Syrah Resources Limited

Thank you for standing by and welcome to the Sura Resources Q2 quarterly conference call. All participants are in a listen only mode. There will be a presentation followed by a question and answer session. If you wish to ask a question, you will need to press the star key followed by the number one on your telephone keypad. I would now like to hand the conference over to Mr. Sean Verner, Managing Director and CEO. Please go ahead.

Thank you. 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, General Manager of Business Development and Investor Relations. Today, CSIRO released its June 2022 quarterly results covering operations, market conditions, the Vidalia initial expansion projects, and the outlook for natural graphite active anode material and their induced markets. We'll use the slide deck we released today for this discussion. SARA is advancing towards its objective of becoming a large-scale vertically integrated natural graphite anode material supplier. A favourable upstream market setting for natural graphite is translating to high demand for BALAMA products. Market conditions in the upstream natural graphite market have remained positive and are the strongest that they've been since Palama's commencement in 2017. This is underpinned by very good momentum in battery-driven demand growth and drawn inventory positions, strong import demand and high and stable prices for natural graphite. And this is despite Chinese natural graphite returning to almost full production in June. High growth rates in the electric vehicle market continue to be reported with EV sales at over 2.2 million units in Q2, up almost 51% on the high base in Q2 last year. Record Chinese EV sales of about half a million units in June and strong demand growth across other major regions. Momentum in EV sales continues globally despite recessionary fears and inflation. total Chinese active anode material production increased to over 100,000 tonnes per month and achieved new monthly sales records in the quarter. 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 in all regions provide a great setting of Ardalia's initial and subsequent planned expansions, as well as BALAMA and strategic position in the battery supply chain. Governments, industry, participants and markets recognise the key role of critical minerals such as graphite in facilitating transport, electrification and energy storage development, toward the objective of reducing global carbon emissions. The importance of graphite and benefits of securing resilience and localised supply chains for active anode material more aligned with battery production capacity are now broadly recognised. Positive ESG differentiation also continues to increase in importance as greater understanding and visibility by EV manufacturers and battery materials consumers highlight challenges in parts of the existing supply chain. We have high conviction in the importance of the Bulama asset and our vertically integrated active anode material facility at Bedalia to the future of this transition. Bulama is the only natural graphite operation outside China with a sunk capital base capable of supplying significant volumes of natural graphite into the battery anode supply chain. The actions being taken by customers, investors and governments and commercial arrangements being entered into with Syrah validate this view. We are finally observing some initial improvements in global shipping market conditions, which will ultimately flow through to Syrah's East African export market. In executing significant breakbox shipping volumes from Pemba, we've mitigated the near-term constraints and increased our sales. We're very optimistic about the LLAMA's future volumes. Slide 4 reiterates our fundamental ESG commitments and performance focus and every quarter that passes highlights the criticality of this effort. Since the company's ESG commencement, ESG excellence has been a key focus and we are beginning to see the very real impact of downstream customer requirements and supply chain auditing bring differentiation between incumbent production projects and ourselves into sharp relief. In early Q2 2022, CSIRO announced a final investment decision to construct a solar and battery system at Gullarmine. This system is expected to yield a material reduction in carbon emissions and cost benefits by replacing around one third of diesel power generation used for Gullarmine's production. As we'll discuss in later slides, the cost advantages of this decision and higher fuel prices will be even more important if they're sustained. A critical panel review of the MnDIRO independent lifecycle assessment of CSIRO's integrated operations will be completed in Q3 2022. Upon completion of the critical panel review, CSIRO will comment further on comparative benchmarking of global warming potential for representative natural graphite and artificial graphite active anode material supply routes in China, which currently account for most of global production and will be able to demonstrate the differentiated sustainability credentials of SARA's natural graphite and anode material products. I will take this opportunity to emphasise that care should be taken in comparing LCAs between companies and to ensure that such comparisons are made on a like-for-like basis, including operating entities versus aspirational projects, and from a products and boundary perspective. We follow this area very closely, and it's clear that there is still not a universally accepted approach to inclusion of various elements in a particular supply chain, which can provide a distorted view of emissions results. Enviro's independent lifecycle analysis of SIRA and the critical panel review provide a best practice measure of the environmental impacts of the full value chain, which is based on a complete and well-defined inventory of our vertically integrated position. In operating ESG outcomes for the quarter, our health, safety, and environment performance at BALAMA remains outstanding. TRIFA at BALAMA was 0.8 at quarter end, and the BALAMA TRIFA has remained below one since late 2018. Our trooper at Bardalia was 17.1 at quarter end due to a lost time injury sustained to a contractor on our expansion project, the first injury at Bardalia since June 2020. We're very committed to absolute focus on hazard management and visible leadership to ensure the health and safety of the employee and contractor workforce at Bardalia. We'll now move to the highlights for the quarter, and I'll hand over to Steve here to make some comments on the corporate position at the bottom of the slide bar. Torrey also provides some market context.

Thank you, Sean, and good morning, everyone. On the corporate front, SARA finished the quarter with a cash balance of $168 million compared to $205 million at the end of Q1 2022. Our cash position fully funds remaining capital costs for the value initial expansion the start of production with significant capital invested during the project through the quarter. We also have sufficient liquidity to fund working capital and capital costs across our group. Total cash outflows for SARA were $37 million during the quarter, compared to $24 million last quarter, with the value cash outflows across operations, expansion and technology development of approximately $15 million. The remainder relates to VALAMA, which includes an $8 million one-off outflow to provide cash collateral for our standard environmental bond requirements, $2.5 million in capital costs, including the TSF, working capital movements related to shipping arrangements, as well as $2 million in corporate costs. In terms of VALAMA, we were able to produce close to our minimum production target of 15,000 tonnes per month, or 44,000 tonnes for the quarter. With the two additional break bolt vessels during the quarter, the llama sales match production of 44,000 tonnes and are materially higher than the first quarter. However, we do want to continue to grow sales volumes and production, which are only constrained by container shipping at this point in time. And we will be executing further break bolt shipments to continue to expand sales volumes, including one shipment that has already sailed from Pemba this quarter. Cash generation for the quarter was mostly impacted by shipping costs. While C1 costs were higher, pricing was also materially higher and our C1 margin improved on the first quarter. However, shipping costs were three to four times the normal levels, resulting in an operating loss after C1 and C2. 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, there is material uncertainty in the duration and extent of the impact of current China lockdowns and the impact on market conditions. SARA is progressing debt funding processes with the US Department of Energy and VFC on funding requirements for both the VALIA and the LAMA respectively. We've seen significant benefits to the company from these funding processes and in April SARA finalised a non-binding term sheet and was offered a conditional commitment for a loan from the DOE to support financing of Vivalia's initial expansion project. SARA and DOE are making very good progress on completing negotiations for the loan and are targeting signing of binding loan agreements in the third quarter. First advance from the DOE loan is targeted in the December 2022 quarter to align with the capital spending program for the Vivalia initial expansion project. If finalized, SARA's loan would be the first from the ACVM loan program since 2011 and the first ever from this program to a materials processing facility, highlighting once again the value of strategic position in the USA and providing strong validation of the project. Moving to slide six and current marketing conditions, as Sean noted, the end market setting 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, the 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. Positive momentum continued in our key leading indicator, EV sales, in the second quarter, despite the global economic and COVID headwinds. Global EV sales grew 51% in the quarter compared to the second quarter of 2021 for approximately 2.2 million units with record sales in China in June and sustained growth in key European and US markets. Year-to-date EV sales growth has been from a high rate set in 2021 and many expect further significant increases in EV sales across all major geographies through the remainder of this year and beyond. Supported by shifting consumer attitudes and more EV models driving adoption, the build-out of charging infrastructure networks, and supportive government policy. EV sales and battery demand growth are driving demand for anode material, as shown by total Chinese AAM production increasing to above 100,000 tonnes per month and achieving another monthly production record during the quarter. The trend in this area has been very strong over the past 18 months, and our broad interactions with spherical graphite processes in China and increasing flake imports demonstrates robust forward demand. The strong market setting for natural graphite has been evident even with natural graphite production in China returning to normalised output levels and there remains risks around Chinese production maintaining current output levels due to environmental issues, remedial actions, recertification efforts and COVID-19 related interruptions. Syrah's forward sales orders continues to be substantial at 90,000 tonnes of natural graphite around the same levels at the end of the first quarter. This level was maintained despite higher sales of 44,000 tonnes during the quarter and the passing on of freight costs on container shipments, which again highlights consumers' strong demand requirements and concern about future Chinese natural graphite production availability. Turning to slide seven and eight, these provide our customer an updated picture of the global and regional battery manufacturing capacity pipeline, forecasts and announcements. as well as the resultant graphite battery anode material forecast requirements. The growth ahead for the industry continues to strengthen, allowing a strong backdrop for the company to increase production capacity utilisation of the llama and a great setting for the value of various stages of expansion and a strong foundation for a European AAM production base. I'll now hand you back to Sean.