Questions and Answers
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Operator [1]
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(Operator Instructions) Our first question comes from the line of Rahul Anand from Morgan Stanley.
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Rahul Anand, Morgan Stanley, Research Division - Equity Analyst [2]
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First one is around Balama. I just wanted to understand a couple of things. Firstly around, obviously, recoveries. We've seen them go backwards this time despite exiting the previous quarter quite strongly. Just wanted to understand what's changed. That's the first one around operations.
Second one. Sticking with Balama, I want to understand the fines and coarse split. What's causing that fines material to be elevated? You did mentioned that the ore feed is in line with the resource ore body. Just want to understand what's causing this to be elevated at this point in time?
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Shaun Verner, Syrah Resources Limited - MD, CEO & Director [3]
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In terms of recovery, we -- through Q1, we're broadly same level as Q4 last year. We -- one of the factors that impacted us through Q4 and early Q1 was the equipment operational stability, and that's -- equipment management has been a key focus along with process control, and we're seeing good improvement in that through the course of Q1. We've also been undertaking a series of trials of different blends, screening and floatation settings, which will benefit us on recoveries in the longer term. But in the short term, it means that we are trialing combinations and seeking to maintain that minimum 70% and working up from there. We had a very strong end to the quarter with recoveries much higher than the quarterly average, and that contributed to the March 19,000 tonnes result. So we certainly see some very positive momentum on that front.
The focus for recovery improvement from here continues to be twofold: one is equipment management and second is process control. Some of the key areas that we're looking at, at the moment, the shift to shift consistency of operations particularly in parameter controls, reagent dosing , et cetera, through flotation. Secondly, increasing liberation through primary milling and the separation of material from primary to secondary milling, which also goes to your second question around some of the challenges we're having with the coarse flake to fines split, and also looking at grinding media optimization in terms of recovery, but ensuring that all of the recovery actions that we take don't impact grade.
Looking at the coarse to fines flake split. I think it's important to put this in context in that the -- as the operation has started up over the last 12 months, the order of priority has been volume of material, carbon grade and then, thirdly, the coarse flake to fines split. And in terms of the operational parameters that has been the drivers. You can ask why that's the case. It's set up primarily around throughput volume to achieve contractual obligations in that first year. Now that we focus more on the coarser to fines split having achieved a greater level of consistency in production, we are looking at a number of actions to preserve flake size. The first is around milling and what material is sent from primary to secondary milling and the preservation of the flake through that process. And then 2 areas of screening: one, the wet screening, the Derrick screens, which are in the -- or through the flotation process; and then secondly, disengage screens, which is the dry screening of products right at the end of the process.
And at the moment, it's worth noting that our products has a higher proportion of large flakes in the particle size distribution across the different products and equivalent products in the market. So essentially, there is opportunity through the dry screening first to optimize that and increase the coarse flake ratio.
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Rahul Anand, Morgan Stanley, Research Division - Equity Analyst [4]
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Okay. Understood. And then if we talk about offtakes for this year, how are they tracking? And sort of what's your offtake level of production for this year? And how much are you expecting to sell on spot?
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Shaun Verner, Syrah Resources Limited - MD, CEO & Director [5]
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Yes. So we're on track is at the moment for an 80-20 split of term contracts and spot. The renewal of term contracts is something which continues through the course of the year. It's not done on an annual calendar year basis as we continue to settle contracts through last year and we continue to add to those and settle new contracts this year. So both the progression of contract volumes and the expansion of the customer base is continuing well. And we see no challenge at this point to the achievement of that 80-20 split.
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Rahul Anand, Morgan Stanley, Research Division - Equity Analyst [6]
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Right. And then if you talk about prices for a minute. I mean, some of the commentary in the report did cite volume demand continued to be the strongest in China during Q1, and then you also had a seasonally weaker production because of the winter months and Chinese New Year. Yet if we look at the prices in the market, both spot and otherwise in terms of achieved, they haven't really reacted in that fashion where you have a tightening in supply and a strong demand period. Just would like to understand, sort of, what are your key takeaways from the market situation currently?
And then the second part of that question is around Chinese exports. I mean, you are still forecasting Chinese to reduce exports in the second half this year. How have you seen exports evolve in the first quarter this year versus last year?
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Shaun Verner, Syrah Resources Limited - MD, CEO & Director [7]
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So let me take the second question first, Rahul. It's not necessarily that we expect Chinese exports to decrease, it's we expect the net position between imports and exports to move to a net import position. Now partially, that's obviously driven by the increase in our volumes going into China, but that's -- part of the reason that's occurring is that there is a strong quality differentiation both from a carbon grade perspective, [TST] perspective and also in purity. So that's the comment really that I was making around the -- that differentiation in products and net imports being driven by quality parameters rather than just in equal volume.
In terms of the overall market and pricing, pricing has remained relatively stable between Q4 and Q1. You can look at that 2 ways. One is that the prices are below expectations or if you look at it from the perspective that in 12 months, 100,000 tonnes of additional production has gone into the Chinese market and prices have not declined, which gives a strong degree of confidence from my perspective that the market growth is absolutely there, particularly in the battery segment given that we're moving primarily fines into that market. I think what we're seeing is a short-term balance around the pace of which our production is growing and exports to China are growing against the pace of demand. And as I've said, both last quarter and this quarter, we are watching that very, very closely, literally week to week to ensure the best way to continue to increase production. We manage that balance against the volume demanded.
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Rahul Anand, Morgan Stanley, Research Division - Equity Analyst [8]
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Yes. I guess an important dynamic of that is to just to understand whether the exports related to flake in China are actually starting to decline at the expense of spherical increasing. And that's what I was trying to sort of get at in the first question, if you have any clarity on that.
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Shaun Verner, Syrah Resources Limited - MD, CEO & Director [9]
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Yes. I think Chinese export statistics are -- and imports statistics for that matter are always challenging in terms of material classification. Certainly, spherical exports to Japan and Korea have increased significantly through Q4 and Q1 of this year.
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Rahul Anand, Morgan Stanley, Research Division - Equity Analyst [10]
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Right. Just a final question then. The TSF wet to dry. Firstly, the reasons behind that. Any safety concerns? And then secondly, OpEx/CapEx implications, how should we think about it?
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Shaun Verner, Syrah Resources Limited - MD, CEO & Director [11]
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Yes. Absolutely, no safety concerns, this is not being driven by anything from that perspective. We're taking a look over the last 12 months at the opportunities around wet deposition versus dry for our stacking, and the significant reduction of CapEx over the life of the projects. If you look at the speculated causes of the incidents in Brazil primarily around the size or height of the lifts on those dams at 5 meters, and the fact that it appears the deposition continued during the period of the lifts. At Balama, we have a very good topography, no seismic activity. We have a very conservative wet deposition. Operating plan, lifts planned at 2.5 meters, and there is nowhere in the plan where we would be undertaking deposition during lifts. So the driver has been purely to start looking at the life of mine CapEx implications. And we're not in a position at this point to comment in detail on CapEx and OpEx, but that will be part of the process as we finalize our investment position in the coming months.
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Operator [12]
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(Operator Instructions) Our next question comes from Michael Slifirski from Crédit Suisse.
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Michael Slifirski, Crédit Suisse AG, Research Division - MD [13]
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First of all, the March month, I think you've quantified as being the strongest, 19,000 tonnes. Was that achieved through recovery or throughput? And was there anything within that month that wasn't sustainable from a forward-looking perspective?
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Shaun Verner, Syrah Resources Limited - MD, CEO & Director [14]
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Thanks, Mike. Thanks for asking your easy question. Certainly, March, the recovery results particularly in the second half of the month were very, very positive, and there's nothing that we see in that performance that's not able to be replicated and carried forward. Throughput through the quarter was high, obviously, given the recovery levels that we saw, but the March performance was driven very much by operational stability and improved recoveries in the second half of the month.
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Michael Slifirski, Crédit Suisse AG, Research Division - MD [15]
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Okay. Then an extension to that, as you ramp up the plant to design, why are you confident that recovery will continue to improve? In that normally, when a plant is [lazy] and has plenty of flotation capacity, then you get good performance. And as it becomes a little bit more saturated, you can see some deterioration. So I'm just trying to think about the trade-off between pushing more through the plant, greater utilization of what's available versus the trend of projected of improving recovery?
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Shaun Verner, Syrah Resources Limited - MD, CEO & Director [16]
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The short answer to the question is a long answer. It's basically a process by which we have reviewed in detail every step in the process flow sheet and identified where we believe, at this point, that the recovery losses are occurring. There is a bridge program through the course of this year around equipment management and process control addressing each of those areas. Now the challenge with that is that there's no one large problem with recovery. We have a number of areas that we need to improve around milling, secondary grinding flotation through screening in the flotation process. The very positive aspect of that is that, that work has been done, and the program is in place. And Julio Costa, our COO, is driving that program very hard, and that's been indicative of some of the chart work that's been going on through the coarse of this quarter. So the confidence we have is around the identification of the opportunities and the work being done to capture those opportunities in a systematic fashion.
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Michael Slifirski, Crédit Suisse AG, Research Division - MD [17]
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Okay. And with respect to March quarter pricing, can you sort of quantify in terms of the order of significance, what the most significant influences on the -- that average price were? Was it the base spot price? Was it the adverse coarse to fines ratio? The geographic destination? The legacy contracts? I'm just trying to get an idea of what the materiality of each of those drivers.
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Shaun Verner, Syrah Resources Limited - MD, CEO & Director [18]
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Yes. Certainly, the coarse to fines ratio is the single biggest mover in our control in the short term to lift the weighted average price received. And grade is probably the second. Now the reason I say that is just the differentiation in pricing exists in the existing contracts that we had in place. So performance from a coarse flake ratio perspective and a grade perspective is immediately able to be placed into those existing contracts. Therefore, we can capture that price. In terms of outright or base price, as I said earlier and in an answer to Rahul's question, we haven't seen a lot of difference between Q4 and Q1 despite the significant increase in volume going into that market. Legacy contracts did have an impact in Q1, will have some impact in Q2, but essentially that is less important than those first 2 factors of the coarse flake ratio and grade.
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Michael Slifirski, Crédit Suisse AG, Research Division - MD [19]
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Okay. And then finally, with respect to the recent reserve statement, I was so intrigued. I couldn't understand how you managed to reduce the cutoff grade, but in the context of lower pricing, lower recovery and increased life of mine strip ratio, each of those would, I have thought, meant a higher cutoff grade, but you somehow delivered a lower cutoff grade. So how was that achieved?
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Shaun Verner, Syrah Resources Limited - MD, CEO & Director [20]
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The primary driver for the lower cutoff grade has been the inclusion of material with a higher ratio of coarse flake. So the combination of carbon grade through the different areas of the resource, and better identification of the coarse flake ratio in the lower grade material. So that's the primary driver for that cutoff grade decline.
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Operator [21]
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(Operator Instructions) Your next question comes from the line of Glyn Lawcock from UBS.
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Glyn Lawcock, UBS Investment Bank, Research Division - MD, Head of the Australian Mining & Energy Team and Research Analyst [22]
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Just wondering if you would be able to help with pricing for Q1, if it had been unencumbered by legacy contracts? I'm just trying to understand where pricing could have been if you weren't encumbered by the legacy? Just trying to understand where the market is right now for your product. Thanks if you're prepared to give, sort of, help and guidance on that.
And then secondly, just -- I mean, I guess it sounds like a little bit cash flow positive in Q2 now has slipped a little bit based on your commentary around where the market is, your ramp up, your cost, et cetera. Just -- I know you can't give too much detail around the debt facility, but I'm just curious to understand if I look out now, there's lower cash balance at the end of June, possibly sounds like lower cash balance at the end of September based on your commentary. But obviously, the cash burn reducing. How much do you -- are you prepared to see the balance sheet come under stress before you feel comfortable about either putting the debt facility in place, or something else in case the trajectory is still not going the right way?
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Shaun Verner, Syrah Resources Limited - MD, CEO & Director [23]
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Yes. Okay. So in terms of price, I mean, our original guidance for the quarter was between $500 and $600, and we had a very strong degree of confidence around that, around the parameters of coarse flake ratio and grade and contracts. So unencumbered by some of the challenges that were based on those factors, I would've said no challenge to a number of well with inside -- well within that range.
And I think the important piece is that the grade differentiation in contracts continues to become more prevalent. So we are seeing significant interest in the potential for 98% material. Obviously, our focus at the moment is stability around 95%, 96% material and making sure that we're incentivized to produce 98% material particularly if it's going to be a recovery trade-off around it. So from that perspective, I have a good degree of comfort around where the basket price, the weighted average price would sit unencumbered by all those issues.
In terms of the cash balance, as I said earlier, we're attempting to -- on a number of fronts, drive that positive operation cash flow as quickly as we possibly can, and price realization cost management and overall volume is absolutely critical. I think the progression and the amount of work that we've done through the quarter on debt options is significant. As David said, we're not in a position to give a view on -- further on that at this point in time. But last year, when we did the equity raise in September, we sought to protect around $40 million cash balance that we had in place at that time, it was a buffer. And working extremely hard to stay around that level of the minimum as we push the 3 operational focus areas in terms of volume, price and cost as well as pursuing those financing options.
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William Morgan, [25]
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Shaun, 2 questions. 1 just on acceptance time for spherical and secondly, process control. Just with addressing the second one first, process control. Just interested in the skills base in Mozambique and the professional capacity there to experiment with the different screening and flotation mixes that you talked about. I mean, obviously, it's something that you're doing in a programmed manner, but is it something that's due to the novelty of the production? Or is it the -- to do with a lack of expertise? Or other?
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Shaun Verner, Syrah Resources Limited - MD, CEO & Director [26]
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So we see no challenge with -- of the skills based from the perspective of investigating, trialing and assessing both processes from a coordination and leadership perspective. In terms of operational shift to shift transfer and implementation of management of those parameters, yes, it is a growing skills base. So the team are getting better and better every day, and that's really something that has impacted us over the last 12 months, but we've made some very good improvements around leadership in the field. And we control the management of those processes.
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William Morgan, [27]
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Right. So there's no sense of -- there's no resources or external help needed that you can't procure to get to country? I mean, you can get what you need, I guess, is my key question?
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Shaun Verner, Syrah Resources Limited - MD, CEO & Director [28]
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Yes
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William Morgan, [29]
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Just with the first 6 months, you indicated the spherical acceptance. Just in terms of that actually translating into cash, given the experience you've had with, what I'd call, upstream processing, just -- I appreciate it's not as significant, but just in the sense of the rewards from that and how that might -- your evolution of how that might play given now that you've got a better feel for product acceptance through the flake -- for the flake product and what that means for converting spherical into cash.
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Shaun Verner, Syrah Resources Limited - MD, CEO & Director [30]
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Yes. I think the spherical qualification process is a far more bespoke process. So you're in direct communication, iterations around product specifications with those customers. So as you meet those specifications and adjust for meeting their product requirements it has a very good possibility of translating to sales contracts from that perspective. And we're being quite careful about who we're targeting on that front.
In terms of the timing of that, it really goes to the existing contractual commitments of those potential customers and the their foreplans. So that's going to be very different for each customer, but we've certainly obviously looked at first, shipment of material to customers that we believe have growing demand and the potential to take that up sooner rather than later.
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Glyn Lawcock, UBS Investment Bank, Research Division - MD, Head of the Australian Mining & Energy Team and Research Analyst [31]
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Okay. So just -- appreciate the buffer of this $40 million that you were trying to safe harbor. But just -- is there any -- I appreciate the significance is -- I don't think it's going to be significant, but just in the sense of an upside surprise on the cash delivery from spherical, I guess, that can provide that cash buffer, some extra protection?
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Shaun Verner, Syrah Resources Limited - MD, CEO & Director [32]
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We're certainly not banking on that, William. It's very much focused on Balama cash flow at this point in time and minimizing any cash going through BAM. But as soon as we can get cash flow through the value, we'll do so, and we're very much running the operation off minimal additional cost to ensure that we do as much as we can from a qualification perspective for as little spend as possible.
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