Ladies and gentlemen, thank you for standing by, and welcome to the Syrah Resources Q1 Quarterly Update Call. At this time, all participants are just in a listen only mode. Following the presentation, we'll have some time for a question and answer session today. And just please be advised today's call is being recorded. But without further ado, I'll hand the conference over to our first speaker for today, Mr.
Sean Werner. Thank you, and please go ahead.
Thank you. Good afternoon, and thanks to everyone for dialing in today. With me on the call is Stephen Wells, our Chief Financial Officer. Today, we'll work through selected slides from the presentation deck released along with the report covering Q1 operational focus areas, market conditions and the outlook for natural graphite active anode material and its end use markets. Starting on Slide 3, the 2020 demand supply and operational disruptions due to COVID-nineteen presented challenges to Syrah and to many other companies in the industry.
However, Syren's long term value proposition is fundamentally linked to 4 things. Firstly, momentum in the electrification of the global transport fleet. Secondly, graphite maintaining its high intensity of use in lithium ion batteries for EVs. Thirdly, Balama being the world's largest integrated high quality natural graphite operation. And lastly, our downstream integration strategy to become a large scale producer of value added active anode material products.
And as the COVID-nineteen driven impact has started to clear, these elements of the Syrah value proposition brought into sharp focus. Electrification of the transport sector is accelerating quickly with ongoing investment commitment at the auto and battery levels. Increasing customer interest and strong government policy commitments are also evident. Graphite is expected to continue to be used as the primary anode material in lithium ion batteries and the majority of EV makers are committed to this battery technology for major expansion plans despite the considerable promotion of potential long term substitutes, which require further technological advances in most cases. We continue to see urgency from policymakers and the private sector to facilitate the transition to EVs and to secure the strategic and critical battery minerals required to achieve this.
The profile of graphite as a strategic critical raw material has been confirmed by a number of governments as graphite remains the highest intensity of used material by mass of any cathode or anode material and the graphite supply chain is presently 100% reliant on China. COVID-nineteen related supply disruptions and a very strong forward demand profile both demonstrate the significant risks posed by a lack of supply chain diversification to the growing EV market, particularly outside of China. Balama is the best global natural graphite resource on many parameters with capital invested, our operations, sales and logistics infrastructure is well established and ramping up again strongly, with opportunities for greater efficiency as volumes increase. Balama's product mix is well suited to supply the growing battery market and the Syrah brand is highly regarded across a global customer base with a reputation for consistency and for carbon grade. This uniquely positions Balama to supply the wave of demand underway for battery minerals.
And while there's much discussion on various long term options for new graphite supply, the reality in this market remains clear. Balama is the current and future key to large scale sustainable supply of natural graphite in the battery supply chain ahead. We're also making strong progress towards becoming the 1st vertically integrated producer of natural graphite active anode material outside China. We believe our operation in Vidalia is the most viable and progressed alternative for U. S.
And European customers for large scale, localized and ESG verifiable natural graphite active anode material supply. These attributes are becoming increasingly important strategically and practically for governments, automakers and battery manufacturers. Slide 4 emphasizes our deep ESG credentials. Our ongoing supply chain interactions demonstrated rapidly increasing ESG focus and a degree of urgency amongst potential customers. We believe Cyra is very well positioned as the sustainability of battery raw material supply comes under increased scrutiny, given firstly, the superior environmental credentials of natural versus most synthetic graphite and secondly, the best practice environmental, social and governance standards embedded at Balama, Vidalia and across the Syrah Group broadly, for which we have received significant external recognition.
Importantly, Balama Supply, vertically integrated with active anode material at Vidalia will provide a source of supply that's 100 percent ESG verifiable, something that's currently challenging battery manufacturers and auto OEMs outside of China. It is difficult for consumers currently to get comfortable with the social, environmental and governance credentials of much of the Chinese produced material. And we believe that Syrah provides a clear solution and a superior ESG proposition in the supply chain. Moving to Slide 5 now to provide an overview on Syrah's Q1. Pleasingly, we reported at quarter end total recordable injury frequency rate of 0 at Balama.
And this is an outstanding continuation of the downward trend in Troopa that we've strived so hard for over the past 5 years. And importantly, it was achieved through a period of significant operations, maintenance and ramp up work during the quarter. We continue to focus on mitigating the risk of COVID-nineteen transmission to our workplaces and the communities in which we operate. And to date, we've had no cases of COVID-nineteen reported at Balama and operational continuity has been maintained. In the market, EV end user demand growth, the most important leading market indicator for Syrah, continued to strengthen in Q1 following a good second half in 2020 with forecast for EV sales in 2021 now approaching 5,000,000 units.
At Paloma, the easing of COVID-nineteen operational restrictions and strengthening market conditions demonstrated by increasing engagement with our established customer base led us to announce an intention to restart production. We made that announcement in February 2021 and production was recommenced in March ahead of schedule that we had planned and the ramp up is progressing very well. During March, Balama produced 5,000 tonnes of natural graphite and we shipped 2,000 tonnes of prior sales from inventory during the quarter. Also, a 5% interest in the Balama asset was transferred as planned to the Mozambique government in accordance with our mining agreement. At Vidalia, we achieved the key milestones of completing installation and commissioning of the carbonization furnace and transitioning the development projects to initial detailed design for the planned 10,000 tonnes per annum expansion of production capacity.
We're advancing the key Vidalia work streams across operations, customer engagement and qualification, project design, funding and product development to position for a final investment decision on the 10,000 tonne AAM facility in the second half of this calendar year, subject to customer commitments and funding progress. I'll now pass over to Steve to talk through some of the corporate elements and our balance sheet position as well as some market highlights.
Steve? Thank you, Sean, and good afternoon, everybody. Asyra ended the quarter with a strong cash position of US78 $1,000,000 which includes proceeds from the share purchase plan we completed in January. Alongside the institutional placement completed in December 2020, the company also announced at the time a share purchase plan to raise a target of AUD12 1,000,000 in January 2021. The SPP was heavily oversubscribed with Syrah receiving valid applications totaling AUD64 1,000,000 and the Board of Directors exercised discretion under the terms of the SPP to accept AUD18 1,000,000 in applications.
Excluding those SPP proceeds, Syrah cash outflow for the quarter was US10 $1,000,000 and included costs associated with transitioning from temporary suspension into ramp up at Balama and ongoing investment in operations and project design at Vidalia. We also benefited from a small amount of EAC recoveries during the quarter. The funding initiatives announced in the Q4 of last year has positioned the company well to execute our plans for 2021 and beyond with available liquidity to be used to manage the ramp up at Balama in an orderly manner and progress Syrah's natural gas pipe Actidano material facility in Vidalia towards the final investment decision for the 10,000 tonne facility in the second half of twenty twenty one. With consideration of the company's strong balance sheet position, greater visibility over near term Balama cash flows as the ramp up progresses and strengthening market conditions, we made the decision not to issue A28 $1,000,000 convertible note tranche with Australian Super prior to the 31st March. We retain the option however to issue a final A28 $1,000,000 convertible note tranche with Australian Suba before the 30th June.
We expect cash outflows in the Q2 to be higher than the Q1 with additional funding required for both Balama and Vidalia during the Q2. At Balama, we will continue to increase production levels, which generates a greater than normal working capital requirement given the cost of production being incurred in advance of the sales revenue inflows from that production. At Vidalia, we will be transitioning to the detailed design phase of the project. As we transition from Q2 to Q3, however, there will be a more balanced alumina revenue and cost profile as sales proceeds begin to align with production costs. On the Vallejo, we will be completing detailed design and subject to the investment decision process, possibly the construction phase, which is as yet unfunded.
We remain comfortable with the liquidity profile for the Balama ramp up and project related costs at Vallejo through the final investment decision for the project as evidenced by our decision to not issue a tranche of the convertible load at the end of March. Turning now to slide 6 to talk about the market. Slide 6 shows our fundamental leading indicator, which is global electric vehicle sales. Positive momentum in EV sales continued through the Q1 with global EV sales growing 140% year on year in the Q1 to over 1,100,000 units compared to less than 500,000 units in the Q1 of each of the preceding 3 years and growth also spread over the major geographies. Turning to Slide 7.
EV sales which I referred to earlier drives demand for graphite active anode material production. And certainly the increase in EV sales I referred to on the previous slide is clearly driving increasing demand for anode material with Chinese active anode material production averaging approximately 46,000 tonnes per month for the Q1 and more than double that of the same quarter in the prior year. Upstream raw material demand typically lags both EV demand and AAM reduction growth. However, we are certainly seeing a tighter natural graphite market balance. Improving contracting conditions are reflected in higher natural graphite prices and sales inquiries from both established customers as well as new opportunities.
In addition, strength of demand has been evident on an ex China basis from steelmaking and industrial markets as buyers seek long term contract volumes of reliable production and consistent quality. We anticipate positive momentum this year with continued EV model announcements from automakers and significant capacity expansions being executed by battery manufacturers. Of course, though the demand momentum will be positive for the continued ramp up of production at Balama towards our initial production targets and then beyond. I'll now pass it back to Sean.
Thanks, Steve. Moving on to Slide 8 now to provide a more detailed update on Balama during the Q1. We recommenced production at Balama in March ahead of schedule versus the expected lead time of 2 to 3 months from the restart decision that we made in February. The company announced its decision to restart Balama production following a temporary suspension of production from March 2020, primarily due to the impact of COVID-nineteen. The restart decision was predicated on the easing of COVID-nineteen restrictions in Mozambique, strengthening natural graphite market conditions and new inquiries and commitments from our established customer base.
These supportive restart conditions were sustained throughout the quarter and into this quarter. We've been very pleased with the restart progress, product quality, both the product mix and grade and plant recovery progressing according to the ramp up plan. Plant availability is approaching 100% and we've seen no major issues in operation, which is a testament to the preparedness and ongoing plant runs and maintenance work undertaken by the Balama ops team during the temporary suspension. The full logistics chain has taken some time to come up to speed, but is now well underway. And it's worth noting that a major container freight cost and availability challenge for Chinese exporters is providing advantage to Syrah as pressures are less evident in export from Mozambique and there's a need to reposition containers into some of the markets that we're selling into.
As I said, Syrah produced 5,000 tons of natural graphite at Balama during the quarter during a short campaign in March and will continue to run for discrete periods as we ramp up production in line with customer commitments, maximizing the efficiency of the operation. Natural graphite shipments from prior sales from product inventory were 2,000 tons at a weighted average price of US5.67 dollars a tonne during the quarter and dispatch of fresh production is underway this month. So I continue to see increasing customer inquiring and forward contracting across segments and geographies. Contracted predominantly to established customers with increasing volumes ex China demonstrating demand for Balama's high quality products and for supply security through the volume potential that we offer. The company is progressively increasing plant utilization and production volumes as we reinstate the full contingent of labor at Balama and with consideration of prevailing market demand and those leading indicators.
During the quarter, we hired 63 additional personnel at Balama, excluding contractors. And subsequent to the end of the quarter, we've hired another 97 personnel, taking our labor contingent of Balama to 380 people, excluding contractors. Importantly, 97% of the new hires are former employees of the company. The company is actively monitoring the security situation in the northern district of Cabo delgado province through various government community and commercial channels. There has been no impact on Syrah's operations, employees, contractors or the movement of people or goods in and out of Balama.
The company's security procedures, which regularly reviewed and updated are deemed appropriate. As I mentioned earlier, in accordance with the mining agreement, the 5% non diluting free carried equity interest in Syrah's in country subsidiary, Twig, was transferred to the Mozambique government during the quarter. The transfer reinforces the constructive relationship between Syrah and the government of Mozambique, and we look forward to continuing government support at national, provincial and local levels. Slide 10 and 11 highlight the progress we're making across multiple work streams at Vidalia toward our planned expansion to 10,000 tons active anode material production capacity. We achieved several milestones during Q1 at Vidalia, but strongly advanced our strategy of becoming a large scale supplier of AAM into ex Asian markets.
First, we installed and commissioned a furnace to be able to enable fully integrated active anode material to be produced at Vidalia. Until now, we've been producing purified spherical undertaking the mixing and coating of that material at Vidalia, but using an external provider for the final carbonization or heat treatment step. Installation of the furnace will see the full process integrated from Balama through active anode material from Vidalia to be dispatched to battery manufacturers and auto OEMs. And we're planning to dispatch on specification AAM from the furnace to potential customers this quarter to further advance our product qualification processes. AAM, as I said, has been produced by external carbonization of Vidalia Anode precursor for qualification since Q4 last year, and we're extensively engaged with multiple potential customers, both battery manufacturers and auto OEMs on qualification processes.
And feedback has been positive thus far supporting commercial discussions. Secondly, in conjunction with our engineering contract that we completed the front end engineering and design work and transitioning to the initial stages of detailed design and some long lead item initial purchasing for the planned 10,000 tonne expansion of production capacity at Vidalia. The FEED confirmed the assumptions and identified some improvements from the bankable feasibility study and has validated the robust economics of the project. Cyren's preferred construction contractor and contracting model will be selected during Q2. Turning to Slide 11, the company is progressing the evaluation of options to facilitate the development of Vidalia from potential partnership through required customer commitments and of course, the appropriate funding mix and sources for construction.
Greenhill and Co has been appointed as financial advisor to assist us in this process. Product development also continues to be a focus for Vidalia and we have a number of initiatives underway internally and with external partners to enhance the company's future product roadmap. We're committed to advancing and concluding the various work streams at Vidalia so that we're able to make the final investment decision on constructing the AAM facility sometime in the second half of this year, subject to custom commitments and strategic and financial work progressing. I want to reemphasize that 10,000 tonnes of production capacity is not the end game for us at Perdavia, but rather the next step. BFS assessed options for 10,000 tonnes and 40,000 tonnes of capacity.
And in time, we aim to expand production to 40,000 tonnes and beyond subject to the demand and customer commitments we can get in place. Discussions with potential customers are focused on the development pathway given the very significant demand expectations ahead. Slide 12 through the 17 provides some additional color on the progress we're making at Vidalia. As shown on Slide 12, the milestones during the quarter were installations of the furnace and transition to initial detailed design. On Slide 13, we've committed to undertaking detailed design for the planned expansion of the existing plant and infrastructure to 10,000 tonnes capacity, which can be achieved within the existing 25 acre industrial site we have in place.
We expect to be ready for a final investment decision for the construction of the facility in the second half. But as I said earlier, the exact timing is subject to customer commitments. We lay out in the milestone chart that a final investment decision to commercial production period is expected to be around 2 years. Project steps from today onward are largely dependent on that customer engagement and funding. Engineering and design work continues to provide a very strong base to work from and in conjunction with product qualification activities, we're well positioned for that strategic and financial cooperation to progress.
We're focused on securing high quality partnerships for Vidalia and we'll be ready to progress to FID from the second half subject to this progress. The 2 year lead time is dependent on that FID starting gun. With rapid demand expansion and clear supply concentration, we continue to push for accelerated support to fund investment decision to ensure capacity is available when it's needed by the market. Slide 14 re outlines the key outcomes of the BFS released during the Q4 of 2020 and highlights the financial proposition for Syrah's planned expansion of the facility. The Vidalia project is commercially attractive and unique in that it has a globally competitive cost structure that leverages our integrated production position as well as our scale and progress to date.
The BFS as we've outlined considered both the 10,040,000 tonne production scenario demonstrating the economic benefits of scale and production. Again, 10,000 tonnes is not the end game for us here, but the first step. As we show on Slides 15 to 17, we're well positioned to execute our strategy with a good site, which we own and which has all of the required attributes for expansion to large scale AAM production. We've invested in scaling up with commercial scale milling and shaping capacity installed, qualification scale, purification in place and now commercial scale furnace commissioned. This work just has not been done elsewhere outside of China and Asia and is therefore a key advantage for Syrah.
We know that this all takes time and that we learn through the process. And we have continued to show with Balama and Vidalia that whilst lab and pilot work are important, there is a long road behind us for other potential projects in scaling up to the production levels that we are achieving at the moment. Moving on to Slide 18 and 19. Tier 1 battery manufacturers in the U. S.
Like Tesla, LG and SK Innovation have announced significant new battery projects in country with LG and SK focused on service to key legacy automakers through the EV transition. This rollout must accelerate to meet OEM EV commitments and plans and consumer demand. It's forecast for U. S. Battery manufacturing capacity will triple to 145 gigawatt hours by 2024 and potentially reach 375 gigawatt hours by 2,030.
The Vidal facility will provide a commercial scale co located and long term AAM supply option with battery capacity as well as potentially for export into European markets. 10,000 tons AAM capacity at Vidalia equates to roughly 10% to 15% of the total graphite AAM required to support forecast 2024 North American battery manufacturing capacity. And therefore, it provides plenty of opportunity for further growth in the market as production capacity expands and allows us to benefit from the extensive Balama supply availability that would support an expansion of Pizzada. So finally on to Slide 20, the company has really turned a corner in Q1 with the upstream natural graphite market conditions improving and Balama production recommenced ahead of schedule. This in conjunction with our robust cash position and the various work streams being advanced at Badalia positioned the company well to become a sustainable supplier of quality graphite and AAM products, enabled and differentiated by vertical integration with the Tier 1 natural graphite operation of Balama.
Our planned milestones during the Q2 are to complete the reinstatement of full labor logistics and contractor capability for ramp up at Balama to increase plant utilization and production at Balama in line with market demand with a focus towards 15,000 tonnes per month later this year. Production of fully integrated on specification active anode material was targeted from Vidalia during the quarter to be dispatched to potential customers to further advance product qualification processes. We're also working to accelerate the evaluation of strategic and financial options at Vidalia in conjunction with those product interactions. Advanced we're seeking to advance detailed design at Vidalia for the 10,000 ton expansion production capacity and readiness for final investment decision and make a selection of our preferred construction contractor and contracting model at the day there. So we see significant momentum for the company in catalysts ahead and we're pleased to be progressing strongly into 2021.
And with that, I will move across to any questions.
Certainly. So ladies and gentlemen, we'll now begin that Q and A session. But we do have our first question. I'll first go to Mark from Foster Stockbroking. So please ask your question, Mark.
Yes. Hi, Sean. Good quarter. Yes, just a question on the ramp up at Bellama. You're obviously mentioning there in your summary looking to ramp up towards that 15,000 tonnes per month.
So I was just wondering, can you give us a bit more of a sort of a more definitive sort of time when you might reach that? Are you thinking maybe mid this calendar year or next month? I was just wondering if you can give some color on that.
Yes. Thanks, Mark. Look, we've been quite clear previously that announcing or forecasting our production plans is something that is not in our commercial benefit during negotiation periods. And as we've moved into a pretty intense period of contracting, forward contracting through Q1 and into Q2, we maintain that position. I think previously, we have made it fairly clear that being at 15,000 tonnes minimum production per month is where we seek to be for the cost base to be more sensible.
And certainly, we're seeking to get there relatively quickly but without inducing any oversupply in the market.
Right. Okay. But I guess the way that I guess you mentioned that the plant availability is getting close to 100%. So you're pretty happy with the way the ramp up is going operationally?
Yes, absolutely. There's no significant challenges at all from the operational perspective. We're really just being careful with ensuring that we manage our impact on the market balance. And as we've said previously as well, we were quite careful around waiting for strong market indicators, leading indicators before making that restart decision. So hopefully, that provides some context, particularly through very strong EV sales, record active anode material production, strong year on year steel growth continuing in the industrial markets that the demand profile ahead is supportive of us reaching that 15,000 tonne targeted production level relatively quickly.
Okay, great. Thanks,
Sean. Okay. We have another question on the line. I'll next go to Andrew Harrington from Petra Capital. So please ask your question, Andrew.
Good afternoon, gents. Thank you for your presentation. Can you give us a bit of color on the logistics chain from Balama to Louisiana as a sort of the ports, costs, etcetera?
Yes. We've previously outlined the cost structure and the capacities of the logistics chain. The trucking and warehousing to dispatch from Balama to Nakala is actually the highest cost component, single cost component of the C1 cost for the Balama operation. At Nakala, we have a significant warehousing and container packing and dispatch operation operated by our dedicated logistics contractor. We see freight via container shipping using standard shipping lines around the world from there and sell predominantly on a SIF basis.
We've been we've provided information previously around our sea freight costs averaging somewhere between $30 $40 a tonne depending on the mix of geographic locations. And it's worth noting at the moment that there is enormous disruption in the container freight market globally, particularly impacting people trying to export out of Asia to Europe, the U. S. And other locations. And we're actually benefiting from that disruption at the moment because container lines are seeking to reposition empty containers into Asia.
And as a result, we continue to see good competitive freight rates out of Africa into Asia. We can follow-up later on with the historical breakdowns on some of the logistics costs in country in Mozambique.
And from Mozambique to the Gulf, Mexico?
Yes. What about it, the availability or cost or
So yes, so $30 or $40 from Africa to Asia, but what about Africa to America?
The $30 to $40 is the average across destinations. Africa to the U. S. Is in the higher freight cost contributing to that average. And at the moment, it's not a significant proportion of the total global volume being shipped.
Because obviously, consumption through Vidalia at the moment is only part of the qualification process.
Okay. Thank you very much.
Thanks.
Okay. It appears we have no further questions at this stage. So I might hand back to you for now, Sean. Sorry, sorry, sorry. We do have one last minute question.
I'll next go to Daniel Fu, a private investor. Please ask your question, Daniel.
Hi, Sean. Can you talk about contingency plans in terms of supply when Rydala is up and running, given especially in terms of what happened in Mozambique recently?
Thanks for the question, Daniel. So obviously, as I said earlier, the lead time on final investment decision to production for Vidalia is around 2 years. So at this point, the focus is on the integrated Balama and Balama to Vidalia supply chain. It's important to note that at 10,000 tonnes active anode material capacity, the operation would consume around 18,000 tonnes of Balama Fine Scrapite. Historically, we've reached that sort of production level in a month, and that would be well under sort of 60% capacity utilization.
So we don't see a significant need for contingency planning. What I would say, however, is that we have retained right through the development and operational period very good links to existing operations and also other potential projects and we keep a very close eye on both potential commercial and operational cooperation that may be useful to us in the future. So we don't have any significant concern at this point around supply into Vidalia.
Thank you.
Okay. With that, there are no further questions. So I'll hand back to you for now, Sean.
Sorry, sorry,
we have one more question. I'll next go to Andrew Harrington from Petra Capital. Sorry, Andrew, go ahead.
Thanks for letting me get in there at the last minute. Can you talk through some of the remaining approval or that kind of regulatory requirements that are still necessary for Vidalia?
Yes, sure, Andrew. I mean, we'll talk just at a general level at the moment. Obviously, in selection of the site, we've had a forward eye on the required approval. So at the moment, environmental permitting, etcetera, is obviously in place for the existing operation. And the permitting requirements around that will be for expansion of capacity in volumes, whether that be the air or other emissions approvals.
But obviously, the design of the facility and the way the project is being put together is very much focused on those approvals. So we do not see a significant impediment on that front. And there's no other major approval areas other than the standard environmental approval processes that we need to go through.
So the existing facility there allows you to use their approvals for whatever the purpose is and processes?
The existing facility is appropriately permitted to its production levels As those planned capacity expansions come through, there's additional permitting requirements around the volumes that come from that capacity expansion, but the same permitting process that we've already been
through. And regardless of the composition of the waste or emissions or things like that?
Well, the process that we are putting in place for the commercial facility is the same as the process that we have in place for current qualification production that we are undertaking at the day. So there's no major change in composition of the emissions through the expansion process.
Okay. Thank you very much.
Thanks.
Okay. With that, there's no further questions. So I'll hand back to you for now, Sean.
Thanks very much. We appreciate the participation and attention today and look forward to continuing to keep everyone updated on progress through what should be an exciting Q2. Thank you very much.
Ladies and gentlemen, that does conclude today's conference call. Once again, thank you all for participating today. You may now disconnect.