Syrah Resources Limited

Thank you for standing by and welcome to the CSIRO 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 one on your telephone keypad. I would now like to hand the conference over to Sean Verner, Managing Director and CEO. Please go ahead.

Thank you, good morning, and thanks for joining the call today. With me, Steve Wells, our Chief Financial Officer, and Veeram Heera, our General Manager of BD and Investor Relations. And we'll use the slide deck we released along with today's report for this call. On slide three, we continue to progress toward our vision of becoming a major integrated anode material supplier to globally significant customers. And today we'll cover both Q4 operating performance and work through our views on how some fundamental geopolitical actions and market developments have repositioned and strengthened the strategic value of the Balama and Bardalia assets, despite near-term uncertainty. On slide four, we continue to differentiate Zyra from Chinese producers and from development projects by designing and operating sustainability, a key driver from the ground up. I encourage you to review our quarterly sustainability report, which will be up on our website from later today, but wanted to highlight in particular the safety commitment and performance across the Vidalia project through the last two years and the commitment of the solar and battery system at Balama as key milestones through the quarter, as well as our pursuit of IRMA certification as a first in graphite globally. Moving to slide five and our Q4 2023 performance. The quarter was marked by the impacts of China's announcement and later implementation of graphite and anode product export license controls. And our activities were focused on understanding and adapting the line of sales and production to that market uncertainty, whilst progressing the Vidalia anode material plant commissioning, demobilizing the vast majority of project resources there and continuing the handover to operations. At Bulama, as guided last quarter, one production campaign was undertaken with 20,000 tonnes of natural graphite produced and 21,000 tonnes sold and shipped, including inventory to Vidalia. Weak market conditions, the details of which I'll cover in more detail shortly, led to a focus on Bulama campaign production and cash preservation as the basket price declined 7% quarter on quarter to $490. Operational performance saw solid recoveries at 77% despite campaign operations, with an FOB C1 cost during operations of $534 a tonne, impacted by lower production volumes and slightly below target recoveries, and non-operating period costs of $4 million per month, in line with our expectations. With average sea freight costs at $80 a tonne expedalia currently, clearly low volumes and current cost structures can't be maintained indefinitely, with greater clarity on the implementation of China's export controls being the major factor determining the strategic options for Galama's operating mode in the months ahead. At Valdavia, significant progress was made in commissioning the anode material plant, but the target of production prior to the end of Q4 was not reached given the combination of delays in purification plant commissioning and further impacts of weather during January. The commissioning is focused on safely operating and ramping up all areas of the 11.25,000 tonne facility at Bedalia, with production of unpurified and purified precursor materials now achieved, and the final focus now on pitch coating and carbonisation. We'll be ramping up anode material production imminently and working through the processes of product qualification for commercial sales with our customers. Whilst capital equipment and construction expenditure has been broadly within expectations, the timing delay on first production against plan has been the key factor in seeing total installed capital costs increasing to US$209 million. Major progress was made in commercial and funding processes in Q4 with the advance of negotiations for off-take sales from Balama for long-term contracts with developing ex-China anode material facilities. which we expect to make further announcements about soon, and progress in anode material commercial arrangements to underpin further expansion of the Vidalia facility. Both of these streams of work evidence the increasing criticality of the Palama and Vidalia assets to the build-out of the ex-China supply chain. As one step in our plans for European expansion, we've also signed an MOU for assessment of joint venture development for an anode material facility in conjunction with Tees Valley Graphite in the UK, accessing the attractive infrastructure of the Wilton Industrial Park and Trade Zone and with a strong focus on government funding. We'll provide more insight into this in future updates. Steve will cover the financial position later, but the final advance of the DOE loan for Vardasia's construction and progress on the DFC loan to Balama have been primary focus in recent months, along with further DOE funding progress for future Vidalia expansion. On slide six, the full-year picture of Valama was enormously impacted by China's dominance of and government policy intervention in synthetic graphite, natural graphite and anode material markets, impacting overall demand for siren. Total 2023 natural graphite production across our campaigns was 94,000 tonnes with plant recovery averaging 74% and an 89% fine to 11% coarse flake split. 94,000 tonnes was sold and shipped for the year, including 9,000 tonnes to Bedalia Inventory, and a weighted average sales price to customers of $582 a tonne was achieved. The strategy of maintaining operating capacity and moving to a campaign operating mode was necessary at Balaama, both for market readiness, and for Vidalia supply, but obviously impacted the cash position. Matching Valama sales and production for a cash flow break-even position remains the urgent minimum target for the company, but has been significantly impacted by Chinese commercial and government actions through the course of the year. On slide seven, the construction and commissioning at Vidalia of the first integrated commercial scale natural graphite anode material plant outside China continued through Q4 and into January with some very strong progress, albeit behind schedule. Positively, the delays experienced in commissioning the purification plant have now been resolved and first purified spherical graphite has been produced, which is another first for a commercial plant in the US. Recently, the coldest weather in our area of Louisiana in 30 years had a significant impact, requiring hard freeze preparation as the plant was in commissioning. Actions that mostly would not be necessary in normal operating mode, but which essentially delayed activity a further two weeks. The operating team has, however, adapted quickly from project into operating mode and focused on the high quality and consistency required from a battery anode material plant. We'll provide further updates around commissioning and production very soon. Moving to recent market conditions on slides eight and nine. Overall, despite some recent negative commentary on EV growth rate slowing, the increase in sales during 2023 of 37% year-on-year was again astonishing. This saw a continuing ramp-up in anode material demand, but disorderly supply in China from expanded artificial graphite anode material capacity, with total Chinese anode material production growing 28% year-on-year, lower than EV growth rates, and the increased energy storage battery demand, implying that some drawdown in anode material inventory occurred through the year. Market conditions for Bulama have been enormously challenging, driven by sub-economic pricing of artificial graphite anode material in the China domestic market, reducing short-term demand for natural graphite anode material in China, and the major impacts of China's announcement and implementation of export restrictions in Q4 stifling the burgeoning improvement in market conditions that were being seen in September and early October. China swung from a net importer of natural graphite halfway through the year as domestic natural graphite demand fell. Spherical graphite produces reduced production due to low precursor prices and import demand was further impacted by export licence uncertainties. Finally, November saw domestic producers in China strongly front-run the implementation of the export controls, with three to four times the normal monthly volumes exported, driving ex-China markets into disorderly purchasing patterns. Prices for natural graphite declined through the year as the impacts of Chinese commercial and government actions float through to the market. Large segments of the Chinese graphite and anode market are now uneconomic, with artificial graphite prices below cost in many plants, very low levels of utilization in artificial graphite anode material producers and spherical producers, natural graphite prices below the cost of production for most Chinese mines, and low transaction volumes. Put simply, the current state of the Chinese market is unsustainable. The significance of China's actions on the near-term graphite and anode product markets is outlined on slide 10. and can't be stated strongly enough. They've fundamentally altered the geopolitical and trade landscape for anode and the battery and electric vehicles supply chain. The imposition of export licensing at a national level was announced on October 20, and the immediate impact was Chinese exporters seeking to export all available inventory ahead of the imposition of the controls. Given Chinese producer concerns over the granting of export permits, they also reduced feedstock imports, creating a perfect storm of short-term oversupply ex-China and reduced demand for imports into China. Overall, anode material demand is still strong and the supply chain ex-China will start to be stretched, and OEMs and battery producers are deeply concerned about China exports, meaning new processing and trade flow options are under consideration in investment but are not immediate fixes. In the medium term, this is very positive for Syrum. Simply put, either the world gives in and says Chinese supply of artificial graphite is the only anode solution, or Belama and Bardalia will be critical to any other outcome. In the short term, the China export licensing process will influence Belama's operating rate, with further production campaign runs determined by demand, price and inventory drawdown. Ex-China industrial customers of natural graphite are also concerned. And as the short-term inventory purchased in November starts to be drawn down, their minds also turn to longer-term supply certainty. We'll take the opportunity in a moment to frame how this has elevated SARA's criticality to the global energy storage transition. First, I'll hand over to Steve to provide an update on the current financial position in progress with various funding initiatives. Steve?

Thanks, Sean. As of the 31st of December 2023, the CSIRO group had US$85 million in cash, including US$47 million in unrestricted cash. Restricted cash includes cash at Arvidalia subsidiary, which is restricted under the DOE ATVM loan program, including cash from the loan drawdown and required to complete payments for construction purposes, as well as standard project finance loan reserves for construction. which can be transferred to working capital reserves as production commences and the facility ramps up in volume. This compares the total cash of $81 million at the end of the third quarter, including $31 million of restricted cash and $50 million of unrestricted cash. During the quarter, we completed the third and final drawdown under the ATVM loan facility of $32 million, resulting in an effective interest rate for the nine-year loan of 3.98%, which is the weighted average interest rate across the three door downs at the 10-year US Treasury rate. We also issued the third tranche of the Australian super convertible notes that were arranged in the second quarter of 2023. Delays in the completion of construction of Adelia have contributed to a drawdown on cash, mostly due to the delay in completion rather than a significant increase in construction costs themselves. We expect total construction costs of $209 million, a 5% increase from the $198 million previously advised, and 19% higher than the original $176 million advised. In addition to existing cash, we continue to work with the U.S. Development Finance Corporation on the $150 million loan facility for our Mozambique subsidiary, which owns the Valama mine, with loan documentation received and drawdown to be effected as soon as practical after completion of that discussion. Simultaneously, we continue to progress due diligence with the U.S. Department of Energy under the ATVM loan program for Phase 3, the same program as the existing Phase 2 loan. Further medallion development costs will be driven by the pace of customer commitments. Looking forward, Syrah continues to focus on maximizing short-term sales from Bulama, monitoring pricing dynamics and supply competition, and managing costs at Bulama as closely as possible, noting that a significant amount of competing supply has moderated or stopped production, and Chinese inventories have been drawn down. Further exploration of cost control will be undertaken in conjunction with the matching of Bulama operations to the market and requirements for Vidalia. Ultimately, in the short term, the evolution of the Chinese market will determine Bulama's operating mode and the ability to generate break-even cash flows and Syrah's overall position. We clearly have a very strong strategic position and development of ex-China sales will result in diversification away from China for battery fines material towards increasingly interested ex-China counterparties, as well as our own internal use of Bulama material through Vidalia. I'll now pass you back to Sean.