Syrah Resources Limited

Thank you for standing by and welcome to the Cyber Resources Limited Q3 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 would like to ask a question, you'll 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 joining the call today. With me on the call are Stephen Wells, our Chief Financial Officer, and Viren Hira, our GM of Investor Relations and Business Development. Natural graphite market conditions in the year to date have underperformed the trajectory of electric vehicle sales globally. In contrast to the short-term situation, however, increasing regional demand and the imperative to create secure supply chains for critical minerals, including in graphite and battery anode materials, has continued unabated. Recent market conditions in China, resulting in the need for dynamic operating responses, have been challenging. But we're focused on making the best of the short-term situation and readying to benefit from the extraordinary opportunities that Zyra has ahead. considering the forecast growth in demand for our products, highly supportive changes in the way the global supply chain for critical minerals will operate in future, our unique market and asset position outside China, and the strong support we have from customers, government and other stakeholders to grow our business. Maintaining independence and investment in progress now positions the company for the inevitable demand growth for our products, particularly in ex-China markets. and it's key to profitability, shareholder value growth, and share price returns. Key points to highlight in the September 2023 quarter are the implementation of all measures identified for the revised BALAMA operating mode outlined last quarter, full operational implementation of our significant solar and battery system, which will supply 35% of power requirements at BALAMA, navigation of market conditions to an improved demand picture, and the resumption of purchasing volumes from China. Implementation of our medium-term natural graphite sales diversification strategy, capitalising on the emergence of ex-China anode material projects. Strong progression with the development of current and future anode material production capacity at Vidalia, with the planned start of production of the 11,000 tonne facility in Q4. progress in pre-FID activities for further expansion and increasing commercial attention for more significant anode supply from Vardalia, and ensuring the capability to work through the uncertain market conditions and resultant operational and project requirements through building our funding optionality. I acknowledge both the volatility of this journey and the commitment required from our investors, our team and our stakeholders. That commitment is being rewarded with a uniquely differentiated asset position, long life and growth optionality, and a market position which, after the pain of development, we believe will provide years of competitive advantage. Today, we'll cover three key areas and use the presentation we released along with the quarterly report. Firstly, we'll look at the concrete deliverables that demonstrate what Syrah is achieving and how that sets us well apart from other current and emerging suppliers. We'll look at third quarter performance, focusing on market conditions, the Lama operating performance, progress in the expansion of Bedelia and Cyrus financial position, and look at the outlook for the company. We'll start today on slide seven of the presentation pack. Given the point of progression of the company and the challenges experienced over the past two years, market focus has been on short-term conditions, funding, and cash flow, and that's understandable. But it's incumbent on us to continue to shine a light on the fundamentally differentiated position Syrah occupies and the work that has been completed to date and that which remains underway, demonstrating a completely different upstream scale, downstream integration and ESG commitment than the bulk of the industry. And this slide highlights concrete progress and major milestones that Syrah has achieved. that provide a platform for us far ahead of all other non-China integrated production capacity in the anode market. We're weeks away from becoming the first and only vertically integrated natural graphite anode producer outside China, underpinned by our Balama asset, our long-term and expandable offtake with Tesla, and deep customer engagement with other major players such as LG, Ford, SK and Samsung under MOUs for further developments. We've supplied almost half a million tonnes of high-grade natural graphite into the global supply chain over recent years, with unhighlighted penetration into many key battery suppliers' product lines. We've implemented a major solar and battery system upstream at Belum, which further increases our leading audited LCA position on global warming potential against competing Chinese products, where we are materially lower impact on emissions than both Chinese benchmarks Naturals and synthetic graphite producers. We continue to invest strongly in Vidalia to deliver an environmentally differentiated anode material production capacity with strong expansion capability. And we built Balama and Vidalia's operations with a commitment to best practice ESG frameworks, such as the ICMM mining principles and global standard for tailings storage management, the initiative for responsible mining assurance, and UN global reporting initiatives and sustainable development goals. and they are things that other anode material producers simply do not do. We've achieved deep strategic funding support from the US Department of Energy for Vidalia and a developing one with the Development Finance Corporation for Bulama that demonstrate the critical minerals position of our operations. We've set up both operations to be cost competitive and are pursuing with absolute focus the need to generate greater cash flow for the business. At the same time, we've invested heavily in developing an integrated business that will benefit from long-term, unique market access and pricing differentiation as the demand fundamentals align with supply. Ultimately, we believe that further pricing differentials will be evident in a bifurcated market that must reward those suppliers investing in high-quality, responsible operations, lower emissions intensity and positive stakeholder benefit across the supply chain. Assurance on these fronts takes years, and as customers and governments choose higher standards in future, the investments that we've made already will pay dividends. Turning to third quarter market conditions on slides eight and nine of today's presentation. Chinese natural graphite demand conditions remained weak through the first half of the third quarter, due to consumption of anode material inventory, aggressive production volumes with price discounting from synthetic graphite anode suppliers in China, and domestic natural graphite production volumes. However, natural graphite market in China improved in the latter half of the quarter, with increased demand ahead of the winter period of lower Chinese natural graphite production, and with spherical graphite processes and natural graphite anode producers increasing production capacity utilization as orders from lithium ion battery cell producers improved. Downstream leading indicators for natural graphite are positive. Global EV sales grew 18% in Q3 from Q2 and were up 41% year-on-year to approximately 4.1 million units. Stronger EV sales and higher production of lithium ion battery cells after a significant reduction in cell inventories are indicators of reinvigorated consumption of anode material. Overall, anode production increased 30% in Q3, sequentially from Q2, and 37% year-on-year as orders from cell producers started to recover. Anode production growth is still lagging EB sales growth, illustrating that downstream inventory consumption continues. As shown in Chinese anode production data, synthetic graphite anode production capacity growth in China, which represents the majority of overall anode production growth over the past year, has been significant. Aggressive pricing has caused intense competition amongst new and incumbent synthetic graphite anode producers. This has in turn driven significant utilization of higher sulfur input materials and shortened graphitization processing cycle times which facilitate a decrease in price, but also produce lower quality and lower performance synthetic graphite anode products. Whilst there's pricing pressure in the Chinese anode market caused by aggressive market penetration behaviour from synthetic graphite producers, our view remains this is unsustainable, with pricing well below cost for much of the production capacity. Even the major Chinese anode producers are experiencing significant margin pressure. Substitution is most prevalent in the Chinese domestic battery market rather than the ex-China export markets. The current convergence of prices for low-end synthetic graphite anode and natural graphite anode appears to be unsustainable, and any increase in costs of power, graphitisation, which is up off its recent lows, or coke materials is expected to immediately drive higher synthetic graphite anode prices. SARA expects that underutilization of expanded synthetic graphite anode capacity and loss-making prices caused by intense competition will inevitably lead to some consolidation of marginal synthetic graphite capacity, which will ultimately support higher pricing for both synthetic graphite and natural graphite anode materials. Domestic natural graphite production in China increased seasonally through the quarter, with reported natural graphite prices in China falling by 20% to 30% since the beginning of 2023. However, increased demand has resulted in pricing moving off the lows later in the quarter. Benchmark Mineral Intelligence reports that domestic natural graphite producers are under cost pressure from a combination of lower grade ores, poorer recoveries and other factors requiring prices to rise for them to be profitable. Increased sales from previously warehouse stock and forthcoming domestic winter production shutdowns are expected to improve the supply demand position in SARA's favour. With costs exceeding price at several points across the anode supply chain, increased anode demand driven by higher EV sales will require higher prices to incentivise increased production with higher natural graphite supply required from ex-China sources. Irrespective of current pricing differentials, the ESG profile of artificial graphite production remains deeply challenging given the power usage and emissions intensity from the high-temperature, long-duration process of graphitising petroleum and coal-based cokes. So whilst conditions in the Chinese anode market have been challenging for Syrah, there are indicators of strengthening in the near term. EV sales growth has continued this quarter and expectations for Q4 are positive. Battery cell demand and capacity utilisation is increasing. Anode production, while still growing strongly, is at a slower pace than EV sales growth, so downstream inventory positions are being cleared. Spherical graphite capacity utilisation is increasing and natural graphite demand is coming through. And whilst excess production capacity, intensive price-based competition and lower input costs have seen natural graphite and synthetic graphite anode prices converge, resulting in some cost-based switching, the prevailing synthetic price does not appear to be sustainable with graphitisation and other production costs seeming to have bottomed, which will lead to demand and pricing support for natural graphite anode materials. These items should assist in rebalancing the market, and the longer-term opportunities for natural graphite and SIRA are even more positive. Overall, EV demand growth continues, and anode inventory will continue to clear. September 2023 global EV sales were above 1.5 million units, a monthly record. Chinese natural graphite anode capacity growth and utilisation are increasing, and they require natural graphite fees. The number of new Chinese natural graphite anode projects will enter production this year and into 2024. And the US Inflation Reduction Act and EU policy directives mean that ex-China anode producers are accelerating plans to build capacity offshore. In Korea, the US, India, Europe and Indonesia. And that all requires ex-China third-party natural graphite feed, where Bulama is currently the only major option. Chinese mine capacity growth has been minimal and grade and cost pressures are challenging. And finally, ESG implications as well as technical characteristics, customer preferences and lower costs of production through the cycle mean significant volumes of natural graphite will be required in both China and the ex-China markets. The implications for Syrah today that the company will continue to focus on immediate natural graphite sales from inventory and new production where warranted, managing Balama production campaigns to achieve the lowest possible cost at the relevant demand levels, producing to support a minimum average 10,000 tonnes per month sales each quarter. We will continue to be clear with customers on the prices required for higher supply of our products, considering operating costs, and we'll be highly focused on developing natural graphite sales into new customers outside of China to achieve our sales diversification targets and drive our anode marketing strategy in the US to gain value from our differentiated production position. I'll hand over to Steve now to provide some comments on Bulama's operational and cost performance, and we'll move to slides 13 and 14. Steve? Thanks, Sean.

As Sean mentioned, through the quarter, SARA implemented all measures identified for the revised BALAMA operating mode outlined in the presentation last quarter. Significantly lower sales to Chinese anode customers and inventory positions in Mozambique and offshore led to the ongoing pause in production from BALAMA extending from May and June in Q2 to July and most of August in Q3 before production resumed at the end of August. This decision was made to allow for downstream inventory consumption to occur and natural graphite demand conditions to improve. The plant was operated through a relatively uninterrupted 32-day campaign from late August through September to produce 18,000 tonnes of natural graphite during the quarter, and the production campaign continued into October 2023 to increase finished product inventory positions given improved marketing conditions. Stable operation performance at Bulama was reached within two weeks of production resumption, after a four-month shutdown, and product recovery and quality improved through the campaign with uninterrupted production and greater stability in processing operations. In future campaigns with shorter shutdown periods, we expect that stability can be achieved in plant operations more quickly than two weeks. In the last two weeks of the quarter, Alarma achieved on average a 20,000 tonne per month daily production run rate and 82% recovery, and strong operational performance continued into October. C1 costs were US$484 per tonne in September's operational period, despite the impact of lower-than-targeted production to that 20,000-tonne level, lower-than-targeted recovery and high diesel costs, and trended towards cost guidance during operating periods in the revised operating mode. These unit costs again demonstrate what Balama can do when operating at its intended capacity and its sustainable cost position. C1 fixed costs for the shutdown period were approximately $4 million per month on average, which matched cost guidance and with further variable mining and production logistic costs of approximately $1 million per month in preparation for production campaign and for ongoing product sales. The Mozambique wholesale diesel price set by the government decreased by 17% over the quarter, although that is still above the long-term average. We will continue to operate Valama in campaign operating mode in the December quarter, with further 30-day high-capacity utilisation production campaigns, followed by a curtailment period determined by inventory levels and new sales demand. Further production campaigns will be dependent on sales from inventory and new sales orders at production volumes averaging at least $10,000 per month over the quarter. And if improved demand is sustained, the company expects to undertake one 20,000 tonne production campaign in Q4 while ensuring also that we can return to higher capacity utilization of BALAMA quickly should natural graphite demand increase further. During the quarter, SARA commenced full operations of the 11.25 megawatt solar array and 8.5 megawatt battery energy storage system at BALAMA. The entire solar array, incorporating over 20,000 solar modules with a surface area of approximately 5.4 hectares, is fully integrated to the battery storage system. and the array operated and generated power to its intended design capacity and profile over duration to achieve full operations. The Balaama solar battery system is one of the largest installed in a mine in Africa and will supply 35% of average site power requirements, significantly reducing diesel consumption and greenhouse gas emissions at Balaama and yielding associated cost savings, which are incorporated into our cost guidance. SARA is progressing the evaluation of options to further optimise BALAMA's power generation to reduce operating costs, further lower greenhouse gas emissions of BALAMA products and ensure reliable power supply with high capacity plant utilisation. Otherwise at BALAMA during the last quarter, SARA continued its high performance in sustainability activities as noted in our quarterly sustainability report which is also released on our website today. The security environment across Cabo Delgado remains stable with major LNG projects in the province potentially being restarted. later this year. I'll now pass it back to Sean to talk through Balaama sales and marketing and also progress at Vidalia.