Syrah Resources Limited

Good day and thank you for standing by and welcome to the CIRA Resources Q1 quarterly update. 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 will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. For any further assistance, it is star 0. And I'd like to hand the conference over to you for a speaker's say to Mr. Sean Verner. Thank you. Please go ahead.

Good morning and thanks to everyone for dialling in today. With me on the call is Stephen Wells, our Chief Financial Officer, and Viren Heera, our General Manager of Business Development and Investor Relations. Today, CSIRO released its March 2022 quarterly results, covering operations, market conditions, the Vidalia initial expansion projects, and the outlook for natural graphite, active anode material, and their end-use markets. And we'll use the slide deck released today for this discussion. In 2022 year to date, SARA has announced the achievement of pivotal milestones for the company and is strongly advancing toward its objectives of becoming a large-scale, vertically integrated natural graphite active anode material supplier. The favourable upstream market setting for natural graphite is also translating to high demand for the LAMA products. Market conditions in the upstream market have strengthened from last year and are the strongest they've been since Bulama's commencement in 2017, with very good momentum in battery-driven demand growth, seasonal inventory lows and supply interruptions, all culminating in strong physical demand and rising prices for natural graphite. This is despite the expected seasonal restart of Chinese natural graphite production through the second quarter. High growth rates in the electric vehicle market continue to be reported with EV sales at around 2 million units in the first quarter, up almost 80% on an already high base in Q1 last year, and strong demand growth across major global consumer regions. We're now seeing the same levels of EV sales in a quarter that we were experiencing for a full year only two to three years ago. Total Chinese active anode material production increased to over 90,000 tonnes in March 2022, which was a record monthly level and up over 80% year-on-year as well. The global and regional battery manufacturing capacity pipeline and resulting active anode material growth requirements are significant. and announcements for additional battery manufacturing facilities by incumbents and new entrants provide a great setting for Vidalia's initial and subsequent planned expansions, as well as Valama and its strategic position in the battery supply chain. All around the world, governments and markets recognise the key role of critical minerals such as graphite in facilitating transport electrification and energy storage development towards the objective of reducing global carbon emissions. This is clearly evidenced in the USA, with the Biden administration recently invoking the Defense Production Act to support production and processing of critical minerals, such as graphite, for large capacity battery manufacturing in the US, and broader recognition of the importance of graphite, which has not received as much focus as other battery minerals until now. Positive ESG differentiation also continues to increase in importance as greater understanding and visibility by end manufacturers and consumers highlight challenges in parts of the existing battery materials supply chain. Each quarter we reiterate our belief in the importance of the BALAMA asset and our vertically integrated anode material facility at Vidalia to the future of this transition. The actions being taken by customers, investors and governments, and commercial arrangements being entered into with Syrah validate this view. Continued disruption in the global container shipping industry again constrained Palama production and sales during the quarter. However, in developing and executing on a major logistics option from Pemba, we've mitigated the impacts and increased sales. We still have work to do on this front, but we're very optimistic about Galama's future volumes from here. Slide four of the deck reiterates our fundamental ESG commitments and performance focus, and every quarter that passes highlights the criticality of this effort. Since the company's commencement, ESG excellence has been a key focus, and we're beginning to see the very real impact of downstream customer requirements and supply chain auditing bring differentiation between incumbent production of anode material and ourselves into sharp relief. We recently announced a final investment decision to construct a solar and battery system at Bulama. This system is expected to yield a material reduction in carbon emissions and cost benefits by replacing a significant proportion of diesel generation and consumption presently used for Bulama's power needs. Minviro recently updated the independent lifecycle assessment of SARA's integrated operations from Bulama Origin to Vidalia Anode Material Customer Gate in accordance with ISO standards, leading to a material reduction in the estimated global warming potential of SARA's integrated operations versus last year's estimate. Again, it's estimated that SARA's operations exhibit materially lower global warming potential compared with representative natural graphite and synthetic graphite anode material suppliers benchmarked in China. Specifically on other ESG outcomes for the quarter, our health, safety and environment performance remains outstanding. The total recordable injury frequency rate at Bulama was 0.9 in the March quarter, and the Bulama TRIFA has remained below one since late 2018. Now, TRIFA at Vidalia was again zero in the March quarter. We'll now move to some key aspects of the quarterly summary, and I'll hand over to Steve here to make some comments on the corporate position at the bottom of slide five before making some remarks on the market. Steve?

Thank you, Sean, and good morning, everyone. On the corporate front, Syrah finished the quarter with a cash balance of $205 million. compared to 53 million US dollars at the end of 2021, which includes net proceeds from the equity raising of $176 million that was completed during the quarter. Our cash position fully funds the Bedalia initial expansion to start production and has provided SARA with the funding to immediately proceed with investment in further detailed engineering and procurement and construction activities. We also have sufficient liquidity to fund working capital and capital costs across our group. Excluding net equity raise proceeds, total cash outflows for SARA are $24 million, with the daily cash outflows across operations, expansion and technology development of approximately $14 million, and the remainder relating to VALAMA and corporate costs. In terms of VALAMA, We were able to produce at our minimum production target of 15,000 tonnes per month, or 46,000 tonnes for the quarter. With the addition of our first break-bulk vessel during the quarter, while lower than production, Balama sales of 35,000 tonnes were materially higher than Q4 last year. However, we want to continue to grow sales volumes and production, which are only constrained by container shipping at this point in time. From a working capital perspective, higher production than sales represents a draw on working capital. However, this will even out the sales match production and was also somewhat offset by attractive payment terms on our first break bulk shipment. Similarly, there also continues to be a lag between higher shipping costs being incurred at present and increased pricing on tons being shipped, compared to what we are experiencing on new orders. This will also balance out over time, and there is good pricing growth through the order book, which will compensate for the shipping price increases we have seen. Over the short to medium term, we expect shipping costs to moderate with a normalisation in the shipping market, while current price support for natural graphite based on market factors is strong. We do note, however, that there is material uncertainty relating to the duration and extent of impact from the current China lockdowns. In the current market, we are likely to continue the prepayment of natural graphite sands through break malt shipments, which will also improve working capital. And we also note the weighted average price for the quarter exhibited strong upward momentum and was well in excess of our C1 costs and our minimum time production volume. As highlighted through the equity raising process, SARA is progressing debt funding processes with the USDOE and DFC on funding requirements for Vidalia and Valama, respectively. As a result of those initiatives and the Vidalia offtake process, forefront costs were higher than normal during the quarter. Clearly, we see significant benefits to the company from these funding processes, and as shown with the achievement of the conditional commitment from the DOE in April, we continue to make good progress. Moving to slide six and current market conditions, as Sean noted, the end market sending in 2022 year-to-date has been outstanding with strong momentum in EV production and sales globally. And with broad-based electrification of model ranges planned by major automakers this decade, this trend is likely to continue. To underpin this substantial mobility transition, further large commitments are being made to develop EV and battery manufacturing capacity across the globe, including in North America. Slide six shows our primary leading indicator, global electric vehicle sales. Positive momentum continued in EV sales and penetration in Q1 2022. Global EV sales grew 80% versus Q1 2021, to approximately 2 million units, with strong demand growth in China, Europe and the US. Year-to-date EV sales growth has been from a high basis in 2021. Most forecasters project further increases in EV sales across major geographies through this year. supported by shifting consumer attitudes and more EV models driving adoption, the build-out of charging infrastructure networks and supportive government policy. It is worth noting, in the context of 2 million EV sales in Q1, that this exceeds the full year of sales of EVs as recently as 2019. EV sales and battery demand growth are feeding up to demand for ammo material, as demonstrated by total Chinese AAM production increasing to another monthly production record of over 90,000 tons in March 2022. The trend on this front has been very strong over the past 18 months, and our interaction with variable graphite producers in China demonstrates robust forward demand. Demand growth is coinciding with supply headwinds, with natural graphite production in China being impacted by production and restocking challenges prior to, during, and after the seasonal winter outage. and this has significantly reduced feedstock preventory in the Chinese and over-supply chain. Cyrus 4 and sales orders, which already exceed 90,000 tonnes through to the end of the year, up from 80,000 in December, and despite 35,000 tonnes in sales this quarter, suggest that customers have strong demand requirements and remain concerned about future Chinese natural grab-bite production availability and the market balance. Turning to slide 7 and 8, These provide the updated picture of the global and regional battery manufacturing capacity pipeline forecasts and announcements, as well as the resulting graphite battery and material forecast requirements. The growth ahead for the industry continues to strengthen, providing a very strong backdrop for the company to increase production capacity utilisation of the llama and a great setting for Bedalia's initial expansion and potential subsequent expansion of Bedalia. and investigation of a possible European AAM production phase in the future. I'll now hand you back to Sean.