Earnings call: Syrah Resources outlines strategic growth amid market challenges

Syrah Resources (ticker: SYR) has provided an update on its financial and strategic progress during its Q1 earnings call. The company, which operates in the natural graphite anode material market, has completed significant milestones, including the Vidalia anode material facility and a six-year off-take agreement for Balama natural graphite.

Despite some current market challenges, Syrah has taken steps to improve its financial position and has begun commercial scale production, with Tesla (NASDAQ:) among its prospective customers. The company is navigating the complexities of the market with a focus on long-term value creation and is looking to cement its position as a key supplier outside of China.

Key Takeaways

• Syrah Resources completed the Vidalia anode material facility.
• A six-year off-take agreement for Balama natural graphite was signed.
• The company made its first large volume shipment and sale to an Indonesian anode material facility.
• Syrah dispatched initial commercial scale production samples to Tesla and other customers.
• Secured funding from the US International Development Finance Corporation and the Department of Energy for Balama and Vidalia projects.
• Emphasized the strategic importance of diversifying supply outside of China.
• The company is the only fully integrated ex-China natural graphite anode material supplier.
• Signs of improvement in market activity despite the impact of Chinese license restrictions.
• Uncertainty around the number of production campaigns next quarter.
• Tesla has the option to participate up to 25,000 tons at the Vidalia facility, with a pending finalization.
• Exploring non-dilutive funding options and supply chain financing.

Company Outlook

• Syrah expects to see greater visibility of sales volume improvements soon.
• Upcoming milestones include DFC loan funding, commercial sales from Vidalia, and further off-take agreements.
• The company’s progress is believed to put them ahead of other market players.

Bearish Highlights

• License restrictions on Chinese producers have caused market hesitation.
• Uncertainty over the future relationship and contractual development with BTR.
• The Westwater project is developing slowly, requiring further funding.
• GraphX project is still in the pre-investment decision phase.

Bullish Highlights

• The company has a unique position in the market as a fully integrated ex-China supplier.
• Ongoing efforts to strengthen market position through long-term off-take contracts.
• The potential for tax credits in the US could benefit the company.

Misses

• It is unclear whether there will be one or two production campaigns in the next quarter.
• Finalization of the binding off-take with Tesla is still pending.
• The solar and battery system at Balama is in early stages, with more campaigns needed to realize full benefits.

Q&A Highlights

• The company is targeting the end of June for the completion of the DFC loan.
• The pricing mechanism for Vidalia’s additional capacity will include floating elements.
• No current opportunity to save power back into the Mozambique grid due to underdeveloped infrastructure.

Syrah Resources has laid out a comprehensive strategy to navigate the current market and establish itself as a leading supplier in the anode material supply chain. While there are immediate challenges and uncertainties, the company’s strategic actions and funding initiatives demonstrate its commitment to long-term growth and market leadership.

InvestingPro Insights

Syrah Resources (ticker: SYR) has been active in advancing its position in the natural graphite anode material market, with significant developments and strategic partnerships shaping its trajectory. The InvestingPro platform offers deeper insights into the company’s financial health and market performance that could be crucial for investors looking to understand Syrah’s potential.

InvestingPro Data metrics reveal a challenging financial landscape for Syrah Resources. The company’s market capitalization stands at 290.76 million USD, reflecting its size in the market. However, the negative P/E ratio of -3.5 for the last twelve months as of Q4 2023 indicates that the company is not currently generating profits relative to its share price. This is further underscored by a gross profit margin of -79.66%, showing that the cost of goods sold exceeds the revenue generated from those goods.

In terms of stock performance, Syrah Resources has experienced significant volatility. The 3 Month Price Total Return as of the date provided shows an 11.73% increase, suggesting some positive investor sentiment in the short term. Yet, the broader picture is more complex, with a 1 Year Price Total Return of -57.32%, indicating a substantial decline over the past year.

Investors considering Syrah Resources should be aware of two key InvestingPro Tips. First, the company operates with a significant debt burden, which could impact its financial flexibility and ability to invest in growth opportunities. Second, analysts do not anticipate the company will be profitable this year, which could have implications for the stock’s performance and the company’s ability to fund its operations without resorting to additional financing.

For those interested in a comprehensive analysis of Syrah Resources, including additional tips that could inform investment decisions, the InvestingPro platform offers a wealth of information. There are 11 more tips available that delve into various aspects of the company’s performance and outlook. To access these insights and more, investors can use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.

Syrah Resources’ ambitions to become a key supplier in the anode material market are evident, and the company’s strategic moves reflect this goal. However, the financial metrics and tips provided by InvestingPro suggest that investors should carefully consider the company’s current financial health and market risks when making investment decisions.

Full transcript – Syrah Resources (SYAAF) Q1 2024:

Operator: Thank you for standing by and welcome to the Syrah 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. [Operator instructions] I would now like to hand the conference over to Mr. Shaun Verner, Managing Director and CEO. Please go ahead.

Shaun Verner: Good morning and thanks for joining the Syrah Resources quarterly activities call for the first quarter of 2024. With me on the call are Stephen Wells, our Chief Financial Officer, and Viren Hira, our General Manager of Business Development and Investor Relations. Today we will focus on three key topics; firstly, the market and operational updates for the quarter; secondly, medium-term market expectations, government policy initiatives and FARA’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, Syrah has delivered critical elements in our strategic plan in 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 crystallised, demonstrating Syrah’s importance in satisfying new demand for ex-China source natural graphite and anode material products. Syrah’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 Posco Future [ph], delivering a cornerstone contract with the largest ex-China anode material producer, achieving our first large volume shipment and sale of Balama funds [ph] 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. Actions 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 emphasised 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 markets for crystallisers, which is not only reliant on China. Firstly, to short term market and operating conditions for the natural graphite market and Balama; starting on Slide nine of the presentation we released today, globally these sales in Q1 2024 were up 21% compared to Q1 2023 to 3.1 million units. Volatile anode China anode production was evident in Q1 with significant variability between months and over Chinese New Year, which 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 markets. 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 Balama natural graphite. So uncertainty exists in how consistently licences will be granted in the future. The continuing immediate market challenge is in sharp [ph] contrast to the evolution of the medium term market dynamics, which are positive for Syrah’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 tripper [ph] at zero contributing to a 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 CIF. Syrah’s realised sales price increased quarter-on-quarter to $607 a tonne CIF, over 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. Balama recovery was good despite the short campaign at 78% during operating periods, and maintenance completed during the quarter positioned us 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 Balama 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 great 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. A thousand 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 thousand tonne Vidalia anode material 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 anode 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, 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 utilisation by the end of July, around six months after production commencement. In subsequent to quarter 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 plan as operations ramp up and plant capacity utilization is increased. We understand that investors are eager to see operating statistics for of Vidalia, but production volumes at this early stage of ramp up are not the primary driver, so reporting outcomes are not yet meaningful. We expect to report commercial production levels from Q3 and expect initial reporting metrics will be on specification anode material production volumes, on specification anode material production yield and process of 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 that are 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 Tesla commences upon their certification 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 time. I’ll now hand over to Steve to talk about the current financial position, strategic government funding interaction and progress in developing Syrah’s financial position aligned with long-term downstream customer policy support. Steve?

Stephen Wells: Thank you, Shaun. Syrah’s quarter end cash balance was US$99 million, and included US$38 million of restricted cash. It also included institutional proceeds from the capital raiser, a further US$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 invested into the completion of Vidalia Phase 2 and early expenses for Vidalia Phase 3. It’s a remainder representing cash outflow from corporate and Balama, also noting however that cash proceeds from a significant bulk [ph] 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 it’s critical to providing near-term certainty through this period of changing supply chain dynamics, but benefit Syrah in the medium term. This raising provided financial support to the company, and along with DOE and DFC funding through volatile market conditions, and ensures that we can bridge to the development of ex-China activity that over two capacity that strongly requires Balama’s supply. We also announced Australian Super will be converting in series one on three convertible notes at a revised conversion price, subject to Syrah’s shareholder approval, simplify Syrah’s capital structure and remove the material potential redemption required later on this year. We believe that Syrah 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 catalysis here, even if short-term market conditions remain challenging. Syrah’s strategic position 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 Balama 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 Balama. We will progress Syrah’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 this [ph] as soon as possible, but 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 monetise these types of tax credits in the US. Significant activity is also evident in other policy areas with direct implications for Syrah, including the application of 301 tariffs on the import of graphite from China into the US 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 Syrah’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 will have more to say on this front in the coming months. I’ll now hand you back to Shaun.

Shaun Verner: Thanks Steve. We’ll move on to the medium term market in particular. Syrah’s strategic position and value is integrally linked to the global EV market evolution, OEM and lithium ion battery customer manufacturing capacity expansion and government policy across the energy transition. To understand Syrah’s position and why, despite the near term cash draw we see great shareholder value potential accruing, we need to go back to the market development. Currently, the global anode material market is dominated by Chinese production and four key factors are causing US and European OEMs and lithium ion battery manufacturers significant strategic concern and forcing them to act. First, Chinese domination of artificial and natural graphite anode material production capacity and the unsustainable nature of current domestic market competition, pricing and capacity utilisation means that little ex-China natural graphite or anode material capacity is being induced to market. Second, Chinese government policy actions implementing controls on the export of graphite and anode materials potentially impact future supply continuity or absolute availability whether globally ex-China or of specific materials to specific countries or companies. Third, there is a need for diversification of sorting risk and co-location of ex-China supply to meet US and European government policy objectives, such as the foreign entity of concern definition and IRA compliance to ensure eligibility for consumer and producer tax credits and funding programs in the US. And fourth, the concern of ex-China customers regarding product provenance, traceability and in particular, life cycle emissions impacts. Importantly, customers in ex-China anode markets continue to demand a broadly unchanged blend of high quality natural and synthetic anode material products, providing a strong natural graphite demand profile outside China and Syrah expects that underutilisation of expanded artificial graphite anode material capacity and sustained loss-making prices caused by intense competition will ultimately lead to rationalisation of marginal anode material supply capacity in China, which will support higher pricing for both artificial graphite and natural graphite anode material. Natural graphite anode material demand for ex-China battery cell customers is expected to be around 240,000 tonnes in 2025 and over 600,000 tonnes by 2030. We’re focused on ensuring that both Balama and Vidalia are best positioned to capture benefit from exposure to ex-China customers. Syrah’s strategic position is enhanced through readiness of production capacity of both natural graphite and anode material into the ex-China supply chain, developing to serve the US and European markets. We have a unique set of attributes. We have long-term, large-scale, vertically integrated supply, with Syrah being the only fully integrated ex-China natural graphite anode material supplier from a mine source. We have advanced standing versus project peers with a multi-year head start on other integrated ex-China new entrants on production, knowhow, qualification and sales and product quality. We retain geopolitical independence with supply from Balama into both the China and ex-China markets, and US processing capacity and capability able to be replicated in other locations and this includes government recognition and potential funding support for Syrah’s position. We are US Inflation Reduction Act compliant. We are a non-foreign entity of concern, qualified and auditable natural graphite and anode material supply source, and that enables Syrah and its customers potential access to IRA funding and tax benefits and we have a differentiated ESG position with lower environmental impact and trusted accreditations on both quality and ESG, and a position demonstrated in operations, something that’s becoming increasingly important for customers. The key strategic actions we have underway are focused on strengthening Syrah’s position relative to both ex-China and China customers, capitalising on our stage of development and the current geopolitical situation. Firstly, we’re diversifying and balancing the Balama sales book through long-term, large-scale natural graphite off-take contracts with anode material producers ex-China and seeking a key position in the emergence of potential directed purchase contracts from OEMs and lithium-ion battery manufacturers for natural graphite into anode makers. Secondly, we’re settling long-term, high-volume anode material contracts, supporting both margin generation at the existing Vidalia operation and underpinning development of the potential 45,000 tonne expansion project; importantly, also seeking optionality to calculating contract performance variations. Thirdly, we’re ensuring that contract terms and pricing mechanisms in those contracts facilitate the development of more transparent pricing and exposure to market supply-demand fundamentals. Fourth, we’re focused on securing non-dilutive funding options with best de-risk and accelerate capacity development opportunity and provide security through the near-term volatile market conditions. And lastly, we’re continuing to build IP and operating workforce capability ourselves and through interaction with our customer base, embedding Syrah in the supply chain and providing opportunity for continuing product development. Through progress of these actions, we’ll continue to build differentiation of the Syrah value proposition. And lastly, moving to the milestones ahead; we’ll continue to navigate short-term market conditions with a laser focus on cash preservation and we expect greater visibility of the potential for sales volume improvements through this quarter and we’re strongly driving toward other key milestones with greater momentum following the completion of the Vidalia project, giving us a visible presence as an integrated participant in the global anode supply chain. Key milestones ahead for the company include US DFC loan funding for Balama with targeted completion this quarter, progression of qualification processes toward commercial sales from the Vidalia anode material facility, further Balama natural graphite off-takes, capitalizing on strong interest in large-scale, long-term supply to ex-China market participants, for IRA eligible and foreign entity of concern compliant feedstock, including the potential for directed purchase off-take agreements from OEMs or lithium-ion battery manufacturers, finalization of further anode material off-take sales for both the remaining tonnage from the current Vidalia capacity in conjunction with agreements to underpin the development of the Vidalia further expansion project to $45,000 and as customer and project milestones are achieved, pursuit of US Department of Energy conditional loan commitments for the Vidalia further expansion project funding targeting $350 million and finally, development of commercial options to accelerate Syrah’s exposure to the ex-China downstream market and de-risk investment through non-dilutive funding sources toward the subsequent potential FRD on the Vidalia further expansion project. We understand that outwardly progress has been overshadowed by the very challenging near-term market overlay. The catalysts ahead are very strong. The momentum is shifting in recognition of the need for off-takers to move to contract completion quickly to ensure access to Balama and Vidalia potential tonnage in coming years. It’s also important to note that every one of these progressive steps in the operating project development, the operation of our assets and our marketing engagement puts the company ahead of others who remain in pre-development or in the early stages of funding and project planning, opening a window in which Syrah will deliver significant value. We look forward to keeping everyone updated and we’ll now move to questions and answers.

Operator: [Operator instructions] Your first question comes from Dim Ariyasinghe from UBS. Please go ahead.

Dim Ariyasinghe: Thanks Shaun, thanks team. Just a couple of questions for me. Just on the sales price, Greg [ph] said it’s moving in the right direction. Can you maybe quantify how much of that is due to the BTR sale? I presume some of that agreement went into the weighted average realised price. I’ll come back in a second.

Shaun Verner: Yeah it did, we won’t talk specifically about the price. It’s obviously confidential, but it did have an impact on the overall basket price as did improvement in the course flake market prices as well. So we’ve been very clear that we seek to differentiate pricing for sales with funds outside of China as that market develops and I think that is an important factor as we look at the price that we achieved during the quarter.

Dim Ariyasinghe: Yeah, yeah okay that’s fair. And then just in terms of production; so obviously lower in response to the demand as we see it, but looking forward, do you expect that that’ll pick up again for the next quarter? Could I maybe even ask, do you expect maybe a couple of campaigns for the June quarter potentially any clarity on that would be great.

Shaun Verner: Yeah, I think we’re obviously pleased to see that exports of spherical graphite and anode material picked up late in the quarter, which is a good leading signal that there should be demand starting to improve for natural graphite imports into China. I think it’s important to reflect on what’s happened over the last six months. This has just been a fundamental interruption and disruption to the market profile and the impact of the license restrictions has been a really significant issue around confidence of the Chinese spherical graphite and anode material producers on the potential consistency and application of these licenses in the future. So whilst we are starting to see some improvement in that, I think it’s fair to say that there’s still some concern and hesitation around how that will be applied in future and customers are taking a very cautious approach to restocking. But it is a positive to see that there’s some renewed market activity at this point. So assuming we obviously ended the quarter with a very low inventory level of natural graphite across the company, so assuming that we see that, you can expect to see that there’ll be production in the quarter. We won’t comment yet on whether there’ll be one or two campaigns this month.

Dim Ariyasinghe: Okay cool and maybe last one if I could sneak it in. Just on the DFC loan, can you give any more granularity in terms of what’s left to do? I know you’re targeting for June quarter, this hasn’t changed, but any insight to whether that could potentially even slip or be confident that that actually gets executed in the next couple of months, please?

Stephen Wells: Yeah, we’ve kept the timeline at the end of June all parties are aligned to working towards that. There are documentation and approval processes to go through, but we’ve significantly progressed the loan documentation. So we’re still targeting the June 30 timeline.

Dim Ariyasinghe: Yeah okay cool, that’s great. Thanks guys.

Operator: Thank you. The next question comes from Mark Fichera from Foster Stockbroking. Please go ahead.

Mark Fichera: Yeah hi Shaun. Yeah just a couple of questions around BTR again; firstly, just given the size of their facility and obviously your value to them as a ex-China supplier, are you working towards sort of nutting down a binding off-take agreement sort of long term? I guess similar with what you’ve done with Posco. And just a second question around BTR, given obviously the ramp up in their production, you mentioned expectation of sort of shipments later this year, do you expect those to be greater than the 10,000 tons of ship already? Thanks.

Shaun Verner: Thanks Mark. I think it’s fair to say its early stages and participants in the China natural graphite and anode material supply chain have a fairly different historical approach to supply and contracting. I think across other commodities, Posco has a long history of large volume support in the long term under off-take. Typically China market participants are much more focused on stock market conditions and the evolution of shorter term supply demand fundamentals. What we’re focused on is that we are the only large scale supply of ex-China foreign entity concern compliant product and we believe that that is important not just to BTR but to others who are developing anode facilities outside of China and that will put us in a good position for future shipments. But I wouldn’t want to speculate at the moment on how contractual development will evolve over time, nor on sort of timing or size of additional shipments through the course of the year.

Operator: [Operator instructions] Your next question comes from Ben Lyons from Jarden. Please go ahead.

Ben Lyons: Thank you. Good morning Sean and everyone on the call. Just another one on the potential future relationship with BTR to follow that previous question. Is it your understanding or your current interpretation of the IRA that this style of active anode material will be complied with both the sourcing requirements, but probably more importantly that foreign entity of concern stipulation? Just wondering, at Mozambique natural graphite being processed in into active anode material ultimately sold into the United States. Will it be compliant for those potential tax credits, subsidies, etcetera? Thanks.

Shaun Verner: Thanks, Ben. I think there’s a lot still to be determined on that front. Certainly, the supply of our feedstock is compliant on that basis. There’s still some questions of interpretation around ownership structure for entities, which have Chinese participation and I think that will be important in the determination of the categorization of the Indonesia facility over time. What I can say, I guess, is that there’s a strong drive to see this type of ex-China facility developed for the purposes of trying to meet not just IRA but also European regulation development and to offer some perception of diversification of supply risk. So it’s not just about that IRA or tax credit compliance. So I think there’s still a little bit of uncertainty at this point, but what is clear to us is that in our interaction with each of these players that Balama is seen as a critical and large-scale option for supply into the development to underpin the development of these facilities.

Ben Lyons: Okay. Yeah, that’s helpful. Thank you, Shaun. Second one, just switching focus to Vidalia and the potential offtake structure for the 45,000 ton capacity facility. My understanding and I may be incorrect, so please correct me, but my current understanding is that Tesla has exercised their option to participate up to that 25,000 tons level. Just wondering if you could possibly clarify if that would still be on the fixed price terms or if that additional capacity, if the company was to proceed to FID, the ultimate price of that material may be open to renegotiation. Thanks.

Shaun Verner: Yeah. So there’s a two-step process for that option to crystallise. So yes, Tesla have declared that option, but it is subject to finalisation of binding offtake for that second 17,000 tons, which is being worked through in conjunction with the other opportunities that we’re looking at for offtake for that potential expansion. The pricing mechanism for that 17,000 tons is for four years of fixed price sale, but specific to that 17,000 ton portion of the potential offtake. What we have been extremely clear about is that beyond that initial contract and option, everything that we are seeking to do for Vidalia will be underpinned by pricing mechanisms, which include floating elements to them. Customer base have varying degrees of excitement about that idea, but it’s certainly critical for us given where we see the market balance both for the upstream natural graphite finds and the flow-through that pricing dynamic into anode material, but also for IRA and foreign entity of concern and compliant anode material in the US and we see different supply demand dynamics for each of those compared to the China market. So certainly all future contractual arrangements we’re seeking to make sure have exposure to that dynamic.

Ben Lyons: Okay. Understood. Thank you very much. And just the final one, coming back to the potential funding stack for the 45,000 ton Vidalia facility, there were a couple of references in your introductory remarks and Stephen’s about potential non-diluted funding sources and I think you used the terminology for potential supply chain financing as well in your remarks. Can you provide any further detail about what you might be referring to in those potential funding solutions?

Shaun Verner: Yeah, I think, we won’t go into specifics at this point apart from saying that the dynamics around compliance supply and the understanding of the supply demand balance fundamentally changed in recent months and I think that change in understanding, it’s obviously something we’ve always thought was ahead but that very clear visibility of, what that availability of compliant material looks like opens additional options to us around funding. We have talked in the past about the lack of participation that’s been evident of customers in funding the development of either natural graphite or anode material facilities, but we certainly see that there is a greater recognition, not just from customers, but other participants in the supply chain that that type of funding is important to help see the development of capacity. So it’s just to say that there are broader options and we’re engaged around those. Certainly at the time that we did the original facility, FID really was government funding and equity were the only options. We think it’s a very different situation today.

Ben Lyons: Okay, excellent. No, I really appreciate your answers. Thank you very much Shaun.

Operator: Thank you. Your next question comes from Peter Kormendy from Shaw and Partners. Please go ahead.

Peter Kormendy: Yes, good morning. Thank you for taking my question. I’m just interested in those two offtakes that you announced last year in the US with GraphX [ph] and Westwater. Shaun, where are those facilities up to at the moment?

Shaun Verner: The Westwater project is developing slowly. It still has a requirement for further funding that is under construction and progressing. GraphX is still pre-investment decision so the Westwater facility is certainly further advanced, but at this stage, the likely or the expected entry of these additional facilities is BTR Indonesia first, Posco second and the potential of Westwater and others to follow behind those two.

Operator: Your next question comes from Andrew Harrington from Petra Capital. Please go ahead.

Andrew Harrington: Good morning Shaun and Stephen. Thanks for your time. On cost of Balama, has the new supply of power and your expected run rate, how is that benefiting or is it benefiting already or what do you think long term if you’re running at $10,000 a month or $20,000 a month, are you still happy with sub-$500 costs?

Stephen Wells: Yes, certainly in the longer term, the cost guidance we’ve provided previously, we’re very comfortable with. We just haven’t had the opportunity yet to get a good long run given the demand position to crystallise the benefits of the solar and battery system and we’re hoping that through upcoming campaigns and hopefully seeing some improvement in those demand conditions that we can better demonstrate that benefit. So it’s still early stages, but the system is absolutely working as designed and providing power both when we are online and off, but the full extent of seeing that benefit, yes we’ll need to see a decent production campaign period to be able to come in further.

Andrew Harrington: That leads I guess to a separate question. Are you able to save power back into the grid if you’re not in a production mode or what’s happening to all that solar capacity?

Shaun Verner: The grid as it exists is extremely underdeveloped in the north of Mozambique. So there’s no opportunity at this stage to do that, Andrew.

Operator: There are no further questions at this time. I’ll now hand back to Mr. Verner for closing remarks.

Shaun Verner: Thank you very much. We appreciate the attention and the attendance today and we look forward to continuing to keep everyone updated on catalysts in the coming quarters. Thank you.

Operator: That does conclude our conference for today. Thank you for participating. You may now disconnect.

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