Syrah Resources : December Quarterly Activities and Cashflow Report

Published: 2022-01-30 17:11:06 ET SYR.AX

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31 January 2022

ASX Announcement / Media Release

Quarterly Activities Report - Period Ended 31 December 2021

Key Points

Syrah Resources Limited

Registered Office:

T +61 3 9670 7264

ABN 77 125 242 284

c/- Vistra Australia (Melbourne) Pty Ltd

www.syrahresources.com.au

Level 4, 96-100 Albert Road

South Melbourne, VIC 3205

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Balama Graphite Operation ("Balama") - Mozambique

Syrah Resources Limited (ASX: SYR) ("Syrah" or "Company") recorded a TRIFR of 0.5 at quarter end for Balama.

Before suspension of production

After restart of production

Quarter Ending

31 Mar

30 Jun

30 Sep

31 Dec

31 Mar

30 Jun

30 Sep

31 Dec

2019

2020

2021

Plant Feed

Tonnes

378

335

326

115

200

164

('000)

Plant Feed Grade

TGC4

18%

19%

18%

Recovery

69%

66%

69%

68%

67%

68%

76%

82%

Graphite

Tonnes

Produced

('000)

Fine/Coarse Mix

86/14

88/12

84/16

91/9

86/14

80/20

86/14

80/20

Average Fixed

95%

96%

Carbon

Balama produced 13kt natural graphite for the quarter, with production constrained by maximum finished product inventory positions at Balama and Nacala and ongoing disruption in the global container shipping market. Balama operated campaign production runs during the quarter as finished product inventory constraints allowed. Balama continued to demonstrate strong operational performance with an average and maximum daily production run-rate of 16kt per month and 24kt per month, respectively, during campaign production runs. Product quality for the quarter was consistent with previous quarters with stable recovery and grade. Plant recovery achieved over the December 2021 month was a record 89%. Balama C1 cash costs (FOB Nacala) for the quarter were US$1,159 per tonne reflecting the impact of fixed costs with production being constrained at an average production rate of approximately 4kt per month. Balama C1 cash costs (FOB Nacala) guidance is US$430-470 per tonne at a 15kt per month production rate. Balama unit costs are expected to reduce materially as production rate increases beyond 15kt per month with additional shipping options expected to be available from the March 2022 quarter and as improvement initiatives are embedded. Syrah is progressing a competitive tender process for contract mining services, one of the key objectives of which is to achieve lower mining costs, and the solar and battery system project at Balama is also progressing. Planned maintenance at Balama was brought forward and optimisation works were completed in the quarter to reduce operational interruptions for maintenance in 2022.

Positive electric vehicle, anode material and natural graphite market conditions are supporting the

4 TGC = Total Graphitic Carbon.

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increase of production at Balama beyond Syrah's minimum target of 15kt per month.

At quarter end, employees at Balama decreased to 436 people excluding contractors with 83 former employees transitioning to CIS Group, Balama's camp management services contractor, to improve operating efficiencies. Total Mozambican national employment, local host community and female employment were 96%, 38% and 16%, respectively, of Balama's total labour contingent excluding contractors.

During the quarter, a number of employees and contractors at Balama tested positive for COVID-19. All cases have presented with mild or no symptoms. Operational activities at Balama have not been affected by the COVID-19 positive cases. A COVID-19 vaccination program was completed for Syrah employees and contractors in December 2021 with 97% participation and is ongoing for the Balama community to boost vaccination rates. Syrah is fully compliant with Government protocols in relation to COVID-19.

Syrah continues to actively monitor the security situation through various government, community and commercial channels. There have been no security related impacts on Syrah's operations, employees or contractors. Multi-national Government support has seen a material improvement in the security situation in northern Cabo Delgado.

Natural Graphite Sales and Marketing

Before suspension of production

After restart of production

Quarter Ending

31 Mar

30 Jun

30 Sep

31 Dec

31 Mar

30 Jun

30 Sep

31 Dec

2019

2020

2021

Graphite Sold and

Shipped

Weighted Average

US$ per

468

457

391

458

478

567

474

490

530

Price (CIF)

tonne

Finished Product

Inventory5

Natural graphite sales for the quarter were 19kt with all 20kt finished product inventory contracted to customers. Unprecedented container shipping market disruption impacted the Company's ability to secure container capacity for Balama products on vessels sailing from Nacala, and to match product sales to increasingly strong underlying customer demand.

The weighted average sales price of natural graphite sales for the quarter was US$530 per tonne (CIF). Fines sales accounted for approximately 80% of overall product sales. Fines market pricing materially increased through the quarter with record anode material production and significant disruption to Chinese supply. Coarse flake prices ex-China remained strong, with China prices increasing significantly through the quarter due to strong industrial demand and supply disruption.

Syrah is experiencing exceptionally strong demand for Balama's high quality products. Robust forward contracting with end-user customers is underpinning more than 80kt of natural graphite sales orders for

5 Finished product inventory includes saleable inventory at Balama, Nacala and USA.

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the March 2022 quarter with new contracts at higher prices than achieved in the December 2021 quarter.

Natural graphite production and quality from processing facilities in the Heilongjiang province in China have been impacted by power cuts and shutdowns ahead of the winter production outage between December to April. Power outages in China's north-eastern industrial hubs have been caused by heightened industrial electricity usage with the post-COVID-19 economic recovery coinciding with reduced coal-fired power generation output. Customers reported that major natural graphite suppliers in the Loubei region of Heilongjiang province were unexpectedly shut down in December 2021 due to environmental issues. Disruption in Chinese natural graphite supply and the challenges in the shipping market have severely affected Chinese natural graphite inventory, with re-stocking that would ordinarily occur in advance of the winter production outages not occurring in the December 2021 quarter. Given this disruption and the very strong natural graphite demand environment supported by increasing AAM production in China, Syrah is experiencing unprecedented demand from Chinese customers for sales orders over the March 2022 quarter.

Whilst Syrah expects container shipping availability to improve through the March 2022 quarter, a major new logistics option has been developed to commence breakbulk shipments through Pemba port. A 10kt spot breakbulk shipment from Pemba to China is scheduled in early February 2022, and further customer demand for such shipments is evident. Subject to performance, Syrah expects to make further breakbulk shipments through the first half of 2022. Breakbulk shipments from Pemba creates an additional export route for Balama products, provides flexibility in managing inventory positions and will enable significantly higher product sales than otherwise could be achieved solely through Nacala port. Pemba is approximately half the distance of Nacala from Balama mine gate by road. Syrah's integrated logistics service provider is providing transport, port and customs services for exports from Pemba, with additional warehousing contractors added.

The Company continues to work closely with its container shipping service providers through Nacala to secure increased container shipping capacity. Improvement is expected from the start of 2022 with additional vessel services and container equipment for East Africa being added and lower competition for container capacity from Mozambique's agricultural sector. A successful integration of breakbulk shipping through Pemba in combination with improving container shipping availability through Nacala is expected to materially increase Balama sales and production.

Vidalia Active Anode Material Facility ("Vidalia") - USA

Syrah has made progress towards becoming a vertically integrated producer of natural graphite AAM to service ex-Asia markets during the quarter and post quarter end.

Syrah recorded a TRIFR of 0.0 at quarter end for Vidalia.

The Company has invested US$79 million6 de-risking its entry into the downstream AAM market, including construction and operation of the existing, commercial scale qualification facility in Vidalia,

6 Includes all capitalised costs associated with Vidalia to 31 December 2021.

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technical product development, product qualification with target customers and various phases of studies and engineering on the Vidalia Initial Expansion.

Syrah has undertaken detailed engineering and long-lead item procurement with Worley Group (ASX: WOR). Detailed engineering is approximately 50% completed and has largely supported the technology, design and assumptions in the Bankable Feasibility Study ("BFS")7. The Company has a better level of project definition with optimised design in specific areas, a detailed understanding of the critical path schedule and an improved readiness to proceed with construction of the project.

Syrah is well progressed in the processes to facilitate a final investment decision on the Vidalia Initial Expansion in the near-term.

Syrah is expecting Vidalia to receive Louisiana Economic Development incentives including the Industrial Tax Exemption, Quality Jobs Rebate, and Fast Start programs. The City of Vidalia will be providing the necessary utilities to the Vidalia site and Syrah is proud to consider the Vidalia Initial Expansion in this community.

In December 2021, the Company announced it had executed an offtake agreement ("Agreement") with Tesla, Inc. ("Tesla") to supply natural graphite AAM from Vidalia3. The offtake obligation is conditional on the parties agreeing the final specifications of AAM by no later than 31 December 2022 and achieving final qualification of AAM to Tesla's satisfaction by no later than 31 May 2025. The Agreement may also be terminated if production has not started by 31 May 2024. Subject to satisfaction of the above conditions, Tesla will offtake 8ktpa AAM of the proposed initial expansion of AAM production capacity at Vidalia at a fixed price for an initial term of four years commencing from the achievement of a commercial production rate, subject to final qualification. Tesla also has an option to offtake additional volume from Vidalia subject to Syrah expanding its capacity beyond the initial expansion.

Syrah is advancing commercial and technical engagement with other target customers to develop Vidalia AAM for mass production and secure additional long-term purchase commitments for Vidalia. The Company is engaged with multiple target battery supply chain participant and auto OEM customers on qualification, and iterative testing programs are progressing with key target customers. In conjunction with technical workstreams, engagement on commercial parameters and ESG aspects is being progressed with selected target customers. Market growth and segmentation (e.g. localisation / ESG) is benefiting Syrah in its commercial engagements with target customers for uncontracted AAM volume from Vidalia.

During the quarter, the Company continued to produce AAM from Vidalia for testing and qualification. Syrah's wholly owned and integrated spherical, purification and furnace operation at Vidalia, which uses natural graphite from Balama, is the only vertically integrated and commercial scale AAM supply source outside China and is producing 18-micron and 12-micron AAM for testing and qualification.

Syrah's market entry product strategy is now focused on a base 18-micron AAM product and a premium 12-micron AAM product. The Company continues to partner with potential customers, industry,

7 Refer ASX release 1 December 2020.

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Disclaimer

Syrah Resources Limited published this content on 30 January 2022 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 30 January 2022 22:10:03 UTC.