Thank you for standing by and welcome to the Syrah Resources Q2 Quarterly Report Update. All participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. If you wish to ask a question, you'll need to press the star key followed by the number one on your telephone keypad. I would now like to hand the conference over to Mr. Shaun Verner, Managing Director and CEO. Please go ahead.
Good morning and thanks for joining us. With me on the call today are Steve Wells, our Chief Financial Officer, and Viren Hira, our General Manager of Investor Relations and Business Development. Today we'll focus on three key topics. Firstly, the significant and unexpected uncertainty created by the revisions to U.S. government policy related to the implementation of the Inflation Reduction Act's guidance on graphite and anode sourcing and its impact on the near-term market. Secondly, Balama and Vidalia's operational progress and key position in the near and medium-term market evolution. Thirdly, our strategy and corporate actions for preservation and rebuilding of shareholder value through delivery against our objectives, including the delayed but positive progress on the $150 million loan from the DFC, which we expect to complete shortly. We'll use the slide deck released along with today's report, and we'll start on Slide 5.
Given its importance and impact on our current operational and market performance, we'll begin with the IRA guidance from the U.S., against which definition and customer response has continued to evolve throughout the quarter and post-quarter end. In seeking to develop anode material capacity in the U.S. from 2018, Syrah has proceeded through investment decisions independent of government policy support. But subsequent Chinese and U.S. geopolitical positioning and customer responses in the broader EV, battery, and input material markets have made policy a very real factor in potential outcomes. Through policies developed by the prior and current U.S. administrations, Syrah has benefited from funding and support as the U.S. electric vehicle OEM and lithium-ion battery manufacturing capacity build-out has advanced.
This was particularly evident with the requirement for OEMs to source graphite from non-Foreign Entities of Concern, or FEOCs, and that is supply from outside China or suppliers not controlled by the Chinese government or affiliated stakeholders. In order for the OEMs to be eligible for lucrative consumer tax credits that supported lower effective pricing for EV sales, the policy which was primarily developed to ensure supply chain security in critical minerals, a number of which, including anode material, are dominated by China and subject to sub-economic pricing impacts. On May the 3rd, the U.S. government issued further guidance on the Inflation Reduction Act related to sourcing of materials and eligibility for these consumer tax credits.
This guidance unexpectedly granted a transition period to electric vehicle OEMs for sourcing graphite and anode material, extending the deadline by which automakers were required to use non-FEOC or non-Chinese graphite by 2 years from the 1st of January 2025 to the 1st of January 2027, provided that they met certain criteria to obtain eligibility for the extension, crucially including demonstrating preparedness to meet the objective of local sourcing by 2027. In the short term, granting the transition period effectively allows use of FEOC graphite supply until the 1st of January 2027 and was designed to increase EV penetration over the next several years by increasing the number of EVs that were eligible for the IRA consumer tax credit.
The ability of OEMs to secure significant volumes of non-FEOC graphite anode material over this timeframe was deemed difficult given the limited operating capacity that already exists or was planned to commission in the near term beyond Syrah's business. While aimed at increasing EV adoption in the U.S. and supportive of Syrah's business in the medium and long term, this extension to the deadline to source graphite from non-FEOC entities is counterproductive to the investment support provided to Syrah for development of Vidalia, as there are impacts of this policy arising on the graphite sourcing approach taken by customers in the near term, the intensity of customer qualification processes already underway, and non-FEOC graphite supply chain development. With some of the implementation requirements still to be fully defined, there are both supporting and challenging aspects of the policy change.
The positives include the requirement for OEMs to formulate and demonstrate a plan for non-FEOC graphite supply sourcing from the 1st of January 2027 through the transition period in order to be eligible for consumer tax credits in the interim, which effectively requires earlier sourcing and qualification of anode material. There's strong continuing commercial engagement from OEMs on large-scale offtake arrangements for existing production from Vidalia and expansion of capacity and readiness for 2027 and beyond, and the support for and development of other ex-China natural graphite anode material production facilities requiring Balama natural graphite, with some making solid commercial progress to underpin development. The key challenges of the policy change are that uncertain or reduced near-term incentive for U.S. customers to accelerate purchasing from existing non-FEOC graphite suppliers such as ourselves, given the availability and price of Chinese anode material.
There's potentially extended timelines and additional technical and process hurdles being added by OEMs as they have more time, which can extend timeframes for qualification and sale of Syrah's products into the U.S. market. A lack of clarity in the level of commitment that OEMs need to demonstrate to the DOE in their transition plans towards non-FEOC graphite supply and what the consequences are for OEMs prior to 2027 if they fail to satisfy the U.S. government requirements during that transition period. There's also uncertainty over the timing of investments into new ex-China natural graphite anode material capacity development, given the visibility that investors require regarding government policy settings. And finally, there's impacts on our own timing of a final investment decision for Vidalia's further expansion project to meet 2027 customer demand without clarity on near-term sales from our existing non-FEOC supply.
The policy update has introduced significant uncertainty into the U.S. supply chain regarding near-term non-FEOC graphite sourcing, given the intense Chinese volume and price competition. We see the immediate impacts as counterproductive to overall U.S. government policy intent and customer supply diversification intent for critical minerals independence, allowing China to entrench dominance of the global graphite supply chain, noting that they currently supply over 90% of graphite anode material globally. The most immediate impact has been that the transition period has allowed customers to concurrently extend timelines and expand requirements for product qualification of new materials and to preference near-term Chinese supply, thus delaying likely commencement of purchasing from Vidalia into 2025.
While strong progress is still being made on additional contracting, we have less timing certainty on initial sales from Vidalia and any potential impacts on ex-China demand for Balama products through 2025 and 2026 are still to be confirmed. We're working intensely with Balama and Vidalia's customers and stakeholders to maintain close dialogue and progress in our qualification processes and sales as quickly as possible to diversify our sales options for existing and future capacity to ensure the highest commercial incentives for purchasing. We're working with government agencies to highlight policy impacts, advocate for implementation clarity, and manage our funding relationships. And we're minimizing our own working capital costs and inventory risk by carefully managing the ramp-up at Vidalia to preserve cash in the event that customer purchasing is delayed. Moving to our key operational and market headlines on slides 6-8.
The uncertainty introduced by U.S. policy implementation, along with the evolution of the Chinese domestic anode market and customer responses to overall EV growth rates, have been evident in some impediments to our progress through the second quarter this year. Key market and operational points are that, firstly, global EV demand growth increased 24% in the June 2024 quarter, compared with the June 2023 quarter, to 4 million units. It was biased to stronger growth in China and a higher proportion of plug-in hybrid vehicle sales than previous counts. Oversupply of artificial graphite anode material and ongoing deeply negative price competition in China is incentivizing higher use of artificial graphite anode in the Chinese domestic battery market, leading to reduced spherical graphite production and natural graphite fines consumption in China.
Only 10,000 tons of natural graphite were sold and shipped to third-party customers during the quarter, with no fines sales to Chinese anode customers. We took the decision not to sell into record low prices, and this was reflected in the loss of anticipated break bulk demand later in the quarter. Positively, our weighted average sales price was $735 per ton CIF, with a more significant proportion of high-priced coarse flake in the sales mix. Balama undertook one production campaign to account for earlier inventory drawdown, with 24,000 tons produced at 78% recovery and strong campaign operating and ESG performance during the second quarter. Costs in the operating period were in line with our expectations. Operations at the Vidalia anode material facility are ramping up with solid capacity utilization demonstrated in all primary process areas, but lower immediate need for that capacity and inventory build.
We've dispatched on-specification commercial-scale production samples to Tesla and to other tier one customers, with positive initial testing feedback received from three tier one customers. Vidalia anode material sales are now expected from early 2025, as expanded customer qualification requirements and extended timelines arising concurrent with the U.S. government policy change are incorporated into our planning. There's been continued strong progress being made on commercial offtake for Vidalia sales supporting potential expansion, but with an FID timing being increasingly dependent on clarification of both government policy and demonstrated sales from our initial capacity. I'll now hand over to Steve to talk about the current financial position, government funding updates, and progress in developing Syrah's financial position aligned with our longer-term downstream customer and policy support. Steve's been heavily engaged with government agencies in the U.S. over recent months and will make some additional comments on his interaction.
Thanks, Shaun, and good morning, everybody. Syrah's quarter-end cash balance was $82 million and included $41 million of restricted cash relating to Vidalia, of which $27 million is available for funding the operations during ramp-up. Proceeds of $13 million from the retail component of the first quarter equity raise were also received during the quarter. Excluding the proceeds from the equity raise, the cash outflow from unrestricted cash for the quarter was $33 million, of which $24 million was contributed to Vidalia restricted cash, primarily to fund the working capital reserve for the ramp-up of production of the facility.
Balama net working capital and capital outflows of $6.5 million reflects the focus on cost management at Balama, as well as receipts from the sale of the break bulk to BTR Indonesia at the end of the first quarter, with cash proceeds received in the second quarter. Through the second quarter, shareholder approval was received for the conversion of AustralianS uper convertible notes series 1 and 3 at a revised conversion price to simplify Syrah's overall capital structure and remove a material potential redemption requirement later in the year. Clearly, the DFC loan has not closed by 30th of June as we had anticipated. It is the first loan of its type by the DFC into Mozambique, however we have made good progress with documentation essentially agreed and now going through our final approval processes, which are expected to complete shortly.
We are targeting a near-term completion and first disbursement of the $150 million loan to support Balama through this current period and appreciate the support of these stakeholders through this process to completion. We continue to assess opportunities to access tax credits in the U.S. under both 45X and 48C programs, noting that companies are only able to access one of these two programs, and rules under the 45X program are yet to be finalized. There are multiple rounds of the 48C program, and an active market is developing to monetize these types of tax credits in the United States.
As Shaun noted, there has been significant activity in other policy areas with direct implications for Syrah, including the application of 301 tariffs on imported graphite from China and the Foreign Entity of Concern or FEOC guidance on sourcing of graphite to enable customers to benefit from 30D consumer tax credits on EV purchases in the U.S. We are very much at the forefront of engagement on this topic, given the progress we have made in developing the supply chain in the United States, our ownership of the globally significant Balama mine, and funding support through various programs we have with different U.S. government agencies.
In particular, we have engaged heavily across various agencies and elected representatives to underline the immediate impacts from this policy position on the Syrah business and, frankly, the U.S. domestic graphite supply chain more broadly over the longer term unless there is an increased immediate commercial imperative to produce domestically produced non-FEOC material. There is a clear need for U.S. government policy to ensure that the developing U.S. industry is supported so it can grow to meet the broader strategic and economic aims over the medium to longer term.
It's also worth noting at this point in the U.S. election cycle that from a critical minerals perspective, there has been significant bipartisan support for supply chain security across both the current and previous administrations for an extended period of time, and we would expect this to continue irrespective of the outcome of the U.S. elections, noting, of course, that policy levers may differ depending on the outcome. I'll now pass you back to Shaun.
Thanks, Steve. Moving along to the operational update on slides 7 and 8. Firstly, to Balama, where we won't spend significant time in this update, suffice to say that the processing plant is performing well when operating in campaign mode. Recoveries were solid in our recent campaign, and strong confidence exists about further recovery increases and greater efficiency opportunities once consistent operations are possible.
C1 costs were $460 per ton in the operating period, benefiting from a higher production rate compared to last quarter, and the Balama C1 fixed costs, FOB Nacala and Pemba, were below $4 million per month during the non-operating periods. Shipping costs were higher than average, given the destination mix at $120 a ton during this quarter, leading to an implied operating period CIF cost of $580 a ton for the quarter. Graphite production from Balama will be focused on restocking as required by sales, and opportunity to increase coarse flake production is being investigated given the current higher demand and pricing for those products. We expect to continue to deliver high product quality, and the Balama team are well across maintenance programs given campaign downtime opportunities.
Further efficiency gains are focused on recoveries, increased solar and best power utilization, contract mining, and logistics to ensure that production and standby cost is managed to as low a level as possible while market conditions remain problematic. Moving to Vidalia, the Vidalia operations team have made solid operating progress in ramp-up, navigating some early operating challenges and utilizing strong problem-solving skills, working without a playbook in bringing on what's the first commercial-scale integrated natural graphite anode material facility outside China. Very positively, substantially all production has been on specification, and the small volume that wasn't initially on target was successfully reprocessed to meet specification. We're very pleased with the product quality, and following sample dispatch, we've already received positive initial-stage qualification feedback from three tier one customers against our specification. We initially targeted 80% capacity utilization by the forthcoming six-month mark following commencement of on-spec production.
Through June and July, however, it's become apparent that maximizing production volumes and inventory build prior to greater certainty on qualification and sales timing is not in Syrah's current interest. Initial ramp-up challenges primarily impacted bottlenecking in the milling area, cause of which has now been solved pending some final implementation requirements, and the timing of full furnace capacity availability, meaning that we were behind target on total capacity utilization. With the lower need for immediate production, however, we're focused on demonstrating peak production capacity in single lines in key operating segments of the plant. Key progress in peak performance of 60% in milling, 70% in purification, and 80% in furnace operations across single lines has been achieved. Importantly, this progress demonstrated to date is confidence in 80% integrated capacity utilization through this half if it's required.
Given the lower requirement for immediate inventory, we've also taken the opportunity over the past 6 weeks to work on an additional product stream to broaden the customer product offering, and this has also contributed to the lower total integrated plant capacity utilization levels of 24% in milling, 30% in purification, and 40% in carbonization to date. The Vidalia operations team is building significant operating experience through plant ramp-up and qualification. Commercial qualification processes include higher levels of detailed technical interaction and customer site visits, providing Syrah with further opportunities to ensure best practice across various customer requirements and operating processes. Now move to the market and customer engagement section on slides 9 to 11.
With significant attention on government policy actions between the U.S. and China, it's important that we retain focus on both the resultant and underlying market dynamics, which will ultimately demonstrate Syrah's importance to the global graphite and anode material supply demand balance. Syrah continues to focus on the development of ex-China offtake for Balama fines production, noting it appears that POSCO's South Korea spherical graphite capacity and BTR Indonesia's anode material capacity are progressing close to their previously anticipated timelines, and Westwater in the U.S. has secured anode material offtake to underpin development. All of these operations have demonstrated demand for Balama material under offtake or spot contracting. New interest in processing and qualifying from both Chinese joint venture and ex-China potential plant developments has seen some consumption of Syrah's Balama materials from stocks for testing processes boding well for future demand.
In the immediate term, however, EV materials market conditions are very challenging. While global EV sales increased 24% in the June quarter compared with the June 2023 quarter, most of the growth was in China, with a number of EV and battery producers outside China revising growth projections or deferring capacity expectations. At the same time, anode production in China increased 33% in the June quarter compared to the March 2024 quarter and increased 41% compared with the same quarter last year, biased heavily towards artificial graphite anode material. This artificial graphite anode material production capacity in China has expanded significantly over the past three years, creating a notable imbalance with market demand. The growth has created intense competition within China and prompted aggressive pricing strategies amongst new market entrants and a corresponding reaction from established suppliers, leading to reports of a high number of loss-making operations.
Artificial graphite anode material supply in China is dampening overall natural graphite demand. Domestically, Chinese natural graphite production remains modest, aligned with current subdued demand levels, and demand for imported natural graphite remains very low. Current price bids, both domestically and for imports of fines, are below the estimated cost thresholds for all producers involved. While Chinese export volumes for both anode material and spherical graphite have recovered to levels seen in the period prior to announcement of the China export license controls, the low demand for natural graphite anode material in the domestic market has meant that export anode material requirements were able to be met from domestic natural graphite production or stocks in China through the second quarter, and that anticipated break bulk volumes of import later in the quarter did not materialize, and no Balama volumes were exported to China.
Any increase in the combined domestic and export requirements for natural graphite anode material is, however, likely to incentivize import volumes. Moving to natural graphite anode material, in the U.S., future demand far exceeds available non-FEOC supply, and a strong commercial environment still exists for additional sales to build. In addition to the offtake contract that we have with Tesla for initial volume from Vidalia, anode material offtake discussions continue to progress well with others for future volume, with one further significant offtake contract process now through all commercial negotiation impending legal completion and approvals, which we expect to complete shortly.
We continue processes with Samsung SDI, LG Energy Solution, and Ford and SK On under our MOUs, working toward offtake, and note that investment decisions for non-FEOC supply expansions really need to be made now to meet customer requirements under the IRA from 2027, considering development and customer qualification lead times. Customer commitments must be made before a potential Vidalia further expansion project (FID) is considered. Finalization of a binding offtake with Tesla against their option declaration for additional volume from an expanded Vidalia facility is subject to Syrah's agreement on commercial qualification terms and will obviously be influenced by satisfactory progress in timing of sales from the initial capacity. Despite the policy uncertainty, sourcing risk diversification and demand for local U.S. supply continues to underpin expected demand for Syrah's products, and this is reflected in ongoing commercial progress.
Looking ahead to catalysts and making some concluding comments around the government policy position, the initial investment decisions for Balama and Vidalia were made on the basis of market views and economics without any expectation of policy support. We believe that the asset quality and operating cost position of both Balama and Vidalia is sound. Subsequent Chinese government support for sub-economic, low ESG quality, artificial graphite industry expansion, and graphite export license controls, as well as U.S. government counterpolicy measures for critical minerals independence, such as FEOC requirements, tax credits, tariffs, and other policy instruments, have markedly changed the underlying global markets for EVs, lithium-ion batteries, and anode materials, and today are having particular impact on graphite and anode.
When negative impact arises from one government intervention or policy, creating a level playing field may require a policy response from other governments and markets until fundamental supply demand dynamics are restored. We also note that where customers and governments rightly demand higher ESG and production standards, different controls or processes, or expanded quality parameters in one jurisdiction over another, commercial outcomes or policy support may be needed to account for the costs and timing of that differentiation. Syrah is continuing to work with customers and relevant government stakeholders to ensure our ex-China capacity is utilized as quickly as possible and that further expansion is viable. Despite the challenging immediate market conditions, there remain significant positive catalysts ahead, and Syrah's advanced development stage relative to all other natural graphite and integrated anode material projects provides us with a unique position.
Those catalysts include the finalization of the DFC loan, which is expected shortly, continuing progress in further anode material offtakes for current and future potential supply from Vidalia, progress in various testing and qualification processes, and interest from both Chinese and ex-China spherical and anode material buyers in utilizing and securing Balama product for longer-term supply outside of China. It's also important to recognize that changes in the graphite and anode market dynamics have repeatedly been sudden and significant, and Syrah seeks to maintain readiness ahead of any of our competition to take advantage of improvement in the market as it arises. We continue to take action to deal with the impacts of recent policy and customer developments and the challenging market conditions for natural graphite on near-term cash flows.
With cost-saving initiatives underway already, we have further cash preservation actions being considered for implementation, if pending market catalysts and customer purchasing intent do not evolve as expected, or if changes to the Balama campaign production rates or Vidalia operations ramp-up are required. We strongly believe that policy levers and transition rules under the IRA should incentivize as soon as possible purchasing under customer offtake arrangements, disincentivize support for sub-economic subsidized supply, and encourage new offtake agreements to support the longer-term objectives of the U.S. government and U.S. customers for non-FEOC graphite supply, and we'll continue to advocate for that accordingly. Our objective is to have producing assets that are globally competitive, independent of government policy, to ensure the long-term viability of the business.
In the immediate term, our objectives remain increasing sales revenue as soon as possible, the retention of future value, and management of costs for the preservation of cash.
Thanks for the attention today, and we'll now move to question and answer.
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're on a speakerphone, please pick up the handset to ask your question. Your first question comes from Ben Lyons from Jarden. Please go ahead.
Thank you. G'day, Shaun. First question on Balama, please.
There was a statement in the release that without a substantial improvement in Chinese import demand, the expectations currently for the second half of the year fall short of the minimum levels required to incentivize production under the current operational framework. Just wondering if you can possibly elaborate on that statement. Are you implying that there's a potential scenario where the asset might pass into care and maintenance out of campaign mode into a sort of closure scenario in the second half of the year if you don't observe Chinese import demand? Thanks.
Thanks, Ben. I think there's an interim stage, certainly before any decision around further reduction would be considered. And ultimately, what we're saying there is that the target of seeking to sell consistently each month and run at least one campaign through each quarter is compromised at the moment or was compromised during Q2.
In the absence of an improvement in import demand from China, that we would have to consider how many campaigns we run and also consider the cost initiatives that we have available to us, particularly to manage the standby cost and try and reduce further that $4 million a month that it's currently costing us when we're not operating.
Okay. Yep. That's quite clear. Thank you, Shaun. Maybe the second one on Vidalia, please. There's a lot of positive statements in the release and in your commentary around advanced negotiations with a very high-quality roll call of potential customers like Ford, SK, LG, Samsung, etc. I'm just trying to close the circle, I guess, on the clear level of interest in the product that Vidalia is capable of producing and the lack of firm commitments from those high-quality potential customers to date.
I know it's related to a lot of your commentary around government processes, etc., and incentivizing ex-China contracts to be actually signed up. I think probably the most positive statement that was contained within the release was that you are expecting to shortly close a significant offtake agreement with a tier-one U.S.-based customer for supply from that facility. Any further detail you could give on potential volumes, any further detail about the potential customer would be greatly appreciated.
Thanks, Shaun.
Thanks, Ben. I mean, obviously, I can't say too much more until that finalizes. Just coming back to closing the circle there, I guess the dynamics are shifting significantly all the time, and this has been part of the reason for some of the extended nature of some of these negotiation processes.
You've had a backdrop of Chinese supply of natural and synthetic graphite anode material that's continued to overproduce, and price has fallen. There's a significant question around what is the sustainability of that pricing and that volume availability, and when will rationalization ultimately occur in that part of the market. With that backdrop of shifting price and availability, I think the OEMs and battery manufacturers are constantly measuring U.S. offtake against a shifting benchmark. Clearly, government policy settings changing through that negotiation period causes reassessment. I think there's still a very strong view that U.S. OEMs and battery manufacturers want to secure long-term high-quality local sourced material from the U.S., and they want to do that competitively. But they need to understand what changes in government policy setting mean for their competitiveness of overall battery cost and sourcing of anode material through that time.
I think the other thing that has been occurring through the last six months at least has been some shifts in overall adoption rates of EVs. There's no doubt that there's been some changes in timing and expectation around sales volumes, EV production capacity, and battery manufacturing capacity, particularly the timing of new plants, which is also causing some reassessment or ongoing assessment of what volumes are required. I think from the opposing side, what's absolutely clear is that there is nobody else at this stage who has built capacity and demonstrated the fully integrated supply chain. We are right at the forefront there. We also have a very strong view of the value of having completed that process and what's required to incentivize the next investment for expansion at Vidalia.
So it has taken time, but we want to make sure we build in the learnings from our first process and make sure that we have the best possible roster of offtakers for any expansion.
Okay. Thank you very much, Shaun.
Thanks.
Thank you. Your next question, it comes from Mark Fichera from Foster Stockbroking. Please go ahead.
Yeah. Hi, Shaun. Just a question about the ramp-up at Vidalia. I understand just given the cash burn you want to curtail production or manage that. But also, obviously, you want to achieve the commercial rate to achieve sales early next year. So just thinking about the ramp-up now, should we be thinking the ramp-up will come more later this calendar year, early next year, or should we still be thinking sort of a linear ramp-up from now?
So it's going to be sort of gradually reach that 8,000, or will it be more sort of an intensified ramp-up towards end this year, early next year? Thanks.
Thanks, Mark. I think much more the latter. We want to align that ramp-up volume with customer demand. Having said that, we also want to be absolutely certain about our integrated capacity utilization. And we will do some further work in the coming months to ensure that we have full confidence on that front. But overall, the ramp-up volume will be very much aligned with what the customer requirements are and the continuation of the qualification process. Right. And in terms of Steve mentioned about the cash burn at Vidalia during the quarter, should we expect something similar for the September quarter? No, we expect it to be obviously lower because a lower operating rate.
We had been very focused on seeking to ramp up as quickly as possible in the first and first half of the second quarter. So we also had quite a number of preparation elements to that cost base in the start of the process. So we expect cash burn for Vidalia to be lower in the event that we are not seeking to ramp up capacity. Right. Okay. And just one final one from me. On the DFC loan, obviously, you mentioned in the release you expect that shortly. Is it reasonable to assume shortly could mean a matter of weeks or by the end of August? It's just just to give a rough timeline of your expectations, would that be a reasonable assumption? Yeah, that's certainly the intent, Mark, because obviously, we were trying to have that completed before June 30.
The vast majority of core material stuff is done, and it's administrative processes and approvals which are through the finalization steps now. So seeking to have that done as quickly as possible. And I think there's a strong understanding from all parties, ourselves, the DFC, and government of Mozambique, who are all involved in the approval process, of the importance of making sure that this is complete.
Okay. Great. Thanks.
Thank you. Your next question comes from Daniel Morgan from UBS. Please go ahead.
Thanks, Shaun. Thanks, Steve. Just a couple of questions from me. So I guess first one, just on the market, obviously disappointing that the U.S. has kicked the can down the road with regards to FEOC and Chinese imports. How has that affected, I guess, the intensity of your downstream customers to engage with you?
Maybe a bit of clarity, and it feels really vague, how they're supposed to demonstrate efforts to move away from China in those two years to get IRA support? How does that work? Any clarity on that?
Thanks, Tim. Yeah, I think there's still an implementation process underway at the moment around what is required for that demonstration of sourcing intent prior to 2027 and how that is recorded. And certainly, there's still understanding to come about what the process is of DOE assessment of that and assessment of eligibility for the tax credits. I think in our engagement, it's clear that there is a very strong view from DOE that the 2027 timeframe is a hard deadline. And they need to see very material steps from OEMs and battery manufacturers towards that timeline. The question is to what does it mean for engagement?
Clearly, there are always long leads on these types of contracts. And a lot of our engagement has been around the expansion of Vidalia to 45,000 tons, which already had a two-plus year lead time on it. So the level of intensity, as I mentioned during the call, on engagement around further offtake is still very good. The challenge is that in the immediate term, there's a backdrop of availability of significantly lower-priced Chinese anode material that doesn't have a consequence for OEMs and battery manufacturers at this point in time in the U.S. So there's a tension there between near and medium term. But the positive is that the engagement is very, very good on further offtake. And we have demonstrated very clearly that we can bring this capacity and this capability to market, and we want to expand.
Yep. Yep. Cool. Thanks.
And maybe one other, just hypotheticals and touching on Benny's question before. I've noticed you didn't ship anything to Vidalia this quarter. Balama's a drag. If you were to go into some interim stage or care and maintenance, is there a way that you could even refocus on Vidalia? Is there a universe that exists where it's amply stocked and you can focus on Vidalia and let Balama sit idle until the market turns?
Yeah. I mean, we have obligations clearly to ensure that Vidalia can continue through its ramp-up processes and is adequately stocked, is being regularly shipped to, etc., under our funding arrangements with the DOE. And we will absolutely make sure that we meet those commitments.
Ultimately, what will determine the operating rate of Balama and the structure of operations at Balama will be those demand signals out of China in the short term and how quickly POSCO, BTR, Indonesia, and other ex-China facilities require further demand. It's important to remember that those facilities are not years and years away. The BTR, Indonesia facility is ramping up production. POSCO is moving ahead well with their spherical capacity. So we're not talking about very long periods. We expect that there will be some Chinese. It's a matter of how quickly that comes through to market.
Thanks. Thanks, Daniel.
Thank you. Your next question comes from Andrew Harrington from Petra Capital. Please go ahead.
Thank you for your time, Jens. A couple of questions w ith Vidalia, are you expecting to make so you're going to be producing at a very low rate for sampling for the rest of this calendar year and then having sales in 2025 also at a low rate, far below the 11,000 capacity?
No, certainly not necessarily at a lower rate in 2025. And the rate at which we produce during this year will be determined by what arrangements we come to with customers about the ramp-up profile and qualification processes for next year. So there's still more to be determined on that front. We are just, I guess, identifying and communicating that it appears less likely that there will be sales this year and that a more significant ramp-up profile will be from early 2025. But we'll provide more information as we get that.
So production, even in 2025, will be mostly related to sampling and qualification rather than actual sales? No, that is not what I said. I said that 2025 production and sales profile will be dependent on the arrangements that we come to with customers through the qualification process. And we absolutely anticipate there will be significant volumes of sales in 2025.
Okay. Thank you. And then I guess the second part of that is, let's say, running at 10,000, 11,000 for calendar year 2025, Vidalia is profitable at the current price of material that you have to compete with? Or how do you see Vidalia standing up at an 11,000 rate?
Yeah. So the contractual arrangements that we have in place and that we put in place, seeking to put in place for Vidalia, will reflect the cost structure and the intended profitability of that facility.
We have no objective to do anything other than that. Certainly seeking to ensure that we continue with the contractual arrangements that we have in place and those that we're building to ensure that we're operating profitably at 11,000 tons of Vidalia.
Okay. Thank you. And then back to Balama, what's the most, in terms of proportion of large flake material that you can get out of the plant? Essentially, you're limited by the fact that you can't sell the fines profitably at the moment, as I understand it. And so trying to maximize large flake makes sense. But what's the crossover point where that's worthwhile to start production if we assume current prices?
Yep. So there is a resource limitation, and then there's a processing limitation.
Historically, we have averaged somewhere between 12% and 16% coarse flake, depending on the mix of medium and high-grade materials we're running off the run. What we are doing at the moment is assessing whether there is a short-term processing opportunity to materially lift that coarse flake proportion. And if we are able to do that, we will obviously assess the cost and operating parameters around it. But it's something that we have looked at previously, but certainly not in an environment where the price differential between coarse and fines was so significant as it is at the moment. And that may give us some additional adjustments on how we take it forward.
Okay. Thank you. Thank you for your time. Cheers.
Thanks.
Thank you. Your next question comes from Reece Frith from APSEC Funds Management. Please go ahead.
Hi, Shaun.
Just a quick one on the clarification of the IRA timeline. I guess arbitrarily, there wasn't really enough non-FEOC supply to sort of feed the market anyway. So I'm not really understanding how it's a surprise as a transition period. I'd just like to understand your comments on that.
Yeah. I think it comes to how you incentivize. There are multiple policy lever options which could have achieved both some degree of flexibility for OEMs and battery manufacturers in the intervening time, but also incentivized faster adoption and faster expansion of non-FEOC capacity. So we see that it was very clearly a decision made to advance electric vehicle sales and the availability of credits to the maximum number of vehicles.
But we firmly believe that there are other policy levers that could assist in achieving both that and the advancement of volumes out of our facility and other facilities that are ex-China. Right. Okay. Can you just clarify with the technical qualification? So based on the language here at Vidalia, it says you're happy with what you're producing. But things are getting pushed back a little bit with customer behavior, as you're saying. Can you just, I guess, cut through with is this an issue on Tesla's end in terms of qualification and which sort of the process in the purification, in the spheroidization, where the issues are? And can you just talk a little to that, please? So I'm obviously not going to make any specific comments about particular customers.
But what I would say is that the qualification process is firstly around the physical, chemical, and electrochemical performance specifications of the product itself. Then it's secondly around a series of process and measurement aspects. Every customer has a different set of those and a different timeline for those and a different series of exit points. I guess the timeframe of the transition period has afforded customers the ability to add as many of those requirements into the qualification process as they see fit. That has the impact of potentially extending the timeframe as well. It's not to indicate that there are necessarily issues in the process. It's just a matter of urgency that if someone was required to source non-FEOC material by a deadline, they have a higher degree of urgency potentially to accelerate qualification compared to what might be a more conservative process.
Okay. Fair enough. And then can you just touch on the new product stream? I mean, what are you sort of aiming to sell out of Vidalia before you supply to Tesla? Can you just touch on that, please?
I'm not going to make any specific comment on that at the moment. Suffice to say that it's utilizing all the existing process and existing infrastructure without change. It's more on the material specifications that we achieve through the process. But as and when we move ahead further on that, we'll provide some more information.
Okay. And then just on some of your customer offtakes, I mean, you've sold that break bulk to BTR, right?
Can you just help us give an understanding of sort of the ability to sell into that first train in Indonesia and then whether or not POSCO have sort of come to an FID on their domestic facility as well?
Yeah. I mean, obviously, we sold into Indonesia at the end of the last quarter. Clearly, there's a recognition of the importance of Balama to non-Chinese supply and large-scale, high-quality supply regardless of any geopolitical challenges. We firmly target further sales into Indonesia. We'll continue to work with BTR and try to make those things move ahead. With regard to POSCO, our understanding is that their timeline is still very similar to what it was, with likely requirements in the second half of 2025, more material requirements in 2026.
Okay. Thanks for that, Shaun. Cheers.
Thank you.
Thank you. There are no further questions at this time. I'll now hand back to Mr. Verner for closing remarks.
Thanks, everyone. We understand there's a lot to take in through this particular update and a lot of interdependency between policy, operations, and market. Thank you for the questions and the interest. And we look forward to keeping everyone updated. Thanks a lot. Bye.
Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.