Syrah Resources Limited

Ladies and gentlemen, thank you for standing by and welcome to the CIRA Resources Q1 quarterly update call. At this time, all participants are just in the listen-only mode. Following the presentation, we'll have some time for a question and answer session today. To ask a question, you will just need to press star one on your telephone. And just please be advised, today's call is being recorded. But without further ado, I'll hand the conference over to our first speaker for today, Mr. Sean Verner. Thank you, and please go ahead.

Thank you, good afternoon and thanks to everyone for dialling in today. With me on the call is Stephen Wells, our Chief Financial Officer. Today we'll work through selected slides from the presentation deck released along with the report covering Q1 operational focus areas, market conditions and the outlook for natural graphite active anode material and its end use markets. The 2020 demand, supply and operational disruptions due to COVID-19 presented challenges to Syra and to many other companies in the industry. However, Syra's long-term value proposition is fundamentally linked to four things. Firstly, momentum in the electrification of the global transport fleet. Secondly, graphite maintaining its high intensity of use in lithium-ion batteries for EVs. Thirdly, Valama being the world's largest integrated high-quality natural graphite operation. And lastly, our downstream integration strategy to become a large-scale producer of value-added active anode material products. And as the COVID-19-driven impacts have started to clear, these elements of the CSIRO value proposition are brought into sharp focus. Electrification of the transport sector is accelerating quickly with ongoing investment commitment at the auto and battery levels. Increasing customer interest and strong government policy commitments are also evident. Graphite is expected to continue to be used as the primary anode material in lithium-ion batteries and the majority of EV makers are committed to this battery technology with major expansion plans. despite the considerable promotion of potential long-term substitutes which require further technological advances in most cases. We continue to see urgency from policy makers and the private sector to facilitate the transition to EVs and to secure the strategic and critical battery minerals required to achieve this. The profile of graphite as a strategic critical raw material has been confirmed by a number as graphite remains the highest intensity of use material by mass of any cathode or anode material, and the graphite supply chain is presently 100% reliant on China. COVID-19 related supply disruptions and a very strong forward demand profile both demonstrate the significant risks posed by a lack of supply chain diversification to the growing EV market, particularly outside of China. Valama is the best global natural graphite resource on many parameters. With capital invested, our operations, sales and logistics infrastructure is well established and ramping up again strongly, with opportunity for greater efficiency as volumes increase. Valama's product mix is well suited to supply the growing battery market and the Syrah brand is highly regarded across a global customer base, with a reputation for consistency and for carbon grade. This uniquely positions Balaama to supply the wave of demand underway for battery minerals. And while there's much discussion on various long-term options for new graphite supply, the reality in this market remains clear. Balaama is the current and future key to large-scale sustainable supply of natural graphite in the battery supply chain ahead. We're also making strong progress towards becoming the first vertically integrated producer of natural graphite active anode material outside China. We believe our operation in Vidalia is the most viable and progressed alternative for US and European customers for large-scale, localised and ESG-verifiable natural graphite active anode material supply. These attributes are becoming increasingly important strategically and practically for governments, automakers and battery manufacturers. Slide 4 emphasises our deep ESG credentials. Our ongoing supply chain interactions demonstrated rapidly increasing ESG focus and a degree of urgency amongst potential customers. We believe SARA is very well positioned as the sustainability of battery raw material supply comes under increased scrutiny, given firstly the superior environmental credentials of natural versus most synthetic graphite, And secondly, the best practice environmental, social and governance standards embedded at BALAMA, Vidalia and across the CSIRO group broadly, for which we've received significant external recognition. Importantly, BALAMA supply, vertically integrated with active anode material at Vidalia, will provide a source of supply that's 100% ESG verifiable, something that's currently challenging battery manufacturers and auto OEMs outside of China. It is difficult for consumers currently to get comfortable with the social, environmental and governance credentials of much of the Chinese produced material and we believe that Syrah provides a clear solution and a superior ESG proposition in the supply chain. Moving to slide five now to provide an overview on Syrah's first quarter. Pleasingly we reported a quarter end total recordable injury frequency rate of zero at Balaama and this is an outstanding continuation of the downward trend in TRIFA that we've strived so hard for over the past five years and importantly it was achieved through a period of significant operations, maintenance and ramp up work during the quarter. We continue to focus on mitigating the risk of COVID-19 transmission to our workplaces and the communities in which we operate. To date, we've had no cases of COVID-19 reported at Bulama and operational continuity has been maintained. On the market, EV end-user demand growth, the most important leading market indicator for CSIRA, continued to strengthen in Q1. following a good second half in 2020 with forecasts for EV sales in 2021 now approaching 5 million units. At the llama, the easing of COVID-19 operational restrictions and strengthening market conditions demonstrated by increasing engagement with our established customer base led us to announce an intention to restart production We made that announcement in February 2021 and production was recommenced in March ahead of the schedule that we had planned and the ramp up is progressing very well. During March Bulama produced 5,000 tonnes of natural graphite and we shipped 2,000 tonnes of prior sales from inventory during the quarter. Also a 5% interest in the Balama asset was transferred as planned to the Mozambique government in accordance with our mining agreement. At Vidalia we achieved the key milestones of completing installation and commissioning of the carbonisation furnace and transitioning the development project to initial detailed design for the planned 10,000 tonnes per annum expansion of production capacity. We're advancing the key Vidalia workstreams across operations, customer engagement and qualification, project design, funding and product development to position for a final investment decision on the 10,000 tonne AAM facility in the second half of this calendar year, subject to customer commitments and funding progress. I'll now pass over to Steve to talk through some of the corporate elements and our balance sheet position as well as some market highlights. Steve?

Thank you, Sean, and good afternoon, everybody. SARA ended the quarter with a strong cash position of US$78 million, which includes proceeds from the share purchase plan we completed in January. Alongside the institutional placement completed in December 2020, The company also announced at the time a share purchase plan to raise a target of AU$12 million in January 2021. The SPP was heavily oversubscribed, with CSIRA receiving valid applications totalling AU$64 million, and the Board of Directors exercised its discretion under the terms of the SPP to accept AU$18 million in applications. Excluding those SPP proceeds, CSIRA cash outflow for the quarter was US$10 million, It included costs associated with transitioning from temporary suspension into ramp-up at Balama and ongoing investment in operations and project design at Bedalia. We also benefited from a small amount of VAT recoveries during the quarter. The funding initiatives announced in the fourth quarter of last year has positioned the company well to execute our plans for 2021 and beyond, with available liquidity to be used to manage the ramp-up at Balama in an orderly manner. and progress Syrah's natural graphite active anode material facility in Bedalia towards the final investment decision for the 10,000 tonne facility in the second half of 2021. With consideration of the company's strong balance sheet position, greater visibility over near-term VALAMA cash flows as the ramp-up progresses and strengthening market conditions, we made the decision not to issue a AU$28 million convertible note tranche with Australian Super. prior to the 31st of March. We retain the option, however, to issue a final $28 million Australian dollar convertible note tranche with Australian super before the 30th of June. We expect cash outflows in the second quarter to be higher than the first quarter, with additional funding required for both Balaama and Vidalia during the second quarter. At Balaama, we will continue to increase production levels, which generates a greater than normal working capital requirement given the cost of production being incurred in advance of the sales revenue inflows from that production. At the daily we will be transitioning to the detailed design phase of the project. As we transition from Q2 to Q3 however, there will be a more balanced alarm of revenue and cost profile as sales receipts begin to align with production costs. While at the daily we will be completing detailed design and subject to the investment decision process, possibly the construction phase which is as yet unfunded. We remain comfortable with the liquidity profile for the Bulama ramp-up and project-related costs of the Dahlia through to final investment decision for the project, as evidenced by our decision to not issue a tranche of the convertible load at the end of March. Turning now to slide six to talk about the market. Slide six shows our fundamental leading indicator, which is global electric vehicle sales. Positive momentum in EV sales continued through the first quarter. with global EV sales growing 140% year-on-year in the first quarter to over 1.1 million units, compared to less than half a million units in the first quarter of each of the preceding three years, and growth also spread over the major geographies. Turning to slide seven, EV sales, which I referred to earlier, drives demand for graphite active anode material production, and certainly the increase in EV sales I referred to on the previous slide is clearly driving increasing demand for anode material. with Chinese active-owned material production averaging approximately 46,000 tonnes per month for the first quarter and more than double that of the same quarter in the prior year. Upstream raw material demand typically lags both EV demand and AAM production growth. However, we are certainly seeing a tighter natural graphite market balance. Improving contracting conditions are reflected in higher natural graphite prices and sales inquiries from both established customers as well as new opportunities. In addition, strength of demand has been evident on an ex-China basis from steelmaking and industrial markets as buyers seek long-term contract volumes of reliable production and consistent quality. We anticipate positive momentum this year with continued EV model announcements from automakers and significant capacity expansions being executed by battery manufacturers. Of course, further demand momentum will be positive for the continued ramp-up of production towards our initial production targets and then beyond. I'll now pass you back to Sean.