Syrah Resources Limited

Thank you for standing by and welcome to the CIRA Resources Limited Q4 quarterly results update 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 1 on your telephone keypad. I would now like to hand the conference over to Mr. Sean Verner, Managing Director and CEO. Please go ahead.

Good morning, everyone, and thank you for dialling 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, SIRA released its December 2022 quarterly results covering operations, market conditions, the Vidalia initial expansion and further expansion projects, and the outlook for natural graphite, active anode material, and their end-use markets. and we'll use the presentation we released today for this discussion. It's been an eventful period for the company, and in some ways that's indicative of the EV and battery market overall. On this front, there's a clear gap between the shorter lead time battery and EV developments versus the raw materials, downstream processing capacity, and localizations required to facilitate them. Customers, investors and other public stakeholders are increasingly aware of what that means for supply and prices. Demand continues to grow very strongly and the broader macroeconomic and geopolitical trends are making development and expansion more complex and more expensive. Whilst we encountered some short-term challenges during the quarter, CSIRA has a significant incumbency advantage and is advancing towards 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 Balaama products, and we're now closer than ever to the market requiring Balaama's full production capacity and beyond to satisfy demand. Our long-term vision is to grow Syrah's downstream business to become a leading supplier of anode material products globally. capitalizing on the benefits of vertical integration with our world-class Belama graphite resource and operation. Summarizing the company's unique position and value proposition on slides three, four, and five of the presentation, Syrah is a key participant in the global natural graphite market, which is expected to grow by four times, and the lithium ion battery anode material market, which is expected to grow by seven times over the next 10 years. Syrah is the only vertically integrated natural graphite anode material supplier outside China that's producing qualified anode material and producing upstream natural graphite that's sold into the Chinese market, in use today in lithium ion batteries and electric vehicles. Our Balama natural graphite operation in Mozambique is unique, with 350,000 tonnes per annum production capacity in a global natural graphite market of approximately 1.3 million tonnes per year currently, and a more significant position in the natural graphite market for battery anode materials specifically. The EV and battery end-use markets underpin higher capacity utilisation of BALAMA in coming years. Other ex-China projects with relevant potential production volume are still some way from production, especially where downstream integration is part of the development strategy. Bulama at design capacity is based on reserves for a 50-year mine life and there is immense growth potential from a 1.4 billion tonne resource. Below both our intended volumes and customer demand due to the unprecedented shipping constraints in 2022, Bulama produced a record 163,000 tonnes last year, demonstrating its importance to global supply. Vidalia is the site of our downstream active anode material facility in Louisiana. We've been operating there since 2018, having recognized the market reliance on China before then, something that's now increasingly recognized in the critical minerals government policy agenda. Noting that natural graphite from Bulama has been in use in EV batteries for a number of years, Vidalia material, has been in qualification and testing with auto OEMs and battery manufacturers for the last two years. And the first phase of commercial expansion is well underway, which will deliver 11.25,000 tonnes of active anode material capacity per year. We're also nearing completion of the definitive feasibility study for expansion to 45,000 tonnes per annum, underpinned by market demand, significant customer offtake interest and US domestic government policy tailwinds and our plan is to accelerate development of this expansion subject to the necessary funding and customer commitments. We have a contract in place from December 2021 with Tesla for 8,000 tonnes per annum or 70% of the production from the first phase expansion of the Dahlia. In December 2022, Tesla exercised an option to purchase a further 17,000 tonnes per annum or a combined 25,000 tons or 56% of the production capacity from an expanded Vardalia facility. And we have MOUs in place with Ford and SK On and LG Energy Solution for Vardalia supply. We've also closed the US $102 million Department of Energy loan under the Advanced Technology Vehicles Manufacturing Program for the first expansion. and are negotiating a US $220 billion grant from the DOE to fund a significant proportion of the further expansion at Vidalia to 45,000 tonnes per annum. We're making excellent progress with Vidalia's expansion projects and creating a differentiated downstream position that's not easily replicated. SARA has developed a unique position. The fact that we are the first vertically integrated natural graphite anode material operation in the US has resulted in extensive engagement with potential customers and government stakeholders. Our expected anode material OPEX cost position at Vardalia is competitive with China. CAPEX is more expensive, however, there's no surprise in that CAPEX challenge and we have planned for it. And with Bulama in the upstream, the size of the asset is such that at full capacity will be a first quartile cost producer with significant expansion potential. Governments and industry participants 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. Last year, the US Senate passed the Historic Inflation Reduction Act 2022, which will offer tax credits and financial support to end users of electric vehicles and material producers to mobilise the development of a domestic battery and battery raw materials supply chain and to accelerate the adoption of EVs in the US. We expect that Vidalia Products will qualify as a critical mineral protest in the US for the EV tax credit under this Act, underpinning demand, and that our US operating subsidiary will also qualify for direct tax credits. It's also apparent that this legislation is promoting significant investment allocation towards the US EV and battery supply chain, which will also benefit the Vidalia facility. Other consumer regions, such as the EU, are progressing policy to ensure similar significant investment allocation that's required for local battery supply chain developments. Syrah has a great future opportunity with its combined position at Bedelia and the globally significant graphite resource and operation at Bulama. Tesla's commitment to offtake additional active anode material volume, MOUs with Ford and SK and LG, and broader customer interest for Syrah's products continue to highlight both the requirement for significant ex-China natural graphite supply to help bridge the imminent supply deficit, particularly in vines, and the need for a localised supply of active anode material in both the US and other markets outside of Asia. SARA's engagement with the potential downstream customer base has highlighted broader concerns with a looming input material production capacity deficit and high dependency on imported anode material supply from Asia. We believe Syrah will have compelling natural graphite and active anode material costs and margins as the market evolves and production volumes increase. On slide six, our environmental, social and governance activities are fundamental to our company, and every quarter that passes highlights the criticality of this focus and of our commitments. Given the illegal industrial action at Balaama, which occurred in Q4, I want to comment on the work done to move ahead positively and capitalise on the strong relationship with our workforce and remind you of the approach and commitments in Mozambique, ensuring that our value to the local, provincial and national communities in the country is clear. Our commitment to local employee development remains very strong. Of almost 1,500 direct and contractor employees, 98% are Mozambican nationals and 56% are from the local host communities around the Llamas. We have a localisation focus and a demonstrated history of skills and career development. Our two general managers in country and many senior leaders are Mozambican and we've invested heavily in training and development since initial employment for the operation started in 2015 and 16. We have an active union covering the majority of the Bulama workforce and a company level collective agreement ratified by the labour authorities covering employment conditions. And during the fourth quarter, We successfully completed the periodic renewal of the labour agreement with the designated representatives of our new unionised workforce, leading to improvement in conditions for all employees that are covered by the CLA, and there's been no issue with regard to industrial relations since October. Since Bulama's inception, our total economic contribution to Mozambique has been over $360 million, and we're deeply committed to improving education, health and sustainable income generation in the district through local development committee capital and development projects. Success of Bulama comes hand in hand with our employee, community and government relationships and given the very long term nature of the asset, we will take the time to get them right. We've released a lot of further information on our ESG position today in our quarterly sustainability update which is available on our website. 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 and some market context. Steve?

Thank you, Sean, and good morning, everyone. I'm now on slide seven. Health, safety and environmental performance at Balaama remains outstanding. The total recordable injury frequency rate, or TRIFA, at Balaama was 0.7 at quarter end, and has remained at or below one since late 2018. TRIFA at Vidalia was 10.5 at quarter end and there were no lost time injuries sustained through the quarter, with a significant increase in hours due to the ramp up in construction activity at the Vidalia project. A medical treatment injury was sustained by a construction contractor in November, which resulted in Vidalia TRIFA increasing from the end of Q3. Sean will provide the update on operational and project performance in the fourth quarter 2022 shortly. SARA finished the fourth quarter with a cash balance of $90 million, compared to $136 million at the end of Q3. Total quarter cash outflows were $46 million versus $33 million last year, with approximately $38 million being related to investing activities. With the Vidalia project moving into more intensive construction, Vidalia cash outflows were $30 million in Q4, and the remaining investment capital represented the construction of the Balaama TSF Cell 2. The remaining $8 million cash outflow related to Balaama working capital and corporate costs. Balaama operating cash flows were impacted by the operational interruptions and relatively high working capital at quarter end with natural graphite inventory positions increasing as production returns to higher volumes in December. As previously indicated, due to cost pressures experienced globally in the last 12 to 18 We withdrew our BALAMA C1 cost guidance, which we first provided in late 2019. Given our expectations of a sustained increase in production volumes, we are now providing guidance at a 20,000 tonne per month production rate and have revised that BALAMA C1 cash cost guidance to $430 to $480 per tonne at that 20,000 tonnes per month rate. There is still uncertainty around diesel prices in particular. which is reflected in the range provided, with the top end of the range reflecting current fuel prices and also noting that the cost guidance reflects the implementation of the solar battery system operating at full capacity, which is expected in the second half of the year. It also reflects updated labour costs associated with the renewal of the company level agreement, or CLA, and as a result, BALAMA cost guidance may not align with current levels and also the dynamic backdrop, particularly in relation to diesel costs and certain imported consumables. Equally, however, BALAMA's cash costs are expected to reduce further as the production rate increases beyond 20,000 tonnes per month and as improvement initiatives continue to be embedded. SARA is progressing funding processes with the USDOE and DFC on funding requirements for Vidalia Phases 2 and 3 and BALAMA, respectively. In December, CSIRA closed its ACVM loan facility of $102 million from the DOE to support financing of the Vidalia's initial expansion project for 11.25 thousand tonnes per annum. The company and DOE are targeting the first advance from the loan within the March 2023 quarter, aligned with the capital spending program for the Vidalia project. We also continue to work through a negotiation with the DOE for an additional grant of approximately $220 million to fund a significant proportion of capital costs to expand Vidalia further to 45,000 tonnes capacity, and we are targeting finalisation of this within the June 2023 quarter. Our selection of the grant demonstrates the criticality of Vidalia to the US battery supply chain. We were one of 20 projects out of over 200 applications awarded a grant, and were awarded the largest amount for a materials processing project out of all successful applicants and one of five to receive the full 50% allocation towards estimated capex. We are also progressing a potential loan for BALAMA from the US Development Finance Corporation with due diligence and commercial engagement through the quarter. DSC is currently preparing to publish an environmental and social impact assessment for public comment, which is a critical step in their approval process. Moving to slide eight and current marking conditions. 2022 was 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 the substantial energy transition underway, further large commitments are being made to develop battery manufacturing capacity across the globe, including in North America, and regionalization of supply chain remains a major trend in the EV and battery markets. Positive momentum continued in our key leading indicator EV sales. Global EV sales grew 68% in the quarter compared to the prior year to nearly 4 million units with record monthly sales in November and December. Global EV sales grew 64% in 2022 versus 2021 to nearly 11 million units. EV sales and battery demand growth drove demand for anode material, with anode material production outpacing strong growth in global EV sales through 2022, reflecting industry expectations of continued growth momentum. We note, however, that in December, Chinese anode production did weaken from record high levels due to consumption of anode inventory positions and operational and logistics disruptions due to COVID-19. Slide nine provides an updated perspective on regional battery manufacturing capacity pipeline forecasts and announcements, and the growth ahead for the industry is astonishing, providing a very strong backdrop for the company to increase the production capacity utilization at the LAMA, and a great setting for the day's various stages of expansion, with a well supported by customers, the regulatory environment, and potential funding options. Global OEM and battery participants for seeing the opportunity, are building significant production capacity in the United States, often across multiple states. Tesla's recently announced a 100-year per hour expansion of its Nevada Gigafactory in addition to its development in Texas is an example of this. And with the combination of policy support, cost and market evolution, the USA has proven to be the correct choice for CSIRO's first AEM facility commenced back in 2018. I'll now hand you back to Sean.