Operator: Thank you for standing by, and welcome to the Syrah Resources Q3 quarterly report update. All participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. If you wish to ask a question, you will need to press the star key followed by the number one on your telephone keypad. I would now like to hand the conference over to Shaun Verner, Managing Director and CEO. Please go ahead.
Shaun Verner: Good morning and thank you for joining us on the call today. With me is our CFO, Steve Wells, and we will use the presentation released along with the quarterly report to work through today's call. Starting on slide 3, the third quarter of 2026 saw the delivery of very strong operating performance during the production campaign at Balama, with higher production volumes and excellent recoveries. At Vidalia, 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, Twigg, will shortly receive a US$15 million loan disbursement under the DFC loan, which will provide the Balama 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.
Shaun Verner: This is also particularly relevant as we seek further market support and policy certainty that would incentivize 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. 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 the increased activity from Chinese-operated graphite suppliers in Africa, this continued to weigh on overall demand for Balama's fines products.
Shaun Verner: However, graphite and anode demand is expected to grow significantly in the medium term, and these materials are essential to downstream automotive, energy, defense, 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 Syrah is core to ensuring these highly valuable industries are less vulnerable to disruption outside China. Meaningful and durable government policy support, both on the supply and demand side, is crucial to developing ex-China supply chains, incentivizing greater critical mineral sourcing diversification, and growing Syrah's sales volumes specifically. We are very active in highlighting existing supply concentration and in advocating for policy development. We are 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.
Shaun Verner: 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 300 billion USD per year of downstream production outside China would be at risk if battery-grade graphite trade with China were meaningfully disrupted. Our established capacity provides great opportunity as a key partner for customers and governments in building a resilient graphite and active anode material supply chain. On slide 4, we turn to an overview of Syrah's performance in the Q3. Mining and plant operations at Balama 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 graphite production at 88% recovery.
Shaun Verner: The high plant recovery performance reflects a multi-year operational improvement program, which has enhanced flotation and process control, equipment reliability, blend optimization, and built workforce capability. Natural graphite sales in the quarter totaled 18,000 tonnes, which included a large volume break bulk shipment to Indonesia for consumption in the ex-China anode material production. For which payment was only received after quarter end. We also commenced natural graphite sales to POSCO Future M under the Balama long-term offtake agreement during this quarter, and that is an important aspect of future demand. Our weighted average sales price in the quarter was $583 per ton CIF, and this was down on the prior quarter due to a higher proportion of fines in the sales mix.
Shaun Verner: 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. These container shipments are primarily for our coarse flake products, where we continue to pursue greater market share and price maximization. At Vidalia, 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, when we anticipate completing final customer qualification. Vidalia 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 customer. At this stage, we expect Vidalia anode material production to increase to a sustainable break-even cash flow level from the June 2027 quarter.
Shaun Verner: At the macro level, global EV 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 Q2 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. 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 Syrah's commercial progress.
Shaun Verner: China's ability to use export license controls to more broadly impact global graphite and anode markets and the potential for US tariff and investment policy to favor 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. We emphasize the extensive operating and commercial experience that Syrah's 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 5, and before I hand over to Steve Wells to talk about the financials, I wanted to cover safety and sustainability performance across the company.
Shaun Verner: As we continue to develop as a leading ex-China critical minerals producer, we are 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. In Q3, 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 Syrah's highest priority. 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 of Balama's campaign operations and through Vidalia's operations ramp-up.
Shaun Verner: Our safety focus is underpinned by our work on critical risk hazard management and in-field leadership interactions, which are a daily priority. Congratulations to our teams for this very strong outcome, and we are highly motivated to maintain performance and continue to refine our operational risk profile. Syrah's operations are also clearly aligned to leading global sustainability and governance standards. Our IRMA 50 level of performance for sustainability and commitment to external audit 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 graphite product supply, which we are convinced that over time will lead to stronger preference for Balama and Vidalia products. Syrah 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.
Shaun Verner: 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 will hand over to Steve to talk about our current financial position and some updates to operating cost guidance. Steve?
Steve Wells: Thanks, Shaun, and good morning, everybody. Before we talk to the cash position, I will note the $581 per ton operating cost for Balama for the quarter during the operating periods highlighted on slide 4. In the quarterly activities and cash flow report released today, we have updated our guidance on Balama operating costs during campaign periods to $500 to $550 per ton, which reflect the intention to produce 20,000 tons per campaign during those operating periods, compared to the 19,000 tons produced during this most recent campaign production period, so effectively in line with that. A key driver of the elevated cost is direct fuel costs, which have increased 34% and has also had an indirect impact on other costs, including transport and logistics, camp services, and consumables, amongst other inputs. Labor cost has also increased, reflecting a broader inflationary environment in Mozambique.
Steve Wells: While in the short term, we are also transitioning to ownership of the equipment required for mining operations at Balama, which is initially a higher cost of lower overall production volumes, but a better long-term model for the company. From a medium-term perspective, under which we assume we are producing continuously at 20,000 tons per month, we have revised the Balama cost guidance from $430 to $480 per ton to $480 to $520 per ton, reflecting similar drivers to the shorter-term cost pressures referred to above, but assuming some normalization of direct fuel costs. At Vidalia, we have increased our cost guidance about 10% to $4.85 to $5.25 per kilo of active anode material, largely as a result of labor and analysis-related costs, and also a pass-through of the higher flake costs from Balama. I will now turn your attention to slide 6 to cover the cash flow.
Steve Wells: We started the quarter with $98 million in total cash across restricted and unrestricted cash balances. Our net cash outflow from operations during the quarter was -$19 million, inclusive of $5 million of customer receipts and an $8 million US Section 45X tax credit, which is also cash received. The credit is an advanced manufacturing production credit under Section 45X of the US Inflation Reduction Act related to the 2025 tax year. Operating net cash outflow in the quarter was in line with the June 2026 quarter, noting also an additional $5 million payment for a large volume break bulk shipment, which was only received in October. At the end of the Q3, the company had a closing cash balance of $76 million. Of this closing balance, $21 million of unrestricted cash and $55 million of restricted cash under both US government loans.
Steve Wells: And of that restricted cash, $10 million is available to fund Balama operating and capital costs, and restricted cash of $20 million is available to fund the Vidalia costs. Commitment 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, Twigg, will receive a $15 million disbursement from the DFC loan shortly to support working and sustaining capital at Balama. The market and policy conditions Syrah 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. With that, I will hand it back to Shaun.
Shaun Verner: Thanks, Steve. Moving to slide 7, which outlines the US government policy initiatives that are developing to support Syrah'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 subsidization harming the development of sustainable US domestic anode demand and capacity. These Chinese actions continue today, and Syrah is therefore advocating strongly for policies that address prejudicial pricing practices and oversupply from China to level the playing field globally. During the quarter, US trade policy developments continued to focus on reducing dependence on Chinese critical mineral supply chains, with graphite 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.
Shaun Verner: 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. 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 and allied supply capacity. Updates from the Section 232 review process are expected during this 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.
Shaun Verner: Syrah continues to engage with US policymakers and regulators on immediately available additional supply of natural graphite from Balama and anode material from Vidalia, as well as our expansion potential. The US government is incentivized 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 Syrah, which include existing tariffs on Chinese anode material imports, Section 45X production tax credits for Vidalia, estimated at $67 million per year prior to their phase down after 2030. The potential to specifically require ex-China supply of anode material to enable battery manufacturers and auto OEMs to continue to qualify for 45X tax credits of their own, which are currently delivering over $1 billion each annually to the major players and underpinning their profitability.
Shaun Verner: There are volumes into the US government's Defense Logistics Agency tender for natural graphite and potential Project Vault stockpile demand, the US Department of War supplier financing, and non-FEOC critical minerals sourcing requirements into military applications, where Syrah has been advancing customer discussions along with supply into nuclear applications. Further implementation of such policy positions improve 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 US 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. On slide 8, we provide some additional details around the outlook for our operations and business overall.
Shaun Verner: We are ready to increase production subject to market demand as the ex-China markets stabilize and grow. Over the medium term, ramp-up of Balama 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. These will obviously be the key factors in the timing of positive cash flow from Balama. At Vidalia, we have commenced the ramp-up of commercial operations to build sellable anode material inventory, and we expect the commencement of commercial anode material sales in this December quarter of 2026. Our expectation remains for the transition to positive operating cash flow from the Vidalia operation from mid-2027 onwards.
Shaun Verner: Finally, as outlined earlier, we are 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 will 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. No other 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 markets. 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 and operation outside China.
Shaun Verner: Its scale and ore quality give us meaningful optionality as demand grows and where ex-China customers prioritize 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. 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 developments and supply chain independence. The undeniable importance of Syrah'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 are happy now to move to questions.
Operator: Thank you. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two. If you are on a speakerphone, please pick up the handset to ask your question. Your first question comes from Regan Burrows with Macquarie. Please go ahead.
Regan Burrows: Hi, Shaun and Sam. Thanks for taking my questions. Just interested, obviously, performance at Balama has improved, which is good. Just curious as to the scenarios that you would be running at a 20,000 tonne per month rate, and what do you need to get to that level?
Shaun Verner: Thanks, Regan. Obviously, continuing demand growth for the fines product is the key driver to get up to that level. The primary demand segment for that is supply into the anode material industry. Obviously, we continue to target growth in supply to Indonesia, into POSCO as well in South Korea, into our own operation at Vidalia as that ramps up. We obviously continue to look at the other potential ex-China operations that are coming on, as well as continuing to develop the ex-China industrial markets as well. It is really the anode material markets outside China which will drive that demand increase.
Regan Burrows: On the comment for Vidalia reaching a break-even cash flow level in the middle of next year, what are the assumptions that underpin that view? Are you assuming that Balama is running at that 20,000 tonne per month run rate to get to that break-even cash flow level?
Shaun Verner: For Vidalia, no. Balama can continue to run in the campaign mode that it is 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% utilization of the asset, sales under the contractual arrangements that we have in place already, particularly with our largest off-taker, which is Tesla.
Regan Burrows: Regan, just on that, you have obviously called out sales and commercial volumes in this current quarter. What is the kind of timing delay from a revenue and cash flow perspective?
Shaun Verner: Timing delay against what base? Sorry, Regan.
Regan Burrows: In terms of you record sales at the end of this quarter, what is the delay through to cash flows and receipt of those funds as you go through post the sale?
Shaun Verner: There is normally a couple of month period in terms of payment term and cash flow processes rolling through.
Regan Burrows: All right, great. I will leave it there. Thank you very much for taking my questions.
Shaun Verner: Thanks, Regan.
Operator: Thank you. There are no further phone questions at this time. That does conclude our conference for today. Thank you for participating. You may now disconnect.
