Syrah Resources Limited

Thank you for standing by and welcome to the SIRA Resources Q2 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'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.

Good morning and thanks for joining us. With me on the call today are Steve Wells, our Chief Financial Officer, and Viren Hira, our General Manager of Investor Relations and Business Development. Today we'll focus on three key topics. Firstly, the significant and unexpected uncertainty created by the revisions to US government policy related to the implementation of the Inflation Reduction Act's guidance on graphite and anode sourcing and its impact on the new term markets. Secondly, Valama and Vidalia's operational progress and key position in the near and medium-term market evolution. And thirdly, our strategy and corporate actions for preservation and rebuilding of shareholder value through delivery against our objectives, including the delayed but positive progress on the US $150 million loan from the DFC, which we expect to complete shortly. We'll use the slide deck released along with today's report and we'll start on slide five. Given its importance and impact on our current operational and market performance, we'll begin with the IRA guidance from the US, against which definition and customer response has continued to evolve throughout the quarter and post-quarter end. In seeking to develop anode material capacity in the US from 2018, SARA has proceeded through investment decisions independent of government policy support. But subsequent Chinese and US geopolitical positioning and customer responses in the broader EV, battery and input material markets have made policy a very real factor in potential outcomes. Through policies developed by the prior and current US administrations, SARA has benefited from funding and support as the US electric vehicle OEM and lithium-ion battery manufacturing capacity build-out has advanced. This was particularly evident with the requirement for OEMs to source graphite from non-foreign entities of concern, or fiat, and that is supply from outside China or suppliers not controlled by the Chinese government or affiliated stakeholders. In order for the OEMs to be eligible for lucrative consumer tax credits, they supported lower effective pricing for EV sales. a policy which was primarily developed to ensure supply chain security in critical minerals, a number of which, including anode material, are dominated by China and subject to sub-economic pricing impacts. On May the 3rd, the US government issued further guidance on the Inflation Reduction Act related to sourcing of materials and eligibility for these consumer tax credits. This guidance unexpectedly granted a transition period to electric vehicle OEMs sourcing graphite and anode material, extending the deadline by which automakers were required to use non-PEOC or non-Chinese graphite by two years from the 1st of January 2025 to the 1st of January 2027, provided that they met certain criteria to obtain eligibility for the extension, crucially including demonstrating preparedness to meet the objective of local sourcing by 2027. In the short term, granting the transition period effectively allows use of Fioc graphite supply until the 1st of January, 2027, and was designed to increase EV penetration over the next several years by increasing the number of EVs that were eligible for the IRA consumer tax credit. The ability of OEMs to secure significant volumes of non-Fioc graphite anode material over this timeframe was deemed difficult given the limited operating capacity that already exists or was planned to commission in the near term beyond Syrah's business. While aimed at increasing EV adoption in the US and supportive of Syrah's business in the medium and long term, this extension to the deadline to source graphite from non-FEOC entities is counterproductive to the investment support provided to Syrah for development of Vidalia, as there are impacts of this policy arising on the graphite sourcing approach taken by customers in the near term, the intensity of customer qualification processes already underway, and non-FEOC graphite supply chain development. With some of the implementation requirements still to be fully defined, there are both supporting and challenging aspects of the policy change. The positives include the requirement for OEMs to formulate and demonstrate a plan for non-FEOC graphite supply sourcing from 1 January 2027 through the transition period in order to be eligible for the consumer tax credits in the interim, which effectively requires earlier sourcing and qualification of anode material. There's strong continuing commercial engagement from OEMs on large-scale offtake arrangements for existing production from Vidalia and expansion of capacity and readiness for 2027 and beyond, and the support for and development of other ex-China natural graphite anode material production facilities requiring Balama natural graphite, with some making solid commercial progress to underpin development. The key challenges of the policy change are that uncertain or reduced near-term incentive exists for US customers to accelerate purchasing from existing non-theoph graphite suppliers, such as ourselves, given the availability and price of Chinese anode material. There's potentially extended timelines and additional technical and process hurdles being added by OEMs as they have more time, which can extend timeframes for qualification and sale of Cyrus products into the US market. A lack of clarity in the level of commitment that OEMs need to demonstrate to the DOE in their transition plans towards non-FEOC graphite supply, and what the consequences are for OEMs prior to 2027 if they fail to satisfy the US government requirements during that transition period. There's also uncertainty over the timing of investments into new ex-China natural graphite anode material capacity development, given the visibility that investors require regarding government policy settings. And finally, there's impacts on our own timing of a final investment decision for Fidelia's further expansion project to meet 2027 customer demand without clarity on near return sales from our existing non-FEOC supply. The policy update has introduced significant uncertainty into the US supply chain regarding new term non-FEOC graphite sourcing, given the intense Chinese volume and price competition. We see the immediate impacts as counterproductive to overall US government policy intent and customer supply diversification intent for critical minerals independence, allowing China to entrench dominance of the global graphite supply chain, noting that they currently supply over 90% of graphite anode material globally. The most immediate impact has been that the transition period has allowed customers to concurrently extend timelines and expand requirements for product qualification of new materials and to preference near-term Chinese supply, thus delaying likely commencement of purchasing from Vidalia into 2025. While strong progress is still being made on additional contracting, we have less timing certainty on initial sales from Vidalia and any potential impacts on ex-China demand for Bulama products through 2025 and 26 are still to be confirmed. We're working intensely with Bulama and Vidalia's customers and stakeholders to maintain close dialogue and progress in our qualification processes and sales as quickly as possible, to diversify our sales options for existing and future capacity to ensure the highest commercial incentives for purchasing, We're working with government agencies to highlight policy impacts, advocate for implementation clarity and manage our funding relationships. And we're minimising our own working capital costs and inventory risk by carefully managing the ramp up at Bedelia to preserve cash in the event that customer purchasing is delayed. Moving to our key operational and market headlines on slides six to eight. The uncertainty introduced by US policy implementation along with the evolution of the Chinese domestic anode market and customer responses to overall EV growth rates have been evident in some impediments to our progress through second quarter this year. Key market and operational points are that firstly, global EV demand growth increased 24% in the June 2024 quarter compared with the June 2023 quarter 4 million units, but was biased to stronger growth in China and a higher proportion of plug-in hybrid vehicle sales than previous counts. Oversupply of artificial graphite anode material and ongoing deeply negative price competition in China is incentivizing higher use of artificial graphite anode in the Chinese domestic battery market. leading to reduced spherical graphite production and natural graphite fines consumption in China. And only 10,000 tons of natural graphite was sold and shipped to third party customers during the quarter, with no fine flake sales to Chinese anode customers. We took the decision not to sell into record low prices, and this was reflected in the loss of anticipated freight bulk demand later in the quarter. Positively, our weighted average sales price was $735 per tonne SIF with a more significant proportion of high-priced coarse flake in the sales mix. Lama undertook one production campaign to account for earlier inventory drawdown with 24,000 tonnes produced with 78% recovery and strong campaign operating and ESG performance during the second quarter. Costs in the operating period were in line with our expectations. Operations at the Vidalia anode material facility are ramping up with solid capacity utilization demonstrated in all primary process areas, but lower immediate need for that capacity and inventory build. We've dispatched on specification commercial scale production samples to Tesla and to other tier one customers with positive initial testing feedback received from three tier one customers. Vidalia anode material sales are now expected from early 2025 as expanded customer qualification requirements and extended timelines arising concurrent with the US government policy change are incorporated into our planning. And there's been continued strong progress being made on commercial offtake for Vidalia sales supporting potential expansion, but within FRD timing being increasingly dependent on clarification of both government policy and demonstrated sales from our initial capacity. I'll now hand over to Steve to talk about the current financial position, government funding updates, and progress in developing CSIRO's financial position aligned with our longer-term downstream customer and policy support. Steve's been heavily engaged with government agencies in the US over recent months and will make some additional comments on his interaction.

Thanks, Sean, and good morning, everybody. Syrah's quarter end cash balance was 82 million US dollars and included 41 million US dollars of restricted cash relating to Vidalia, of which 27 million dollars is available for funding the operations during ramp up. Proceeds of 13 million dollars from the retail component of the first quarter equity raise were also received during the quarter. Excluding the proceeds from the equity raise, the cash outflow from unrestricted cash for the quarter was 33 million, of which $24 million was contributed to Vidalia, restricted cash, primarily to fund the working capital reserve for the ramp-up of production of the facility. Balaama networking capital and capital outflows of $6.5 million reflects the focus on cost management at Balaama, as well as receipts from the sale of the brake bolt to BTR Indonesia at the end of the first quarter, with cash proceeds received in the second quarter. Through the second quarter, shareholder approval was received for the... conversion of Australian Super Convertible Note Series 1 and 3 at a revised conversion price to simplify SARA's overall capital structure and remove a material potential redemption requirement later in the year. Clearly, the DFC loan has not closed by 30 June as we had anticipated. It is the first loan of its type by the DFC into Mozambique. However, we have made good progress with documentation essentially agreed and now going through our final approval processes, which are expected to complete shortly. We are targeting a near-term completion and first disbursement of the $150 million loan to support Bellarmine through this current period and appreciate the support of these stakeholders through this process to completion. 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 and rules under the 45X program are yet to be finalized. There are multiple rounds of the 48C program, and an active market is developing to monetize these types of tax credits in the United States. As Sean noted, there's been significant activity in other policy areas with direct implications for SARA, including the application of 301 tariffs on imported graphite from China, and the Foreign Entity of Concern, or FEOC, guidance on sourcing of graphite to enable customers to benefit from 30D consumer tax credits on EV purchases in the US. We are very much at the forefront of engagement on this topic, given the progress we have made in developing the supply chain in the United States, our ownership of the globally significant Balama mine, and funding support through various programs we have with different US government agencies. In particular, we have engaged heavily across various agencies and elected representatives to underline the immediate impacts from this policy position on the SARA business, and frankly the U.S. domestic graphite supply chain more broadly over the longer term unless there is an increased immediate commercial imperative to produce domestically produced non-fiat material. There is a clear need for U.S. government policy to ensure that the developing U.S. industry is supported so it can grow to meet the broader strategic and economic aims over the medium to longer term. It's also worth noting at this point in the U.S. election cycle that from a critical minerals perspective, There has been significant bipartisan support for supply chain security across both the current and previous administrations for an extended period of time, and we would expect this to continue irrespective of the outcome of the US elections, noting, of course, that policy levers may differ depending on the outcome. And I'll now pass you back to Sean.