AGM meeting notes

Notes from the May 26 SYR AGM, Nototel Hotel, Collins St Melbourne. Apologies for the delay, had to sell a car!

New venue, new month and a cold rainy day kept numbers below the last couple of AGM's. Attendance maybe 80 (?)

General comment: There wasn't much new information released at the meeting, either in the presentations or 'between the cracks'. We are only 6 months from the last AGM so that is understandable. It was good to catch up with a few people and pick up the vibe of the place though. The vibe inside SYR seems to be very positive on all fronts, operationally, corporately, structurally (Board) and in the all important area of sales/marketing. There was an increased focus on the long term (3, 5, 10 years) building of a sustainable business over previous presentations that were more focussed on feasibility studies, financing, proving the product and the market.

Jim Askew opened the meeting:

• Introduced board members. Jose Caldeira was the only director not present. The new board member, Dr Christina Lampe-Onnerud, is clearly a major coup and brings crucial new skill sets to the board. Sam Riggall was introduced with “invaluable guidance from Sam during his one year as a director” which reinforced my impression and gave the CLQ side of me a warm fuzzy feeling (!). Sam sat next to Christina and while they didn't gossip during the meeting I am sure they have a lot they could talk about.
• There were significant votes against the remuneration/options resolutions which Jim addressed, saying that SYR is a “global company that just happens to be based in Australia”, Mercer had provided advice to get the remuneration structure to “an appropriate level to attract the talent that is required”, “Tolga Kumova had been paid lower than people he was employing and the change wasn't about Tolga per se, it was about paying the CEO at an appropriate level”, “took a while to get the contract into place as Tolga was so busy so when it came into effect it was always going to be retrospective, to catch him up”
• One attendee got up and spoke against the remuneration resolutions, even invoking the name of Warren Buffet, and Jim treated him and his comments with courtesy and respect. I thought he addressed the subject adequately but note that the gentleman and one other still voted against the resolutions. Considering the numbers present and the negative votes lodged before the meeting, only two hands raised against the resolutions shows strong support for the boards decisions. Always easier when the share price is heading North of course...
• The total board remuneration pool is being increased not only for a modest increase in existing stipends, but to allow for adding more skill sets to the board: “the board has been too small for where we want to go”, “needs 6 or 7 directors”, “for where this company could go we are very conservative”, “there will be a further director more skill sets”. The expanded board and skill sets will allow more committees (eg. Sustainability) and faster decision making as new skill sets are available (e.g. Dr Christina is expert in the Spherical Graphite battery related area)

Tolga Kumova:

• “… where this company can go in 3, 5, 10 years” (Focus long term)
• Spoke glowingly of Dr Christina, an “idol”of his. “When she decided to join us it was high fives with Jim”. Spoke of her contribution already over the last couple of days and her contribution to the strategy discussions for “going downstream” and she “opened the boards eyes for how to create value”. Referenced her experience with Boston Power, China etc. “Christina can help us position as a key supplier in a new energy industry”. She will also help with “risk mitigation sustainable growth”.
• Balama is a tier 1 asset. It is a Pilbara. Graphite is not a tier 1 commodity yet though. 40 years of reserves but you could multiply that many times - we just need to put the geologists to work. It is the worlds largest of something. “We want to be the custodians of the asset”
• Chinese partner have produced the spherical graphite that has been qualified by 3 battery makers. Reports coming back are that it is the best. The Balama graphite has some unique characteristics coming from how it was formed. Took 2 years for the qualification process, it is no short order and is a big thing.
• The quality and quantity of Balama graphite means that customers don't need to look elsewhere. The customers are dragging us – they want it (in volumes that exceed any analyst forecasts). The risk committees at these customers can sign off on SG supply.
• Balama is one of the most strategic assets on the planet for grid storage, new energy industry
• “We want to create as much value as we can. Don't want to risk your $”
• Will be the lowest cost producer of flake graphite
• Regarding remuneration, SYR need to attract top talent to develop the “biggest of something”. Dr, Christina could get multiples elsewhere. Tolga is a significant shareholder and “that is how I get paid”
• Jims comment to me when he joined was you need to get a superstar COO and CFO. This was the introduction to Darrin Strange

Darrin Strange (COO):

• Darrin talked about “building the biggest graphite plant in the world”, including a detailed fly through of the whole processing plant. The fly through reinforced how far developed the project is as the rendered objects were real designs and real things being delivered to site and built. We are well past the 'selling a story and getting financing' stage. It is happening for real, and big time. The images of the bagging shed with the hundreds of bags and the truck loading were a bit exciting, seeing the level of detail it is all designed down to. Of course it has to be done to this level, but the fly through was a nice way to reinforce it.
• Storage bin holds 12 hours of material. Flotation circuit is conventional but large. 5,000 bags in the shed. 30 trucks per day. Etc. Lots of good detail.
• Balama East pit for the first couple of years then the Balama West pit will be brought on stream. Balama West is being stripped now.

Tolga Kumova closing and questions:

• “No longer and idea, it is happening. In2017 production starts, ramps up and we get paid for what we are doing”
• Producing 5 different products
• The is already some tension between refractory customers and battery demand. There was a price spike in flake that was refractory customers ordering stockpiles to protect themselves against demand coming from the battery side. Both sides need secure product for their supply chain.
• We are thinking how to expand, and as the lowest cost producer are in the box seat to supply whatever is needed. “We are a solution to risk committees of new industries”. Expansion not in 2017 or 2018 but...
• Balama is a tier 1 deposit that will still be there in 100 years.
• “The board wont risk your money or the deposit”. Chistinas advice to the board will be important for this.
• This (EV's and grid storage) is like a freight train coming towards us. An electric freight train
• Today 60-70% of anodes are natural graphite, trend will continue to favour natural graphite because of cost advantage. Quality/technical improvements in the natural graphite are also relevant, as is the amount of energy required to produce synthetic graphite. In a green industry the energy required for synthetic graphite production is a problem. i.e. It is not only a price advantage for natural graphite.
• Thinks the projections of analysts for SG demand are all too conservative. Has an email from one Chinese customer saying 80K tonnes could be taken. Chinese government policy driven. “We are seeing more demand from customers than the wildest analyst predictions”.
• “Let's talk about Elon...” First name basis (!) ;-) He is surrounded by super smart people and Christina knows all of them.
• Tolga showed his car head side, and to cut a long story short you should buy a Telsa model 3 instead of a Porsche 911 Carrera Turbo. Not sure if the Porsche dealership will thank Tolga for that next time he heads in for his service ;-)
• Most graphite producers use large flake for SG because of purity requirements. The Balama graphite characteristics mean sub 100 micron, down to 30 micron, flake is used. Quality/purity/characteristics make this possible and it is ideal from a SG manufacturing perspective. Our spheres are superior.
• We are getting 50% yields
• Roads to the Nicala port are excellent. Korean and Italian built.
• Pemba is building a new larger port. We will need to double or triple capacity in 5 years so we may use Pemba in the future
• Power for the plant. Diesel initially for reduced project risk reasons, but looking to go more green. Prices for greener options are coming down.
• Vanadium. Balama is the worlds biggest vanadium deposit as well, but the focus is on delivering the worlds largest graphite project first. Vanadium will be sent to the tailings initially. The world needs the grpahite.
• Spherical graphite plant: A number of projects underway in regard to this. “Product qualification”, “Maximising project cash flows”... Our science team have a bunch ideas to improve the SG product but it will take time to qualify.
• Initially flake graphite will be sold to others to turn into SG. There are 13 people in a booth in a trade show in China selling fine flake. “Interest is dwarfing Elon's demand”
• Delay item for the SYR SG plant is the mill. Plant will be modular, designed to increase 5k tonnes as required
• With regards to competitors: Product qualification is hard, Sphere quality is so important. “I'll believe it when I see it”.
• Regarding giving back to the local people in Mozambique: “This is part of what drives me”. Tolga spoke passionately about improving the lives of the locals and giving them jobs, including to a cook who put him in hospital for 7 days and now manages the core cutting shed. *Probably good to get him out of the kitchen! “We have a licence to market their soil”, “So important”, “Darrin and David are doing a lot, including managing expectations”.
• Tailings dam question (re: BHP in Brazil): Tailings dam designed by Worley Parsons is lined and designed to withstand a 1 in 100 year flood. Rhett Brans noted there is also a spillway so there would be no damage to the plant. Jim noted that this type of subject is one for the sustainability committee and that he has been around a lot of tailings dams in his time.

Meeting closed at 12:35pm

Where I have used quotation marks above it means “words something close to this” were used. No recording was made, just some rough notes. Everyone quoted retains deniability

Onwards and upwards,

MrCurly