Syrah Resources (ASX:SYR) Q3 2026 Earnings Call

0:00 I would now like to hand the conference over to Shaun Verner, Managing Director and CEO. Please go ahead.

0:07 Good morning and thank you for joining us on the call today. With me is our CFO, Steve Wells, and we'll use the presentation released along with the quarterly report to work through today's call. Starting on slide three, the third quarter of 2026 saw the delivery of very strong operating performance during the production campaign at Bulama. with higher production volumes and excellent recoveries. At Vardalia, we commenced the ramp-up of commercial operations for inventory build ahead of targeted first commercial anode material sales in the December quarter, subject to final customer qualification. Earlier this week, we confirmed that our Mozambique subsidiary, TWIC, will shortly receive a US $15 million loan disbursement under the DFC loan.

1:01 which will provide the Bulama operation with additional working capital funding. This is an important step in continuing to advance the implementation of the strategic funding proposals announced earlier this year. This is also particularly relevant as we seek further market support and policy certainty that would incentivise greater evolution in supply diversification away from China sources of natural graphite and anode material. The long-term strategic importance of Graphite and Syrah's position within the supply chain are positive. Further, policy support catalysts are still critical and an anticipated driver as ex-China buyers move to reduce their reliance on Chinese-dominated supply.

1:51 However, slower progress on the demand side policy development has contributed to relatively subdued market conditions and price sensitivity, among natural graphite feedstock customers and anode material consumers during the third quarter. Combined with increased activity from Chinese operated graphite suppliers in Africa, this continued to weigh on overall demand for the Lama's Fines products. However, graphite and anode demand is expected to grow significantly in the medium term, and these materials are essential to downstream automotive, energy, Defence and technology industries that generate hundreds of billions of dollars in value globally each year. Customers are still seeking secure and sustainable alternative supply over the medium and longer term and CIRA is core to ensuring these highly valuable industries are less vulnerable to disruption outside China.

2:53 Meaningful and durable government policy support both on the supply and demand side is crucial to developing ex-China supply chains, incentivising greater critical mineral sorting diversification and growing Syrah's sales volumes specifically. And we're very active in highlighting existing supply concentration and in advocating for policy development. We're seeing such developments in other critical minerals markets where government support is having a clear positive impact on both purchasing diversification and capacity expansion outside China. The cost to governments and customers of not supporting such development would be high, demonstrated by IEA analysis in its 2026 critical minerals outlook, estimating that over US$300 billion per year of downstream production outside China would be at risk if battery grade graphite trade with China were meaningfully disrupted.

3:59 Our established capacity provides great opportunity as a key partner for customers and governments in building a resilient graphite and active anode materials supply chain. On slide four we turn to an overview of Syrah's performance in the third quarter. Mining and plant operations at Balaama ramped up for a production campaign during the quarter in response to stronger contracted demand. Operating performance was very positive with over 19,000 tonnes of prebark production at 88% recovery. The high plant recovering performance reflects a multi-year operational improvement program which has enhanced flotation and process control, equipment reliability Land Optimisation and Built Workforce Capability.

4:52 Natural graphite sales in the quarter totalled 18,000 tonnes which included a large volume break-bulk shipment to Indonesia for consumption in the ExChina anode material production and for which payment was only received after quarter end. We also commenced natural graphite sales to POSCO future end under the BALAMA long-term off-take agreement and other partners during this quarter and that's an important aspect of future demand. Our weighted average sales price in the quarter was $583 per tonne CIS and this was down on the prior quarter due to a higher proportion of fines in the sales mix. We expect to continue shipments to ex-China destinations supplying active anode material producers in the December 2026 quarter as well as ongoing container shipments largely to industrial customers outside China.

5:49 These container shipments are primarily for our coarse flake products where we continue to pursue greater market share and price maximization. At Bydalia, we commenced the ramp up of commercial operations to build anode material inventory. This is being done ahead of the expected commencement of commercial sales in this December 2026 quarter and we anticipate completing final customer qualifications. Bidalia now has a solid foundation for the transition from qualification campaigns to continuous production and ramp-up to commercial operations, subject to the final go-ahead from our major customers. At this stage, we expect Bidalia anode material production to increase to a sustainable break-even cash flow level from the June 2027 quarter.

6:43 At the macro level, global electric vehicle sales have recovered from a slow start in 2026, but growth rates are uneven with strength in certain ex-China markets, partially offset by weaker year-on-year sales in China and North America. Overall, global EV sales grew 6% in the second quarter year-on-year. Ultimately, this bodes well for improved upstream materials demand in the months ahead, underpinning growing demand for ex-China products. We continue to deal constructively with a highly complex mix of policy, commercial and technical factors across natural graphite feedstock and anode material markets. We remain singularly focused on accelerating sales in these markets.

7:35 Strong progress in anode material qualification activity this quarter demonstrates both that there is domestic demand in the US for near-term sales and that customers still expect the policy environment to develop towards domestic sourcing requirements facilitating SARA's commercial progress. China's ability to use export licence controls to more broadly impact global graphite and anode markets and the potential for US tariff and investment policy to favour products produced in the US and allied countries. mean that buyer sensitivities should see greater ex-China demand growth in coming years, with timing the somewhat unknown factor.

8:21 We emphasise the extensive operating and commercial experience that Syrah has built and our asset investment, demonstrating the considerable time and capital required for others to follow into this market, which should create a sustainable lead time advantage for Syrah as policy and market uncertainties are resolved. Moving on to slide five, and before I hand over to Steve to talk about the financials, I wanted to cover safety and sustainability performance across the company. As we continue to develop as a leading ex-China critical minerals producer, we're guided by three core objectives. Being positive for the communities in which we operate, being sustainable for the environment, and providing secure, high-quality supply for our customers.

9:12 In the third quarter, performance against our key safety and sustainability metrics demonstrated the strong commitment of our teams to operating safely and ensuring that we continue to meet social, environmental and governance expectations. The health, safety and security of our employees and contractors will always remain SARA's highest priority and in Q3, our total recordable injury frequency rate remained at zero incidents per million hours worked for the second quarter in a row. This is a real credit to our site leaders and every employee and contractor remaining focused on safety throughout the operating and maintenance periods, alarmist campaign operations and through Vidalia's operations ramp up.

10:02 Our safety focus is underpinned by our work on critical risk hazard management and infield leadership interactions which are a daily priority. Congratulations to our teams for this very strong outcome and we're highly motivated to maintain performance and continue to refine our operational risk profile. Pirates operations are also clearly aligned to leading global sustainability and government standards. Our IRMA 50 level of performance for sustainability and commitment to external audits and accreditation processes including ISO standards are critical differentiators. We continue to highlight our commitments to operational, environmental and tailings governance, compared with other sources of product supply, which we're convinced that over time will lead to stronger preference for balama and bidalia products.

11:00 SARA has invested a decade towards strengthening this differentiated sustainability performance and in reducing the global warming potential of Integrated Anode Production to a level significantly below Chinese benchmarked supply alternatives. This makes Syrah the most sustainable source of integrated natural graphite anode material available at scale today. You can read more about Syrah's sustainability performance and progress in the quarterly sustainability report which will be released on our website today. With that, I'll hand over to Steve to talk about our current financial position and some updates to operating cost guidance.

11:41 Steve? Thanks, Shaun, and good morning, everybody. Before we talk to the cash position, I'll note the $581 per tonne operating costs for Bulama for the quarter during the operating periods highlighted on slide four. In the quarterly activities and cash flow report released today, we have updated our guidance on Bulama operating costs during campaign periods and the rest of the industry. We've also had an indirect impact on other costs including transport and logistics, and the rest. Labor costs has also increased, reflecting a broader inflationary environment in Mozambique, while in the short term we are also transitioning to ownership of the equipment required for mining operations at Bulama, which is initially a higher cost of lower overall production volumes, but a better long-term model for the company.

12:54 From a medium-term perspective, under which we assume we are producing continuously at 20,000 tonnes per month, We have revised the LAMA cost guidance from $430 to $480 per tonne to $480 to $520 per tonne, reflecting similar drivers to the shorter term cost pressures referred to above, but assuming some normalisation of direct fuel costs. At Vidalia, we've increased our cost guidance about 10% to $4.85 to $5.25 per kilo of active anode material. and the rest of the industry. We also have a number of other companies that have been involved in this area. We have a number of other companies that have been involved in this area.

13:39 We have a number of other companies that have been involved in this area. and a $8 million U.S. Section 45X tax credit, which is also cash received. The credit is an advanced manufacturing production credit under Section 45X of the U.S. Inflation Reduction Act related to the 2025 tax year. Operating net cash outflow in the quarter was in line with the June 2026 quarter, making also an additional $5 million payment for a large volume break box shipment, which was only received in October.

14:27 At the end of the third quarter, the company had a closing cash balance of US$76 million. Of this closing balance, US$21 million of unrestricted cash and US$55 million of restricted cash under both US government loans. And of that restricted cash, US$10 million is available to fund Balaama operating and capital costs and restricted cash of US$20 million is available to fund Bedalia costs. The amendment of further liquidity for the company under the non-binding strategic proposals received in March 2026 has taken longer than anticipated to implement. However, as announced earlier this week, our Mozambique subsidiary TWIG will receive a US$15 million disbursement from the DFC loan shortly to support working and sustaining capital at the Lima.

15:15 The market and policy conditions I experienced in Q3 remain challenging. and continue to demonstrate exactly why this multi-element strategic funding proposals were pursued earlier this year. The development of ex-China demand and capacity in a China-dominated market requires funding, customer and policy support and our deep focus on these elements has been critical in navigating conditions to date. And with that I'll hand it back to Shaun.

15:41 Thanks Steve. Moving to slide 7, which outlines the US government policy initiatives that are developing to support SARA's position, noting that despite the negative ITC outcome back in March, the extensive Department of Commerce investigation through 2025 found widespread Chinese product dumping and subsidisation harming the development of sustainable US domestic anode demand and capacity. These Chinese actions continue today, and SARA is therefore advocating strongly for policies that address prejudicial pricing practices and oversupply from China to level the playing field globally.

16:26 During the quarter, US trade policy developments continued to focus on reducing dependence on Chinese critical mineral supply chains, with Krakow identified as a strategic focus. Existing US Section 301 tariffs on Chinese graphite remain in place and are considered relatively durable, while additional policy measures targeting Chinese graphite anode material and precursor products continue to be evaluated. The evolving policy environment reflects bipartisan support for strengthening domestic critical mineral supply chains and improving supply security for battery materials in the US. The key potential catalyst is the ongoing US Section 232 investigation into processed critical minerals and derivative products.

17:19 The US administration is progressing negotiations with trading partners and has indicated that graphite remains a priority. Potential outcomes include minimum import price mechanisms, tariffs or other measures designed to support both targeted domestic demand and facilitate investment in domestic malarge supply capacity. Updates from the Section 232 review process are expected during this quarter, December quarter of 2026. Recent US trade proposals have included exemptions for natural graphite imports under certain tariff actions, reflecting the current absence of domestic natural graphite mining capacity in the US. Sarah continues to engage with US policy makers and regulators on immediately available additional supply of natural graphite from Balama and anode material from Vidalia as well as our expansion potential.

18:21 The US government is incentivised to support local anode manufacturing capability for unfettered access to critical industrial inputs and to protect the US market from China trade practices. There are many current and potential policy levers that are supportive of CSIRA, which include existing tariffs on Chinese anode material imports, Section 45X production tax credits for Vidalia estimated at US$67 million per year prior to their phase-down after 2030, the potential to specifically require ex-China supply of anode materials to enable battery manufacturers and auto OEMs to continue to qualify for 45x tax credits of their own, which are currently delivering over a billion dollars each annually to the major players and underpinning their profitability.

19:23 There are volumes into the US government's Defence Logistics Agency tender for natural graphite and potential project fault stockpile demand. and the US Department of War, Supplier Financing and Non-PFE Critical Minerals Sourcing Requirements into Military Applications, where SARA has been advancing customer discussions along with supply into nuclear applications. Further implementation of such policy positions improved the economics of producing anode material in the US, directly benefiting Vidalia and strengthening demand for Balama Feedstock globally. Looking at the right-hand side of this slide, expected ex-China demand growth for lithium-ion batteries remains attractive and U.S. existing demand and future growth will require a greater proportion of ex-China supply of anode material to ensure supply chain security and to maintain cell and auto manufacturer eligibility for the tax incentives mentioned earlier.

20:31 On slide 8, we provide some additional details around the outlook for our operations and business overall. We are ready to increase production subjects and market demand as the ex-China markets stabilise and grow. Over the medium term, ramp-up of the LAMA to targeted levels is dependent on both meaningful policy developments, which are expected to enhance support for ex-China demand and producers, and overall market growth in both the industrial and battery segments. and these will obviously be the key factors in the timing of positive cash flow from Belama. At Bardalia, we have commenced the ramp-up of commercial operations to build saleable anode material inventory and we expect the commencement of commercial anode material sales in this December quarter of 2026.

21:23 Our expectation remains for the transition to positive operating cash flow from the Bardalia operation from year 2027 onwards. Finally, as outlined earlier, we're working towards completing the strategic funding proposals designed to provide flexibility and certainty to ramp up our operations towards targeted levels and continue to develop the business. I'll close with a comment on some key aspects of our investment proposition on slide 9. We have a clear advantage in natural graphite and active anode material markets. as the first integrated mover for commercial scale supply outside China. Now the company today has both an operating graphite mine and integration with a fully operational commercial scale anode material facility positioned to supply into the US domestic battery manufacturing market.

22:21 We strongly believe that this will deliver advantage over time. particularly considering that other new projects have long lead times and very significant capital and qualification requirements ahead of them. Secondly, Balama is the largest and highest grade natural graphite resource in operation outside China. Its scale and all quality give us meaningful optionality as demand grows and where ex-China customers prioritise diversification both for natural graphite feedstock in industrial and battery markets and for integrated anode material production. Importantly, we are advancing the implementation of the strategic funding proposals we announced in March that provide meaningful balance sheet support to the business.

23:06 And lastly, we continue to develop our engagement with ex-China market stakeholders and push for aligned US government policy development, both through our lenders at Development Finance Corporation and the Department of Energy, and with other departments and jurisdictions focused on critical minerals sourcing development and supply chain independence. The undeniable importance of SARA's assets in securing critical minerals supply is evident to US industrial, government and battery supply chain stakeholders. Thanks for joining us on the call today and we're happy now to move to questions. Thank you. If you wish to ask a question, please press star 1 on your telephone and wait for your name to be announced.

23:54 If you wish to cancel your request, please press star 2. If you're on a speakerphone, please pick up the handset to ask your question. Your first question comes from Regan Burrows with Macquarie. Please go ahead.

24:07 Hi, Shaun and Sam. Thanks for taking my questions. Just interested, obviously, and the rest of the industry. We've got a couple of questions for you. First of all, I'm just sort of curious as to the scenarios that you'd be sort of running at a 20,000 tonne per month rate. What do you need to sort of get to that level?

24:29 Thanks, Regan. Obviously, you know, continuing demand growth for the fines product is the key driver to get up to that level. and the primary demand segment for that is supply into the anode material industry. So obviously we continue to target growth in supply to Indonesia, into Costco as well in South Korea, into our own operation at Bedalia as that ramps up and we obviously continue to look at the other and other potential ExChina operations that are coming on, as well as continuing to develop the ExChina industrial markets as well. But it's really the anode material markets outside China which will drive that demand increase.

25:25 And on the comment for Vidalia sort of reaching a break-even cash flow level in the middle of next year, I mean, what are the assumptions that underpin that view? Are you sort of assuming that Balama is running at that 20,000 tonne per month run rate to get to that break-even cash flow level?

25:44 For Vidalia, no. Balama can continue to run in the campaign mode that it's in. for Vidalia to reach the operating cash flow break-even. The assumptions really are around the ramp-up profile and heading up towards 80% utilisation of the asset and sales under the contractual arrangements that we have in place already, particularly with our largest off-taker, which is Tesla.

26:20 And just on that, you've obviously called out sales and commercial volumes in this current quarter. I mean, what's the kind of timing delay from a revenue and cash flow perspective? Timing delay against what base? Sorry, Greg? So in terms of you record sales, I guess, at the end of this quarter, what's the delay through to cash flows and receipt of those funds as you go through post the sale?

26:52 There's normally a couple of month period in terms of payment term cash flow processes rolling through.

27:03 All right, great. I'll leave it there. Thank you very much for taking my questions. Thanks, Regan. There are no further phone questions at this time. That does conclude our conference for today. Thank you for participating. You may now disconnect.