========== 
 

Note:

(a) The fair value for the consideration of these shares was calculated taking into accounts the Company's valuation on admission to the LSE, the Company's share price and the USD/AUD exchange rate on the date of issue.

(b) The fair value for the consideration of these shares was calculated taking into accounts the Company's 10-day VWAP share price and the GBP/AUD exchange rate on the date of issue.

(c) Ordinary shares

Ordinary shares entitle the holder to participate in dividends and the proceeds on winding up of the Company in proportion to the number of and amounts paid on the shares held.

On a show of hands every holder of ordinary shares present at a meeting in person or by proxy, is entitled to one vote, and upon a poll each share is entitled to one vote.

Ordinary shares have no par value and the Company does not have a limited amount of authorised capital.

 
                                                                        2018         2017 
                                                                       Options      Options 
-------------------------------------------------------------------  -----------  ----------- 
(d) Movements in options on issue 
Balance at beginning of the year                                      19,195,821   25,213,186 
  Issued during the year: 
 
        *    Exercisable at $0.940, on or before 19 May 2020                   -    1,440,000 
 
        *    Exercisable at $0.960, on or before 20 June 2019                  -      400,000 
  Exercised, cancelled or expired during the 
   year: 
 
        *    Exercised, exercisable at $0.278 on or before 17 
             November 2017                                                     -  (4,600,000) 
 
        *    Exercised, exercisable at $0.350 on or before 30 
             March 2018                                              (9,656,821)  (1,356,365) 
 
        *    Exercised, exercisable at $0.350 on or before 13 May 
             2018                                                      (725,000)    (351,000) 
 
        *    Exercised, exercisable at $0.405 on or before 13 May 
             2018                                                    (2,349,000)            - 
 
        *    Exercised, exercisable at $0.408 on or before 4 
             November 2018                                                     -    (200,000) 
 
        *    Exercised, exercisable at $0.450 on or before 23 June 
             2018                                                      (200,000)            - 
 
        *    Exercised, exercisable at $0.527 on or before 29 May 
             2018                                                      (750,000)            - 
 
        *    Exercised, exercisable at $0.550 on or before 31 May 
             2018                                                      (600,000)            - 
 
        *    Exercised, exercisable at $0.550 on or before 4 
             November 2018                                             (750,000)            - 
 
        *    Exercised, exercisable at $0.550 on or before 31 
             December 2018                                           (1,000,000)            - 
 
        *    Expired, exercisable at $0.350, on or before 13 May 
             2018                                                       (75,000)            - 
 
        *    Cancelled, exercisable at $0.558, on or before 8 
             August 2019                                               (100,000)            - 
 
        *    Cancelled, exercisable at $0.408 on or before 4 
             November 2018                                                     -    (800,000) 
 
        *    Cancelled, exercisable at $0.543 on or before 7 
             October 2019                                                      -    (550,000) 
                                                                     -----------  ----------- 
Balance at end of the year                                             2,990,000   19,195,821 
                                                                     ===========  =========== 
 
   14.   RESERVES 
 
                                                2018        2017 
                                                  $           $ 
-------------------------------------------  ----------  ---------- 
(a) Reserves 
Share-based payments reserve 
Balance at beginning of the year             11,416,109  10,427,536 
Employee and contractor share options and 
 performance rights (note 22)                 (184,186)     988,573 
Balance at end of the year                   11,231,923  11,416,109 
                                             ----------  ---------- 
Foreign currency translation reserve 
Balance at beginning of the year              1,105,490   2,039,243 
Currency translation differences arising 
 during the year/ period                        873,940   (933,753) 
                                             ----------  ---------- 
Balance at end of the year                    1,979,430   1,105,490 
                                             ----------  ---------- 
 
Total reserves                               13,211,353  12,521,599 
                                             ==========  ========== 
 

(b) Nature and purpose of reserves

Share-based payments reserve

The share-based payments reserve is used to recognise the fair value of share options and performance rights issued.

Foreign currency translation reserve

The foreign currency translation reserve records the exchange differences arising on translation of a foreign joint arrangement.

   15.   ACCUMULATED LOSSES 
 
                                       2018          2017 
                                         $             $ 
---------------------------------  ------------  ------------ 
Balance at beginning of the year   (47,399,347)  (40,559,411) 
Loss for the year                   (6,944,413)   (6,839,936) 
Balance at end of the year         (54,343,760)  (47,399,347) 
                                   ------------  ------------ 
 
   16.   STATEMENT OF CASH FLOWS 
 
                                                          2018         2017 
                                                            $            $ 
-----------------------------------------------------  -----------  ----------- 
(a) Reconciliation of net loss after income 
 tax to net cash outflow from operating activities 
Net loss for the year                                  (6,944,413)  (6,839,936) 
Non--Cash Items: 
  Depreciation of plant and equipment                        8,282        3,588 
  Loss of disposal of plant and equipment                        -            - 
  Share-based payment expense                               91,257      988,573 
  Accretion relating to the unwinding of discount 
   on joint venture loan                                         -  (1,362,780) 
  Share of net loss of associate                           389,239    5,111,085 
  Foreign exchange loss/(gain)                           (942,138)      495,525 
  Loss on re-measurement of loan to joint venture 
   carried at amortised cost                                     -      216,909 
  Net loss on financial assets at fair value 
   through profit or loss                              (4,862,775)            - 
Change in operating assets and liabilities: 
  Decrease/(increase) in trade and other receivables        17,602     (33,890) 
  Decrease/(increase) in trade and other payables        (864,120)      124,368 
  Increase/(decrease) in provisions                       (48,947)       16,879 
Net cash outflow from operating activities             (3,430,463)  (1,279,679) 
                                                       -----------  ----------- 
 
(b) Funding of joint venture operations 
Cash contribution to joint venture operations 
 during the period                                     (6,448,446)  (7,711,037) 
                                                       -----------  ----------- 
 
   17.   EARNINGS PER SHARE 

(a) Reconciliation of earnings used in calculating earnings per share (EPS)

 
                                                    2018         2017 
                                                      $            $ 
-----------------------------------------------  -----------  ----------- 
Loss attributable to the owners of the Company 
 used in calculating basic and diluted loss 
 per share                                       (6,944,413)  (6,839,936) 
                                                 -----------  ----------- 
 

(b) Weighted average number of shares used as the denominator

 
                                                    2018           2017 
                                                No. of Shares  No. of Shares 
----------------------------------------------  -------------  ------------- 
Weighted average number of ordinary shares 
 used as the denominator in calculating basic 
 and diluted loss per share                       261,076,051    239,710,693 
                                                -------------  ------------- 
 

As the Group incurred a loss for the period, the options on issue have an anti-dilutive effect, therefore the diluted EPS is equal to the basic EPS. A total of 2,990,000 (2017: 19,195,821) share options and 1,315,000 (2017: 1,408,000) performance rights which could potentially dilute basic EPS in the future have been excluded from the diluted EPS calculation because they are anti-dilutive for the current year presented.

   18.   FINANCIAL RISK MANAGEMENT 

The Group's activities expose it to market, liquidity and credit risks arising from its financial instruments.

The Group's management of financial risk is aimed at ensuring net cash flows are sufficient to meet all of its financial commitments and maintain the capacity to fund the Colluli project and ancillary exploration activities. The Board of Directors has overall responsibility for the establishment and oversight of the risk management framework. Management monitors and manages the financial risks relating to the operations of the Group through regular reviews of risks.

Market (including foreign exchange and interest rate risks), liquidity and credit risks arise in the normal course of business. These risks are managed under Board approved treasury processes and transactions.

The principal financial instruments as at reporting date include cash, receivables and payables.

This note presents information about exposures to the above risks, the objectives, policies and processes for measuring and managing risk, and the management of capital.

   (a)    Market risk 

(i) Foreign exchange risk

Foreign exchange risk arises from future commercial transactions and recognised assets and liabilities denominated in a currency that is not the entity's functional currency and net investments in foreign operations. The Group has not formalised a foreign currency risk management policy however, it monitors its foreign currency expenditure in light of exchange rate movements. The international operations are at the start-up stage and there is limited exposure at the reporting date to assets and liabilities denominated in foreign currencies.

The loan of $9,283,670 (2017: $12,216,952) to Colluli Mining Share Company is denominated in US Dollar.

The following table demonstrates the sensitivity to a reasonably possible change in US Dollar exchange rates, with all other variables held constant. A strengthening of the Australian Dollar rate results in an increased loss before tax. The Group's exposure to foreign currency changes for all other currencies is not material.

 
                             Change in    Effect on 
                              USD Rate    Loss before 
                                 %            tax 
                                               $ 
--------------------------  ----------  ------------- 
 Year to 31 December 2018       +5%         (464,183) 
                                -5%           464,183 
 Year to 31 December 2017       +5%         (610,848) 
-------------------------- 
                                -5%           610,848 
--------------------------  ----------  ------------- 
 

(ii) Interest rate risk

The Group is exposed to movements in market interest rates on cash. The Group's policy is to monitor the interest rate yield curve out to six months to ensure a balance is maintained between the liquidity of cash assets and the interest rate return. The entire balance of cash for the Group of $9,550,585 (2017: $15,559,980) is subject to interest rate risk. The floating interest rates fluctuate during the period depending on current working capital requirements. The weighted average interest rate received on cash by the Group was 1.30% (2017: 1.51%).

The Group is also exposed to movements in market interest rates on the loan to Colluli Mining Share Company held at fair value through profit or loss.

Sensitivity analysis

At 31 December 2018, if interest rates had changed by -/+ 80 basis points from the weighted average rate for the period with all other variables held constant, post-tax loss for the Group would have been $105,766 higher/lower (2017: $117,048 higher/lower) as a result of lower/higher interest income from cash and cash equivalents. The fair value of the loan has been determined using a discounted cash flow methodology. Due to the significant unobserved inputs the fair value is categorised as level 3 in the fair value hierarchy. The fair value of the loan is sensitive to the discount rate applied. A 50bps movement in the discount rate would change the valuation by $209,105.

   (b)    Liquidity risk 

The Group manages liquidity risk by continuously monitoring forecast and actual cash flows and ensuring sufficient cash and marketable securities are available to meet the current and future commitments of the Group. Due to the nature of the Group's activities, being mineral exploration, the Group does not have ready access to credit facilities, with the primary source of funding being equity raisings.

The Board of Directors constantly monitors the state of equity markets in conjunction with the Group's current and future funding requirements, with a view to initiating appropriate capital raisings as required.

The financial liabilities of the Group are confined to trade and other payables as disclosed in the Consolidated Statement of Financial Position. All trade and other payables are non-interest bearing and due within 12 months of the reporting date.

   (c)    Credit risk 

The Group's significant concentration of credit risk is cash, which is held with the major Australian bank with AA2 credit rating, accordingly the credit risk exposure is minimal. The maximum exposure to credit risk at balance date is the carrying amount of cash receivables as disclosed in the Consolidated Statement of Financial Position and Notes to the Consolidated Financial Statements.

Other than the loan to Colluli Mining Share Company, the Group does not presently have any material debtors. A formal credit risk management policy is not maintained in respect of debtors.

   (d)    Fair values 

Set out below is an overview of financial instruments, other than cash and short-term deposits, held by the group as at 31 December 2018:

 
                                                      Fair value 
                                                             through other 
                             At amortised   through profit    comprehensive 
                                 cost          and loss          income 
                                   $               $                $ 
--------------------------  -------------  ---------------  --------------- 
 Financial Assets: 
 Receivables                      108,477                -                - 
                            -------------  ---------------  --------------- 
 Total current                    108,477                -                - 
                            -------------  ---------------  --------------- 
 
 Receivable                             -        9,283,670                - 
                            -------------  ---------------  --------------- 
 Total non-current                      -        9,283,670                - 
                            -------------  ---------------  --------------- 
 
 Total Assets                     108,477        9,283,670                - 
                            =============  ===============  =============== 
 
 Financial liabilities: 
 Trade and other payables         223,854                -                - 
                            -------------  ---------------  --------------- 
 Total current                    223,854                -                - 
                            -------------  ---------------  --------------- 
 
 Total Liabilities                223,854                -                - 
                            =============  ===============  =============== 
 

Set out below is a comparison of the carrying amount and fair values of financial instruments as at 31 December 2018:

 
 
                             Carrying 
                               Value     Fair Value 
                                 $            $ 
--------------------------  ----------  ----------- 
 Financial Assets: 
 Receivables                   108,477      108,477 
                            ----------  ----------- 
 Total current                 108,477      108,477 
                            ----------  ----------- 
 
 Receivable                  9,283,670    9,283,670 
                            ----------  ----------- 
 Total non-current           9,283,670    9,283,670 
                            ----------  ----------- 
 
 Total Assets                9,392,147    9,392,147 
                            ==========  =========== 
 
 Financial liabilities: 
 Trade and other payables      223,854      223,854 
                            ----------  ----------- 
 Total current                 223,854      223,854 
                            ----------  ----------- 
 
 Total Liabilities             223,854      223,854 
                            ==========  =========== 
 

Set out below is an overview of financial instruments, other than cash and short-term deposits, held by the group as at 31 December 2017:

 
                                                     Fair value 
                                                            through other 
                            At amortised   through profit    comprehensive 
                                cost          and loss          income 
                                  $               $                $ 
-------------------------  -------------  ---------------  --------------- 
 Financial Assets: 
 Receivables                     174,321                -                - 
                           -------------  ---------------  --------------- 
 Total current                   174,321                -                - 
                           -------------  ---------------  --------------- 
 
 Receivable                   12,216,952                -                - 
                           -------------  ---------------  --------------- 
 Total non-current            12,216,952                -                - 
                           -------------  ---------------  --------------- 
 
 Total Assets                 12,391,273                -                - 
                           =============  ===============  =============== 
 
 Financial liabilities: 
 Trade and other payables      1,097,087                -                - 
                           -------------  ---------------  --------------- 
 Total current                 1,097,087                -                - 
                           -------------  ---------------  --------------- 
 
 Total Liabilities             1,097,087                -                - 
                           =============  ===============  =============== 
 

Set out below is an overview of financial instruments, other than cash and short-term deposits, held by the group as at 31 December 2017:

 
 
                              Carrying 
                                Value     Fair Value 
                                  $            $ 
--------------------------  -----------  ----------- 
 Financial Assets: 
 Receivables                    174,321      174,321 
                            -----------  ----------- 
 Total current                  174,321      174,321 
                            -----------  ----------- 
 
 Receivable                  12,216,952   12,216,952 
                            -----------  ----------- 
 Total non-current           12,216,952   12,216,952 
                            -----------  ----------- 
 
 Total Assets                12,391,273   12,391,273 
                            ===========  =========== 
 
 Financial liabilities: 
 Trade and other payables     1,097,087    1,097,087 
                            -----------  ----------- 
 Total current                1,097,087    1,097,087 
                            -----------  ----------- 
 
 Total Liabilities            1,097,087    1,097,087 
                            ===========  =========== 
 

The current receivables and payables carrying values approximates fair values due to the short-term maturities of these instruments.

The fair value of the long-term receivable was determined by discounting future cashflows using a current market interest rate of 25% (2017 - effective interest rate of 25%). The timing of cash receipts has been adjusted according to management's best estimate and it is currently estimated that receipts commence in the December 2023 quarter. The fair value measurement for 2018 (2017 - disclosure only) is categorised as Level 3 in the fair value hierarchy as the estimated market interest rate is an unobserved input in the valuation. An unobserved input is used to the extent that relevant observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at measurement date.

   19.   CAPITAL MANAGEMENT 

The Group's objectives when managing capital are to safeguard its ability to continue as a going concern, so that it may continue to provide returns for shareholders and benefits for other stakeholders.

Capital managed by the Board includes Shareholder equity, which was $37,427,542 (2017: $40,537,286). The focus of the Group's capital risk management is the current working capital position against the requirements of the Group to meet exploration and project development programmes plus corporate overheads. The Group's strategy is to ensure appropriate liquidity is maintained to meet anticipated operating requirements, with a view to initiating appropriate capital raisings as required.

   20.   CONTINGENCIES 

There are no material contingent liabilities or contingent assets of the Group at balance date.

   21.   COMMITMENTS 
 
                                                                 2018    2017 
                                                                   $       $ 
---------------------------------------------------------  ---  ------  ------ 
Lease commitments: Group as lessee 
Operating leases (non--cancellable): 
Minimum lease payments 
 
  *    within one year                                          11,667  70,000 
 
  *    later than one year but not later than five years             -  11,667 
                                                                ------  ------ 
Aggregate lease expenditure contracted for 
 at reporting date but not recognised as liabilities            11,667  81,667 
                                                                ------  ------ 
 
Total Commitments                                               11,667  81,667 
                                                                ======  ====== 
 

Operating Leases:

The minimum future payments above relate to non-cancellable operating leases for offices. On 18 January 2018, the Company extended the Churchill avenue office lease by 12 months commencing on 1 March 2018 for a total annual cost of $70,000.

   22.   SHARE-BASED PAYMENTS 

(a) Expenses arising from share-based payment transactions

Total expenses arising from share-based payment transactions recognised during the period were as follows:

 
                                                      2018      2017 
                                                        $         $ 
--------------------------------------------------  ---------  ------- 
Shares                                                275,443        - 
Options issued to directors, employees and 
 contractors                                           31,894  591,446 
Performance Rights issued to directors, employees 
 and contractors                                    (216,080)  397,127 
                                                    ---------  ------- 
                                                       91,257  988,573 
                                                    =========  ======= 
 

(b) Shares

During the year, the Company issued a total of 364,620 shares to advisors in consideration for services rendered (refer note 13(b). The share-based payment expense recorded in respect of these shares was determined in reference to the prevailing market value of the shares at time of issue.

(c) Options

The Group provides benefits to employees (including directors), contractors and consultants of the Group in the form of share-based payment transactions, whereby employees, contractors and consultants render services in exchange for options to acquire ordinary shares.

Options granted carry no dividend or voting rights. When exercisable, each option is convertible into one ordinary share of the Company with full dividend and voting rights. Set out below is a summary of the options granted (being those the subject of share-based payments).

 
                                            2018                           2017 
                                                Weighted 
                                Number of    average exercise   Number of   Weighted average 
                                 options          price          options     exercise price 
-----------------------------  -----------  -----------------  -----------  ---------------- 
Outstanding at the beginning 
 of the year                     8,739,000             $0.591   13,400,000            $0.414 
Granted                            500,000             $0.912    1,840,000            $0.944 
Exercised                      (5,649,000)             $0.483  (5,151,000)            $0.292 
Expired                          (100,000)             $0.558  (1,350,000)            $0.463 
                               -----------  -----------------  -----------  ---------------- 
Outstanding at end of the 
 year                            3,490,000             $0.811    8,739,000            $0.591 
                               -----------  -----------------  -----------  ---------------- 
Exercisable at end of the 
 year                            2,990,000             $0.794    8,389,000            $0.592 
                               -----------  -----------------  -----------  ---------------- 
 

Movements within specific classes of unlisted options (being those the subject of share-based payments) during the year is as follows:

 
Unlisted Options - Class        Opening       Granted        Exercised      Exercised     Lapsed      Closing 
                                balance       (subject                                   / Expired     balance 
                                           to shareholder 
                                             approval) 
                                 31 Dec                     (Traditional)   (Cashless)               31 Dec 2018 
                                  2017 
                                                                               (i) 
-----------------------------  ---------  ---------------  --------------  -----------  ----------  ------------ 
Exercise price $0.405 expiry 
 date 13/05/2018               2,349,000         -              (400,000)  (1,949,000)           -             - 
Exercise price $0.527 expiry 
 date 29/05/2018                 750,000         -                      -    (750,000)           -             - 
Exercise price $0.550 expiry 
 date 31/05/2018                 600,000         -                      -    (600,000)           -             - 
Exercise price $0.450 expiry 
 date 23/06/2018                 200,000         -              (200,000)            -           -             - 
Exercise price $0.550 expiry 
 date 04/11/2018                 750,000         -                      -    (750,000)           -             - 
Exercise price $0.550 expiry 
 date 31/12/2018               1,000,000         -                      -  (1,000,000)           -             - 
Exercise price $0.558 expiry                                                                             900,000 
 date 08/08/2019               1,000,000         -                      -            -   (100,000)          (ii) 
Exercise price $0.543 expiry                                                                             250,000 
 date 07/10/2019                 250,000         -                      -            -           -          (ii) 
Exercise price $0.940 expiry                                                                           1,440,000 
 date 19/05/2020               1,440,000         -                      -            -           -          (ii) 
Exercise price $0.960 expiry                                                                             400,000 
 date 20/06/2019                 400,000         -                      -            -           -          (ii) 
Exercise price $0.912 expiry 
 date 11/05/2020                       -      500,000                   -            -           -       500,000 
                               ---------  ---------------  --------------  -----------  ----------  ------------ 
                                                                                                       3,490,000 
                               8,739,000      500,000           (600,000)  (5,049,000)   (100,000)         (iii) 
                               ---------  ---------------  --------------  -----------  ----------  ------------ 
 

(i) During the year, 1,313,270 ordinary shares were issued on the cashless exercise of 5,049,000 unlisted options previously granted as compensation to directors, employees and advisors. The number of shares issued was calculated using the cashless exercise mechanism in accordance with the terms and conditions as amended and approved by shareholders at the Company's annual general meeting held 11 May 2018.

(ii) Vested options.

(iii) The number of unlisted options on issue at 31 December 2018 is 2,990,000 (as detailed at note 13(d)). This table includes reference to an additional 500,000 unlisted options (being the Director Options as referred to below), the issue of which remains subject to shareholder approval.

Remaining contractual life

The weighted average remaining contractual life of share options outstanding at the end of the period was 0.97 years (31 December 2017: 1.05 years), with exercise prices ranging from $0.543 to $0.96.

Options granted during the year

On 19 October 2018, the Directors agreed to issue 500,000 unlisted options with no vesting conditions to Mr Andre Liebenberg at an exercise price of $0.912 each and an expiry date of 11 May 2020, subject to receipt of shareholder approval (Director Options).

Shareholder approval for the issue of the Director Options will be sought at an upcoming general meeting of the Company. The grant date is therefore after the period in which services have begun to be rendered. Therefore, the grant date fair value presented in the 31 December 2018 financial statements is provisional, estimated by reference to the period end share price. Once the date of the grant is known, this provisional estimate of the grant date fair value will be revised.

There were no new options granted to key management personnel during the year, other than the 500,000 options granted to a director, subject to receipt of shareholder approval (the Director Options).

A summary of options granted during the year ended 31 December 2018 is included in the following table. The weighted average fair value of the options granted during the year ended 31 December 2018 was $0.105. The value was calculated by using the Black &Scholes Option Pricing Model applying the following inputs, to produce the fair value per option:

 
                                                                     Share 
                                                                      Price 
                                                                       at     Risk Free 
   Number          Grant         Expiry     Fair Value    Exercise    Grant    Interest    Estimated 
  of Options        Date          Date       per Option     Price     Date       Rate      Volatility 
   500,000     19/10/2018(1)   11/05/2020    $0.105(2)     $0.912    $0.740     1.95%       45.17% 
              --------------  -----------  ------------  ---------  -------  ----------  ------------ 
 

(1) Options will be issued following receipt of shareholder approval

(2) Fair value per option will be updated upon receipt of shareholder approval

A summary of options granted during the year ended 31 December 2017 is included in the following table. The weighted average fair value of the options granted during the year ended 31 December 2017 was $0.20. The value was calculated by using the Black &Scholes Option Pricing Model applying the following inputs, to produce the fair value per option:

 
                                                                  Share 
                                                                   Price 
                                                                    at     Risk Free 
   Number        Grant        Expiry     Fair Value    Exercise    Grant    Interest    Estimated 
  of Options      Date         Date       per Option     Price     Date       Rate      Volatility 
  1,440,000    19/05/2017   19/05/2019     $0.202       $0.940    $0.690    1.780%         56% 
   400,000     20/06/2017   20/06/2019     $0.193       $0.960    $0.785    1.660%         55% 
              -----------  -----------  ------------  ---------  -------  ----------  ------------ 
 

Historical volatility has been used as the basis for determining expected share price volatility as it assumed that this is indicative of future trends, which may not eventuate. The life of the options is based on historical exercise patterns, which may not eventuate in the future.

(d) Performance Rights

The Company has a Performance Rights Plan which was re-approved at the annual general meeting of the Company held 17 November 2014. The purpose of the Plan is to provide recognition to employees and advisors of the Company and its subsidiaries for their continued and ongoing support of the Company.

Movements in the number of performance rights on issue during the year is as follows:

 
Performance Rights - Class     Opening     Granted   Vested   Cancelled    Closing 
                                balance                                     balance 
                              31 Dec 2017                                 31 Dec 2018 
---------------------------  ------------  -------  --------  ---------  ------------ 
Class 1                           308,000        -         -   (28,000)       280,000 
Class 4                           800,000        -         -          -       800,000 
Class 5                           100,000        -         -          -       100,000 
Class 6                            50,000        -  (10,000)          -        40,000 
Class 7                            50,000        -  (20,000)          -        30,000 
Class 8                           100,000        -  (35,000)          -        65,000 
                                1,408,000        -  (65,000)   (28,000)     1,315,000 
                             ------------  -------  --------  ---------  ------------ 
 

Movements in the number of performance rights during the period year is as follows:

 
Performance Rights - Class     Opening     Granted   Vested    Cancelled    Closing 
                                balance                                      balance 
                              31 Dec 2016                                  31 Dec 2017 
---------------------------  ------------  -------  ---------  ---------  ------------ 
Class 1                           308,000        -          -          -       308,000 
Class 2                           150,000        -   (75,000)   (75,000)             - 
Class 4                         1,500,000        -  (700,000)          -       800,000 
Class 5                                 -  100,000          -          -       100,000 
Class 6                                 -   50,000          -          -        50,000 
Class 7                                 -   50,000          -          -        50,000 
Class 8                                 -  100,000          -          -       100,000 
                                1,958,000  300,000  (775,000)   (75,000)     1,408,000 
                             ------------  -------  ---------  ---------  ------------ 
 

Under the Performance Rights Plan, shares are issued in the future subject, to the performance-based vesting conditions being met. The 1,315,000 Performance Rights on issue at 31 December 2018 are subject to the following performance conditions:

 
 Class 1: 
   *    308,000 upon completion of securing finance for the 
        development of the Colluli Potash Project. 
 
 
  Class 4: 
   *    800,000 upon commencement of construction of the 
        production facility. 
 
 
  Class 5: 
   *    20,000 upon commencement of the first development 
        work on the ground at the Colluli site within 1 week 
        of the scheduled development time; 
 
 
   *    60,000 upon 6-month construction mark if safety, 
        costs and schedule are all on target; and 
 
 
   *    20,000 upon completion of commissioning and 
        completion of performance testing (performance 
        testing to meet contractual requirements). 
 
 
 
  Class 6: 
   *    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; and 
 
 
   *    25,000 upon term sheets being signed for the project 
        financing of the Colluli project. 
 
 
  Class 7: 
   *    15,000 upon completion of a strategic investment at 
        greater than 30-day VWAP plus 10%; and 
 
 
   *    15,000 on signing a debt terms sheet for project 
        financing or debt is secured form a strategic 
        investor. 
 
 
 
  Class 8: 
   *    5,000 on completion of an approval and issued CSR 
        report befitting an ASX200 company prior to the 
        London listing; 
 
 
   *    50,000 on securing a strategic equity partner; and 
 
 
   *    10,000 on finalising broker mandates which support 
        the equity capital market strategy. 
 

Subject to achievement of either one of these performance conditions, one share will be issued for each Performance Right that has vested.

   23.   RELATED PARTY TRANSACTIONS 

(a) Parent entity

The ultimate parent entity within the Group is Danakali Limited.

(b) Subsidiary

Interests in the subsidiary is set out in note 25.

(c) Investment in Joint Venture

Transactions with Colluli Mining Share Company are set out in note 8 and note 10 of this report.

(d) Key management personnel compensation

 
                                            2018       2017 
                                              $          $ 
----------------------------------------  ---------  --------- 
Short-term benefits                       1,113,484  1,232,171 
Post-employment and long-term benefits       52,702     67,199 
Share-based payments                         24,581    639,416 
                                          ---------  --------- 
                                          1,190,767  1,938,786 
                                          ---------  --------- 
 

(e) Transactions with directors, director related entities and other related parties

There were no material related party transactions.

   24.   REMUNERATION OF AUDITORS 

During the year, the following fees were paid or payable for services provided by the auditor of the Company, its related practices and non-related audit firms:

 
                                  2018     2017 
                                    $        $ 
-------------------------------  -------  ------ 
(a) Audit services 
Ernst and Young                   44,837  41,391 
                                  44,837  41,391 
                                 -------  ------ 
(b) Non-audit services 
Ernst and Young - LSE listing    123,332       - 
Ernst and Young - Other           55,973   6,000 
                                 179,305   6,000 
                                 -------  ------ 
 
   25.   SUBSIDIARY 

Interest in subsidiary

The consolidated financial statements incorporate the assets, liabilities and results of the following subsidiary in accordance with the accounting policy:

   (a)           (a)           (a) 
   (a)           (a)           (a) 
 
                                                                  Equity Holding 
------------  ---------------------  ---------------  --------- 
                                                                 2018      2017 
                                       Country of     Class of 
    Name      Principal Activities    Incorporation     Shares   %           % 
------------  ---------------------  ---------------  ---------  -------  ------- 
STB Eritrea       Investment in 
 Pty Ltd        Potash Exploration      Australia     Ordinary     100      100 
------------  ---------------------  ---------------  ---------  -------  ------- 
 

The proportion of ownership interest is equal to the proportion of voting power held.

   26.   PARENT ENTITY INFORMATION 

The following information relates to the parent entity, Danakali Limited. The information presented here has been prepared using accounting policies consistent with those presented in note 2.

 
                                            2018          2017 
                                              $             $ 
--------------------------------------  ------------  ------------ 
Current assets                             9,676,536    15,784,395 
Non-current assets                        29,136,115    26,044,008 
                                        ------------  ------------ 
Total assets                              38,812,651    41,828,403 
                                        ------------  ------------ 
 
Current liabilities                          310,034     1,263,306 
Non-current liabilities                       58,903        27,811 
                                        ------------  ------------ 
Total liabilities                            368,937     1,291,117 
                                        ------------  ------------ 
Net Assets                                38,443,714    40,537,286 
                                        ------------  ------------ 
 
Issued capital                            79,576,117    75,415,034 
Share-based payments reserve              11,231,923    11,416,109 
Accumulated losses                      (52,364,326)  (46,293,857) 
                                        ------------  ------------ 
Total equity                              38,443,714    40,537,286 
                                        ------------  ------------ 
 
Loss for the year                        (6,070,468)   (7,773,689) 
                                        ------------  ------------ 
Total Comprehensive loss for the year    (6,070,468)   (7,773,689) 
                                        ------------  ------------ 
 
   27.   DIVIDS 

No dividends were paid during the financial period. No recommendation for payment of dividends has been made.

   28.   EVENTS OCCURRING AFTER THE BALANCE DATE 

No 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.

 
  Directors' Declaration 
   In the Directors' opinion: 
   (a) the financial statements and notes of Danakali Limited for 
   the financial year ended 31 December 2018 are in accordance with 
   the Corporations Act 2001, including: 
   (i) complying with Accounting Standards, the Corporations Regulations 
   2001 and other mandatory professional reporting requirements; 
   and 
 
   (ii) giving a true and fair view of the Group's financial position 
   as at 31 December 2018 and of its performance for the year ended 
   on that date; 
 
   (b) the financial statements and notes also comply with International 
   Financial Reporting Standards as disclosed in note 2; 
   (c) there are reasonable grounds to believe that the Company will 
   be able to pay its debts as and when they become due and payable 
   subject to achieving the matters set out in note 2(c); and 
   The directors have been given the declarations by the Chief Executive 
   Officer and Chief Financial Officer required by section 295A of 
   the Corporations Act 2001. 
   This declaration is made in accordance with a resolution of the 
   directors. 
 

Seamus Cornelius

EXECUTIVE CHAIRMAN

Perth, 20 March 2019

ASX Additional Information

Additional information required by Australian Securities Exchange Ltd and not shown elsewhere in this report is as follows.

The information is current as at 28 February 2019.

(a) Distribution of equity securities

Analysis of numbers of equity security holders by size of holding:

 
                       Holders  Securities      % 
1        --  1,000         562      236,386    0.09% 
1,001    --  5,000         802    2,066,893    0.78% 
5,001    --  10,000        353    2,681,629    1.01% 
10,001   --  100,000       624   20,593,083    7.79% 
100,001      and over      165  238,844,407   90.33% 
                       -------  -----------  ------- 
TOTAL                    2,506  264,422,398  100.00% 
                       =======  ===========  ======= 
 

The number of shareholders holding less than a marketable parcel was 402.

(b) Twenty largest shareholders

The names of the twenty largest holders of quoted ordinary shares are:

 
                                                Listed ordinary shares 
------------------------------------------ 
                                            Number of shares   Percentage 
                                                               of ordinary 
                                                                 shares 
    --------------------------------------  ----------------  ------------ 
1   J P Morgan Nominees Australia Ltd             52,705,900         19.93 
2   Citicorp Nominees Pty Ltd                     38,974,793         14.74 
3   HSBC Custody Nominees (Australia) Ltd         24,757,993          9.36 
4   Liam Cornelius                                14,479,997          5.48 
5   Element 25 Limited                             8,400,097          3.18 
6   Computershare Clearing Pty Ltd                 5,907,545          2.23 
    Merrill Lynch (Australia) Nominees Pty 
7    Ltd                                           5,449,266          2.06 
8   Well Efficient Ltd                             5,000,000          1.89 
9   BNP Paribas Noms Pty Ltd                       4,480,660          1.69 
10  Seamus Cornelius                               4,425,883          1.67 
11  Kongming Investments Ltd                       4,178,992          1.58 
12  Alpha Boxer Limited                            4,025,000          1.52 
13  Ranguta Ltd                                    3,295,685          1.25 
14  Paul Donaldson                                 2,957,751          1.12 
15  BNP Paribas Nominees Pty Ltd                   2,674,976          1.01 
16  John Joseph Wallace                            2,498,983          0.95 
17  Duketon Consolidated Pty Ltd                   2,456,500          0.93 
18  Dongarra Ltd                                   2,313,398          0.87 
19  Anthony Maslin + Marite Norris                 2,095,000          0.79 
20  National Nominees Ltd                          2,007,152          0.76 
                                                 193,085,571         73.01 
                                            ================  ============ 
 

(c) Substantial shareholders

The names of substantial shareholders who have notified the Company in accordance with section 671B of the Corporations Act 2001 are:

 
                                    Number of Shares 
----------------------------------  ---------------- 
Well Efficient Ltd                        35,000,000 
JP Morgan Asset Management (UK)           20,200,000 
The Capital Group Companies, Inc.         15,011,458 
Liam Cornelius                            14,479,997 
----------------------------------  ---------------- 
 

(d) Voting rights

All ordinary shares (whether fully paid or not) carry one vote per share without restriction. Holders of unlisted options and performance rights do not have voting rights.

(e) Unquoted securities

At 28 February 2019 the Company has on issue 4,714,015 unlisted options over ordinary shares and 1,315,000 performance rights.

The names of security holders holding more than 20% of an unlisted class of security are listed below.

 
                                                Unlisted Options 
                          $0.558       $0.543       $0.94        $0.96        $1.031 
 Holder                   8/8/2019    7/10/2019    19/5/2020    20/6/2019    24/01/2022 
                        ---------- 
 Mr Seamus Cornelius             -            -      300,000            -             - 
                        ----------  -----------  -----------  -----------  ------------ 
 Mr Danny Goeman           900,000            -            -            -             - 
                        ----------  -----------  -----------  -----------  ------------ 
 Mr James Durrant                -      250,000            -            -             - 
                        ----------  -----------  -----------  -----------  ------------ 
 Mr Robert Connochie             -            -      500,000            -             - 
                        ----------  -----------  -----------  -----------  ------------ 
 Mr Hanns Huster                 -            -            -      200,000             - 
                        ----------  -----------  -----------  -----------  ------------ 
 Mr Cedric Middleton             -            -            -      200,000             - 
                        ----------  -----------  -----------  -----------  ------------ 
 Toni-Louise 
  Gianatti                       -            -            -            -       455,800 
                        ----------  -----------  -----------  -----------  ------------ 
 Redgate Beach 
  Investments 
  Pty Ltd <Redgate 
  Beach Invest 
  A/C>                           -            -            -            -       823,772 
                        ----------  -----------  -----------  -----------  ------------ 
 Holders individually 
  less than 20%                  -            -      640,000            -       444,443 
                        ----------  -----------  -----------  -----------  ------------ 
 Total                     900,000      250,000    1,440,000      400,000     1,724,015 
                        ----------  -----------  -----------  -----------  ------------ 
 
 
                                             Performance Rights 
                                               Class 
 Holder                   Class 1   Class 4      5      Class 6   Class 7   Class 8 
                         -------- 
 Mr Zeray Lake             75,000         -         -         -         -         - 
                         --------  --------  --------  --------  --------  -------- 
 Mascots International     85,000         -         -         -         -         - 
  Ltd 
                         --------  --------  --------  --------  --------  -------- 
 Mr Paul Donaldson              -   800,000         -         -         -         - 
                         --------  --------  --------  --------  --------  -------- 
 Mr Tony Harrington             -         -   100,000         -         -         - 
                         --------  --------  --------  --------  --------  -------- 
 Mr Stuart Tarrant              -         -         -    40,000    30,000         - 
                         --------  --------  --------  --------  --------  -------- 
 Redgate Beach 
  Investments Pty 
  Ltd                           -         -         -         -         -    65,000 
                         --------  --------  --------  --------  --------  -------- 
 Holders individually     120,000         -         -         -         -         - 
  less than 20% 
                         --------  --------  --------  --------  --------  -------- 
 Total                    280,000   800,000   100,000    40,000    30,000    65,000 
                         --------  --------  --------  --------  --------  -------- 
 

(f) Schedule of Interests in Mining Tenements

   Tenement:                            Colluli, Eritrea 
   License Type:                       Exploration License 
   Nature of Interest:                Owned 
   Current Equity:                     50% 

About Danakali

Danakali Limited (ASX: DNK) (Danakali, or the Company) is an ASX-listed potash company focused on the development of the Colluli Potash Project (Colluli or the Project). The Project is 100% owned by the Colluli Mining Share Company (CMSC), a 50:50 joint venture between Danakali and the Eritrean National Mining Corporation (ENAMCO).

The Project is located in the Danakil Depression region of Eritrea, East Africa, and is 75km from the Red Sea coast, making it one of the most accessible potash deposits globally. Mineralisation within the Colluli resource commences at just 16m, making it the world's shallowest potash deposit. The resource is amenable to open pit mining, which allows higher overall resource recovery to be achieved, is generally safer than underground mining, and is highly advantageous for modular growth.

The Company has completed a Front End Engineering Design (FEED) for the production of potassium sulphate, otherwise known as SOP. SOP is a chloride free, specialty fertiliser which carries a substantial price premium relative to the more common potash type; potassium chloride (or MOP). Economic resources for production of SOP are geologically scarce. The unique composition of the Colluli resource favours low energy input, high potassium yield conversion to SOP using commercially proven technology. One of the key advantages of the resource is that the salts are present in solid form (in contrast with production of SOP from brines) which reduces infrastructure costs and substantially reduces the time required to achieve full production capacity.

The resource is favourably positioned to supply the world's fastest growing markets. A binding take-or-pay offtake agreement has been confirmed with EuroChem Trading GmbH (EuroChem) for up to 100% (minimum 87%) of Colluli Module I SOP production.

A non-binding indicative term sheet and mandate for the provision of US$200M in senior debt funding to CMSC has been executed with Mandated Lead Arrangers Africa Export Import Bank (Afreximbank) and Africa Finance Corporation (AFC).

The Company's vision is to bring Colluli into production using the principles of risk management, resource utilisation and modularity, using the starting module (Module I) as a growth platform to develop the resource to its full potential.

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% K(2) 0 Equiv. and 7% Kieserite. The Mineral Resource contains 303Mt @ 11% K(2) 0 Equiv. and 6% Kieserite of Measured Resource, 951Mt @ 11% K(2) 0 Equiv. and 7% Kieserite of Indicated Resource and 35Mt @ 10% K(2) 0 Equiv. and 9% Kieserite of Inferred Resource.

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

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% K(2) O Equiv. The Ore Reserve is classified as 285Mt @ 11.3% K(2) O Equiv. Proved and 815Mt @ 10.3% K(2) O Equiv. Probable. The Colluli SOP Mineral Resource includes those Mineral Resources modified to produce the Colluli SOP Ore Reserves.

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

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.au. The Company confirms that it is not aware of any new information or data that materially affects the information included in the original market announcement and, in the case of estimates of Mineral Resources or Ore Reserves, that all material assumptions and technical parameters underpinning the estimates in the relevant market announcement continue to apply and have not materially changed. The Company confirms that the form and context in which the Competent Person's findings are presented have not been materially modified from the original market announcement.

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(+) , Mg(2+) , Ca(2+) , Cl(-) , SO(4) (2-) , H(2) O) 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 endeavoured to ensure that the information enclosed is accurate at the time of release, and that it accurately reflects the Company's intentions. All statements in this document, other than statements of historical facts, that address future production, project development, reserve or resource potential, exploration drilling, exploitation activities, corporate transactions and events or developments that the Company expects to occur, are forward looking statements. Although the Company believes the expectations expressed in such statements are based on reasonable assumptions, such statements are not guarantees of future performance and actual results or developments may differ materially from those in forward-looking statements.

Factors that could cause actual results to differ materially from those in forward-looking statements include market prices of potash and, exploitation and exploration successes, capital and operating costs, changes in project parameters as plans continue to be evaluated, continued availability of capital and financing and general economic, market or business conditions, as well as those factors disclosed in the Company's filed documents.

There can be no assurance that the development of Colluli will proceed as planned. Accordingly, readers should not place undue reliance on forward looking information. Mineral Resources and Ore Reserves have been reported according to the JORC Code, 2012 Edition. To the extent permitted by law, the Company accepts no responsibility or liability for any losses or damages of any kind arising out of the use of any information contained in this document. Recipients should make their own enquiries in relation to any investment decisions.

Mineral Resource, Ore Reserve, production target, forecast financial information and financial assumptions made in this announcement are consistent with assumptions detailed in the Company's ASX announcements dated 25 February 2015, 23 September 2015, 15 August 2016, 1 February 2017, 29 January 2018, and 19 February 2018 which continue to apply and have not materially changed. The Company is not aware of any new information or data that materially affects assumptions made.

No representation or warranty, express or implied, is or will be made by or on behalf of the Company, and no responsibility or liability is or will be accepted by the Company or its affiliates, as to the accuracy, completeness or verification of the information set out in this announcement, and nothing contained in this announcement is, or shall be relied upon as, a promise or representation in this respect, whether as to the past or the future. The Company and each of its affiliates accordingly disclaims, to the fullest extent permitted by law, all and any liability whether arising in tort, contract or otherwise which it might otherwise have in respect of this announcement or any such statement.

The distribution of this announcement outside the United Kingdom may be restricted by law and therefore any persons outside the United Kingdom into whose possession this announcement comes should inform themselves about and observe any such restrictions in connection with the distribution of this announcement. Any failure to comply with such restrictions may constitute a violation of the securities laws of any jurisdiction outside the United Kingdom.

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.

END

FR GLGDXCSDBGCG

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March 20, 2019 03:02 ET (07:02 GMT)

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