Syrah Resources Limited

Thank you for standing by and welcome to the Zero Resources Q1 quarterly report update. 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.

Good morning, and thanks for joining the CSIRO Resources Quarterly Activities Call for the first quarter of 2024. 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 we'll focus on three key topics. Firstly, the market and operational updates for the quarter. Secondly, medium-term market expectations, government policy initiatives, in SARA's position to maximise strategic advantage, and finally, how we'll generate shareholder value through differentiation and delivery of strategic objectives. Before we move to those topics, I wanted to highlight that as the supply chain develops into different market segments based on geopolitical events, SARA has delivered critical elements in our strategic plan in the first quarter and is well-placed to continue delivery in 2024. Immediate market conditions remain very challenging, but the progress being made across the company is delivering baseline assets and market outcomes that position the company for a long period of differentiated value creation. In Q1, key evidence of the development of an ex-China anode material supply chain crystallized demonstrating CSIRA's importance in satisfying the new demand for ex-China-sourced natural graphite and anode material products. CSIRA's key milestones and actions taken through the quarter were the completion of project construction and commencement of operations at the Vidalia Anode Material Facility with on-specification production from the first ex-China integrated natural graphite anode material facility at commercial scale. Signing a six-year off-take agreement for Balama Natural Graphite with Costco Future M. Delivering a cornerstone contract with the largest ex-China anode material producer. Achieving our first large-volume shipment and sale of Balama finds to an ex-China anode material facility through the sale to PT Indonesia BTR New Energy. an 80,000-tonne per annum Indonesian anode material facility expected to start production shortly, which has been developed by BTR, the largest anode material producer globally. Action taken to improve the balance sheet and liquidity position to secure our ability to deliver 2024 targets and execute the medium-term strategy, whatever market conditions present in the short term. and subsequent quarter-end dispatch of initial commercial-scale production samples to Tesla and other customers. The importance of these milestones cannot be emphasized strongly enough. In commercial and project areas, we are delivering on commitments as the ex-China market develops. We have two unique operating assets in a bifurcating market supported by deep competitive tension ahead, from high-quality OEMs and lithium-ion battery manufacturing counterparties, counterparties who are seeking large-scale supplier positions for the long term to compete with and diversify away from Chinese domination of the global anode and graphite markets. There remains significant short-term challenge, but our achievements and forthcoming catalysts are widening the gap between us and other market participants. also providing an incredible base from which to accelerate as further market support crystallises, which is not only reliant on China. Firstly, to short-term market and operating conditions for the natural graphite market and the llama. Shown on slide nine of the presentation we released today, global EV sales in Q1 2024 were up 21% compared to Q1 2023, to 3.1 million units. Volatile China anode production was evident in Q1, with significant variability between months and over China's new year, but showed a 17% year-on-year increase overall, roughly equivalent to EV sales growth. Significant artificial graphite anode material production capacity growth has continued to come to market and dominate Chinese domestic anode material sales, driving unsustainably low pricing and substitution in the domestic China market. The implementation of Chinese export licensing controls, severely limited demand for imported natural graphite into China from Balama, given uncertainty amongst Chinese producers over their ability to export material until later in the first quarter. Slide 11 shows that toward quarter end, exports of value-added graphite products began to return to normal levels. More licenses were granted, and higher volume of exports of spherical graphite and finished anode material are expected in the second quarter of 2024, which should lead to an increase in natural graphite consumption and import demand for the llama natural graphite, though uncertainty exists in how consistently licenses will be granted in the future. The continuing immediate market challenge is in stark contrast to the evolution of the medium-term market dynamics, which are positive for CSIRO's position, as I'll expand on shortly. At Balama, production was held back given the weak demand conditions. Importantly, despite the interrupted nature of production campaigns, the safety and sustainability performance at Balama is outstanding, with the current TRIFA at zero contributing to the deep focus on this for the leadership team in Mozambique. 11,000 tonnes of natural graphite was produced in the first quarter, as we made the decision to limit production pending further demand visibility. With the low volume resulting in a higher C1 cost during the operating period of $635 a tonne FOB, clearly not a competitive position based on volume and an average additional freight cost for the quarter of $85 a tonne SIF. SARA's realised sales price increased quarter on quarter to $607 a tonne SIF over the 20,000 tonnes of external sales for the quarter. As mentioned, sales volumes were similar quarter on quarter, but not enough to drive a signal to increase production. Palama recovery was good, despite the short campaign at 78% during operating periods, and maintenance completed during the quarter positioned as well for improved dryer and power efficiency through coming campaigns. fully utilising the new solar battery operation. Standby C1 fixed cost of US$4 million per month for Bulama was in line with cost guidance. As noted, low but stable quarter-on-quarter natural graphite sales were achieved, but we saw a significantly different composition with a 10,000 tonne natural graphite break-bulk shipment sold to BTR's new joint venture anode material facility in Indonesia. and a very strong coarse flake market demand impacted by poor global supply. We took advantage where possible, but our coarse flake inventory was drawn down through the quarter. Low fines demand in China limited our production and therefore our ability to restock coarse flake. Many of our Chinese customers are awaiting anode export demand to improve, which will be the driver of further production signals for us for fines. 1,000 tonnes was shipped to Vidalia during the quarter, where we currently have an inventory of around 8,000 tonnes, which is more than adequate for the planned production ramp-up. Moving on to the Vidalia operation, we safely commenced production at the 11.25,000 tonne Vidalia anode materials facility. Production commenced in February. and bringing the plant online involves a period of stabilisation and product optimisation. This saw our milling, wet plant and furnace carbonisation areas begin to run concurrently and more consistently through towards the end of the quarter. The start-up process is at relatively low levels of plant utilisation as optimisation is undertaken and incremental concurrent operating periods are achieved across the plant. On specification product was key to our declaration of product commencement and we've continued to produce high purity, stable and on specification inert material. Internal quality assessment after multiple batches of initial production made us comfortable to dispatch mass production samples to customers, demonstrating the confidence we have in the early product quality. As with any new plant, commencement, there have been some commissioning issues, and the team have responded very well to troubleshooting and increasing production stability. Milling yield and furnace capacity will be the key determinants of production levels over the coming months of ramp-up, and we're on target to reach 50% capacity utilization by the end of July, around six months after production commencement. Subsequent to Porter End we undertook the substantial completion testing process with the Department of Energy to close out project construction and commissioning which was a huge milestone for the team over a very detailed assessment process from both the DOE and the independent engineer giving confidence in the potential of the plant ahead. Through Q2, we will continue to focus on assessing the operating cost base against plant as operations ramp up and plant capacity utilization is increased. We understand that investors are eager to see operating statistics for Vidalia, but production volumes at this early stage of ramp up are not the primary drivers, so reporting outcomes are not yet meaningful. We expect to report commercial production levels from Q3, and expected initial reporting metrics will be on specification anode material production volumes, on specification anode material production yield and process or milling yield and cost per tonne. We're currently focused on availability, yield assessments, wet plant consistency and furnace capacity and automation for product quality and stability through the process. We've so far run some areas with planted up to 50% capacity utilization for short periods, and are increasingly confident of the operating capability of the plant against expectations. The majority of the increased workforce is also new to operating the plant, with it being highly unique outside China. So strong leadership in safe, repeatable implementation of process and the utilization of lean management principles is the focus for the operational leadership team. From a customer and revenue perspective, the short-term focus has been the delivery of on-specification product samples to customers for the commencement of the commercial production line qualification testing processes. The marketing team continue to work with Tesla and other customers on the earliest conversion of production to revenue. noting that the contractual obligation with Tesla commences upon their certification and qualification of the product and the facility reaching an 8,000 tonne per annum run rate production level. Given the testing timeframes and ramp-up profile, we're looking at all opportunities to accelerate revenue into the group from Vidalia, noting that the restricted DOE loan cash reserves are accessible to fund working capital at Vidalia through the ramp-up period under conservative assumptions for revenue timing. I'll now hand over to Steve to talk about the current financial position, strategic government funding interaction, and progress in developing SARA's financial position aligned with long-term downstream customer and policy support. Steve? Thank you, Sean.

SARA's quarter end cash balance was 99 million US dollars, and included 38 million US dollars of restricted cash. It also included institutional proceeds from the capital raising. A further $13 million from the retail component was received after quarter end. Excluding the proceeds from the equity raise, the net cash outflow from unrestricted cash for the quarter was $36 million, of which $19 million was investment, into the completion of the daily phase two and early expenses for the daily phase three, with the remainder representing cash outflow from corporate and BALAMA, Also noting, however, that cash proceeds from a significant break-bolt sale through the first quarter was received just after quarter end. In the quarter, an Australian dollar 98 million equity raising was completed at a challenging time for the company and was critical to providing near-term certainty through this period of changing supply chain dynamics that benefit Syrah in the medium term. This raising provided financial support to the company and along with DOE and DOC funding, through volatile market conditions and ensures that we can bridge to the development of ex-China active energy material capacity that strongly requires Valama Supply. We also announced Australian Super will be converting in Series 1 and 3 convertible notes at a revised conversion price subject to CSIRO shareholder approval to simplify CSIRO's capital structure and remove the material potential redemption required later on this year. We believe that Cyrus shareholders understand the strategic rationale for continuing to support the company through the existing challenging market to position the company for participation in the ex-China market well ahead of all other players and providing the potential for significant period of pricing differentiation and margin capture. We are grateful for the support of shareholders in this process and believe that strong value creation is ahead given the forthcoming expected catalyst this year. even if short-term market positions remain challenging. CYRUS strategic positioning will be clearly evident. With regard to our future strategic funding activities, we continue to make strong progress on the near-term catalysts. We are targeting completion and first disbursement of the US $150 million loan this quarter for Bulama from the US International Development Finance Corporation and are working with government, DFC and other stakeholders on the final processes required for this funding to be available to support the LAMA. We will progress CIRA's $350 million loan application with the DOE to fund a significant portion of the Vidalia further expansion project, noting that progress with additional customer offtake is key to further progression and the major focus of current effort. We are targeting readiness for FIT as soon as possible. The timing will be dictated by the company's financial position in the current business environment, customer support for acceleration of additional capacity and DOE loan processes. We continue to assess opportunities to access tax credits in the US under both 45X and 48C programs, noting that companies are only able to access one of these two programs. Rules under the 45X program are yet to be finalised. There are multiple rounds of the 48C program and an active market is beginning to develop to monetize these types of tax credits in the U.S. Significant activity is also evident in other policy areas with direct implications for CIRA, including the application of 301 tariffs on the import of graphite from China into the U.S. and the foreign entity of concern guidance on sourcing of graphite to enable customers to benefit from 30D credits on EV purchases in the United States. We are also seeing greater appreciation for CSIRO's unique strategic position more broadly and investigating increased potential for supply chain financing opportunities with collaboration in support of accelerated development and de-risking. We'll have more to say on this front in the coming months. I'll now hand you back to Sean.