Syrah Resources Limited

to quarterly update conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you need to press star 1 on your telephone. Please be advised that today's conference is being recorded. I will now extend the conference over to your first speaker today, Mr. Sean Verner, Managing Director and CEO for CRO Resource. Thank you. Please go ahead.

Good morning and thanks for dialing in today. With me on the call is Stephen Wells, our Chief Financial Officer and Viren Hira, our General Manager of Business Development and Investor Relations. Today we'll work through the June quarterly presentation released along with the quarterly report covering operations, market conditions and the outlook for natural graphite, active anode material and the end-use markets. Starting on slide three, We're clear on why an investment in Tyrant has great potential, and as we stand, we're strongly encouraged by improved electric vehicle and battery anode downstream market conditions observed in late 2020 and in the first half of 2021, along with the material and positive progress that Q2 has seen, with Barama's transition from suspension to production and market re-entry, and both product and project developments at Vardalia. The underlying thematic of electrification of the transport sector via lithium-ion batteries in EVs is clear, with industry transforming capital being committed and invested by both OEMs and battery makers, increasing customer demand and strongly supportive government policy developing across key regions. As we continue to reiterate, SARA's long-term value proposition is fundamentally linked to, firstly, the accelerating electrification of the global transport fleet. Secondly, graphite maintaining its high intensity of use in lithium-ion batteries, the primary battery technology for EVs for the foreseeable future. Thirdly, Bulama being the world's largest integrated natural graphite operation. And fourth, our downstream strategy to become a large-scale producer of value-added active anode material products for the battery supply chain. Electrification of the transport sector is accelerating quickly with substantial capacity, commitment and investment from auto OEMs and battery makers being made through the first half of 2021. We continue to see growing urgency from policymakers and the private sector to facilitate the transition to EVs and to secure the strategic critical battery minerals and value-added battery materials required to achieve this. Graphite, as a strategic critical raw material, has been confirmed by key governments as it's expected to remain the primary anode material in lithium-ion batteries. The battery technology that our industry interactions confirm is planned for the vast majority of expansions. Graphite remains the highest intensity of use material by mass of any cathode or anode material, with the majority of our potential customers indicating growing demand for natural graphite in the future. And while the graphite supply chain is presently 100% reliant on China, supply disruptions and a very strong forward demand profile both demonstrate the significant risks posed by a lack of supply chain diversification to growing the EV market, particularly outside of China. So as we move through the first full quarter of restart, it's clear that Galama is the best global natural graphite resource on many parameters. With capital invested, our operations, sales and logistics infrastructure well established and ramped up again quickly, but with strong opportunity for greater production and cost efficiencies as volumes increase further. Balaama's product mix is directed to supply the growing battery market with a weighting to high-grade times, and the Syrah brand is highly regarded by a global customer base with a reputation for consistency in grade. And while recent focus on lithium capacity constraints has seen attention on potential projects across the battery raw material sector, and there's much discussion on various long-term options for new graphite supply, the reality in this market remains clear. Balama is the current and future key to sustainable supply of natural graphite needs in the battery supply chain outside of China. We're making very strong progress towards becoming a major producer of natural graphite active anode material in the US with the potential to supply both domestically and to satisfy European export markets. We believe our operation in Vidalia is the most viable and progressed alternative customers have outside of Asia for large scale localised and ESG-verifiable natural graphite active anode material supply. This progress, which we'll talk further about today, and Vidalia's vertical integration with Bulama, provide a compelling strategic value proposition to governments, auto OEMs and battery manufacturers. Our market and government interactions over the past six months have continued to see strong focus on environmental, social and governance factors, and slide four emphasises our clear ESG credentials, which we provide significant detail on in the quarterly sustainability update that's released alongside this report today. So I was very well positioned as the sustainability of battery raw materials supply comes under increased scrutiny given the superior environmental credentials of natural versus most synthetic graphite, particularly from a carbon emissions perspective. And secondly, the best practice ESG standards embedded at the LAMA and across the SARA group more broadly. Importantly, the LAMA supply, vertically integrated with the data, will provide a source of anode material that's 100% ESG verifiable to US and European customers. A single chain of custody in the anode market doesn't exist currently, making it challenging for consumers to verify the ESG credentials of current supply, largely concentrated out of China. We believe that SARA provides a clear solution and a superior ESG proposition. We're committed to verifying the environmental position of our natural graphite and anode material products, And in meeting this commitment and building on our own internal analysis, we've commissioned an independent life cycle assessment of our operations, which should be completed later this year. Moving on to slide five to provide an overview of SARA's second quarter. Our health, safety and environment performance continues to be outstanding. Our total recordable injury frequency rate at Balaama was zero in the June quarter, and this was achieved with the full resumption of operational activity and with rehiring continuing. Balaama's TRIPA has now remained below one since late 2018, and our TRIPA at Vidalia was also zero in the June quarter. We have robust COVID-19 protocols in place at Balaama and Vidalia, and no positive COVID-19 cases have been reported at Balaama since the onset of the COVID pandemic, and we continue to monitor this closely given recent increases in Delta variant COVID infections in Southern Africa. On the market, EV endures a demand growth. The most important leading indicator for SARA continued to flourish in Q2 following a very strong prior nine months, with forecasts for EV sales in 2021 now approaching 5 million units. Battery capacity commitments and strategic alignment in the supply chain is accelerating to keep up with significant growth in predicted EV demand. We've been really pleased with the performance of BALAMA through the first full quarter of operations following the restart, and we're tracking ahead of our plan in the transition back to a sustainable level of operation. During the June quarter, BALAMA produced 29,000 tonnes of natural graphite C1 cash costs were $537 a tonne at an average production rate of around 10,000 tonnes per month. Importantly, this cost performance during the quarter demonstrated that we're well placed to achieve our target C1 cash costs of $430 to $460 a tonne as we transition to a 15,000 tonne per month run rate and continue to implement our planned improvement projects. We're continuing to drive unit costs a unit cost position through increasing production volumes, a longer term change to the energy mix, recovery improvement and other productivity initiatives. Re-entry to the global market is well progressed and we sold and shipped 15,000 tonnes of natural graphite during the quarter and practically all of our 20,000 tonnes product inventory position at the end of June is under contract. seeing disruption across the global liner shipping industry and that's currently impacting our ability to supply the volumes being demanded by our customers, but we're working through solutions to the current challenges and expect improvements from this quarter onward. Our weighted average basket price for sales was $474 a tonne SIF, with lower prices in the quarter driven by higher fines volumes being directed to China to re-establish our position in the battery supply chain. And again, we expect to see some rebalance in this in quarters ahead as sales volumes normalise. At the debut, we achieved a key milestone of producing on-specification active anode material from the carbonisation furnace, a unique milestone for the global supply chain, with natural graphite anode material produced from an ex-China integrated operation in the US. We're now demonstrating our integrated production capability to progress qualification testing and commercial processes with more than 10 target customers with more advanced interaction underway with our key customer targets. We transitioned to detailed engineering and procurement and awarded a services contract to Worley for the expansion of Vidalia's production capacity to 10,000 tons. We're advancing key Vidalia work streams across operations, customer qualification and offtake, product development, expansion, engineering and procurement and funding to position for a final investment decision on the 10,000 tonne anode material facility in the second half of 2021, subject to the required progress in the customer and funding streams. And I'll now pass over to Steve to talk through our balance sheet position.

Thank you, Sean, and good morning, everybody. Bala ended the quarter with a strong cash position of $85 million, which includes proceeds from the issue of the Series 3 convertible note in June. As we announced, we issued a $28 million Australian convertible note tranche to Australian Super to support the orderly ramp-up of production at Balaama and maintain project momentum at Bedalia. We note that this balance is higher than the $81 million we forecast at the announcement of the Series 3 convertible note, which is due to timing of various payments. Nevertheless, obviously a strong balance sheet position. Excluding convertible note proceeds, Syrah's cash outflow for the quarter was $13 million and included costs and increased working capital associated with the ramp-up at Balama and ongoing investment in operations and the expansion project at Vidalia. We also benefited from VAT recoveries during the quarter. We do expect cash outflows in Q3 to be higher than Q2, with additional funding required for both the LAMA, from a working capital perspective, and Bedelia, from an investment perspective, during the quarter. At the LAMA, we will continue to increase production levels, which generates greater working capital requirements, given the cost of production being incurred in advance of sales cash receipts from that production. We intend to continue to increase production initially to a level which is sustainable from an operating cost perspective against our weighted average price and then beyond that as supported by the market to reduce our unit costs. Clearly in the short term as production increases we incur higher variable costs and there is a timing element to the receipt of cash from those higher sales. We will also experience some delays in cash receipts in Q3 due to the shipping challenges referred to earlier However, expect those to normalize along with production growth to better match our cash outflows and inflows. Other than the shipping issues currently being experienced, this was all expected as part of our production ramp up. At Vidalia, we have transitioned to detailed engineering and procurement, and we will be spending on long lead items in Q3 to maintain our progress. Towards the end of last year and earlier this year, we were spending approximately $2 million per quarter in this area, However, with continued progress on the expansion project and customer engagement moving towards a final investment decision later in the second half, this will increase to approximately $8 million in the third quarter to ensure progress is maintained. All quarter spent will be determined in conduction with progress on customer commitments and funding. Again, this was expected as part of our planning for 2021 and progression of the Vidalian facility. noting that if we are going to continue to progress, we will need to obtain the customer and funding outcomes required for a final investment decision. We are comfortable with the liquidity position of the company and the ability to fund the Lama's ramp-up under a range of market scenarios and project-related costs at Vedadia through to a final investment decision. As noted, our objective is to secure new funding for the construction costs beyond the final investment decision for Vedadia's expansion. I'll now turn to page 6 to talk about global EV sales. Slide 6 shows our primary leading indicator, which is global electric vehicle sales. Strong positive momentum in EV sales continued through Q2, with global EV sales growing 165% year-on-year in the first half of 2021. to over 2.3 million units, compared to less than a million units in the first half of each of the preceding three years, and growth also exhibited in the major consumer geographies. Global EV sales are now expected to reach almost 5 million units in 2021, which would represent more than double 2020 volumes, obviously COVID impacted and marginally higher than 2019, and clearly a strong annual growth rate over the last five years. The increase in EV sales continues to drive increased demand for anode material. Upstream raw material demand typically lags both EV demand and active anode material production growth. However, we are seeing Chinese active anode material production averaging 55,000 tonnes per month in the second quarter and approaching 50,000 tonnes per month in June, well more than double that of the same quarter in the prior year. There have been significant anode capacity additions proposed in China, and we also see strong anode precursor imports into South Korea from China, all very strong indicators. These signs indicate that downstream EV demand is working upstream through the supply chain, and we are certainly seeing a more balanced natural graphite fines market, even with increased fine supply and the China domestic production season underway. Strengthening natural graphite market conditions are reflected in positive and stable pricing trends, despite Bulama re-entering the market and the Chinese finds production during the quarter. Contracting for Bulama products with a broad range of end-user customers at higher volumes and over increasing tenor demonstrates buyer confidence in forward EV and no material demand expectations. Ex-China natural graphite demand has remained positive in the steelmaking and industrial markets. Prices in the coarse flake markets are significantly higher than when BALAMA moderated and suspended production in late 2019, early 2020. And Sean will talk to the support that that will provide to SARA's weighted average price in a few slides as our sales mix normalises. Demand momentum in both active anode material and industrial markets bodes well for greater production capacity utilisation over the months ahead and sustainable operations being achieved at BALAMA. I will now pass you back to Sean.