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Syrah Resources LtdSYRAH RESOURCES
Level 28, 360 Collins Street
Melbourne VIC 3000 Australia
P +61 3 9670 7264
enquiries@syrahresources.com.au
www.syrahresources.com.au
THE FUTURE
OF GRAPHITE
A N N U A L R E P O R T 2017
CORPORATE
DIRECTORY
Directors
Share registry
James Askew Non-Executive Chairman
Shaun Verner Managing Director and Chief
Executive Officer (appointed 3 February 2017)
Sam Riggall Non-Executive Director
José Manuel Caldeira Non-Executive Director
Christina Lampe-Onnerud Non-Executive
Director
Stefano Giorgini Non-Executive Director
(appointed 16 October 2017)
Rhett Brans Non-Executive Director
(ceased 31 December 2017)
Company secretary
Jennifer Currie (appointed 16 October 2017)
Melanie Leydin (ceased 30 November 2017)
Registered and corporate
offices
Corporate Head Office - Melbourne
Syrah Resources Limited
Level 28, 360 Collins Street
Melbourne VIC 3000
Telephone: +61 3 9670 7264
Email: enquiries@syrahresources.com.au
Website: www.syrahresources.com.au
Dubai Office
Syrah Global DMCC
Office 22F, Gold Tower, Cluster I,
Jumeirah Lakes Towers
Dubai, United Arab Emirates
Telephone: +971 4244 5955
Email: marketing@syrahresources.com.au
Mozambique Office
Twigg Exploration and Mining Limitada
Av de Marginal, Paulo Samuel Kankhomba
Predio Bahar, 1º Andar-Esquerda, Pemba
Cabo Delgado, Mozambique
Telephone: +285 27220713
SYRAH RESOURCES > ANNUAL REPORT 2017
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Telephone: 1300 850 505 (within Australia)
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Website: www.computershare.com.au
Auditors
PricewaterhouseCoopers
2 Riverside Quay
Southbank VIC 3006
Solicitors
Gilbert + Tobin
Level 22, 101 Collins Street
Melbourne VIC 3000
Stock exchange listing
Australian Securities Exchange
(ASX Code: SYR)
American Depository Receipts
(Ticker Symbol: SRHYY)
CONTENTS
COMPANY PROFILE
2017 HIGHLIGHTS
CHAIRMAN’S LETTER
MANAGING DIRECTOR & CEO’S LETTER
DIRECTORS REPORT
AUDITOR’S INDEPENDENCE DECLARATION
FINANCIAL STATEMENTS
DIRECTORS’ DECLARATION
INDEPENDENT AUDITOR’S REPORT
ADDITIONAL ASX INFORMATION
PAGE
1
2
3
4
6
42
43
89
90
96
COMPANY
PROFILE
OUR VISION
Syrah will be the world’s leading supplier of superior
quality graphite products, working closely with customers
and the supply chain to add value in battery and
industrial markets.
OUR VALUES
Syrah is committed to:
> WORKING SAFELY at all times
> PARTNERING WITH
STAKEHOLDERS for community and
environmental sustainability
> INTEGRITY and FAIRNESS in all our
business dealings
> Being ACCOUNTABLE for our
decisions and actions
> SETTING GOALS and supporting
people to achieve them
We will work as a team and act like
owners to deliver shareholder value.
1
2017
HIGHLIGHTS
BALAMA GRAPHITE
PROJECT
> First flake graphite production achieved
in November 2017 and first fines
production in December 2017
> Construction and ore commissioning
essentially complete
> Transitioned from Project Development
to Operations from 1 January 2018
SALES AND MARKETING
> Further diversification of the sales book
by geography and end-use market
> First sales contract to the battery anode
material market
> First major exporter of natural graphite
to China
BATTERY ANODE
MATERIAL (BAM)
PROJECT
> BAM processing facility detailed
design progressed, commercial supply
negotiations and procurement of long
lead time equipment progressing
> Testing and benchmarking of the
electrochemical properties of battery
anode materials produced using
Balama material completed
CORPORATE
> Successfully completed A$110 million
capital raising in October 2017
> Board and Management teams
strengthened with new appointments
2
SYRAH RESOURCES > ANNUAL REPORT 2017
CHAIRMAN'S
LETTER
Finally, the Board thanks our management
team for all they have achieved in 2017, a
momentous year for Syrah which has brought
the incredible Balama geological deposit to
account for commercial operation down through
many decades in the future, their engagement
with the host communities, and the adherence
to world standards of safety and environmental
compliance. The addition of a BAM facility in
2018 will drive Syrah further into the value
supply chain and potentially beyond, as we seek
to maximise returns to stakeholders.
James Askew
Chairman
Another year of progress and change is behind
Syrah and the Company continues to deliver on
the strategy of becoming the global base load
provider of premium quality natural graphite.
2017 was notable for the commencement of
production at the Balama Graphite Project
(Balama), further equity financing of Syrah and
the comprehensive buildout of a management
team with sales and marketing capabilities for
global products, plus the assembly of a small
US team to manage the design and construction
of our planned Battery Anode Material (BAM)
facility in Louisiana.
The progress in our delivery of both Balama and
Louisiana was slower than hoped. However, the
Board observes that the rigorous commitment
to delivery of safe, high quality operations has
never been compromised. While much of this is
quantitative, the basis for the achievements and
progress reflects a strong culture of teamwork
and enormously hard work building a plant at
Balama which has never been done before.
I have now been your Chairman for the last three
years. It is important to recall a Board decision
made before Balama construction commenced
two years ago; this was to commence
construction before a few components of
the plant had been fully designed, based on
a strategy that ongoing bulk metallurgical
tests would likely enable refinement to some
areas of the plant design and thus improved
product quality. The latter has proven to be
the case. This drove a choice of construction
contracting relying on owner management and
subcontracting of each major work area. The
early subcontracts went well, however, much
of the delay and cost overrun in the delivery
of Balama was attributable to the slower
than planned contractor productivity in the
completion of structural steel erection, piping
installation and electrical work.
The equity financing decision made during 2017
was balanced against debt offers which were
considered detrimental to the future of Syrah,
for they were very restrictive to our optionality for
growth and the downstream BAM strategy. Also,
being fully funded and debt-free has afforded
the sales and marketing team better leverage as
they continue to deliver firm sales contracts for
Balama graphite product.
The appointment of Shaun Verner as your
Managing Director and CEO in February 2017
represents a milestone for Syrah. After an
exhaustive global search, we found the right
candidate internally, which meant a smooth
transition from his role managing Sales
and Marketing. The progress since made in
establishing a strong performance culture,
management systems and controls and a world
class marketing team augers well for the future
of Syrah.
At Board level, there was the addition of Stefano
Giorgini as a Non-Executive Director. Stefano
joined in late 2017 to augment our Board
skills in financial and risk management, and
was subsequently appointed as Chairman of
the Audit Committee. He brings a lifetime of
international experience in these areas from a
storied career at BHP. Rhett Brans who was our
longest serving director finished his time with the
Board at the end of 2017. Rhett had oversight
of the Balama design and construction, aligned
with his long career in plant construction. With
the completion of Balama construction, we
thank Rhett for his guidance through a period of
great change at Syrah.
We anticipate that there will be an addition of at
least one more Non-Executive Director in 2018,
for we see a specific need to expand the skills
of your Board in the downstream battery anode
technology and strategy. Syrah has evolved
from a small Melbourne-based IPO to becoming
a global player in the industrial minerals and
renewable energy/electric vehicle space
and we need to continue to evolve the Board
accordingly.
3
MANAGING DIRECTOR
AND CEO’S LETTER
It is my privilege to present the 2017 Syrah
Resources Limited (Syrah or the Company) Annual
Report to shareholders, my first as Managing
Director and CEO having been appointed on
3 February 2017, in a year of remarkable
development and transition for the Company.
I joined Syrah in October 2016 for three key
reasons. Firstly, the Balama Graphite Project
(Balama) in Mozambique is simply an outstanding
asset – its size, quality and life are unlike anything
seen before in the graphite industry. With first
quartile cash costs and high volumes, Syrah is
well positioned to become the largest supplier of
high quality natural graphite globally. Secondly,
Syrah provides the chance to be a cornerstone
of the energy storage revolution that is sweeping
consumer and vehicle markets globally. And,
thirdly, joining the Company at a pivotal point in
time affords the opportunity to drive the culture of
a new organisation from project into operations,
and onward into research, development and
value-added products.
I am grateful to the previous CEO Tolga Kumova,
and our current Chairman Jim Askew, who fulfilled
the role of Executive Chair for a short period,
before reverting to Non-Executive Chairman upon
my appointment. Their foresight and vision in
funding and developing an operation of this scale
in an industry that had not previously seen such
development is the basis on which shareholder
value will be derived.
Syrah has underpinned the Balama development
with the highest standards of health, safety and
environmental control from the commencement
of the project. We continue to focus very strongly
on the development of health and safety
leadership, particularly given the developing
nature of our local workforce. Safety remains
the highest priority and our commitment is
reflected in the outstanding safety performance
record at Balama, ending the 2017 year with a
Total Recordable Injury Frequency Rate (TRIFR)
of 0.8, a significant improvement compared to
2.5 at the end of 2016, and noting the peak
construction workforce of more than 2,300
personnel onsite. The Balama team also ensured
that over 200 environmental licence conditions
were met, with no significant issues recorded
in 2017. As Balama ramps up operations, the
4
focus shifts to implementing the health, safety
and environment routines, processes and
systems that will drive ongoing performance
improvement.
Our aim is to ensure our local communities
in which we operate are engaged and benefit
from the Company’s operations. Over 90% of
our employees at Balama are Mozambican
nationals, including a large number from
our eight local host communities. On site
we have high quality, experienced and
well trained Mozambican professionals in
leadership positions. Training and development
opportunities have been provided, resulting in
many local people entering stable employment
for the first time.
Based on our fundamental value of partnering
with stakeholders for community and
environmental sustainability, various community
programmes continued to progress during
the year. This included implementation of
community health initiatives, development
of the Balama Training Centre curriculum,
completion of remediation works on the
Chipembe Dam, ongoing provision of clean
water to a number of local villages, and a large
scale irrigation and agricultural program which is
well advanced.
Balama is a long life asset, and relationships
with our host communities are paramount
to our success. We will continue to work with
communities and government to ensure
sustainable operations at Balama are founded
on mutual benefit.
Our strategic goal is the be the pre-eminent
supplier of flake graphite and the Company
achieved a significant milestone with the
commencement of operations at Balama in Q4
2017. Reaching this milestone was not without
its challenges given the aggressive construction
timeline, the location of the project and the
scale compared to any previous graphite
development.
Whilst the increase in budget and extended
timeline did not meet our expectations, the
owners team focussed on ensuring that plant
construction was of an extremely high standard
at handover to the operations and maintenance
teams. This included commissioning of the seven
sections of the processing plant, completion of
over 300 construction verification packages and in
excess of 10,000 checklist items prior to handover.
Despite the challenges in construction, it is a credit
to the commissioning and operations team that
Balama has transitioned from development into
operations quickly, smoothly and safely.
This is a critical period for the Company and whilst
challenges can arise during the commissioning
of a new plant and in production ramp up, we
remain focussed on optimising the processing
plant to achieve planned recoveries and stabilising
plant production to achieve our production and
operating cash cost targets at Balama.
Graphite sales commenced shortly after initial
production, with a mix of sales and qualification
product shipped during January 2018 with further
regular shipments scheduled. First revenue was
received in February 2018. Our experienced
sales and marketing team remains focussed on
diversification of the sales book, selling natural
flake graphite into all geographies and sectors of
the market. In 2017, we were pleased to announce
additional binding sales agreements for Balama
graphite. This included sales directly into the
Chinese battery anode material (BAM) market,
representing the first significant import of natural
graphite into China – an important milestone and
signal given China’s current dominance of global
graphite supply. Pricing for graphite is bespoke
with bilateral agreements not based on any index
or benchmark prices. As interaction with our global
customer base evolves and product qualification
and sales progress, price discovery will develop
further.
Syrah is well placed to become the first truly global
graphite supplier, with sales into China, USA,
Europe, Japan, Korea, Brazil and the Indian sub-
continent, across all major segments including
BAM, traditional steelmaking, industrial markets
and expandable graphite.
Our other strategic goal is to be the first integrated
BAM producer outside of China using Balama
natural graphite as a key raw material. Syrah’s first
mover advantage with high value added product
aims to provide the global supply chain with a key
source of diversification.
SYRAH RESOURCES > ANNUAL REPORT 2017 During the year we made significant advances
in our development of research, technology,
engineering and commercial arrangements for
entry into the BAM market. In conjunction with
Cadenza Innovation Inc. in Connecticut USA,
testing and benchmarking of Syrah BAM products
against market leading products has progressed
very well, and the development of our value add
product roadmap is underway.
The engineering design and procurement for the
first phase of our planned Louisiana BAM plant
advanced quickly in the second half of 2017
and we were well advanced with commercial
negotiations for a BAM facility in Port Manchac,
Louisiana. Post year-end, the South Tangipahoa
Parish Port Commission in Louisiana reversed
support for our development, and whilst this is a
disappointing outcome, we have quickly identified
a range of alternative sites, and are poised to
move quickly upon site selection being finalised.
The majority of the work completed to date will
be transferable to an alternative site. We remain
focussed on the target of producing commercial
BAM products by the end of 2018.
We expect global natural graphite demand growth
to be driven by the increase in electric vehicles
over the coming years. Global electric vehicle
(battery and plug in) sales in 2017 were up 54%
to 1.2 million units which is the first time over
1 million electric vehicles have been sold in a
year, with China accountable for the majority
of the sales growth. Our regular discussions
and engagement with major anode and battery
manufacturers, and their commitments
to capacity expansion, indicates graphite
dominance in anodes for the foreseeable future.
With the sharp rise of artificial graphite prices
during 2017 anode manufactures are increasingly
focussed on costs and the ratio of natural to
artificial graphite used in their formulations. The
quality of Balama graphite and consistent long
term supply places Syrah in a leading position to
capture this additional demand.
The composition of the Executive and Operational
Management Teams was significantly
strengthened in 2017. Rob Schaefer was
appointed in February as Chief Commercial
Officer with accountability for marketing
strategy, outbound logistics, and strategic
supply contracts, bringing over 20 years of
resource industry experience. Rob has driven
the development and expansion of Syrah’s
sales book over the year. Jennifer Currie was
appointed as Chief Legal Officer and Company
Secretary in October. Jennifer brings extensive
legal and company secretary experience and is
responsible for managing Syrah’s governance,
risk and compliance requirements across our
growing global remit. Jennifer replaces Melanie
Leydin who provided tremendous support to
Syrah throughout her five years as Company
Secretary.
Darrin Strange, our Chief Operating Officer (COO)
resigned from the Company and left at the end
of November. Darrin was integral to driving
Balama from engineering through construction
and into successful commissioning over the
last three years. Darrin, in conjunction with our
Chief People Officer, Jordan Morrissey have
established a highly capable operations team
led by our Balama General Manager, David
Griffith, who has over 20 years of mining and
operations experience. We have commenced
a global search for a new COO. I would like to
thank Darrin and Melanie for their contributions
to Syrah.
With the completion of construction and the
transition to operations and sales, Syrah closed
its Perth office, centralising corporate activity in
Melbourne, and opened a Global Marketing hub
in Dubai in 2017. Along with recruitment for our
BAM activity in the USA, we have a committed
and outstanding team in place to support
Syrah’s growth.
In September, Syrah successfully completed a
A$110 million equity raise with strong support
from our institutional and retail shareholders.
The Company ended the year with US$112
million in cash and remains disciplined with
spend as we enter operations. Maintaining
a strong balance sheet to see Balama to
operational positive cash flows, and to support
development of our strategic opportunities in
BAM is a key priority.
Syrah’s focus on enhancing shareholder value
has entered the exciting transition to operations,
and the potential shareholder value in the BAM
market has only just begun to be explored.
Only through the successful commissioning and
profitable operation of Balama will we underpin
and earn the right to further invest in the future of
the Company. Our immediate objectives are to:
> Optimise the Balama process plant and
ramp up to ~70% of nameplate capacity by
the end of 2018, continuing the consistent
performance in grade >95% fixed carbon
and particle size distribution
Capitalise on the potential for price
differentials, through the successful
installation and commissioning of attrition
cells to consistently produce graphite of up
to 98% fixed carbon
Continue to evolve the diversified customer
base for Balama natural graphite by
geography and market segment as
production increases and successful
customer qualification is completed
Ensure Balama is operationally cash flow
positive as early as possible in H2 2018
Select a BAM site, complete installation
and commence production, targeting
commercial production by the end of 2018
Capitalise on the Balama first mover
advantage with a review of Balama
expansion and optimisation opportunities.
>
>
>
>
>
The Board of Directors and Management Teams
of Syrah Resources are incredibly focussed on
delivery against our commitments in production,
cost, cashflow and development. The team
is dedicated to delivering strong shareholder
returns over the long term. I would like to
take this opportunity to thank our investors,
stakeholders, local community, government and
most importantly our employees for their support
during 2017, and I look forward with great
optimism to the Company’s future development.
Shaun Verner
Managing Director and Chief Executive Officer
5
DIRECTORS’
REPORT
DIRECTORS
The following persons were directors of Syrah
Resources Limited during the financial year and
up to the date of this report, unless otherwise
stated:
James Askew
Non-Executive Chairman (Executive Chairman
from 5 October 2016 to 3 February 2017)
Shaun Verner
Managing Director and Chief Executive Officer
(appointed 3 February 2017)
Sam Riggall
Non-Executive Director
José Manuel Caldeira
Non-Executive Director
Christina Lampe-Onnerud
Non-Executive Director
Stefano Giorgini
Non-Executive Director
(appointed 16 October 2017)
Rhett Brans
Non-Executive Director
(ceased 31 December 2017)
INFORMATION ON
DIRECTORS
The information on Directors in office as at the
date of this report is as follows:
James Askew
Non-Executive Chairman
Experience and expertise: Mr Askew is a
mining engineer with over 40 years broad
international experience as a Director and Chief
Executive Officer for a wide range of Australian
and international publicly listed mining, mining
finance and other mining related companies.
He has had a continuous involvement with the
African mining industry since 1985.
Other current directorships in listed entities1:
Chairman of OceanaGold Corporation, Non-
Executive Director of Evolution Mining Limited,
Non-Executive Director of Endeavour Mining
Corporation
Former directorships in last 3 years2:
Chairman of Asia Minerals Resources Limited,
Non-Executive Director of Nevada Copper
Corporation
Special responsibilities: Member of the
Remuneration and Nomination Committee,
Chairman of the Sustainability and Risk
Committee
Interest in shares and options:
SECURITIES
Ordinary shares
Options over ordinary shares
NUMBER
100,790
600,000
Length of service: 3 years and 5 months
Shaun Verner
Managing Director and Chief Executive Officer
(appointed 3 February 2017)
Experience and expertise: Mr Verner is a
proven senior executive with extensive general
management and cross-functional commercial,
operations, supply chain, and leadership
experience. He was appointed Managing
Director and Chief Executive Officer on 3
February 2017, after joining the Company on 24
October 2016 as Executive General Manager -
Sales and Marketing. Prior to joining Syrah, Mr
Verner was at BHP Billiton Limited for 20 years
in a variety of executive roles, with extensive
international commercial and operational
experience across a range of commodities
including copper and base metals, uranium and
thermal and metallurgical coal.
Other current directorships in listed entities1:
None
Former directorships in last 3 years2:
None
Special responsibilities: Managing Director
and Chief Executive Officer
Interest in shares and options:
SECURITIES
Ordinary shares
Options over ordinary shares
Performance Rights
NUMBER
6,284
1,000,000
121,773
Length of service: 1 year and 2 months
6
SYRAH RESOURCES > ANNUAL REPORT 2017 DIRECTORS’ REPORT (CONT')
Christina Lampe-Onnerud
Non-Executive Director
Experience and expertise: Dr Lampe-Onnerud
is based in the USA and is an authority on
battery system innovation and design with
20 years of experience in the research and
development and commercialisation of
Lithium-ion battery technologies for consumer
electronics, electric automotive and energy
storage applications. She was the founder of
Boston-Power, Inc., a developer of high-energy,
cost-effective, longer-lasting and safer battery
“building blocks”. She has also held senior roles
at Bridgewater Associates, LP, Arthur D. Little
and Bell Communications Research, Inc.
Other current directorships in listed entities1:
None
Former directorships in last 3 years2:
None
Special responsibilities: Member of the
Remuneration and Nomination Committee
Interest in shares and options:
SECURITIES
Ordinary shares
Options over ordinary shares
NUMBER
Nil
400,000
Length of service: 1 year and 10 months
Sam Riggall
Non-Executive Director
Experience and expertise: Mr Riggall was
previously Executive Vice-President of Business
Development and Strategic Planning at
Ivanhoe Mines Limited. Prior to that he worked
in a variety of roles in Rio Tinto Limited for
over a decade covering industrial minerals,
project generation and evaluation, business
development and capital market transactions.
Other current directorships in listed entities1:
Chief Executive Officer of CleanTeq Holdings
Limited
Former directorships in last 3 years2:
None
Special responsibilities: Chairman of the
Remuneration and Nomination Committee,
Member of the Audit Committee
Interest in shares and options:
SECURITIES
Ordinary shares
Options over ordinary shares
NUMBER
9,627
400,000
Length of service:
3 years and 5 months
José Manuel Caldeira
Non-Executive Director
Experience and expertise: Dr Caldeira is
a highly experienced legal and regulatory
professional with over 25 years experience in the
legal industry. He is one of the most prominent
lawyers in Mozambique and is currently a senior
partner at Sal & Caldeira Advogados, Lda in
Mozambique, one of the leading law firms in
Mozambique.
Other current directorships in listed entities1:
None
Former directorships in last 3 years2: None
Special responsibilities: Member of the Audit
Committee, Member of the Sustainability and
Risk Committee
Interest in shares and options:
SECURITIES
Ordinary shares
Options over ordinary shares
NUMBER
Nil
400,000
Length of service: 3 years and 7 months
Stefano Giorgini
Non-Executive Director
(appointed 16 October 2017)
Experience and expertise: Mr Giorgini is a
finance executive with over 30 years experience
in senior finance, risk and assurance,
governance, business development and
commercial roles in the international resource
and metals manufacturing industries.
During his career with BHP Billiton Limited,
responsibilities included Vice President
Finance/ CFO for the Aluminium, Manganese
and Nickel Business and Head of Group Risk
Assessment & Assurance.
Mr Giorgini was formerly Chairman of BHP
Marine & General Insurances Pty Ltd and has
held executive director roles for numerous
international resource ventures based in
Australia, South America and Africa including
Mozal Aluminium.
Other current directorships in listed entities1:
None
Former directorships in last 3 years2:
None
Special responsibilities: Chairman of the Audit
Committee, Member of the Sustainability and
Risk Committee
Interest in shares and options:
SECURITIES
Ordinary shares
Options over ordinary shares
NUMBER
10,000
400,000
Length of service: 5 months
(1)
(2)
‘Other current directorships’ quoted above are current
directorships for listed entities only and excludes
directorships in all other types of entities, unless
otherwise stated.
‘Former directorships in the last 3 years’ quoted above
are directorships held in the last 3 years for listed
entities only and excludes directorships in all other
types of entities, unless otherwise stated.
(3)
Information as at the date of cessation as a Non-
Executive Director of the Company.
7
DIRECTORS’ REPORT (CONT')
COMPANY
SECRETARY
Jennifer Currie
(appointed 16 October 2017)
Chief Legal Officer and Company Secretary
Experience and expertise: Ms Currie is an
experienced ASX listed General Counsel and
Company Secretary, who has worked across
a broad range of industries. Her previous role
was General Counsel & Company Secretary for
Capitol Health Limited. She has also held the
role of General Counsel & Company Secretary
for the Baker Heart & Diabetes Institute and
PRB Foods Limited, and her other in-house legal
experience includes Medibank Private Limited
and Telstra Corporation Limited.
She is a Chartered Secretary and a Fellow of
the Governance Institute and ICSA and holds
a Bachelor of Commerce, a Master of Laws
and a Graduate Diploma in Applied Corporate
Governance.
PRINCIPAL
ACTIVITIES
The principal continuing activities of the Group
during the year consisted of:
>
Construction, commissioning and
production ramp-up of the Balama Graphite
Project in Mozambique;
> Development of sales and marketing
arrangements with targeted customers;
>
Continued assessment of the use of high
quality graphite from the Balama as an
input into the production of battery anode
material and industrial products; and
> Development and execution of a
downstream, battery anode material
strategy
DIVIDENDS
There were no dividends paid, recommended
or declared during the current financial year or
previous financial year.
INFORMATION ON
FORMER DIRECTORS
Rhett Brans
Non-Executive Director
(ceased 31 December 2017) (3)
Experience and expertise: Mr Brans has
over 40 years of experience in the design and
construction of mineral treatment facilities. His
experience extends across the full spectrum
of development activities, ranging from mining
feasibility studies through to commissioning
operations. He has also managed the
development of several gold and base metal
projects.
Other current directorships in listed entities (1)
Non-Executive Director of Carnavale Resources
Limited
Former directorships in last 3 years (2):
Non-Executive Director of RMG Limited, Non-
Executive Director of Monument Mining Limited
Special responsibilities: Chairman of the
Remuneration and Nomination Committee,
Member of the Audit Committee, Member of the
Sustainability and Risk Committee
Interest in shares and options (3)
SECURITIES
Shareholdings
Options
NUMBER
4,000
400,000 (4)
Length of service: 4 years and 3 months
(1)
(2)
‘Other current directorships’ quoted above are current
directorships for listed entities only and excludes
directorships in all other types of entities, unless
otherwise stated.
‘Former directorships in the last 3 years’ quoted above
are directorships held in the last 3 years for listed
entities only and excludes directorships in all other
types of entities, unless otherwise stated.
(3)
Information as at the date of cessation as a Non-
Executive Director of the Company.
(4) These options were granted in 2014 and expired on
30 January 2018 as a result of his cessation as a
Non-Executive Director.
8
SYRAH RESOURCES > ANNUAL REPORT 2017 DIRECTORS’ REPORT (CONT')
REVIEW OF
OPERATIONS
OPERATING AND
FINANCIAL REVIEW
CONSOLIDATED RESULTS
All financial data presented in this report is
quoted in United States Dollars (US$) unless
otherwise stated.
Statement of comprehensive
income
The loss for the consolidated entity after income
tax for the financial year ended 31 December
2017 was $12.3 million (2016: $14.5 million).
Revenue for the year ended 31 December 2017
comprised of interest income of $1.3 million
(2016: $1.3 million) and was earned on cash
reserves placed on term deposits during the
period, following the successful capital raisings
completed in June 2016 and September 2017.
Other income of $2.6 million for the year
(2016: $0.1 million) primarily consisted of
a non-recurring $1.2 million profit on the
sale of previously written-off mobile mining
equipment, and net foreign exchange gains of
$1.5 million (2016: $3.2 net exchange loss)
on foreign currency denominated transactions
and balances principally as a result of the
strengthening of Mozambique meticals (MZN).
Total expense for the year were $14.8 million
(2016: $15.8 million), and included the
following:
>
>
Employee benefits expense of $7.6 million
(2016: $7.3 million), of which $2.0 million
(2016: $3.7 million), were ‘non-cash’
share-based payment costs associated
with issuance of shares, options and
performance rights to directors, executives
and senior employees;
Legal and other consulting expense of $3.7
million (2016: $2.8 million) associated
with documentation of key commercial
agreements, consulting services in relation
to consideration of financing options and
development of corporate functions;
> Depreciation and amortisation of corporate
and administration assets of $0.3 million
(2016: $0.3 million); and
> Other expense of $3.3 million (2016:
$2.3 million) comprising general corporate
administration costs.
The overall increase in costs for the year
ended 31 December 2017, compared to the
comparative period, adjusted for the foreign
exchange loss, is a result of the increase in
general business activities as the consolidated
entity completed the construction of the
Balama Graphite Project in Mozambique and
the continued development of organisational
structures and capabilities towards the
commencement of operations.
The consolidated entity’s comprehensive
income for the year ended 31 December 2017
included a non-cash gain of $6.6 million
(2016: $3.9 million loss) on translation of
foreign subsidiaries, specifically translation of
the holding company’s financial statements
from Australian dollars (A$) to United States
dollars (USD) presentation currency, with the
gain attributable to the strengthening of the A$
during the period. The functional currency of
Twigg Exploration and Mining Limitada changed
from Mozambique meticals (MZN) to USD during
the period on the basis that the USD is the
currency that will predominantly influence the
ongoing activities of the entity.
Total comprehensive loss attributable to
shareholders of Syrah Resources Limited for the
year was $5.7 million (2016: $18.4 million).
Statement of financial
position
Total assets of the consolidated entity as at 31
December 2017 were $418.5 million (2016:
$330.0 million), with the increase principally
as a result of the successful completion of
a fully underwritten $86.6 million (A$110
million) capital raising, by way of an Institutional
Placement and an Entitlement Offer (‘the capital
raising’) at A$3.38 per share, completed during
the year (refer ASX announcement dated 19
September 2017).
The consolidated entity’s cash and cash
equivalents as at 31 December 2017 were
$111.9 million (2016: $163.3 million) and
working capital, being current assets less
current liabilities, was $101.0 million (2016:
$152.4 million). The net reduction in cash and
cash equivalents and working capital, is a result
of the continuing investment in the development
of the Balama Graphite Project and the Battery
Anode Material (BAM) Project.
Development and construction of the Balama
Graphite Project continued during the period,
with first production of saleable flake graphite
achieved in November 2017 and fines graphite
in December 2017. Production ramp-up is
currently underway. Mining assets increased
to $273.5 million as at 31 December 2017
(2016: $155.3 million) with additional project
costs of $112.6 million capitalised during the
year (including provision for rehabilitation), and
the remainder of the increase due to foreign
exchange differences upon translation. The
capitalised project costs for the period represent
construction and development costs, as well
as capitalised pre-production operating costs
incurred in the commissioning and production
ramp-up phase of the project.
Property, plant and equipment as at 31
December 2017 was $9.0 million (2016: $1.7
million), with the majority of the balance being
BAM project development costs (assets under
construction). The balance at the end of the year
included laboratory equipment (net book value
of $1.3 million) sourced through a finance lease
arrangement with a service provider.
Non-current trade and other receivables
increased during the year to $19.6 million as
at 31 December 2017 (2016: $5.8 million)
with the increase mainly driven by Value Added
Tax (input tax) credits paid on Balama Graphite
Project construction costs of $16.3 million
(2016: $5.8 million). The Group views these
input tax credits as ultimately recoverable and
continues to work with relevant authorities in
Mozambique to recover these amounts. The
consolidated entity also placed a deposit of
$2.7 million as security for an environmental
guarantee of a similar amount issued in favour of
the Ministry of Mineral Resources and Energy in
Mozambique.
The consolidated entity had total liabilities of
$25.8 million as at 31 December 2017 (2016:
$19.3 million), which included trade and
other payables of $13.9 million (2016: $14.5
million); a provision for decommissioning and
rehabilitation for the Balama Graphite Project
of $8.3 million (2016: $4.5 million); and lease
liability of $1.3 million (2016: nil). The lease
liability is secured against the leased assets.
Net assets of the consolidated entity increased
during the financial period to $392.6 million as
at 31 December 2017 (2016: $310.7 million)
mainly as a result of the capital raising, net of
the comprehensive loss for the period.
Statement of cash flows
Cash flow from operating
activities
Net cash outflow from operating activities for
the year ended 31 December 2017 was $10.7
million (2016: $7.1 million), and principally
consisted of employee benefits expenses,
legal and other consulting costs, and general
corporate administration costs. Net cash flow
9
DIRECTORS’ REPORT (CONT')
from operating activities includes interest
received during the year of $1.2 million (2016:
$1.3 million).
Cash flow from investing
activities
Net cash outflow from investing activities
was $127.0 million for the year (2016:
$109.9 million) and principally consisted of
development and construction works for the
Balama Graphite Project, as well progression of
the BAM project.
Cash flow from financing
activities
Net cash inflow from financing activities
was $85.1 million during the year ended 31
December 2017 (2016: $140.5 million) and
principally consisted of proceeds received from
the successful capital raising completed during
the year, net of transaction costs.
SEGMENT REVIEW
BALAMA GRAPHITE
PROJECT (BALAMA)
Financial summary
The segment result for the year was a net gain
before tax of $0.9 million (2016: $0.1 million)
due to a net non-recurring gain on disposal of
previously written-off mobile mining equipment
and an exchange gain principally arising from
exchange rate movements between US dollar
(USD) and Mozambique metical (MZN) partly
offset by administration expenses. The MZN
strengthened against the USD during the
year, resulting in an unrealised net foreign
exchange gain of $2.0 million (2016: 1.7 million
loss), principally from MZN denominated VAT
receivables.
Balama segment total assets were $299.6
million as at 31 December 2017 (2016: $164.1
million), principally comprised of mining assets
of $273.5 million (2016: $154.4 million); and
trade and other receivables of $22.9 million
(2016: $9.0 million) consisting of prepayments,
security deposits and input tax credits. The
increase in mining assets during the period
represents construction and development
costs, as well as capitalised pre-production
operating costs incurred in the commissioning
and production ramp-up phase of the Balama
project. An additional $3.9 million of capital
expenditure for Balama was committed to as at
31 December 2017 but not recognised on the
balance sheet (2016: $30.5 million).
10
The Balama capital costs budget (excluding
prior exploration costs, provision for
decommissioning and restoration and pre-
production operating costs) increased to
$215 million during the year, with $211.0
million committed by 31 December 2017. The
remaining capital costs will be used to complete
remaining works such as installation of attrition
cells in 2018.
Below are the key activities and achievements at
the Balama Graphite Project during the financial
year.
Sustainability
Health and Safety
Health and safety is the highest priority for the
Company, in particular given the developing
nature of the Company’s local workforce.
Syrah continued its strong health and
safety performance at the Balama Graphite
Project (Balama) with a Total Recordable
Injury Frequency Rate (TRIFR) of 0.8 as at 31
December 2017, a significant improvement
from 2.5 as at 31 December 2016.
In conjunction with the District Health
Authorities, Syrah continued implementation
of community health programs addressing high
prevalence diseases during the year.
Community Development
As at 31 December 2017, Syrah had 567 direct
employees in Mozambique of which 90% are
Mozambican nationals. The Company plans to
further increase the local employment numbers
during 2018 and estimates a steady state work
force at full production of approximately 650
people.
During the year, Syrah, in conjunction
with Mozambique’s national training and
development body, the National Institute of
Employment & Professional Training & Labour
Studies (IFPELAC), signed the Balama Training
Centre Memorandum of Understanding. The
aim is to train 500 members from the local host
communities in basic artisan training, work
readiness and health promotion over the next
five years.
Remediation works on the Chipembe Dam
operating infrastructure, providing major
improvements to the local community including
valve and road access repair were completed.
This work will lead to a net water storage benefit
for the Chipembe Dam of up to 50,000 cubic
metres of water per day, even after the drawing
of Syrah’s annual allocation.
In support of the Provincial Government’s
agricultural plans for the Balama District, the
Company advanced its work on the extensive
rehabilitation of irrigation infrastructure adjacent
to the Chipembe Dam and completed the
clearing of 4.5 kilometres of irrigation channels
and the cultivation of approximately 600
hectares of land in preparation for crop planting.
The Company continued the ongoing provision
of water to a number of local villages,
and commenced the provision of power
infrastructure to select host communities in
conjunction with the national grid provider.
Environment
In 2017, the Environmental Monitoring Program
continued with over 200 environmental
license conditions met with no significant
incidents reported. Monitoring programs
including measurement of surface and ground
water quality, ambient noise, dust levels,
geo-hydrology, background radiation and air
quality continued as part of the Company’s
Environmental Monitoring Program.
As at 31 December 2017, the Company has
placed in favour of the Ministry of Mineral
Resources and Energy (MIREME) in Mozambique
a bank guarantee totalling $2.7 million in
relation to the rehabilitation or removal of
project infrastructure for the Balama Project as
per the mining closure plan. The total amount of
this bank guarantee will increase to $6.2 million
over time.
Mining Agreement
Negotiations in relation to a Mining Agreement
for the Balama Project were finalised during
the year following its approval at the Council of
Ministers weekly ordinary session meeting held
on 29 August 2017 in Mozambique.
The Mining Agreement consolidates all prior
project documents and approvals and provides
the Company with clarity around the governing
laws and contractualises the mining rights
and other obligations for the Balama Project in
Mozambique.
Subsequent to year end, the Company
announced that the Mining Agreement was
signed by the Minister of Mineral Resources
and Energy, on behalf of Government of the
Republic of Mozambique, and Syrah’s wholly
owned subsidiary, Twigg Exploration and Mining
Limitada, on 6 March 2018.
In accordance with ordinary administrative
procedures, the final step in the process is
for the Mining Agreement to be presented to
the Administrative Court in Mozambique for
sanctioning after which it will be binding and
enforceable.
SYRAH RESOURCES > ANNUAL REPORT 2017 DIRECTORS’ REPORT (CONT')
Graphite Mineral Resources and Ore Reserves Estimate
Competent Person’s Statement
A JORC Code (2012 edition) compliant Mineral Resource estimate using a 3% TGC cut-off has been
determined by Snowden Mining Industry Consultants (Snowden) as shown in the following table as
released by the Company on 29 May 2015.
Table 1: Mineral Resource estimate at 3% TGC (1) cut-off grade
CLASSIFICATION
Balama West
Measured
Indicated
Inferred
Balama East
Indicated
Inferred
Total
Measured
Indicated
Inferred
Table 2: Ore Reserve estimate at 9% TGC (1) cut-off grade
CLASSIFICATION
Balama West
Proved
Probable
SUB TOTAL
Balama East
Probable
SUB TOTAL
TOTAL
Proved
Probable
(1) TGC = Total graphitic carbon
TONNES
(Mt)
TGC (%) (1)
CONTAINED
GRAPHITE
(Mt)
75.0
110.0
460.0
76.0
470.0
75.0
186.0
930.0
ORE
(Mt)
20.0
2.6
22.5
58.8
58.8
20.0
61.4
81.4
11.0
8.1
11.0
14.0
10.0
11.0
11.0
11.0
8.4
9.1
51.0
11.0
49.0
8.4
20.1
100.0
CONTAINED
GRAPHITE
(Mt)
TGC (%) (1)
19.2
17.5
19.0
15.1
15.1
19.2
15.2
16.2
3.8
0.4
4.3
8.9
8.9
3.8
9.3
13.2
The information in this report as it relates to geology, QAQC
and Mineral Resource estimation was compiled by Mr
Mark Burnett, Pri. Sci. Nat., who is a Competent Person
and a Principal Consultant at Snowden Mining Consultants
Pty Ltd. Mr Burnett has more than 20 years of experience
in the activities being reported on and has sufficient
expertise which is relevant to the style of mineralisation
and type of deposit under consideration and to the activity
undertaken to qualify as a Competent Person as defined in
the 2012 Edition of the ‘Australasian Code for Reporting of
Exploration Results, Mineral Resources and Ore Reserves’.
Mr Burnett consents to the inclusion of this information
in the form and context in which it appears in this report.
The information in this report that relates to Syrah Balama
Ore Reserves is based on information reviewed or work
undertaken by Mr Anthony Finch P Eng, MAusIMM (CP),
RPEQ, a full time employee of Snowden Mining Industry
Consultants Pty Ltd. Mr Finch has sufficient experience
which is relevant to the style of mineralisation and type
of deposit under consideration and to the preparation
of mining studies to qualify as a competent person as
defined by the JORC Code (2012). Mr Finch consents to
the inclusion of this information in the form and context in
which it appears in this report.
11
DIRECTORS’ REPORT (CONT')
A Mineral Resource and Ore Reserve upgrade for the Mualia Zone, Balama West, was prepared
in accordance with the guidelines of the JORC Code (2012) as released by the Company on 15
November 2016. The Probable Ore Reserve estimated by The MSA Group Pty Ltd (MSA Group) is
based on the optimised open pit mine plan for the Mualia Zone, whilst taking into consideration the
same mine planning parameters used for the Balama East and West open pits in the Feasibility Study
completed by Snowden Mining Industry Consultants in May 2015. Since Inferred Mineral Resources
are not used in Ore Reserve estimates, the Probable Ore Reserve is based on, and inclusive of,
Indicated Mineral Resources only.
The Mualia Probable Reserve estimation, based on the Resource of the same zone (Table 3), is
displayed in Table 4.
Table 3: Mualia, Balama West Mineral Resource estimate at 5% TGC (1) cut-off grade
CLASSIFICATION
Indicated
Inferred
TOTAL
TONNES
(Mt)
42.1
87.5
129.6
TGC (%)(1)
18.0
17.1
17.4
Table 4: Mualia, Balama West Ore Reserve estimate at 9% TGC (1) cut-off grade
CLASSIFICATION
Probable
TOTAL
(1) TGC = Total graphitic carbon
TONNES
(Mt)
33.1
33.1
TGC (%) (1)
17.5
17.5
CONTAINED
GRAPHITE
(Mt)
7.6
14.9
22.5
CONTAINED
GRAPHITE
(Mt)
5.4
5.4
Competent Person’s Statement
The information in this report as it relates to geology,
QAQC and Mineral Resource estimation was compiled
under the supervision of Mr Jeremy Witley Pr. Sci. Nat.,
Principal Consultant at The MSA Group (Pty) Ltd. Mr Witley
is registered with the South African Council for Natural
Scientific Professions (SACNASP) and is a Fellow of the
Geological Society of South Africa (GSSA) (both are a
“Recognised Professional Organisation” by the ASX). He
has more than 5 years of experience in the activities being
reported on and has sufficient expertise which is relevant
to the style of mineralisation and type of deposit under
consideration and to the activity undertaken to qualify as
a Competent Person as defined in the 2012 Edition of the
‘Australasian Code for Reporting of Exploration Results,
Mineral Resources and Ore Reserves’. Mr Witley consents
to the inclusion of this information in the form and context
in which it appears in this report.
The information in this report that relates to Syrah Balama
Ore Reserves is based on information reviewed or work
undertaken by Mr Anton Ferdinand von Wielligh Pr Eng,
registered with the Engineering Council for South Africa
and a Member of the Southern African Institute of Mining
and Metallurgy, both are a “Recognised Professional
Organisation” by the ASX. Mr von Wielligh is a consultant
working for The MSA Group (Pty) Ltd. Mr von Wielligh
has sufficient experience which is relevant to the style of
mineralisation and type of deposit under consideration
and to the preparation of mining studies to qualify as a
competent person as defined by the JORC Code (2012). Mr
von Wielligh consents to the inclusion of this information in
the form and context in which it appears in this report.
Governance and Controls
Statement
The Company engaged independent consultants
to prepare the mineral resource and reserve
estimates.
The consents by the Competent Persons
remain in place for subsequent release by the
Company of the same information in the same
form and context, until the consent is withdrawn
or replaced by a subsequent report and
accompanying consent.
The Company has reviewed all material
assumptions and technical parameters
underpinning the estimates in the original ASX
announcements and notes that during the 2017
year mining depletion was minimal, such that
the material assumptions continue to apply
and have not materially changed. The Company
confirms that the form and context in which the
Competent Persons’ findings are presented have
not been materially modified from the original
ASX announcements.
12
Mining
Processing Plant
A 25 year Mining Concession (licence to mine)
was granted in 2013 for the Balama Project,
with a further extension of 25 years available.
During the year, the mining contractor achieved
excellent operational performance with the
completion of the initial mine development
and pre-stripping activities. Stockpiling of
mineralised ore onto the Run of Mine (ROM)
stockpile commenced well in advance of
the commencement of commissioning and
production ramp-up activities.
By the end of the year, steady state ore mining
was occurring and plant feed grades were
averaging approximately 15% total graphitic
carbon. A small section of hard rock cap will
require drill and blast during the first half
of 2018. Mining is expected to be free dig
thereafter.
Significant progress on the process plant was
achieved with construction and commissioning
activities essentially complete by the end of
the year. The Balama processing plant uses
conventional processes including:
>
>
>
>
>
>
>
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Primary crushing & crushed ore storage
Recycled crushing
Primary milling
Flotation and attrition
Secondary milling and classification
Filtration
Flake and fines drying
Product classification and bagging
Commissioning activities commenced in May
2017 as planned, however slower than planned
completion of Structural, Mechanical and Piping
(SMP), Electrical and Instrumentation (E&I) and
minor fabrication delays combined with some
design and installation issues requiring re-work
caused delays to first production of coarse
flake graphite from August 2017 to November
SYRAH RESOURCES > ANNUAL REPORT 2017 DIRECTORS’ REPORT (CONT')
2017. Despite these challenges, construction
was essentially complete and the full ore circuit
for coarse and fine flake was successfully
commissioned by the end of the year.
First production of bagged saleable coarse
flake product was achieved in November 2017
and fines flake in December 2017 with product
grades in excess of 95% fixed carbon and
particle size distribution within specification.
The construction and commissioning teams
have been demobilised and handover of the site
to the operations team occurred on 1 January
2018. The operations team is now focussed on
optimising the process plant, including minor
plant design enhancements to achieve planned
recoveries and stabilise plant production.
The plant is operating according to a continuous
7 days a week, 24 hours per day roster, with
planned maintenance and optimisation outage
periods scheduled periodically.
Attrition cells have been added to the Balama
process flow sheet to produce up to 98% fixed
carbon. Higher selling prices can be achieved
for higher graphite concentrate grades and will
also reduce the downstream processing costs
of spherical graphite production. The attrition
cells are on site at Balama and civil works have
been completed. Installation will commence
in the first quarter 2018 and the cells become
operational in second half 2018.
Mine support infrastructure
All mining support infrastructure was completed
in 2017, in advance of the commencement
of commissioning and production ramp-up
activities and include:
>
>
>
>
Power Station 15.4 MW
Fuel Storage Facility (700,000 litre
capacity with a supply agreement with Total
Mozambique)
Site Administration
Laboratory Services (five year contract with
Bureau Veritas (Mozambique))
>
Reagents Store
> Warehouse and Fixed Plant Workshop
Buildings
>
>
>
>
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Product Storage Building (capable of
holding 10,000 tonnes of finished product)
Accommodation Village - 750 person
capacity
Tailings Storage Facility - Cell 1A completed
and Cell 1B well progressed and targeted
for completion in Q2 2018
Process and Raw Water Ponds
Chipembe Dam pipeline and pump station
Logistics – mine to port
During April 2017, the Company awarded the
graphite distribution and logistics services
supply contract for the Balama Project
to Grindrod. Grindrod Limited, based in
South Africa, is listed on the JSE Securities
Exchange and has a long operational history
in Mozambique in land transport coordination,
agency services and port operations. The
contract has an initial term of five years with the
option for Syrah to extend for two further five-
year periods.
The logistics and distribution contract is for
the transportation of product from Balama to
Nacala Port and includes long haul trucking,
cross dock facility, short haul logistics, and
customs clearing and forwarding.
Sales and Marketing
Syrah’s sales and marketing strategy is to be
the baseload supply for major consumers,
diversified across market segments and
geography. Syrah will provide high quality,
consistent, and reliable products, targeting the
industrial and Battery Anode Material markets.
During 2017, the Company continued to
develop its sales book in line with this strategy
and the following sales agreements and updates
were announced:
> Binding sales agreement with Jixi BTR
Graphite Industrial Co. Ltd., a wholly
owned subsidiary of Shenzhen BTR
New Energy Materials (“BTR”). Based in
Shenzhen, China, BTR is the world’s largest
manufacturer and leader of technology
development of battery anode materials
for lithium-ion batteries. The agreement
is for 30,000 tonnes of graphite from
the Balama operation in the first year of
production. Discussions with BTR continue
and remain focussed on the development
of arrangements in both sales from Balama
and supply chain cooperation.
> Binding sales agreement with Zhanjiang
Juxin New Energy Materials Co. Ltd
(Zhanjiang Juxin), based in Guangdong
Province China. Zhanjiang Juxin specialises
in the production of spherical graphite and
anode material for lithium-ion batteries. The
agreement is for 20,000 tonnes in 2018.
>
Signing of an initial three year agreement
with Hiller Carbon, renewable annually
thereafter. Located in North America, Hiller
Carbon is a stocking processor of carbon
for industrial and speciality applications
engaged in value added carbon processing
and supply chain management services.
>
>
The initial volume will be for a minimum of
10,000 tonnes in the first year and up to
50,000 tonnes in the following years. This
agreement excludes the battery market.
Extension to the sales agreement term
and increase in volume with Marubeni, a
Japanese trading company. The contract
increases the tenor from three to five years
and increases the volume of Balama flake
from 20,000 tonnes to 25,000 tonnes in
each of the first two years and then 30,000
tonnes for years three to five.
Conclusion of the commercial terms of a five
year Marketing and Distribution Agreement
with a consortium of European graphite
industry participants led by MINERALS
GmbH, a member of the COFERMIN Group.
The agreement includes the supply of
graphite into Europe, for a minimum of
12,000 tonnes in the first year and up to
25,000 tonnes in the following years. The
agreement relates to refractories, crucibles,
ladles, lubricants and other industrial
applications, but does not involve the
battery or recarburiser markets.
Graphite sales commenced in early 2018 and a
mix of sales and qualification product has been
shipped to Europe, China, US, India and Brazil
with ongoing regular shipments scheduled. The
Company continues to focus on optimisation of
its product placement strategy. As interaction
with Syrah’s global customer base evolves and
product qualification and sales progress, price
discovery will develop further.
Subsequent to year end, Syrah announced the
following sales and marketing updates
>
>
>
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Signing of a first spot sales agreement with
Yichang Xincheng Graphite Co Ltd (“Yichang
Xincheng”), a leading global producer of
specialty expandable graphite, with the
intention and understanding, that subject
to a successful spot shipment, a long term
contract will then be agreed.
Signing of a binding agreement with CS
Additive GmbH & Co, a leading producer of
speciality carbon products, for a minimum
of 6,000 tonnes in 2018, with volume
increasing over three years.
Confirmation of an agency appointment in
India with Magus Marketing Pvt Ltd, where
orders have already been received.
Syrah’s decision to restrict activation
of certain elements of Chalieco offtake
including the minimum tonnage supply
requirement to allow flexibility to develop
the sales book into the Chinese industrial
market in a manner better aligned with the
Company’s strategic objectives.
13
DIRECTORS’ REPORT (CONT')
Negotiations for other sales contracts continue
to progress positively and toll processing for
spherical product opportunities continue to be
explored.
Port Manchac site by the South Tangipahoa
Parish Port Commission, who concluded that the
site was not an appropriate location for further
manufacturing facilities.
CORPORATE
Financial summary
The corporate segment made a loss before
income tax for the year ended 31 December
2017 of $11.8 million (2016: $14.6 million).
Total segment expenses for the year were
$12.6 million (2016: $15.9 million) comprising
employee benefits, legal and consulting costs,
and general corporate administration costs.
These costs include ‘non-cash’ costs of $2.2
million (2016: $3.9 million), mainly being
share based payments and depreciation and
amortisation of corporate assets.
Total segment assets, after consolidation
adjustments, were $118.9 million as at 31
December 2017 (2016: $165.9 million), with
the decrease mainly driven by the continued
investment in the development and construction
of the Balama Project, offset by the successful
equity raising completed during the year.
The Corporate assets as at 31 December
2017 are principally made up of cash and
cash equivalents (‘cash reserves’). These cash
reserves will be used to fund:
> Balama working capital requirements during
commissioning and production ramp up;
>
Progression of BAM project and
downstream opportunities; and
> General corporate and administrative cost
requirements.
Battery Anode Material (BAM)
Production facility
During the year, Syrah progressed detailed
design, site selection, permitting, commercial
supply negotiations for the BAM processing
facility, and the procurement of long lead time
equipment. Air and water permit applications
were submitted to the Louisiana Department
for Environmental Quality, who also review and
monitor air and water discharges for compliance.
Syrah’s proposed facility will comply with all
relevant environmental regulations. A preferred
site had been selected at Port Manchac in South
Tangipahoa Parish, Louisiana, and commercial
site negotiations were largely complete. In
January 2018, the Company announced the
rejection of the intended development of the
14
The Company is considering alternative sites
in industrial manufacturing zones, with ready
access to the necessary supply chain and
logistics infrastructure as well as space for future
BAM production capacity expansion for the
integrated milling and purification operation.
Commercial discussions for these alternative
sites continue to advance and Syrah is
proactively engaging with the Parish leadership
and other local community stakeholders at each
of the candidate sites.
Research & Development
In July 2017, Syrah announced it had entered
into an exclusive research and development
agreement with Cadenza Innovation Inc.
(Cadenza) to fuel advancements in graphite
anode technology for use in lithium-ion-based
energy storage. Cadenza is based in the United
States and is a pioneering provider of energy
storage solutions for license to lithium-ion
battery pack manufacturers.
Testing and benchmarking of the
electrochemical properties of battery anode
materials using Balama material with focus
on key variables of physical and chemical
properties, composition, structure and
performance has been completed. The
benchmarking study will form the base for
Syrah’s BAM product roadmap evolution and
the next phase of the development plan. The
Syrah–Cadenza team continued to advance the
qualification of potential technology providers to
accelerate the introduction of high performance
BAM products to the marketplace.
Balama Vanadium Project
In addition to Balama’s substantial graphite Ore
Reserves, the deposit also hosts a significant
Vanadium Inferred Resource of 1.15Bt at
0.23% V2O5 (JORC code (2012)) (refer to ASX
announcement titled “Maiden Balama Easter
Resource” released on 27 May 2013). The
company completed a Scoping Study on the
Balama Vanadium Project which demonstrated
the viability of the project (refer to ASX
announcement titled “Vanadium Scoping Study
Finalised” released on 30 June 2014).
Technical and processing requirements of
Vanadium are more complex than graphite and
the Company will revisit the scoping study as
part of the Balama expansion and optimisation
review in 2018.
FUTURE
OUTLOOK
The likely developments in Group operations for
future financial years include:
>
Production ramp-up and optimisation of the
Balama Project, targeting:
> Graphite concentrate production for
2018 of 160,000 to 180,000 tonnes1
with production ramp-up skewed
towards the second half of the year;
Cash operating costs (FOB Port of
Nacala) of less than US$400 per tonne
by the end of 2018; amd
Production in 2019 of between
250,000 to 300,000 tonnes1 subject
to global market demand;
>
>
Installation of attrition cells at Balama to
produce higher graphite concentrate grades
of up to 98% fixed carbon
Further sales contracts and supply
arrangements with targeted customers and
end-users of natural flake and spherical
graphite products.
Progression of the BAM strategy including
ongoing research and development
activities with Cadenza Innovation Inc.
and construction of the first phase plant in
Louisiana, USA.
>
>
>
>
Completion of a Balama expansion and
optimisation review in 2018.
(1) Refer to ASX announcements titled “Syrah finalises
Balama Graphite study and declares maiden ore
reserve” released on 29 May 2015, “Syrah increases
Balama Reserves and awards Laboratory Contract”
released on 15 November 2016. All material
assumptions underpinning the production target in
these announcements continue to apply and have not
materially changed.
MATERIAL
BUSINESS RISKS
The Group continues to assess and manage
various business risks with the potential to have
a material impact on the Group’s operating
and financial performance and its ability to
successfully deliver corporate objectives. Set
out below are the business risks that the Group
has identified as having the potential to have a
material impact on the Group.
The matters listed below are not listed in order
of importance and are not intended to be an
exhaustive list of all the risks and uncertainties
affecting the business.
SYRAH RESOURCES > ANNUAL REPORT 2017 DIRECTORS’ REPORT (CONT')
MARKET RISK
The demand for, and the price of, graphite
products is highly dependent on a range
of factors including international supply
and demand, underlying demand for the
applications for which graphite may be used,
competition from existing producers, potential
new entrants, the price and availability of
substitutes, global economic growth and
government policies and actions in key
geographical markets.
At present, there is no transparent market for
graphite and prices are negotiated based on a
variety of factors including those set out above
as well as the preferences and requirements of
customers. Failure to negotiate favorable pricing
terms (which may provide for fixed or floating
market-based pricing) may materially affect
financial performance and/or cash flows as well
as the Group’s ability to finance future activities
or planned capital expenditure commitments.
Syrah’s activities may generate revenues and
incur expenses in different currencies, including
the US dollar and Mozambique metical, which
are subject to fluctuations in their value.
Market uncertainty and volatility arising from the
above factors may, therefore, materially affect
financial performance and/or cash-flows and
possibly impact or limit the Company’s ability to
fund planned activities in desired timeframes,
including battery anode material opportunities.
The effect of changes in assumptions about
future prices may include, amongst other
things, changes to Mineral Resources and Ore
Reserves estimates and the assessment of the
recoverable amount of Syrah’s assets.
MINERAL RESOURCES
AND ORE RESERVES
The JORC Code (2012 Edition) compliant
statements relating to Ore Reserves and Mineral
Resources are estimates only. An estimate is an
expression of judgement based on knowledge,
experience and industry practice. Estimates
which were valid when originally calculated
may alter significantly when new information or
techniques become available.
In addition, by their very nature, resource
estimates are imprecise and depend to some
extent on interpretations, which may prove to
be inaccurate. This may result in alterations to
development and mining plans or changes to the
quality or quantity of Ore Reserves and Mineral
Resources which may, in turn, adversely affect
Syrah’s operations.
No assurance can be given that the anticipated
tonnages or grade of minerals will be achieved
during exploration or production or that the
indicated level of recovery rates will be realised.
Additionally, material price fluctuations, as well
as increased anticipated production costs or
reduced anticipated recovery rates, may render
any potential mineral resources or reserves
containing relatively lower grades uneconomic
and may ultimately result in a restatement of
such resource or reserve. This in turn could
impact the life of mine plan and therefore the
value attributable to mineral inventory and/
or the assessment of recoverable amount of
Syrah’s assets and/or depreciation expense.
COMMISSIONING AND
OPERATIONAL RISK
Construction of the Balama Project is essentially
complete and commissioning and production
ramp-up activities are progressing. The
commissioning and production ramp-up of any
resources project comes with inherent risks in
relation to ore grades, the performance of the
processing plant and associated infrastructure,
the processing and separation of heavy mineral
concentrate and other production related
activities (including failures or deficiencies in
processes, systems, plant and equipment).
There is no guarantee that anticipated or
forecast timeframes or the anticipated
production profile of the Balama Project will
be met. This may result in a requirement for
additional funding, and could impact future
operating performance and the assessment of
the recoverable amount of Syrah’s assets.
Syrah’s mining and production operations
are subject to a range of hazards and risks
normally encountered such operations
including unexpected geological conditions,
interruption to and/or underperformance of
plant and equipment, difficulties with product
quality, interruption to key production inputs
and information technology systems, health
and safety incidents. Any of these risks could
negatively impact on costs, production,
completion timeframes and profitability and the
ability to meet customers’ product qualification
and specification requirements.
The Balama Project is in a relatively remote
location. Logistics activities to transport product
from mine to customer efficiently and effectively
faces a range of risks typically faced for such
activities including, accidents, interruptions to
and delay in road transport, port activities and/
or constraints in access to key infrastructure.
Any of these risks could negatively impact on
costs, ability to sell product and profitability.
Operating costs are subject to variations
for a variety of reasons including changing
waste-to-ore ratios, ore grade metallurgy,
plant recoveries, labour costs, cost of key
consumables and the level of sustaining capital
invested to maintain operations.
Higher than expected inflation rates generally,
or specific to the mining industry, could
increase operating cost and capital expenditure
commitments and potentially reduce the value
of future project developments. While, in some
cases, such cost increases might be offset by
increased selling prices, there is no assurance
that this would be possible. To the extent that
such offset is not possible, this could adversely
impact Syrah’s financial performance.
Any inability to resolve any unexpected problems
relating to these operational risks or adjust
costs profiles on commercial terms could
adversely impact continuing operations, Mineral
Resources and Ore Reserves estimates and
the assessment of the recoverable amount of
Syrah’s assets.
COUNTERPARTY RISK
The ability of Syrah to achieve its stated
objectives will depend on the performance
of the counterparties under the various
agreements.
Syrah has entered into certain offtake and
other agreements for the Balama Project and
the proposed spherical graphite project. The
obligations of the counterparties to the offtake
agreements are subject to certain conditions
precedent, including in some cases Syrah
achieving specified commercial production
rates by a specified date and/or subsequent
agreements being entered into to reflect
matters arising after the original execution
of the agreement. There is no guarantee that
these conditions precedent will be satisfied.
Failure to satisfy these conditions precedent
may result in the termination of the relevant
agreements, which may in turn adversely impact
Syrah’s revenue and profitability, and could
adversely impact continuing operations, Mineral
Resources and Ore Reserves estimates and
the assessment of the recoverable amount of
Syrah’s assets.
Syrah is also in discussion with a number of
parties in relation to sales agreements for
product from Balama. While the discussions
are well progressed and continuing, there is no
guarantee that they will result in the execution of
formal sales agreements.
15
DIRECTORS’ REPORT (CONT')
In addition, the sale of graphite by Syrah is in
some cases subject to commercial verification
and qualification processes to ensure any
produced graphite (including BAM graphite
products) meets the specifications for industrial
supply required by customers (including in
both the industrial and battery markets) under
off-take and sales agreements. The qualification
process may require approval from multiple
parties in the supply chain and not just those
parties with whom Syrah has contractual
arrangements. Failure to have Syrah’s graphite
qualified, or any unanticipated delay in
qualifying Syrah’s graphite, may adversely
impact Syrah’s financial performance and
position.
Syrah has entered (and will enter) into various
agreements for the construction, development
and operation of Balama Project (including the
supply of equipment, construction services,
supply of diesel and other input materials,
electricity generation, contract mining,
product handling and logistics and insurance
arrangements); and for the identification and
development of downstream opportunities,
including the Battery Anode Material project.
Failure to enter into such agreements
on acceptable terms, or at all, or under-
performance of these counterparties may have
a negative impact on the activities of the group,
and in turn on the financial performance of
Syrah.
HEALTH, SAFETY,
ENVIRONMENT AND
COMMUNITY
Mining, construction, production and logistics
are potentially hazardous activities. There are
numerous occupational health risks associated
with mining and production operations. If any
injuries or accidents occur, this could have
negative employee, community and/or financial
implications for the Company including potential
delays or stoppages in mining, production
and/or logistics activities. In addition, given
the location of the Balama Project means our
employees could be affected by mosquito borne
diseases such as malaria which could adversely
impact operations.
There are inherent environmental risks in
conducting exploration, mining, construction,
production and logistics activities giving rise to
potentially substantial costs for rehabilitation,
damage control and losses. These risks include
the occurrence of incidents such as uncontrolled
tailings containment breaches, subsidence from
mining activities, escape of polluting substances
16
and uncontrolled releases of hydrocarbons
that may lead to material adverse impacts on
our people, host communities, assets and/
or our licence to operate. Environmental risks
need to be managed in such a manner that
meets all regulatory and licence requirements
which requires ongoing expenditures. Syrah
holds an environmental licence for the Balama
Project (due to expire on 23 April 2020) and
its renewal is conditional upon appropriate
levels of performance and ongoing update
of the environmental management plan and
submission of original environmental permit
activity. Syrah monitors its environmental
regulatory obligations on an ongoing basis
and conducts an independent external audit
of compliance against environmental license
conditions on an annual basis.
Syrah is also required to close its operations
and rehabilitate the lands that it disturbs
in accordance with environmental license
conditions and applicable laws and regulations.
A closure plan and estimate of closure and
rehabilitation liabilities has been prepared for
the Balama Project. These estimates of closure
and rehabilitation liabilities are based on current
knowledge and assumptions however actual
costs at the time of closure and rehabilitation
may vary. In accordance with license conditions
Syrah is also progressively placing a guarantee
in favour of the Ministry of Mineral Resources
and Energy in Mozambique a bank guarantee
in relation to the rehabilitation or removal of
project infrastructure as per the mine closure
plan for the Balama Project.
The impacts of climate change may affect
our operations and the markets in which we
sell our products through regulatory changes,
technological advances and other market/
economic responses. The use of fossil fuels for
energy is a significant source of greenhouse
gases contributing to climate change; resulting
in increasing support for alternative energy and
making fossil fuels susceptible to changes in
regulations, and potentially usage taxes. While
the growth of alternative energy supply and
storage options presents an opportunity for
Syrah’s battery anode material strategy and
products; the effects of climate change on our
assets may also include changes in rainfall
patterns, water shortages and the ultimate
cost of fossil fuels used in our operations for
transport and power generation.
Changes in health, safety and environmental
laws and regulations or their interpretation
or enforcement may adversely affect Syrah’s
obligations and/or operations.
The Company’s ongoing community engagement
and management activities are focused on
optimising positive impacts and minimising
the risk of negative impacts. In response to
such risks, Syrah has signed a Community
Development Agreement with local key
stakeholders to establish ongoing engagement
and management programs. There is no
guarantee, however, that the currently strong
level of community support for and commitment
to the project will be sustained over the life of
the project.
SOVEREIGN RISK
The Company operations could be adversely
affected by government policies or actions
in Mozambique or other countries or
jurisdictions in which it has assets, business
and operational activities, relationships and/
or or investment interests (including Australia,
the United States of America and the United
Arab Emirates). The Company’s businesses
are subject, in each of the countries in which
it operates, to various national and local laws
and regulations relating to, among other things,
exploration, construction, mining, logistics,
product development and sales and marketing
activities. A change in the laws which apply to
the Company’s businesses or the way in which
they are regulated could have a material adverse
effect on the carrying value of material assets or
otherwise have a material adverse effect on the
Company’s businesses and financial condition.
Syrah’s primary asset is located in Mozambique
and it is subject to risks associated with
operating in that country. These risks include
economic, social or political instability or
change, civil unrest, instability and changes
in the law impacting foreign ownership
and/or licences, taxation regime change
or interpretations, changes in labour and
employment requirements or conditions,
widespread health emergencies or pandemics,
bribery and corruption, reduced convertibility
of the local currency and sovereign loan default
or other changes impacting on the country’s
financial system.
These risks and uncertainties have the potential
to have an adverse effect on the operations,
profitability or value of the Company.
REGULATORY RISK
Syrah’s businesses are subject, in each of
the countries in which it operates, to various
national and local laws and regulations relating
to, among other things, construction and
exploration and mining activities. A change in
the laws which apply to Syrah’s businesses or
SYRAH RESOURCES > ANNUAL REPORT 2017 DIRECTORS’ REPORT (CONT')
the way in which they are regulated could have
a material adverse effect on the carrying value
of material assets or otherwise have a material
adverse effect on Syrah’s businesses and
financial condition.
Syrah’s business activities are also subject
to obtaining, and maintaining the necessary
titles, authorisations, permits and licenses
and associated land access agreements with
the local community and various levels of
Government which authorise those activities
under relevant laws and regulations. There
can be no guarantee that Syrah will be able
to successfully obtain, maintain or renew
relevant authorisations in a timely manner or
on acceptable terms to support its ongoing
activities. An inability to obtain and maintain
the necessary titles, authorisations, permits
and licenses could have a material adverse
effect on the carrying value of material assets
or otherwise have a material adverse effect on
Syrah’s businesses and financial condition.
To manage the impact of regulatory risk Syrah,
through its wholly owned subsidiary, has
entered into an agreement (‘Mining Agreement’)
with the Mozambique Government, which
will become binding and enforceable after
sanctioning by the Administrative Court. The
Mining Agreement consolidates all prior project
documents and approvals. It also provides the
Company with clarity around the governing
laws and contractualises the mining rights
and other obligations for the Balama Project in
Mozambique. The key commercial terms of the
Mining Agreement include:
-
-
The Mining Agreement covers the mining
of both graphite and vanadium and will be
valid until 2038.
The mining rights for the Balama Project
will be grandfathered under the provisions
of the Mining and Taxation Laws in force
in 2013 when the Mining Concession was
issued
-
Fiscal Regime
>
>
3% production tax (i.e. sales royalty)
payable quarterly based on the value
of sales product (FOB Mozambique
price less any impurity discount and
transport and handling charges from
the mine to the port of export)
32% corporate tax rate, assessed
annually with three advance payments
on account (based on 80% of the prior
year corporate income tax liability)
due in May, July and September of the
respective tax year
-
Application of the Mega Projects Law (Law
No. 15/2012 of 10 August)
>
5% non-diluting free carried interest in
Twigg Exploration and Mining Limitada
(Twigg) to be made available to a
Mozambique Government entity
> One off obligation to offer at market
>
value up to 10% of the equity interest of
Twigg to investors on the Mozambique
stock exchange within 5 years from
the commencement of commercial
production
Sharing of extraordinary direct benefits
where the Balama Project generates
annually, for three consecutive years,
after-tax free cash flows exceeding
2.54 times the cumulative historic
capital employed on the Balama
Project with half of any benefit above
the baseline return shared with the
Mozambique Government and the
other half retained by the Company for
investment in Mozambique
DOWNSTREAM (BATTERY
ANODE MATERIAL)
STRATEGY
Relative to the Balama Operation, Syrah’s BAM
strategy is at an earlier stage. Accordingly, it is
subject to a range of risks and variables which
may impact upon Syrah’s ability to execute
that strategy. These risks and variables include
securing a site for the BAM plant, obtaining
all necessary permits, authorisations and
approvals, design and construction risks,
commissioning and operational risks including
failure to meet prospective customers’ product
qualification and specification requirements
with the timeframes planned. If any of these
risks or variables were to materialise, or if there
is lower than expected demand for Syrah’s BAM
product, then Syrah’s BAM related activities may
take longer or cost more than anticipated and/
or not generate the expected levels of revenue
or profit.
LIQUIDITY AND CAPITAL
MANAGEMENT
The Group has commenced production of
saleable graphite products from the Balama
Project but is not yet cash flow positive, therefore
the Company may require additional financing,
in addition to the current cash reserves to meet
its working capital requirements, general and
administrative expenditure and studies relating
to the battery anode material project.
The Directors of Syrah believe that the Company
would have a number of alternatives to raise
additional funding, if required, which may include
both debt and equity sources of funding. There
can however be no guarantee that, if required,
Syrah will be able to raise sufficient funding on
acceptable terms or at all. An inability to generate
positive cash flows from operations or to obtain
additional finance on acceptable terms or at
all may have a significant impact on operations
at the Balama Project, and/or the pursuit of
future potential projects, including the battery
anode material project, and Syrah’s financial
condition and ability to continue operating may
be adversely affected.
RISK
MANAGEMENT
The Company has developed and implemented
a Risk Management Framework, endorsed
by the Board of Directors and relevant sub-
Committees (which is subject to annual review),
within which:
>
>
>
>
an over-arching risk management policy,
which sets out its commitment to and
the expected behaviours required of
its employees and contractors. This is
supported by a number of other more
specific business policies that set out
other key requirements of employees and
contractors;
a risk management process and risk
assessment criteria that defines the key
steps required to identify, analyse, treat,
evaluate controls and monitor and report on
the risks listed above and other risks on an
ongoing basis;
accountabilities and responsibilities for
overseeing, managing and monitoring these
risks and other identified risks are clearly
defined;
key priorities for management of risks are
identified on a regular and ongoing basis;
and
> material or potentially material incidents
that arise are reviewed and appropriate
action taken.
The Executive Management team, and the
Board, through its sub-committees; the Audit
Committee and the Sustainability and Risk
Committee, regularly review the Company’s
risks and the effectiveness of the Company’s
management of those risks. The Board, with
Executive Management’s input, regularly
consider the nature and extent of the risks the
organisation is prepared to take to meet the
Company’s objectives.
17
DIRECTORS’ REPORT (CONT')
Other key management mechanisms for the
Company include:
> Health, safety and environmental
management systems across the
organisation;
>
>
>
Crisis and Emergency management and
business continuity systems;
Anti-Bribery & Corruption Policy and
processes and other processes to support
business integrity and compliance;
Appropriate insurance programs to provide
efficient and effective levels of risk transfer;
SIGNIFICANT
CHANGES
IN STATE OF
AFFAIRS
There were no significant changes in the nature
of activities or the state of affairs during the
current financial year other than those included
in the Review of Operations.
MATTERS
SUBSEQUENT TO
THE END OF THE
FINANCIAL YEAR
No matter or circumstance has arisen since 31
December 2017 that has significantly affected,
or may significantly affect the consolidated
entity’s operations, the results of those
operations, or the consolidated entity’s state of
affairs in future financial years.
LIKELY
DEVELOPMENTS
AND EXPECTED
RESULTS OF
OPERATIONS
Commentary on likely developments and
expected results of operations is set out in the
Review of Operations.
MEETINGS OF DIRECTORS
The number of meetings of the Company’s Board of Directors and of each Board Committee held
during the financial year ended 31 December 2017, and the number of meetings attended by each
Director was:
DIRECTOR
BOARD MEETINGS AUDIT COMMITTEE
SUSTAINABILITY
AND
RISK COMMITTEE
REMUNERATION
AND NOMINATION
COMMITTEE
J Askew
S Verner
S Riggall
J Caldeira
C Lampe-Onnerud
S Giorgini(1)
R Brans
A
6
6
5
5
6
1
6
(A) Number of meetings attended.
B
6
6
6
6
6
1
6
A
3
-
3
-
-
-
3
B
3
-
3
-
-
-
3
A
2
-
-
-
2
-
2
B
2
-
-
-
2
-
2
A
2
-
2
-
2
-
2
B
2
-
2
-
2
-
2
(B) Number of meetings held during the time the Director held office or was a member of the committee during the year
ended 31 December 2017.
(1) S Giorgini was appointed as a Non-Executive Director of the Company on 16 October 2017.
INTERESTS IN THE SHARES,
OPTIONS AND PERFORMANCE
RIGHTS OF THE COMPANY
The relevant interest of each Director in the share capital, options and performance rights of the
Company as at the date of this report is:
DIRECTOR
J Askew
S Verner
S Riggall
J Caldeira
C Lampe-Onnerud
S Giorgini
FULLY PAID
ORDINARY SHARES
UNLISTED
SHARE OPTIONS
100,790
6,284
9,627
-
-
10,000
600,000 (1)
1,000,000 (2)
400,000 (3)
400,000 (4)
400,000 (5)
400,000 (6)
PERFORMANCE
RIGHTS
-
121,733 (7)
-
-
-
-
(1) 600,000 unlisted options exercisable at $4.68 and expiring 1 December 2018.
(2) 1,000,000 unlisted options exercisable at A$4.30 expiring in 26 May 2020.
(3) 400,000 unlisted options exercisable at A$4.68 and expiring 1 December 2018.
(4) 400,000 unlisted options exercisable at A$6.23 and expiring 2 October 2019.
(5) 400,000 unlisted options exercisable at A$5.04 and expiring 24 May 2019.
(6) 400,000 unlisted options exercisable at A$3.85 and expiring 20 October 2020.
(7) 121,733 performance rights for the period from 1 January 2017 to 31 December 2019, as approved by shareholders
on 19 May 2017.
18
SYRAH RESOURCES > ANNUAL REPORT 2017 DIRECTORS’ REPORT (CONT')
REMUNERATION
REPORT
The Remuneration Report contains details
of remuneration paid to the Non-Executive
Directors, Executive Directors and Key
Management Personnel (“KMP”) of the Group as
well as the remuneration strategy and policies
that were applicable in the financial year ended
31 December 2017.
The remuneration report is structured as follows:
(A) Remuneration Governance
(B) Director and Key Management
Personnel Details
(C) Key Remuneration Outcomes and
Updates
(D) Remuneration Strategy and Philosophy
(E) Remuneration Components
(F) Details of Remuneration Expenses
(G) Executive Service Agreements
(A) REMUNERATION GOVERNANCE
REMUNERATION AND NOMINATION COMMITTEE
The Board has established a Remuneration and Nomination Committee consisting solely of Non-
Executive Directors (with a majority being independent Directors) to assist the Board in achieving its
objective in relation to the following:
>
>
having a Board of Directors of an effective composition, size and commitment to adequately
discharge its responsibilities and duties;
having coherent remuneration policies and practices to attract and retain executives and
directors who will create value for shareholders;
> monitoring those remuneration policies and practices;
>
>
>
fairly and responsibly rewarding executives having regard to the performance of the Group, the
performance of the executives and industry remuneration conditions;
the preparation of the Remuneration Report to be included in the Company's Annual Report; and
communicating the Company’s remuneration policy to shareholders and any proposed changes
to that remuneration policy and the Committee’s work on behalf of the Board
During the year ended 31 December 2017 the Remuneration and Nomination Committee comprised
of Rhett Brans (Committee Chair), James Askew, Sam Riggall and Christina Lampe-Onnerud. Effective
from 1 January 2018 the Remuneration and Nomination Committee is comprised of Sam Riggall
(Committee Chair); James Askew and Christina Lampe-Onnerud.
(H) Terms and Conditions of Share-Based
The Charter for the Remuneration and Nomination Committee is available on the Company’s website.
Payment Arrangements
(I) Director and Key Management
Personnel Equity Holdings
(J) Other transactions with directors and
key management personal
(K) Additional information
(B) DIRECTOR AND KEY MANAGEMENT
PERSONNEL DETAILS
DIRECTORS
The following persons were directors of Syrah Resources Limited during the financial year ended
31 December 2017 and up to the date of this report, unless otherwise stated:
EXECUTIVE AND NON-EXECUTIVE DIRECTORS
NAME
James Askew
Shaun Verner
Sam Riggall
José Caldeira
POSITION
Non-Executive Chairman (1)
Managing Director (appointed 3 February 2017)
Non-Executive Director (2)
Non-Executive Director
Christina Lampe-Onnerud
Non-Executive Director
Stefano Georgini
Rhett Brans
Non-Executive Director (appointed 16 October 2017)
Non-Executive Director (ceased 31 December 2017)
(1) J Askew acted as Executive Chairman of the Company from 5 October 2016 to 3 February 2017.
(2) S Riggall acted as Lead Independent Director from 5 October 2016 to 3 February 2017.
19
DIRECTORS’ REPORT (CONT')
(B) DIRECTOR AND KEY MANAGEMENT PERSONNEL DETAILS
(C0NTINUED)
KEY MANAGEMENT PERSONNEL
The following persons were Key Management Personnel (‘KMP’) of Syrah Resources Limited during the year ended
31 December 2017 and up to the date of this report, unless otherwise stated:
KEY MANAGEMENT PERSONNEL
NAME
Shaun Verner
David Corr
Robert Schaefer
Jennifer Currie
Jordan Morrissey
Darrin Strange
POSITION
Managing Director and Chief Executive Officer (appointed 3 February 2017) (1)
Chief Financial Officer
Chief Commercial Officer (commenced 1 March 2017)
Chief Legal Officer and Company Secretary (commenced 2 October 2017)
Chief People Officer
Chief Operating Officer (ceased 30 November 2017)
(1) Prior to his appointment as Managing Director and Chief Executive Officer, S Verner was Executive General Manager – Sales and Marketing.
(C) KEY REMUNERATION OUTCOMES AND UPDATES
(i) What has changed in relation to remuneration during the year ended 31 December 2017
Non-Executive Director Remuneration • Non-Executive Directors received no fee increases during the year ended 31 December 2017
Executive Remuneration
• S Verner received an increase in Total Fixed Remuneration (TFR) following his appointment as Managing
Director and Chief Executive Officer on 3 February 2017
• J Morrissey received an increase in TFR following his appointment as Chief People Officer effective from
1 January 2017
• The ‘at risk’ variable remuneration components (STI and LTI) were increased to 75% of TFR for the
Managing Director and to 50% of TFR for Other Executives effective from 1 January 2017
STI Outcomes
• The average STI outcome for the Managing Director and Key Management Personnel was 81% of the
LTI Outcomes
maximum opportunity for the year ended 31 December 2017 based on the assessment of corporate and
personal performance metrics.
• 7% of the Performance Rights awarded during the 2015 financial year and tested as at 31 December 2017
vested. This reflects the TSR performance of the Company during the three years to 31 December 2017
relative to the average TSR performance of the comparator group.
(ii) What changes are planned or approved for remuneration for the year commencing 1 January 2018
LTI Performance Hurdles
•
The Board of Directors has resolved to adopt performance hurdles for the LTI plan based on 2 measures:
(a) 50% will be based on the TSR performance of the Company over the relevant vesting period relative to
companies in the S&P/ASX300 Index (^XKO) as at 1 January 2018, classified under the “Metals
& Mining” industry under the GICS classification system; and
(b) 50% will be based on the absolute shareholder return performance of the Company over the relevant
vesting period against threshold and maximum targets as set by the Board. For the year commencing
1 January 2018, the Board of Directors has determined threshold TSR performance to be 8.6%
compound annualised growth rate (CAGR) and maximum TSR performance to be 18.8% CAGR
Discretionary Grant
• A discretionary grant of Performance Rights was issued to D Corr in March 2018 in lieu of options that were
awarded to him in 2015 and which were unable to be exercised.
20
SYRAH RESOURCES > ANNUAL REPORT 2017 DIRECTORS’ REPORT (CONT')
(D) REMUNERATION STRATEGY AND PHILOSOPHY
NON-EXECUTIVE DIRECTOR REMUNERATION
The Board policy is to remunerate Non-Executive Directors at market rates commensurate with time, commitment and responsibilities. The level and
structure of the fees paid to Non-Executive Directors is based upon the need to attract and retain Non-Executive Directors of suitable calibre, the
demands of the role and prevailing market conditions. The Board determines payments to Non-Executive Directors taking into account comparable
roles, comparative market data and if required the advice of independent remuneration consultants. There was no change to Non-Executive Director
remuneration during the year ended 31 December 2017. Non-Executive Director remuneration was reviewed in Q1 2018 and no changes were made.
EXECUTIVE REMUNERATION
The Board in consultation with the Remuneration and Nomination Committee, reviews the Company’s Executive Remuneration Strategy annually to ensure
that the executive remuneration framework remains appropriate and aligned to the business-needs.
The Board aims to ensure the Company’s Remuneration Practices are performance based and designed to:
>
>
attract and retain talented and high performing Executives;
provide appropriate levels of ‘at risk’ pay to encourage, recognise and reward high performance;
> motivate executives to pursue the Group’s long term growth and success; and
>
demonstrate a clear relationship between the Group’s overall performance and the performance of executives.
REMUNERATION CONSULTANTS
The Company engages the services of independent and specialist remuneration consultants from time to time to benchmark the remuneration of Directors
and Key Management Personnel, and to assist the Company in ensuring that its remuneration arrangements remain competitive. During the year ended
31 December 2017 the Company did not engage remuneration consultants (2016: $23,820 for consultancy assistance provided by independent
remuneration consultants, Mercer Australia). The Company did engage a specialist remuneration consultant during Q1 2018 for remuneration
benchmarking purposes however this was not a remuneration recommendation for the purposes of the Corporations Act.
(E) REMUNERATION COMPONENTS
NON-EXECUTIVE DIRECTOR FEES
The fee structure for Non-Executive directors provides for Non-Executive Directors to receive a Board fee and additional fees for chairing and participating
on Board Committees. Except for participation in the Share Option Plan or Long Term Incentive Plan, Non-Executive Directors do not receive performance-
based pay or retirement allowances.
Non-executive Directors’ fees are determined within an aggregate Directors’ fee pool limit, which is periodically reviewed for adequacy. Any increase to the
aggregate Directors’ fee pool is submitted to shareholders for approval. There was no change to the fee pool during the year ended 31 December 2017 and
the maximum currently stands at A$1,000,000 per annum which was approved by shareholders at an Annual General Meeting on 26 May 2016.
The annual Non-Executive Director fees (inclusive of superannuation contribution amounts where applicable) for being a member of the Board and
participating on its sub committees were as follows:
Board Fees
Sub Committees
Audit Committee
Sustainability and Risk Committee
Chairperson
Member
Chairperson
Members
Chairperson
Members
Remuneration and Nomination Committee
Chairperson
Members
2017
2016
ANNUAL FEES
ANNUAL FEES
ANNUAL FEES
ANNUAL FEES
A$
160,000
95,000
20,000
10,000
15,000
10,000
15,000
10,000
US$(1)
122,816
72,922
15,352
7,676
11,514
7,676
11,514
7,676
A$
160,000
95,000
20,000
10,000
15,000
10,000
15,000
10,000
US$(1)
119,088
70,709
14,886
7,443
11,165
7,443
11,165
7,443
(1) Annual fees for Non-Executive Directors have been translated from Australian dollars to US dollars at the average exchange rate for the year ended 31 December 2017 of 0.7676
(2016:0.7443).
21
DIRECTORS’ REPORT (CONT')
(E) REMUNERATION COMPONENTS (CONT')
In addition to the above fees, Non-Executive Directors are entitled receive a travel stipend of $3,838 (A$5,000) for each international trip where the travel
time is in excess of eight hours each way (2016: $3,722 (A$5,000)).
All Non-Executive Directors enter into a service agreement with the Company in the form of a letter of appointment. The letter of appointment summarises
the Board policies and terms, including remuneration, relevant to the office of director of the Company.
To align the Non-Executive Directors’ interests with shareholder interests, Non-Executive Directors are able to participate in the Share Option Plan and Long
Term Incentive Plan. Amounts expensed through the Company's profit and loss statement for options issued to Non-Executive Directors are not included in
the calculation of Non-Executive Directors fees for the purposes of determining the aggregate Directors' fee pool amount.
EXECUTIVE REMUNERATION
The Company’s remuneration policy for Executives incorporates a Total Fixed Remuneration (“TFR”) component (base salary plus statutory superannuation)
and ‘at risk’ performance components; being a Short Term Incentive (‘STI’) component and a Long Term Incentive (‘LTI’) component.
The Board approved a change to the remuneration structure for Executives for the year ended 31 December 2017 that shifted the remuneration mix to a
larger variable component. The STI and LTI target levels for the Managing Director shifted from 35% to 75% of TFR and Other Executives shifted from 35% to
50% of TFR.
These components for the year ended 31 December 2017 are as summarised below:
ELEMENT
DELIVERY
PURPOSE
PERFORMANCE METRICS
POTENTIAL VALUE
Total Fixed
Remuneration
(TFR)
Short Term
Incentive (STI)
Long Term
Incentive (LTI)
100% Cash
To attract high calibre executives by offering
competitive market salary including
superannuation and non-monetary benefits
Nil
Positioned between the 25th and
50th percentile of a comparative
group of companies
50% Cash
Reward for annual performance
50% Shares
50% awarded in shares to encourage
executives to hold shares in the Company
Combination of corporate and
personal performance measures
weighted 50:50
Alignment to long-term shareholder value.
Award given in shares to encourage executives
to hold shares in the Company
3 year TSR performance
relative to a comparative group
of companies
100%
Performance
Rights or
other equity
instruments
Managing Director
75% of TFR
Other executives
50% of TFR
Managing Director
75% of TFR
Other executives
50% of TFR
22
SYRAH RESOURCES > ANNUAL REPORT 2017 DIRECTORS’ REPORT (CONT')
(E) REMUNERATION COMPONENTS (CONT')
The following table sets out the relative mix of fixed remuneration and the total opportunity for performance related remuneration for Managing Director and
Key Management Personnel for the current financial period:
NAME
Executive Directors
S Verner (1)
T Kumova (2)
Key Management Personnel
D Corr
R Schaefer (3)
J Currie (4)
J Morrissey
D Strange (5)
TOTAL FIXED REMUNERATION
STI
LTI
DEC-2017
DEC-2016
DEC-2017
DEC-2016
DEC-2017
DEC-2016
AT RISK REMUNERATION
40%
-
50%
50%
50%
50%
58%
100%
56%
56%
-
-
77%
61%
30%
-
25%
25%
25%
25%
21%
-
19%
19%
-
-
8%
19%
30%
-
25%
25%
25%
25%
21%
-
25%
25%
-
-
15%
25%
(1) S Verner was appointed Managing Director and Chief Executive Office of the Company on 3 February 2017. He was previously Executive General Manager – Sales and Marketing and was
not eligible to participate in the STI and LTI plans for the year ended 31 December 2016.
(2) T Kumova resigned as Managing Director of the Company on 5 October 2016. T Kumova retains a pro-rata entitlement to performance rights (subject to the same vesting period and TSR
performance hurdle) based on the proportion of the vesting period that he was an employee and/or consultant to the Company.
(3) R Schaefer commenced employment with the Company as Chief Commercial Officer on 1 March 2017 and was eligible to participate in the STI and LTI plans on a pro-rata basis for the
year ended 31 December 2017.
(4)
J Currie commenced employment with the Company on 2 October 2017 as Chief Legal Officer and Company Secretary (with appointment as Company Secretary on 16 October 2017)
and was eligible to participate in the STI and LTI plans on a 50% pro-rata basis for the year ended 31 December 2017.
(5) D Strange ceased employment with the Company on 30 November 2017 and remained eligible to participate in the STI plan on a pro-rata basis for the year ended 31 December 2017
and forfeited his LTI entitlement to unvested performance rights.
TOTAL FIXED REMUNERATION
The Remuneration and Nomination Committee annually reviews and determines the fixed remuneration, inclusive of superannuation contribution amounts
and salary sacrifice arrangements, for Executive Directors and Key Management Personnel with oversight from the Board of Directors. The process
consists of a review of group and individual performance, relevant comparative remuneration and, where appropriate, external advice from remuneration
consultants. The Total Fixed Remuneration for Executives is currently positioned between the 25th and 50th percentile of a comparative group of
companies.
Total Fixed Remuneration for Key Management Personnel for financial year ended 31 December 2017 is set out in section (f).
23
DIRECTORS’ REPORT (CONT')
(E) REMUNERATION COMPONENTS (CONT')
‘AT RISK’ PERFORMANCE BASED REMUNERATION
Short Term Incentive
The objective of the STI plan is to align reward of Executives with the attainment of Key Performance Indicators (“KPI’s”) which drive short to medium term
outcomes for the business incorporating a mixture of business development; operational and investor relations performance indicators. Corporate and
personal performance measures are set and agreed annually by the Remuneration and Nomination Committee with oversight from the Board of Directors.
i. Short Term Incentive Plan – 31 December 2017
FEATURE
Maximum
Opportunity
Group Performance
Metrics & Award
Outcome
DESCRIPTION
Managing Director – 75% of Total Fixed Remuneration (TFR) for target performance
Other Executives – 50% of Total Fixed Remuneration (TFR) for target performance.
The Board of Directors reserves the discretion to reward exceptional achievement for stretch performance on any particular
performance measure.
The STI metrics are made up of a combination of corporate (50%) and personal performance measures (50%).
The table below summarises the corporate performance metrics and target weighting for the year ended 31 December 2017:
METRIC
WEIGHTING REASON FOR SELECTION
Corporate performance measures:
Health, Safety & Environment (HSE)
Budget & Capital Management
Schedule
Markets & Growth
Sustainability & Social Performance
Total corporate performance measures
Personal performance metrics
Total
15%
10%
10%
10%
5%
50%
50%
100%
Corporate measures are aligned with the annual strategic priorities and
risk management accountabilities for the Group
Promoting a strong culture of safe practices in all activities
Discipline in managing Group budgets and liquidity
Delivery of the Balama Project according to the project schedule
Delivery of market growth and strategic projects
Focus on social licence to operate in all jurisdictions where the Group
operates
Targeted metrics relevant to individual roles
The Board assessed an overall attainment of 39% out of 50% for the corporate performance metrics for the year ended 31 December
2017, noting in particular: continued development and high performance in safety management, with a TRIFR of 0.8; increased
community development program performance; the delayed delivery of the Balama Project in 2017 with a final budget of US$215M;
progression of sales, marketing and logistics contract execution; maintenance of the group’s balance sheet strength; and the
progression of the battery anode material strategy including product testing and benchmarking, and development of the potential
product roadmap.
During the year the Company has continued with the development of the Balama Project and consequently the Company’s earnings
have not been relevant to the assessment of STI performance, although budget and capital management have been key factors, as
have the other factors outlined above which contribute to the Company’s share price performance and therefore shareholder value.
The STI outcomes were determined by the Remuneration and Nomination Committee, with oversight from the Board of Directors.
Determination of
Outcomes
Delivery of STI
50% of the STI award was paid in cash
50% of the STI award was paid in shares
24
SYRAH RESOURCES > ANNUAL REPORT 2017
DIRECTORS’ REPORT (CONT')
(E) REMUNERATION COMPONENTS (CONT')
The following table shows details of the STI opportunity, as a percentage of Total Fixed Remuneration, for each KMP and the amounts granted for the year
ended 31 December 2017
MAXIMUM OPPORTUNITY
AMOUNT
GRANTED
AMOUNT
FORFEITED
NAME
Executive Director
S Verner
Key Management Personnel
D Corr
R Schaefer (2)
J Currie (3)
J Morrissey
D Strange (4)
% OF TFR
AMOUNT’$ (1)
%
75%
50%
50%
50%
50%
50%
283,676
136,249
105,065
63,039
115,572
142,486
77%
94%
89%
77%
94%
64%
%
23%
6%
11%
23%
6%
36%
(1) Amounts translated from Australian dollars to US dollars using an average exchange rate for the year ended 31 December 2017 of 0.7676.
(2) R Schaefer commenced employment with the Company as Chief Commercial Officer on 1 March 2017 and was eligible to participate in the STI plan on a pro-rata basis for the year
ended 31 December 2017.
(3)
J Currie commenced employment with the Company on 2 October 2017 as Chief Legal Officer and Company Secretary (with appointment as Company Secretary on 16 October 2017)
and was eligible to participate in the STI plan on a 50% pro-rata basis for the year ended 31 December 2017.
(4) D Strange ceased employment with the Company on 30 November 2017 and remained eligible to participate in the STI plan on a pro-rata basis for the year ended 31 December 2017.
ii. Short Term Incentive Plan – 31 December 2018
FEATURE
Maximum
Opportunity
Group Performance
Metrics & Award
Outcome
DESCRIPTION
Managing Director – 75% of Total Fixed Remuneration (TFR) for target performance
Other Executives – 50% of Total Fixed Remuneration (TFR) for target performance,
The Board of Directors reserves the discretion to reward exceptional achievement for stretch performance on any particular
performance measure.
The STI metrics will be made up of a combination of corporate (50%) and personal performance measures (50%).
The table below summarises the corporate performance metrics for the year ended 31 December 2018:
METRIC
WEIGHTING REASON FOR SELECTION
Corporate performance measures:
Corporate measures are aligned with the strategic priorities for the Group
Health, Safety, Compliance &
Governance
Cashflow & Cost
Sales Volume & Price
Battery Anode Material Progress
Sustainability & Social Performance
Total corporate performance measures
Personal performance metrics
Total
10%
15%
10%
10%
5%
50%
50%
100%
Promoting a strong culture of safe practices and corporate governance in
all activities
Delivery against operating cost and cashflow targets
Delivery against volume and weighted average basket price targets
Progression of BAM growth strategies
Focus on being a good corporate citizen in all jurisdictions where the
Group operates
Targeted metrics relevant to individual roles
The STI outcomes will be determined by the Remuneration and Nomination Committee, with oversight from the Board of Directors.
The delivery of the STI for the year ended 31 December 2018 will be determined by the Remuneration and Nomination Committee,
with oversight from the Board of Directors.
25
Determination of
Outcomes
Delivery of STI
DIRECTORS’ REPORT (CONT')
(E) REMUNERATION COMPONENTS (CONT')
Long Term Incentive
The Company has an LTI Plan, under which the Company may issue performance rights, options and shares to directors and employees of the Company (or
a subsidiary). The grant of performance rights, options and shares is subject to such conditions (if any) as determined by a committee established by the
Board to administer the LTI Plan (or, if no such committee has been established, as determined by the Board) (“Plan Committee”). Any performance rights,
options and shares granted under the LTI Plan may be subject to such vesting conditions (if any) as determined by the Plan Committee.
The LTI Plan is part of the Company’s remuneration strategy and is designed to align the interests of management and shareholders and assist the
Company to attract, motivate and retain Executives. In particular, the LTI Plan is designed to provide relevant directors and key employees with an incentive
to remain with Syrah and contribute to the future performance of the Group over the long term.
Performance Rights
Executives and senior managers within the Group are granted performance rights on an annual basis and vesting will be contingent on the achievement of
specific performance hurdles over a three year period.
The potential maximum value of the annual grant of performance rights over a three year period represents between 20% and 75% of an eligible
employees’ total fixed remuneration. The actual number of performance rights granted is calculated based on the closing volume-weighted average price
(“VWAP”) of the Company’s shares on ASX for the 60 trading days (2018) or 1 month (2017 and prior years) preceding the commencement and the end of
the performance period.
Performance Hurdles
The performance hurdles for 2017 and prior years involved an assessment of the Company’s Total Shareholder Return (“TSR”) relative to a comparative
group of companies specified annually.
For the year ended 31 December 2018 the Board of Directors has resolved to adopt performance hurdles based on 2 measures:
(c) 50% will be based on the TSR performance of the Company over the relevant vesting period relative to companies in the S&P/ASX300 Index (^XKO) as
at 1 January 2018, classified under the “Metals & Mining” industry under the GICS classification system; and
(d) 50% will be based on the absolute shareholder return performance of the Company over the relevant vesting period against threshold and maximum
targets as set by the Board. For the year ended 31 December 2018, the Board of Directors has determined threshold TSR performance to be 8.6%
compound annualised growth rate (CAGR) and maximum TSR performance to be 18.8% CAGR. These targets have been based upon the median
performance of the S&P/ASX200 Index over a 20 year period.
Vesting Conditions
Vesting of performance rights will be subject to the relevant performance hurdles referred to above, which will be tested over a three year vesting period.
If the performance hurdles are not satisfied (or become incapable of being satisfied), the performance rights will lapse (unless the Plan Committee
determines otherwise).
The number of performance rights that vest will be determined by assessing the performance of the Company, measured by the relevant performance
measure as at the date that is three years after the commencement of the performance period (“Performance Date”), relative to the relevant performance
hurdle(s) (the “TSR Hurdle(s)”).
The following table provides a summary of the TSR Hurdle(s) and the relationship between Company performance and the percentage vesting of
performance rights:
PERFORMANCE AGAINST TSR COMPATOR
GROUP (100% OF PERFORMANCE RIGHTS FOR
2015 TO 2017 AND 50% OF PERFORMANCE
RIGHTS FROM 2018 ONWARDS)
PERFORMANCE AGAINST ABSOLUTE TSR
MEASURE (50% OF PERFORMANCE RIGHTS
FROM 2018 ONWARDS)
PERCENTAGE OF PERFORMANCE RIGHTS
ELIGIBLE TO VEST
TSR performance is at or below the median
performance of the comparator group
TSR performance is at or below threshold
performance
0%
TSR performance of between the median and 75th
percentile performance of the comparator group
TSR performance is between threshold and
maximum performance
2015 Grant:
Straight line pro-rata between 0% and 100%
2016 Grant and onwards:
Straight line pro-rata between 50% and 100%
TSR performance is at or above the 75th percentile
performance of the comparator group
TSR performance is above maximum performance
100%
26
SYRAH RESOURCES > ANNUAL REPORT 2017 DIRECTORS’ REPORT (CONT')
(E) REMUNERATION COMPONENTS (CONT')
In the event that a participant in the LTI Plan ceases to be a director or employee of the Group, the treatment of any performance rights held by the participant
will depend on the circumstances surrounding the cessation of his/her directorship/employment. In general terms, and subject to the discretion of the Plan
Committee, if the participant is a “bad leaver”, any unvested performance rights will immediately lapse; whereas if the participant is not a “bad leaver”,
he/she will be entitled to retain a pro-rata amount of unvested performance rights (based on the proportion of the vesting period that the participant was a
director/employee). The Plan Committee also has power to deem that performance rights will lapse in a number of scenarios, including if a participant commits
an act of fraud, defalcation or gross misconduct, or materially breaches his or her duties or brings the Syrah Group (or any member thereof) into disrepute.
In the event of a change of control, all unvested performance rights will vest.
In the event that vesting conditions attached to performance rights were (or were deemed to have been) satisfied due to a material misstatement in the
Company’s financial statements in respect of an applicable vesting period (or another event during such vesting period), the holder of those performance
rights will cease to be entitled to them and the Plan Committee may, among other things, cancel those performance rights for no consideration.
TSR Comparator Groups (2015 to 2017 Grants)
Performance rights will be tested against Syrah’s TSR performance relative to the comparative group on the Performance Date.
i. Year ended 31 December 2015 Grant
The TSR comparator group as selected by the Board of Directors for the performance rights for the year ended 31 December 2015 for testing
as at 31 December 2017 is as follows:
Alkane Resources Limited
Imerys SA
SGL Carbon SE
AMG Advanced Metallurgical Group N.V.
Kenmare Resources Plc
Triton Minerals Limited
Bacanora Minerals Limited
CleanTeQ Holdings Limited
Flinders Resources Limited
Iluka Resources Limited
Mason Graphite Inc.
Valence Industries Limited)
Metals of Africa Limited
Western Lithium USA Corporation
Minerals Deposits Limited
Wolf Minerals Limited
Orocobre Limited
Outcome for 31 December 2015 Grant
7% of the performance rights granted for the 2015 financial year and tested as at 31 December 2017 vested based on the TSR performance of Syrah of
51% in comparison to the average TSR performance of the comparator group of 43% over the performance period. 3,255 shares were issued to eligible
employees on 14 March 2018.
ii. Year ended 31 December 2016 Grant
The TSR comparator group as selected by the Board of Directors for the performance rights for the year ended 31 December 2016 for testing
as at 31 December 2018 is as follows:
Ferroglobe PLC
HudBay Minerals Inc
Iluka Resources Limited
Imperial Metals Corp
Independence Group NL
Ivanhoe Mines Ltd
Magnis Resources Limited
Sandfire Resources NL
Materion Corporation
Talga Resources Limited
Metals X Limited
OZ Minerals Limited
Polymet Mining Corp
Nevsun Resources Ltd
Tokai Carbon Co. Ltd
Vedanta Resources plc
Western Areas Limited
iii. Year ended 31 December 2017 Grant
The TSR comparator group as selected by the Board of Directors for the performance rights for the year ended 31 December 2017 for testing
as at 31 December 2019 is as follows:
Ferroglobe PLC
HudBay Minerals Inc
Iluka Resources Limited
Imperial Metals Corp
Independence Group NL
Ivanhoe Mines Ltd
Magnis Resources Limited
Sandfire Resources NL
Materion Corporation
Talga Resources Limited
Metals X Limited
OZ Minerals Limited
Polymet Mining Corp
Nevsun Resources Ltd
Tokai Carbon Co. Ltd
Vedanta Resources plc
Western Areas Limited
27
DIRECTORS’ REPORT (CONT')
(E) REMUNERATION COMPONENTS (CONT')
The Board reserves the right to adjust the composition and number of the companies in the TSR Comparator Groups (2016 and 2017 Grants) from time to
time to take into account events including, but not limited to, takeovers, mergers and liquidations that might occur during the performance period.
TSR Comparator Group (2018 Grants)
The TSR compactor group as selected by the Board of Directors for performance rights for the year ending 31 December 2018 is the companies in the
S&P/ASX300 Index (^XKO) as at 1 January 2018, classified under the “Metals & Mining” industry under the GICS classification system as follows:
Alacer Gold Corp.
Alumina Limited
Ausdrill Limited
Beadell Resources Limited
BHP Billiton Limited
Bluescope Steel Limited
Dacian Gold Limited
Evolution Mining Limited
Fortescue Metals Limited
Galaxy Resources Limited
Gold Road Resources Limited
Iluka Resources Limited
Imdex Limited
Independence Group Limited
Lynas Corporation Limited
MACA Limited
Magnis Resources Limited
Metals X Limited
Mineral Resources Limited
Newcrest Mining Limited
Northern Star Resources Limited
Oceana Gold Limited
Orocobre Limited
Oz Minerals Limited
Perseus Mining Limited
Pilbara Minerals Limited
Regis Resources Limited
Resolute Mining Limited
Rio Tinto Limited
Sandfire Resources NL
Saracen Mineral Holdings Limited
Silver Lake Resources Limited
Sims Metal Management Limited
South32 Limited
St Barbara Limited
Syrah Resources Limited
Western Areas Limited
Westgold Resources Limited
If at any time during the Vesting Period a company in the Comparator Group suffers an insolvency event, undertakes material merger or acquisition activity or
is delisted from the ASX it will cease to become part of the Comparator Group.
The table below summarises the number and movements in Performance Rights during the year:
Movement for the year ended 31 December 2017:
Balance at the beginning of the year
Granted during the year
Lapsed during the year
Forfeited during the year
Balance at the end of the year
At 31 December 2017:
Vested
Unvested
2017
NUMBER
324,754
600,543
(65,945)
(214,514)
644,838
78,225
566,613
644,838
2016
NUMBER
100,707
232,296
-
(8,249)
324,754
-
324,754
324,754
The Board of Directors has resolved to grant 93,974 performance rights to S Verner and 325,024 performance rights to other executives and senior
managers for the year ending 31 December 2018. The performance rights granted to S Verner remain subject to shareholder approval. The performance
rights granted to other executives and senior managers were issued on 14 March 2018 and are not included in the above table. The Board of Directors also
resolved to grant 25,850 performance rights to other executives and senior managers for the year ended 31 December 2017 in accordance with the relevant
employment contracts. These performance rights were issued on 14 March 2018 and are not included in the above table.
The Board of Directors in its discretion has also resolved to award additional performance rights to D Corr in lieu of options that were awarded to him in 2015
and which were unable to be exercised without trading in the shares, as he was privy to market sensitive information at the time that the share price exceeded
the exercise price of the options and cashless exercise was not available under the relevant LTI plan. The Board considered this an appropriate action in
view of the significant contribution he made to delivery of project development and construction activities for the Balama Graphite Project and associated
fundraising activities over the past three years.
Accordingly, 118,663 performance rights were awarded to D Corr on 14 March 2018. These performance rights vest on the 1 January 2019. In the event
of the cessation of employment during the vesting period, the treatment of the rights will depend on the circumstances. In general terms, and subject to the
discretion of the Plan Committee, if the holder is a “bad leaver” during the vesting period, the rights will be immediately forfeited; whereas if the holder is not a
“bad leaver”, they will be entitled to retain a pro-rata amount of rights based on the proportion of the vesting period that the holder was an employee.
28
SYRAH RESOURCES > ANNUAL REPORT 2017 DIRECTORS’ REPORT (CONT')
(E) REMUNERATION COMPONENTS (CONT')
Share Options
The Group has a current Long Term Incentive Plan (“LTIP”) and a former Share Option Plan (“SOP”) in existence. The SOP is now effectively dormant applying
only to options granted prior to November 2015, with no new options issued under this plan.
Share Option Plan
The SOP was established and approved by shareholders at an Annual General Meeting held on 19 November 2013 and enables the Company, at the
discretion of the Board of Directors, to offer employees and directors options.
As at 31 December 2017, there were 2,450,000 options outstanding (31 December 2016: 5,675,000) under this plan. The table below summarises the
number and movements in Options under this plan during the year:
Movement for the year ended 31 December 2017:
Balance at the beginning of the year
Exercised during the year
Expired during the year
Balance at the end of the year
At 31 December 2017:
Vested
Unvested
2017
NUMBER
5,675,000
(600,000)
(2,625,000)
2,450,000 (1)
2,450,000 (1)
-
2,450,000 (1)
2016
NUMBER
5,947,000
(272,000)
-
5,675,000
5,675,000
-
5,675,000
(1) 600,000 of these options expired on 28 January 2018 and a further 400,000 of these options expired on 30 January 2018.
Unvested options issued under the SOP will be forfeited upon cessation of employment prior to the conclusion of the vesting period.
In the event of cessation of employment by reason of death, any vested options are exercisable within 3 months by a legal representative otherwise the
options will lapse. All other vested options are exercisable within 30 days of cessation of employment otherwise the options will lapse.
29
DIRECTORS’ REPORT (CONT')
(E) REMUNERATION COMPONENTS (CONT')
LONG TERM INCENTIVE PLAN
The LTIP was established and approved by shareholders at an Annual General Meeting held on 13 November 2015 and enables the Company, at the
discretion of the Board of Directors, to offer employees and directors a number of equity related interests, including options, performance rights and
shares.
Options issued under this plan are for a specified period and each option or performance right is convertible into one ordinary share.
There are no voting or dividend rights attached to the Options. Voting rights will attach to the ordinary shares when the options have been exercised.
Unvested Options will not be quoted on the ASX.
As at 31 December 2017, there were 4,300,000 options outstanding (31 December 2016: 3,000,000 options outstanding) under this plan. The table
below summarises the number and movements in Options under this plan during the year:
Movement for the year ended 31 December 2017:
Balance at the beginning of the year
Granted during the year
Forfeited during the year
Expired during the year`
Balance at the end of the year
At 31 December 2017:
Vested
Unvested
2017
NUMBER
3,000,000
2,900,000
(600,000)
(1,000,000)
4,300,000
1,400,000
2,900,000
4,300,000
2016
NUMBER
1,000,000
2,300,000
(300,000)
-
3,000,000
1,000,000
2,000,000
3,000,000
In the event that a participant in the LTI Plan ceases to be a director or employee of the Group, the treatment of any options held by the participant will
depend on the circumstances surrounding the cessation of his/her directorship/employment. In general terms, and subject to the discretion of the Plan
Committee, if the participant is a “bad leaver”, any unvested options will immediately lapse; whereas if the participant is not a “bad leaver”, he/she will be
entitled to retain a pro-rata amount of unvested options (based on the proportion of the vesting period that the participant was a director/employee). The
Plan Committee also has power to deem that options will lapse in a number of scenarios, including if a participant commits an act of fraud, defalcation or
gross misconduct, or materially breaches his or her duties or brings the Syrah Group (or any member thereof) into disrepute.
In the event of a change of control, all unvested options will vest.
In the event that vesting conditions attached to options were (or were deemed to have been) satisfied due to a material misstatement in the Company’s
financial statements in respect of an applicable vesting period (or another event during such vesting period), the holder of those options will cease to be
entitled to them and the Plan Committee may, among other things, cancel those options for no consideration.
30
SYRAH RESOURCES > ANNUAL REPORT 2017 DIRECTORS’ REPORT (CONT')
(F) DETAILS OF REMUNERATION EXPENSES
The following tables show details of the remuneration expense recognised for the Group’s Non-Executive Directors; Executive Directors and Other Key
Management Personnel for the current and previous financial periods measured in accordance with the requirements of the accounting standards:
Table 1: Remuneration for the financial year ended 31 December 2017
FIXED REMUNERATION
VARIABLE REMUNERATION
SALARY &
FEES
US$
LEAVE (2)
US$
SUPER-
ANNUATION
US$
OTHER
US$
STI
CASH (3)
STI
SHARES (3)
LTI
RIGHTS (4) OPTIONS (4)
US$
US$
US$
US$
156,715
91,169
81,875
99,146
16,832
94,966
-
-
-
-
-
-
-
42,783 (6)
8,661
-
-
1,599
9,022
-
-
-
-
-
540,703
-
19,282
42,783
-
-
-
-
-
-
-
-
-
-
-
-
-
-
TOTAL
US$
199,498
99,830
81,875
316,363
102,864
103,988
-
-
-
-
-
-
-
-
-
217,217
84,433
-
-
301,650
904,418
NON-EXECUTIVE DIRECTORS
J Askew (5)
S Riggall
J Caldeira
C Lampe-Onnerud
S Giorgini (7)
R Brans (8)
Sub-total
Non-Executive Directors
EXECUTIVE DIRECTOR
S Verner (9)
Sub-total
Executive Directors
339,475
13,825
27,373
2,112
109,213
109,213
89,568
213,902
904,681
339,475
13,825
27,373
2,112
109,213
109,213
89,568
213,902
904,681
KEY MANAGEMENT PERSONNEL
D Corr
R Schaefer (10)
J Currie (11)
J Morrissey
D Strange (12)
Sub-total Key
Management Personnel
248,851
191,300
57,569
211,087
440,391
5,472
10,746
2,026
7,429
-
23,641
18,174
5,469
20,053
-
-
-
-
-
322,384 (12)
64,036
46,753
24,112
54,317
45,594
64,036
46,753
24,112
54,317
118,224
-
35,080
288,775
-
106,380
49,689
45,594
(128,506)
-
-
524,260
637,581
219,668
396,892
725,457
1,149,198
25,673
67,337
322,384
234,812
234,812
74,487
395,155
2,503,858
TOTAL
2,029,376
39,498
113,992
367,279
344,025
344,025
164,055
910,707
4,312,957
(1) All amounts translated from Australian Dollars to United States dollars at an average exchange for the year ended 31 December 2017 of 0.7676.
(2) Represents annual leave and long service leave entitlements, being the movement in the entitlements measured on an accrual basis during the financial period.
(3) Represents STI payments made in cash and shares for the year ended 31 December 2017 as approved by the Remuneration and Nomination Committee.
(4) Represents amounts expensed through the Company’s profit and loss for performance rights and options issued under the Company’s LTIP. These amounts are recognised in the
Company’s profit and loss over the vesting period in accordance with AASB 2 Share-based Payments.
(5) Directors fees paid to J Askew are paid to International Mining and Finance Corp, a company of which he is a Director. J Askew acted as Executive Chairman of the Company from
5 October 2017 to 3 February 2017.
(6) Represents the current year portion of a payment of $148,880 (A$200,000) to J Askew for additional services provided to the Company as Executive Chairman from 5 October 2017 to
3 February 2017. This amount was paid in shares as approved at the Annual General Meeting held on 19 May 2017.
(7) S Giorgini commenced as a Non-Executive Director of the Company effective from 16 October 2017.
(8) R Brans ceased as a Non-Executive Director of the Company effective from 31 December 2017.
(9) S Verner was appointed Managing Director and Chief Executive Officer on 3 February 2017.
(10) R Schaefer commenced employment with the Company as Chief Commercial Officer on 1 March 2017.
(11) J Currie commenced employment with the Company on 2 October 2017 as Chief Legal Officer and Company Secretary (with appointment as Company Secretary on 16 October 2017)
(12) D Strange ceased employment with the Company effective from 30 November 2017. Prior to his resignation, D Strange was seconded to Twigg Exploration and Mining Limitada (Twigg).
During this secondment, he was based in Mozambique and entitled to a net monthly salary of US$25,000 from Twigg (gross annual equivalent of US$461,538 inclusive of income taxes
paid in Mozambique). During his secondment he remained eligible to participate in the Group’s STI and LTI plans. D Strange received a net payment of US$216,628 (gross equivalent of
US$322,384 inclusive of income taxes paid in Mozambique) upon ceasing employment with the Company. He remained eligible to participate on a pro-rata basis in the Group’s STI plan
for the year ended 31 December 2017 (subject to an assessment of performance during the period in which he was employed) and forfeited his entitlement to unvested performance
rights as at the date of ceasing employment.
31
DIRECTORS’ REPORT (CONT')
(F) DETAILS OF REMUNERATION EXPENSES (CONT')
Table 2: Remuneration for the financial year ended 31 December 2016
FIXED REMUNERATION
VARIABLE REMUNERATION
SALARY &
FEES
US$
LEAVE (2)
US$
SUPER-
ANNUATION
US$
OTHER
US$
STI
CASH (3)
STI
SHARES (3)
LTI
RIGHTS (4) OPTIONS (4)
US$
US$
US$
US$
TOTAL
US$
NON-EXECUTIVE DIRECTORS
J Askew (5)
S Riggall
R Brans
C Lampe-Onnerud
J Caldeira
Sub-total
Non-Executive Directors
EXECUTIVE DIRECTOR
141,379
90,714
75,785
54,838
74,373
437,089
-
-
-
-
-
-
-
107,368 (6)
6,392
21,322
-
-
-
-
-
-
27,714
107,368
T Kumova (7)
274,172
23,883
17,860
Sub-total
Executive Directors
274,172
23,883
17,860
KEY MANAGEMENT PERSONNEL
S Verner (8)
D Strange (9)
D Corr
J Morrissey (10)
Sub-total Key
Management Personnel
39,790
301,250
246,908
148,851
-
10,133
17,672
9,855
3,873
16,552
16,951
14,141
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
48,001
42,075
7,416
48,001
42,075
7,416
-
395,094
643,841
-
-
-
-
-
263,396
360,502
-
97,107
323,235
378,073
-
74,373
981,725
1,553,896
43,790
733,336
1,093,041
43,790
733,336
1,093,041
-
85,016
70,727
10,866
87,917
44,156
44,156
118,898
131,580
553,109
480,564
317,443
736,799
37,660
51,517
-
97,492
97,492
166,609
295,127
1,482,696
TOTAL
1,448,060
61,543
97,091
107,368
97,492
97,492
210,399
2,010,188
4,129,633
(1) All amounts translated from Australian Dollars to United States dollars at an average exchange for the year ended 31 December 2016 of 0.7444.
(2) Represents annual leave and long service leave entitlements, being the movement in the entitlements measured on an accrual basis during the financial period.
(3) Represents STI payments made in cash and shares for the year ended 31 December 2016 as approved by the Remuneration and Nomination Committee.
(4) Represents amounts expensed through the Company’s profit and loss for performance rights and options issued under the Company’s LTIP. These amounts are recognised in the
Company’s profit and loss over the vesting period in accordance with AASB 2 Share-based Payments.
(5) Directors fees paid to J Askew are paid to International Mining and Finance Corp, a company of which he is a Director. J Askew acted as Executive Chairman of the Company from
5 October 2016 to 3 February 2017.
(6) Represents the current year portion of a payment of $148,880 (A$200,000) to J Askew for additional services provided to the Company as Executive Chairman from 5 October 2016
to 3 February 2017. This amount was be paid in shares as approved at the Annual General Meeting held on 19 May 2017.
(7) T Kumova resigned as Managing Director of the Company on 5 October 2016. T Kumova retains apro-rata entitlement to performance rights based on the proportion of the vesting
period that he was an employee and/or consultant to the Company.
(8) S Verner joined the Company as Executive General Manager – Sales and Marketing on 24 October 2016 and was appointed Managing Director and Chief Executive Officer on
3 February 2017.
(9) D Strange has been seconded to Twigg Exploration and Mining Limitada (Twigg), a wholly owned subsidiary of the Company, for a period of 12 months effective from 15 November 2016.
During this secondment, he will be based in Mozambique, overseeing the completion of the Balama Project construction activities, commissioning activities and production ramp-up,
and be entitled to a net monthly salary of US$25,000 from Twigg. D Strange will not receive the TFR component of his Executive Service Agreement with Syrah but remains eligible to
participate in the Group’s STI and LTI plans.
(10) J Morrissey was considered key management personnel from 1 January 2016.
32
SYRAH RESOURCES > ANNUAL REPORT 2017
DIRECTORS’ REPORT (CONT')
(G) EXECUTIVE SERVICE AGREEMENTS
Remuneration and other key terms of employment for Executive Directors and Key Management Personnel as of the date of this report are formalised in
Employment Agreements and summarised in the following table:
NAME
S Verner
POSITION
Managing
Director and Chief
Executive Officer
D Corr
Chief Financial
Officer
R Schaefer
Chief Commercial
Officer
J Currie
Chief Legal Officer
and Company
Secretary
J Morrissey
Chief People
Officer
TERM OF
AGREEMENT
TOTAL FIXED
REMUNERATION
ANNUAL STI
OPPORTUNITY
ANNUAL LTI
GRANT
NOTICE PERIOD
BY EXECUTIVE
NOTICE PERIOD
BY COMPANY
TERMINATION
PAYMENT
Ongoing
A$492,750
75% of TFR
75% of TFR
3 months
3 months
12 months
Total Fixed
Remuneration
Ongoing
A$355,000
50% of TFR
50% of TFR
3 months
3 months
6 months
Ongoing
A$328,500
50% of TFR
50% of TFR
3 months
3 months
3 months
Ongoing
A$328,500
50% of TFR
50% of TFR
3 months
3 months
3 months
Total Fixed
Remuneration
Total Fixed
Remuneration
Ongoing
A$301,125
50% of TFR
50% of TFR
3 months
3 months
3 months
Total Fixed
Remuneration
Total Fixed
Remuneration
(H) TERMS AND CONDITIONS OF SHARE-BASED PAYMENT
ARRANGEMENTS
PERFORMANCE RIGHTS
The terms and conditions of each grant of performance rights affecting the remuneration of Directors and Key Management Personnel in the current or a
future reporting period are as follows:
GRANT DATE
17 May 2016
21 March 2017
26 May 2017
14 March 2018
14 March 2018
14 March 2018
VESTING DATE
1 January 2019
1 January 2020
1 January 2020
1 January 2020
1 January 2021
1 January 2019
EXERCISE PRICE
NUMBER
OF RIGHTS
VALUE PER RIGHT
AT GRANT DATE
-
-
-
-
-
-
58,543
161,691
121,773
14,269
166,954
118,663
A$3.47
A$2.88
A$2.88
A$2.88
A$3.93
A$3.37
The proportion of Performance Rights that vest is determined in accordance with the Vesting Conditions. Any Performance Rights that do not vest at the
end of the Vesting Period will lapse. The Long Term Incentive Plan provides that vested Performance Rights that have not been exercised or automatically
exercised (depending on the terms of the relevant offer letter) will expire two year from the First Exercise Date (as defined in the relevant offer letter).
33
DIRECTORS’ REPORT (CONT')
(H) TERMS AND CONDITIONS OF SHARE-BASED PAYMENT
ARRANGEMENTS (CONT')
OPTIONS
The terms and conditions of each grant of options affecting the remuneration of Directors and Key Management Personnel in the current or a future
reporting period are as follows:
GRANT DATE
VESTING DATE
EXPIRY DATE
EXERCISE PRICE
NUMBER
UNDER OPTION
VALUE PER OPTION
AT GRANT DATE
2 October 2014
2 October 2015
2 October 2019
9 June 2015
9 June 2016
9 June 2018
1 December 2015
1 December 2016
1 December 2018
24 May 2016
1 March 2017
26 May 2017
24 May 2017
1 March 2018
26 May 2018
24 May 2019
1 March 2020
26 May 2020
20 October 2017
20 October 2018
20 October 2020
20 October 2017
20 October 2018
20 October 2020
A$6.23 (1)
A$4.96 (1)
A$4.68 (1)
A$5.04 (1)
A$4.11 (1)
A$4.30 (1)
A$3.85
A$4.67
400,000 (2)
300,000 (3)
1,000,000 (4)
400,000 (5)
600,000 (6)
1,000,000 (7)
400,000 (8)
600,000 (9)
A$1.88
A$1.21
A$0.96
A$1.79
A$0.75
A$0.66
A$1.39
A$1.17
(1) Effective from 2 November 2017, the exercise price of these options was reduced by $0.03 (3 cents) per option in accordance with the terms of the Long Term Incentive Plan dated
13 May 2015, ASX Listing Rules 3.11.2 and 6.22 as a result of the issuance of shares from a 1 for 10.5 accelerated non-renounceable entitlement offer.
(2) 400,000 unlisted options issued to J Caldeira, Non-Executive Director.
(3) 300,000 unlisted options issued to J Morrissey, Chief People Officer.
(4) 600,000 unlisted options issued to J Askew, Non-Executive Chairman and 400,000 unlisted options issued to S Riggall, Non-Executive Director.
(5) 400,000 unlisted options issued to C Lampe-Onnerud, Non-Executive Director.
(6) 600,000 unlisted options issued to R Schaefer, Chief Commercial Officer.
(7) 1,000,000 unlisted options issued to S Verner, Managing Director and Chief Executive Officer on 26 May 2017 in accordance with resolution passed at the Annual General Meeting
on 19 May 2017.
(8) 400,000 unlisted options issued to S Giorgini, Non-Executive Director.
(9) 600,000 unlisted options issued to J Currie, Chief Legal Officer and Company Secretary.
34
SYRAH RESOURCES > ANNUAL REPORT 2017 DIRECTORS’ REPORT (CONT')
(I) DIRECTORS AND KEY MANAGEMENT PERSONNEL EQUITY
HOLDINGS
SHAREHOLDINGS
A reconciliation of the number of shares held by Directors and Key Management Personnel, including their personally related parties, in the Company
is set out below:
DIRECTORS
J Askew
S Riggall
R Brans (3)
S Giorgini (4)
EXECUTIVE DIRECTOR
S Verner
KEY MANAGEMENT PERSONNEL
D Corr
R Schaefer
J Currie
J Morrissey
D Strange (7)
BALANCE
1 JANUARY
2017
-
-
4,000
-
5,500
ORDINARY
SHARES
GRANTED
60,790 (1)
-
-
-
- (6)
28,169
18,415 (5,6)
-
-
11,268
36,056
- (6)
- (6)
3,246 (5,6)
21,008 (5,6)
ORDINARY
SHARES ISSUED
ON EXERCISE OF
OPTIONS
ON MARKET
ACQUISITIONS/
(DISPOSALS)
-
-
-
-
-
-
-
-
-
40,000
8,790
-
10,000
-
-
-
-
-
-
BALANCE
31 DECEMBER
2017
100,790
9,627
-
10,000
OTHER
-
837 (2)
(4,000)
-
784 (2)
6,284
-
-
-
-
(57,064)
46,584
-
-
14,514
-
(1) These shares were issued in recognition of assuming the role of interim Executive Chairman for the period from 5 October 2016 to 3 February 2017, as approved by shareholders at the
Company’s Annual General Meeting held on 19 May 2017.
(2) These shares were acquired through participation in the 1 for 10.5 pro-rata accelerated non-renounceable retail entitlement offer completed by the Company during the year ended 31
December 2017.
(3) R Brans ceased as a Non-Executive Director of the Company effective from 31 December 2017.
(4) S Giorgini commenced as a Non-Executive Director of the Company effective from 16 October 2017.
(5) Represents shares issued on 21 March 2017 pursuant to the STI plan for the year ended 31 December 2016.
(6) The Board of Directors resolved to issue 42,220 shares to S Verner and 90,775 shares to Key Management Personnel pursuant to the STI plan for the year ended 31 December 2017.
The shares issued to S Verner remain subject to shareholder approval. The shares issued to Key Management Personnel were issued on 14 March 2018 and are not included in the
above reconciliation.
(7) D Strange ceased employment with the Company effective from 30 November 2017.
35
DIRECTORS’ REPORT (CONT')
(I) DIRECTORS AND KEY MANAGEMENT PERSONNEL EQUITY
HOLDINGS (CONT')
PERFORMANCE RIGHTS
A reconciliation of the number of Performance Rights held by Directors and Key Management Personnel, including their personally related parties, in the
Company is set out below:
DIRECTORS
S Verner
GRANT
2017
Total
KEY MANAGEMENT PERSONNEL
D Corr (2)
R Schaefer
J Currie (4)
J Morrissey
D Strange (5)
2017
2016
2015
Total
2017
Total
2017
Total
2017
2016
Total
2017
2016
2015
Total
BALANCE
1 JANUARY
2017
GRANTED
DURING THE
PERIOD (1)
FORFEITED
DURING THE
PERIOD
NET CHANGE
OTHER
BALANCE
31 DECEMBER
2017
VESTED
UNVESTED
-
-
-
45,946
44,170
90,116
-
-
-
-
-
12,597
-
52,417
56,537
108,954
121,773
121,773
61,679
-
61,679
47,693
47,693
-
-
52,319
-
12,597
70,367
-
-
-
-
-
(40,945)
(40,945)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(70,367)
(52,417)
(56,537)
(108,954)
121,773
121,773
61,679
45,946
3,225
110,850
47,693
47,693
-
-
52,319
12,597
12,597
-
-
-
-
-
-
-
3,225 (3)
3,225
-
-
-
-
-
-
-
-
-
-
-
121,773
121,773
61,679
45,946
-
107,625
47,693
47,693
-
-
52,319
12,597
12,597
-
-
-
-
(1) The Board of Directors resolved to issue 93,974 performance rights to S Verner and 166,954 performance rights to Key Management Personnel pursuant to the LTI plan for the year
ending 31 December 2018. The performance rights issued to S Verner remain subject to shareholder approval. The performance rights issued to Key Management Personnel were issued
on 14 March 2018 and are not included in the above reconciliation.
(2) The Board of Directors resolved to issue D Corr with 118,663 performance rights in lieu of options awarded to him in 2015 that were unable to be exercised and given the significant
contribution made to the delivery of the project development and construction activities for the Balama Graphite Project and associated fundraising activities over the past three years.
These performance rights were issued on 14 March 2018 and are not included in the above reconciliation.
(3) 7% of the performance rights granted for the 2015 financial year and tested as at 31 December 2017 vested based on the TSR performance of Syrah of 51% in comparison to the
average TSR of the comparator group of 43% over the performance period. 3,225 shares were issued on 14 March 2018.
(4) The Board of Directors resolved to issue J Currie on a pro-rata basis 14,269 performance rights pursuant to the LTI plan for the year 31 December 2017. The performed rights were
issued on 14 March 2018 and are not included in the above reconciliation.
(5) D Strange ceased employment with the Company effective from 30 November 2017 and forfeited his entitlement to unvested performance rights as at the date of ceasing employment.
Details of the Performance Rights Plan and vesting conditions are provided on page 26 of this report.
36
SYRAH RESOURCES > ANNUAL REPORT 2017 DIRECTORS’ REPORT (CONT')
(I) DIRECTORS AND KEY MANAGEMENT PERSONNEL EQUITY
HOLDINGS (CONT')
OPTIONS
A reconciliation of the number of Options held by Directors and Key Management Personnel, including their personally related parties, over unissued
ordinary shares in the Company is set out below:
BALANCE
1 JANUARY
2016
GRANTED
DURING THE
PERIOD
OPTIONS
EXERCISED
NET CHANGE
OTHER
BALANCE
31 DECEMBER
2017
VESTED
UNVESTED
DIRECTORS
J Askew
S Riggall
J Caldeira
C Lampe-Onnerud
S Giorgini
R Brans (1)
EXECUTIVE DIRECTOR
600,000
400,000
400,000
400,000
-
-
-
-
-
400,000
400,000
-
S Verner (2)
600,000
1,000,000
KEY MANAGEMENT PERSONNEL
D Corr
R Schaefer
J Currie
J Morrissey
D Strange (4)
600,000
-
-
300,000
600,000
-
600,000
600,000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(400,000) (1)
600,000
400,000
400,000
400,000
400,000
-
600,000
400,000
400,000
400,000
-
-
-
-
-
-
400,000
(600,000)
1,000,000
1,000,000
-
-
-
-
(600,000)
600,000 (3)
600,000
600,000
600,000
300,000
-
300,000
-
-
600,000
600,000
-
-
(1) R Brans ceased as a Non-Executive Director of the Company effective from 31 December 2017. These options were granted in 2014 and expired on 30 January 2018 as a result of his
cessation as a Non-Executive Director.
(2) 600,000 options were issued to S Verner on his appointment as Executive General Manager – Sales and Marketing. S Verner was appointed as Managing Director and Chief Executive
Officer of the Company on 3 February 2017. As a result of this appointment the 600,000 options were cancelled and replaced with 1,000,000 unlisted options exercisable at A$4.30
and expiring in three years from the date of grant. The issuance of these options was approved by the shareholders at the Annual General Meeting held on 19 May 2017 and issued on
26 May 2017.
(3) These options were granted in 2015 and expired on 28 January 2018.
(4) D Strange ceased employment with the Company effective from 30 November 2017 and exercised these options on 21 December 2017. The weighted average share price at the date of
exercise of the options was A$4.45.
37
DIRECTORS’ REPORT (CONT')
(J) OTHER TRANSACTIONS WITH DIRECTORS AND KEY MANAGEMENT
PERSONNEL
Aggregate amounts of other transactions with Directors and Key Management Personnel is set out below:
Provision of services
Legal services provided by Sal & Caldeira Advogados, Lda (1)
Consultancy services provided by Proman Consulting Engineers Pty Ltd (2)
Consultancy services provided by Christina Lampe-Onnerud
Product technology development services provided Cadenza Innovation Inc. (3)
2017
US$
384,045
26,866
-
1,501,800
1,912,711
2016
US$
338,931
66,987
130,000
-
535,918
(1) Represents legal services provided to the Company by Sal & Caldeira Advogados, Ltd in Mozambique. J Caldeira is a Non-Executive Director of the Company and is a Senior Partner at
Sal & Caldeira Advogados, Lda.
(2) Represents project development consultancy services provided to the Company by R Brans who is a Non-Executive Director of the Company.
(3) C Lampe-Onnerud who is an Non-Executive Director of the Company is also Founder and Chief Executive Officer of Cadenza Innovation Inc. During the year, the Company entered
into an exclusive research and development agreement with Cadenza Innovation Inc. to fuel advancements in graphite anode technology for use in lithium-ion-based energy storage
by establishing an “Office of the Chief Technology Officer”, to lead knowledge exchange, deep technical partner and customer engagement and support the BAM processing plant in
Louisiana.
These services are provided on arm’s length commercial terms and conditions. Where any director has a conflict of interest they do not participate in any
decision of the Board or management in relation to that matter.
The following balances were outstanding at the end of the period in relation to the above transactions:
Trade and other payables
2017
US$
26,275
2016
US$
108,770
(K) ADDITIONAL INFORMATION
The Company aims to align executive remuneration to drive short, medium and long term outcomes for the business which create shareholder value. The
table below shows the Group’s performance over the past 5 years. These performance measures may not necessarily be consistent with the measures
used in determining performance based remuneration and accordingly there may not always be a direct correlation between these measures and the
variable remuneration awarded.
Market capitalisation (US$’000)
Closing share price (US$)
Loss after income tax for the period (US$’000)
Basic earnings per share (US cents)
31 DECEMBER
2017
31 DECEMBER
2016
31 DECEMBER
2015
1,045,520
582,107
658,231
3.52
(12,307)
(4.51)
2.21
(14,491)
(5.84)
2.85
(2,356)
(1.09)
30 JUNE
2015
465,476
2.81
(9,751)
(5.86)
30 JUNE
2014
633,733
3.90
(6,201)
(3.94)
38
SYRAH RESOURCES > ANNUAL REPORT 2017
DIRECTORS’ REPORT (CONT')
(K) ADDITIONAL INFORMATION (CONT')
SHARES OPTIONS AND PERFORMANCE RIGHTS
(i) Unissued ordinary shares
Unissued ordinary shares of Syrah Resources Limited under option and performance rights as at the date of this report are as follows:
VESTING AND
EXERCISABLE DATE
EXPIRY DATE
EXERCISE PRICE
NUMBER OF SHARES
UNDER OPTION /
PERFORMANCE RIGHTS
VALUE PER OPTION/
PERFORMANCE RIGHT
AT GRANT DATE
GRANT DATE
Share Options
Share Option Plan
19 May 2014
19 May 2015
19 May 2019
2 October 2014
2 October 2015
2 October 2019
9 June 2015
9 June 2016
9 June 2018
26 October 2015
26 October 2016
26 October 2020
Long Term Incentive Plan
1 December 2015
1 December 2016
1 December 2018
24 May 2016
1 March 2017
26 May 2017
24 May 2017
1 March 2018
26 May 2018
24 May 2019
1 March 2020
26 May 2020
20 October 2017
20 October 2018
20 October 2020
20 October 2017
20 October 2018
20 October 2020
20 October 2017
20 October 2018
20 October 2020
Total Options
Performance Rights
17 May 2016
9 June 2016
21 March 2017
26 May 2017
14 March 2018
14 March 2018
14 March 2018
Total Performance Rights
1 January 2019
1 January 2019
1 January 2020
1 January 2020
1 January 2020
1 January 2021
1 January 2019
A$5.38 (1)
A$6.23 (1)
A$4.96 (1)
A$4.35 (1)
A$4.68 (1)
A$5.04 (1)
A$4.11 (1)
A$4.30 (1)
A$3.85
A$4.13
A$4.67
-
-
-
-
-
-
-
500,000
400,000
300,000
250,000
1,000,000
400,000
600,000
1,000,000
400,000
300,000
600,000
5,750,000
58,543
77,894
301,301
121,773
25,850
325,024
118,663
1,029,048
A$2.24
A$1.88
A$1.22
A$1.18
A$0.96
A$1.79
A$0.75
A$0.66
A$1.39
A$1.31
A$1.17
A$3.47
A$3.47
A$2.88
A$2.88
A$2.88
A$3.93
A$3.37
(1) Effective from 2 November 2017, the exercise price of options were reduced by $0.03 (3 cents) per option in accordance with the terms of the options, ASX Listing Rule 3.11.2 and 6.22
as a result of the issuance of shares from a 1 for 10.5 accelerated renounceable entitlement offer.
The proportion of Performance Rights that vest is determined in accordance with the Vesting Conditions. Any Performance Rights that do not vest at the
end of the Vesting Period will lapse. The Long Term Incentive Plan provides that vested Performance Rights that have not been exercised or automatically
exercised (depending on the terms of the relevant offer letter) will expire two year from the First Exercise Date (as defined in the relevant offer letter).
No option holder has any right under the options to participate in any share issue of the Company.
(ii) Shares issued on exercise of options
Ordinary shares of Syrah Resources Limited issued during the year ended 31 December 2017 and up to the date of this report on the exercise of options
under the Share Option Plan were as follows:
GRANT DATE
28 January 2015
SHARE ISSUANCE DATE
21 December 2017
EXERCISE PRICE
NUMBER OF SHARES ISSUED
A$4.05
600,000
39
DIRECTORS’ REPORT (CONT')
During the financial year the following fees were paid or payable for
services provided by the auditor of the parent entity, its related practices
and non- related audit firms.
Assurance services:
PwC Australian firm
Network firms of PwC Australian firm
Total remuneration for audit services
Non-assurance services
Tax compliance services
Tax consulting services
Other consulting services
Total remuneration for non-assurance services
Total remuneration paid to
PricewaterhouseCoopers
2017
2016
US$’000
US$’000
150
94
244
29
66
22
117
361
98
60
158
53
140
-
193
351
The Group’s policy allows the engagement of PricewaterhouseCoopers
on assignments additional to their statutory audit duties where
PricewaterhouseCoopers expertise and experience with the Group are
important. These assignments are principally tax consulting and advice or
where PricewaterhouseCoopers is awarded assignments on a competitive
basis. It is the Group’s policy to seek competitive tenders for all major
consulting assignments. Group policy also requires the Chairperson of
the Audit Committee to approve all individual assignments performed by
PricewaterhouseCoopers with total fees of greater than $20,000.
INDEMNIFICATION OF
OFFICERS
During the year the Company paid a premium in respect of a contract
insuring the directors of the Company, the company secretaries and all
executive officers of the Company and of any related body corporate
against a liability incurred as such a director, secretary or executive officer
to the extent permitted by the Corporations Act 2001. The contract of
insurance prohibits disclosure of the nature of the liability and the amount
of the premium.
The Company has entered into a Deed of Indemnity, Insurance and Access
with each director, secretary and executive officer. In summary the Deed
provides for:
>
>
>
Access to corporate records for each director, secretary or executive
officer for a period after ceasing to hold office in the Company;
The provision of Directors and Officers Liability Insurance; and
Indemnity for legal costs incurred by directors, secretary or executive
officers in carrying out the business affairs of the Company.
INDEMNITY OF AUDITORS
The Company has entered into an agreement to indemnify its auditor,
PricewaterhouseCoopers Australia, against any claims or liabilities
(including legal costs) asserted by third parties arising out of their services
as auditor of the Company, where the liabilities arise as a direct result of
the Company’s breach of its obligations to the Auditors, unless prohibited
by the Corporations Act 2001.
AUDIT AND NON-AUDIT
SERVICES
Details of amounts paid or payable to the auditor for audit and non-audit
services provided during the year are set out below:
The Board of Directors has considered the position and, in accordance
with advice received from the Audit Committee, is satisfied that the
provision of the non-audit services is compatible with the general standard
of independence for auditors imposed by the Corporations Act 2001.
The Directors are satisfied that the provision of non-audit services by the
auditor, as set out below, did not compromise the auditor independence
requirements of the Corporations Act 2001 for the following reasons:
>
>
all non-audit services have been reviewed by the Audit Committee
to ensure they do not impact the impartiality and objectivity of the
auditor; and
none of the services undermine the general principles relating to
auditor independence as set out in APES 110 Code of Ethics for
Professional Accountants.
40
SYRAH RESOURCES > ANNUAL REPORT 2017
DIRECTORS’ REPORT (CONT')
AUDITOR’S
INDEPENDENCE
DECLARATION
A copy of the auditor’s independence declaration as required under section
307C of the Corporations Act 2001 is set out on page 42.
ROUNDING OF AMOUNTS
The amounts contained in this report and in the financial report have been
rounded off to the nearest US$’000 (where rounding is applicable) under
the relief available to the Company under ASIC Corporations (Rounding in
Financial/Directors Reports) Instrument 2016/191. The Company is an
entity to which the Class Order applies.
AUDITOR
PricewaterhouseCoopers continues in office in accordance with section
327 of the Corporations Act 2001.
The report is made in accordance with a resolution of Directors.
Shaun Verner
Managing Director
Melbourne, Australia
26 March 2018
41
AUDITOR’S INDEPENDENCE
DECLARATION
Auditor’s Independence Declaration
As lead auditor for the audit of Syrah Resources Limited for the year ended 31 December 2017, I
declare that to the best of my knowledge and belief, there have been:
(a)
no contraventions of the auditor independence requirements of the Corporations Act 2001 in
relation to the audit; and
(b)
no contraventions of any applicable code of professional conduct in relation to the audit.
This declaration is in respect of Syrah Resources Limited and the entities it controlled during the
period.
John O'Donoghue
Partner
PricewaterhouseCoopers
Melbourne
26 March 2018
PricewaterhouseCoopers, ABN 52 780 433 757
2 Riverside Quay, SOUTHBANK VIC 3006, GPO Box 1331, MELBOURNE VIC 3001
T: 61 3 8603 1000, F: 61 3 8603 1999, www.pwc.com.au
Liability limited by a scheme approved under Professional Standards Legislation.
42
SYRAH RESOURCES > ANNUAL REPORT 2017
FINANCIAL
STATEMENTS
For the financial year ended 31 December 2017
These financial statements are the consolidated
financial statements of the consolidated entity
consisting of Syrah Resources Limited and
its subsidiaries. The financial statements are
presented in US Dollars.
Syrah Resources Limited is a company limited
by shares, incorporated and domiciled in
Australia. Its registered office and principal
place of business is:
Level 28
360 Collins Street
Melbourne VIC 3000
Australia
A description of the nature of the consolidated
entity’s operations and its principal activities
is included in the Directors’ Report on pages
6 to 41, which is not part of these financial
statements.
The financial statements were authorised for
issue by the directors on 26 March 2018. The
Directors have the power to amend and reissue
the financial statements.
All press releases, financial reports and other
information are available on our website:
www.syrahresources.com.au
CONTENTS
FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
CONSOLIDATED STATEMENT OF CASH FLOWS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
HOW NUMBERS ARE CALCULATED
INTRODUCTION
SEGMENT INFORMATION
REVENUE
OTHER INCOME
EXPENSES
INCOME TAX
FINANCIAL ASSETS AND FINANCIAL LIABILITIES
NON-FINANCIAL ASSETS AND NON-FINANCIAL LIABILITIES
EQUITY
1
2
3
4
5
6
7
8
9
10
RECONCILIATION OF LOSS AFTER INCOME TAX TO NET CASH OUTFLOW
FROM OPERATING ACTIVITIES
RISK
11
FINANCIAL RISK MANAGEMENT
UNRECOGNISED ITEMS
12
13
14
15
16
17
18
19
20
21
COMMITMENTS, CONTINGENCIES AND GUARANTEES
EVENTS OCCURRING AFTER THE REPORTING PERIOD
OTHER INFORMATION
RELATED PARTY TRANSACTIONS
SHARE-BASED PAYMENTS
REMUNERATION OF AUDITORS
EARNINGS PER SHARE
PARENT ENTITY FINANCIAL INFORMATION
SUBSIDIARIES
DEED OF CROSS GUARANTEE
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DIRECTORS’ DECLARATION
INDEPENDENT AUDITOR’S REPORT
PAGE
43
44
45
46
47
48
49
50
51
52
52
53
55
57
62
64
66
70
70
72
73
76
76
77
78
79
81
89
90
43
FINANCIAL STATEMENTS (CONT')
For the financial year ended 31 December 2017
CONSOLIDATED STATEMENT OF
COMPREHENSIVE INCOME
For the year ended 31 December 2017
Revenue from continuing operations
Other income
Expenses
Employee benefits expense
Legal and consulting expenses
Depreciation and amortisation expense
Impairment of assets
Foreign exchange loss – net
Other expenses
NOTES
3
4
5
5
8b
5
2017
US$’000
1,310
2,640
3,950
(7,552)
(3,718)
(299)
-
-
(3,273)
2016
US$’000
1,284
61
1,345
(7,320)
(2,773)
(277)
(34)
(3,171)
(2,261)
Loss before income tax expense from continuing operations
(10,892)
(14,491)
Income tax expense
6
(1,415)
-
Loss after income tax expense for the year attributable to the owners of
Syrah Resources Limited
(12,307)
(14,491)
Other comprehensive income
Items that may be reclassified subsequently to the profit or loss
Exchange differences on translation of foreign subsidiaries
Other comprehensive income /(loss) for the year, net of tax
Total comprehensive loss for the year attributable to the owners of
Syrah Resources Limited
Loss per share attributable to the owners of Syrah Resources Limited
Basic loss per share
Diluted loss per share
9b
17
17
6,641
6,641
(3,897)
(3,897)
(5,666)
(18,388)
Cents
(4.51)
(4.51)
Cents
(5.84)
(5.84)
The above consolidated statement of comprehensive income should be read in conjunction with the accompanying notes
44
SYRAH RESOURCES > ANNUAL REPORT 2017
FINANCIAL STATEMENTS (CONT')
For the financial year ended 31 December 2017
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 31 December 2017
Assets
Current assets
Cash and cash equivalents
Trade and other receivables
Available-for-sale financial assets
Total current assets
Non-current assets
Trade and other receivables
Property, plant and equipment
Mining assets
Intangibles
Total non-current assets
Total assets
Liabilities
Current liabilities
Trade and other payables
Finance leases
Provisions
Total current liabilities
Non-current liabilities
Finance leases
Provisions
Deferred tax liability
Total non-current liabilities
Total liabilities
Net assets
Equity
Issued capital
Reserves
Accumulated losses
Total equity
NOTES
7a
7b
7b
8b
8a
7c
7d
8c
7d
8c
6
9a
9b
The above consolidated statement of financial position should be read in conjunction with the accompanying notes
2017
US$’000
111,912
4,057
91
116,060
19,600
9,013
273,540
250
302,403
418,463
13,923
276
895
15,094
1,000
8,318
1,415
10,733
25,827
2016
US$’000
163,275
3,795
85
167,155
5,768
1,736
155,312
61
162,877
330,032
14,502
-
250
14,752
-
4,531
-
4,531
19,283
392,636
310,749
452,601
(9,642)
(50,323)
366,427
(11,861)
(43,817)
392,636
310,749
45
FINANCIAL STATEMENTS (CONT')
For the financial year ended 31 December 2017
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2017
CONTRIBUTED
EQUITY
ACCUMULATED
LOSSES
US$’000
US$’000
RESERVES
US$’000
TOTAL
EQUITY
US$’000
Balance at 1 January 2017
366,427
(43,817)
(11,861)
310,749
Loss after income tax expense for the year
Other comprehensive income for the year, net of tax
Total comprehensive income for the year
Transactions with owners in their capacity as owners:
Contributions of equity, net of transaction costs
Share-based payments (note 15)
Transfers from share based payments reserve:
-
-
-
Issuance of shares
Exercise of options
Expired/ lapsed options
-
-
-
(12,307)
-
(12,307)
85,278
-
298
598
-
86,174
-
-
-
-
5,801
5,801
-
6,641
6,641
-
2,275
(298)
(598)
(5,801)
(4,422)
(12,307)
6,641
(5,666)
85,278
2,275
-
-
-
87,553
Balance at 31 December 2017
452,601
(50,323)
(9,642)
392,636
Balance at 1 January 2016
225,008
(29,326)
(10,714)
184,968
Loss after income tax expense for the year
Other comprehensive income for the year, net of tax
Total comprehensive income for the year
Transactions with owners in their capacity as owners:
Contributions of equity, net of transaction costs
Share-based payments (note 15)
Transfers from share based payments reserve:
-
-
Issuance of shares
Exercise of options
-
-
-
(14,491)
-
(14,491)
140,478
-
718
223
141,419
-
-
-
-
-
-
(3,897)
(3,897)
-
3,691
(718)
(223)
2,750
(14,491)
(3,897)
(18,388)
140,478
3,691
-
-
144,169
Balance at 31 December 2016
366,427
(43,817)
(11,861)
310,749
The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes
46
SYRAH RESOURCES > ANNUAL REPORT 2017 FINANCIAL STATEMENTS (CONT')
For the financial year ended 31 December 2017
CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended 31 December 2017
Cash flows from operating activities
Payments to suppliers and employees (inclusive of goods and services tax)
Interest received
Net cash outflow from operating activities
Cash flows from investing activities
Payments for mining assets
Payments for intangibles
Payments for security deposits
Payments for property, plant and equipment
Net cash outflow from investing activities
Cash flows from financing activities
Proceeds from issue of shares
Share issue transaction costs
Payment of finance lease liabilities
Net cash inflow from financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of the financial year
Effects of exchange rate changes on cash and cash equivalents
Cash and cash equivalents at end of the financial year
7a
The above consolidated statement of cash flows should be read in conjunction with the accompanying notes
NOTES
10
2017
US$’000
(11,907)
1,181
(10,726)
2016
US$’000
(8,405)
1,262
(7,143)
(118,386)
(109,572)
(224)
(2,694)
(5,679)
(126,983)
88,461
(3,183)
(157)
85,121
(52,588)
163,275
1,225
111,912
-
-
(306)
(109,878)
144,671
(4,195)
-
140,476
23,455
139,978
(158)
163,275
47
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
HOW THE NUMBERS ARE
CALCULATED
This section provides additional information about those
individual line items in the financial statements that the
directors consider most relevant in the context of the
operations of the Group, including:
a. accounting policies that are relevant for an understanding
of the items recognised in the financial statements. These
cover situations where the accounting standards either
allow a choice or do not deal with a particular type of
transaction
b. analysis and sub-totals, including segment information
c.
information about estimates and judgements made in
relation to particular items.
HOW NUMBERS ARE CALCULATED
INTRODUCTION
SEGMENT INFORMATION
REVENUE
OTHER INCOME
EXPENSES
INCOME TAX
FINANCIAL ASSETS AND FINANCIAL LIABILITIES
NON-FINANCIAL ASSETS AND NON-FINANCIAL LIABILITIES
EQUITY
1
2
3
4
5
6
7
8
9
10
RECONCILIATION OF LOSS AFTER INCOME TAX TO NET CASH OUTFLOW
FROM OPERATING ACTIVITIES
PAGE
49
50
51
52
52
53
55
57
62
64
48
SYRAH RESOURCES > ANNUAL REPORT 2017 NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
NOTE 1. INTRODUCTION
(B) CHANGE OF REPORTING CURRENCY
(A) BASIS OF PREPARATION
Functional and presentation currency
This general purpose financial report has been prepared in accordance
with Australian Accounting Standards and Interpretations issued by the
Australian Accounting Standards Board and the Corporations Act 2001.
Syrah Resources Limited is a for-profit entity for the purpose of preparing
the financial statements.
Compliance with IFRS
The consolidated financial statements of the Syrah Resources Limited
group also comply with International Financial Reporting Standards (IFRS)
as issued by the International Accounting Standards Board (IASB).
Historical cost convention
These financial statements have been prepared under the historical cost
convention, except for certain assets which, as noted, are at fair value.
Critical accounting estimates
The preparation of financial statements requires the use of certain
critical accounting estimates. It also requires management to exercise its
judgement in the process of applying the Group’s accounting policies. The
areas involving a higher degree of judgement or complexity, or areas where
assumptions and estimates are significant to the financial statements, are
disclosed in the respective notes.
The presentation currency of the Group is US dollars. Each entity in the
Group determines its own functional currency and items included in the
financial statements of each entity are measured using that functional
currency.
Transactions and balances
Transactions in foreign currencies are initially recorded in the functional
currency at the exchange rates ruling at the date of the transaction.
The subsequent payment or receipt of funds related to a transaction
is translated at the rate applicable on the date of payment or receipt.
Monetary assets and liabilities that are denominated in foreign currencies
are retranslated at the rate of exchange ruling at the reporting date.
Non-monetary items that are measured in terms of historical cost in a
foreign currency are translated using the exchange rate as at the date
of the initial transaction. All exchange differences in the consolidated
financial statements are taken to the Income Statement with the exception
of exchange differences on certain US dollar denominated receivables
(held by the parent entity which has a functional currency of Australian
dollars) where the foreign currency components are deemed to be hedges
of a net investment in a foreign operation. These are recognised in other
comprehensive income and accumulated in a reserve until the amounts
are settled or the foreign operation is disposed (for net investment hedges),
at which time they are recognised in the Income Statement.
Parent entity information
Translation
In accordance with the Corporations Act 2001, these financial statements
present the results of the consolidated entity only. Supplementary
information about the parent entity is disclosed in Note 18.
The assets and liabilities of entities within the group with functional
currency other than US Dollars (being the presentation currency of the
Group) are translated into US Dollars at the exchange rate at reporting
date (0.7800) (2016: 0.7236) and the Statement of Profit or loss is
translated at the average exchange rate for the financial year (0.7676)
(2016: 0.7443). On consolidation, exchange differences arising from the
translation of these subsidiaries are recognized in Other Comprehensive
Income and accumulated in the foreign currency translation reserve.
49
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS (CONT')
NOTE 2. SEGMENT INFORMATION
(A) DESCRIPTION OF SEGMENTS
Management has determined and presented operating segments based on the reports reviewed by the Executive Management Team, who are the Group’s
chief operating decision makers in terms of assessing performance and allocating resources. The Board of Directors reviews the performance of the Group
on a similar basis.
The Group primarily monitors performance according to the following two segments:
Balama
Corporate
Mining, mineral exploration, evaluation and development activities associated with the Balama Graphite Project in Mozambique.
Corporate administration and investing activities, which currently includes assessment and development of downstream opportunities for
graphite, including the BAM project.
(B) SEGMENT INFORMATION PROVIDED TO THE EXECUTIVE MANAGEMENT TEAM
Year ended 31 December 2017
Revenues
Interest income
Foreign exchange gain/(loss) – net
Other income
Total revenues
BALAMA
US$’000
CORPORATE
US$’000
CONSOLIDATED
US$’000
-
1,963
1,158
3,121
1,310
(484)
3
829
1,310
1,479
1,161
3,950
Profit/(Loss) after income tax expense
873
(11,765)
(10,892)
Included within segment results:
Share-based payments expense
Other employee benefits expense
Legal and consulting expenses
Depreciation and amortisation expense
Other expenses
-
(834)
(522)
(150)
(743)
(2,018)
(4,700)
(3,196)
(149)
(2,530)
(2,018)
(5,534)
(3,718)
(299)
(3,273)
Additions to non-current non-financial assets
113,992
6,557
120,549
As at 31 December 2017
Assets
Segment assets
Total assets
Liabilities
Segment liabilities
Total liabilities
50
299,572
299,572
(22,872)
(22,872)
118,891
118,891
(2,955)
(2,955)
418,463
418,463
(25,827)
(25,827)
SYRAH RESOURCES > ANNUAL REPORT 2017
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS (CONT')
NOTE 2. SEGMENT INFORMATION (CONT')
(B) SEGMENT INFORMATION PROVIDED TO THE EXECUTIVE MANAGEMENT TEAM
(CONT')
Year ended 31 December 2016
Revenues
Interest income
Other income
Total revenues
BALAMA
US$’000
CORPORATE
US$’000
CONSOLIDATED
US$’000
-
48
48
1,284
13
1,297
1,284
61
1,345
Profit/(Loss) after income tax expense
101
(14,592)
(14,491)
Included within segment results:
Share-based payments expense
Other employee benefits expense
Legal and consulting expenses
Depreciation and amortisation expense
Foreign exchange gain/(loss) – net
Impairment of assets
Other expenses
-
(489)
(486)
(191)
1,737
-
(518)
(3,691)
(3,140)
(2,287)
(86)
(4,908)
(34)
(1,743)
(3,691)
(3,629)
(2,773)
(277)
(3,171)
(34)
(2,261)
Additions to non-current non-financial assets
120,761
306
121,067
As at 31 December 2016
Assets
Segment assets
Total assets
Liabilities
Segment liabilities
Total liabilities
NOTE 3. REVENUE
Interest income
164,083
164,083
18,222
18,222
165,949
165,949
1,061
1,061
2017
US$’000
1,310
1,310
330,032
330,032
19,283
19,283
2016
US$’000
1,284
1,284
The group earns interest income from cash reserves that are placed on Money Market Deposits. Refer to Note 7(a) for more details on these balances.
51
2017
US$’000
1,479
1,161
2,640
2016
US$’000
-
61
61
2017
US$’000
2016
US$’000
4,836
2,018
394
304
7,552
1,366
2,352
3,718
-
-
3,249
3,691
210
170
7,320
944
1,829
2,773
34
34
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS (CONT')
NOTE 4. OTHER INCOME
Net foreign exchange gain
Profit on disposal of assets
NOTE 5. EXPENSES
Loss before income tax from continuing operations includes the following specific expenses:
Employee benefits expense
Salaries and wages
Share-based payments
Employee entitlements
Defined contribution superannuation expense
Total employee benefits expense
Legal and consulting expenses
Legal expenses
Consulting expenses
Total legal and consulting expenses
Impairment of assets
Available-for-sale financial assets
Total impairment charges
52
SYRAH RESOURCES > ANNUAL REPORT 2017 NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS (CONT')
NOTE 6. INCOME TAX
A) TAX EXPENSE
Income tax expense for the year is comprised of the following:
Current tax
Deferred tax
Total tax expense
Numerical reconciliation of income tax expense to prima facie tax payable:
Net loss/(profit) before tax
Tax at the Australian tax rate of 30%
-
-
-
Share-based payments
Other non-deductible expenses
Differences in overseas tax rates
- Movement in unrecognised temporary differences
-
-
(Over)/under provision in the prior year
Current year taxation losses not recognised as deferred tax assets
Income tax expense for the year
B) DEFERRED TAX BALANCES
Recognised deferred tax balances
Deferred tax liabilities:
-
Financial liabilities (1)
Total tax expense
2017
US$’000
-
1,415
1,415
2017
US$’000
(10,892)
2016
US$’000
-
-
-
2016
US$’000
(14,491)
(3,268)
(4,347)
605
1,437
281
(726)
(301)
3,387
1,415
2017
US$’000
1,415
1,415
1,129
1,488
(30)
(602)
(156)
2,518
-
2016
US$’000
-
-
(1) Relates to unrealised foreign exchange gains on the revaluation of financial liabilities held by Twigg Exploration and Mining Limitada.
Movement in deferred tax balances during the year:
Deferred tax liabilities:
- Financial liabilities
Total tax expense
BALANCE AT
1 JANUARY 2017
RECOGNISED IN
PROFIT AND LOSS
BALANCE AT
31 DECEMBER 2017
US$’000
US$’000
US$’000
-
-
1,415
1,415
1,415
1,415
53
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS (CONT')
NOTE 6. INCOME TAX (CONT')
C) TAXATION LOSSES AND TEMPORARY DIFFERENCES NOT RECOGNISED:
Unused taxation losses for which no deferred tax asset has been recognised
Potential taxation benefit at 30%
2017
US$’000
31,634
9,490
2016
US$’000
18,899
5,670
Tax asset from temporary differences not brought to account
558
510
The taxation benefits of taxation losses and temporary differences not brought to account will only be obtained if:
>
>
>
the consolidated entity derives future assessable income of a nature and of an amount sufficient to enable the benefit from the deductions for the
losses to be realised in the respective jurisdictions and within the allowed timeframes for tax loss utilisation
the consolidated entity continues to comply with the conditions for deductibility imposed by law; and
no change in tax legislation adversely affects the consolidated entity in realising the benefits from deducting the losses.
SIGNIFICANT ESTIMATES AND JUDGEMENTS
The Group’s accounting policy for taxation requires management judgment in relation to the application of income tax legislation. There are many
transactions and calculations undertaken during the ordinary course of business where the ultimate tax determination is uncertain. The Group
recognises liabilities for tax, and if applicable taxation investigation or audit issues, based on whether tax will be due and payable. Where the
taxation outcome of such matters is different from the amount initially recorded, such difference will impact the current and deferred tax positions in
the period in which the assessment is made.
Judgement is required in assessing whether deferred tax assets and liabilities are recognised on the balance sheet. Deferred tax assets, including
those arising from temporary differences, are recognised only when it is considered more likely than not that they will be recovered, which is
dependent upon the generation of future assessable income of a nature and of an amount sufficient to enable the benefits to be utilised. In
addition, the utilisation of taxation losses also depends on the ability of the tax consolidated entities to satisfy certain tests at the time the losses
are recouped.
54
SYRAH RESOURCES > ANNUAL REPORT 2017 NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS (CONT')
NOTE 7. FINANCIAL ASSETS AND FINANCIAL LIABILITIES
(A) CASH AND CASH EQUIVALENTS
Cash at bank and in hand
Deposits at call
2017
US$’000
15,721
96,191
111,912
2016
US$’000
13,803
149,472
163,275
Total cash is held in current accounts or Money market deposits with major financial institutions under normal terms and conditions appropriate to the
operation of the accounts. These deposits earn interest at rates set by these institutions. As at 31 December 2017 the weighted average interest rate on
current accounts and term deposits was 1.21% (2016: 0.98%).
(i) Risk exposure
The Group’s exposure to foreign exchange and interest rate risk is discussed in Note 11. The maximum exposure to credit risk at the reporting date is the
carrying amount of each class of cash and cash equivalents mentioned above.
(B) TRADE AND OTHER RECEIVABLES
Current
Other receivables
Prepayments
Input tax credits
Security deposits (1)
Total current trade and other receivables
Non-current
Input tax credits
Security deposits (1)
Other receivables
Total non-current trade and other receivables
2017
US$’000
2016
US$’000
1,031
2,874
152
-
4,057
16,374
2,889
337
19,600
381
3,223
94
97
3,795
5,768
-
-
5,768
(1) Security deposits are restricted deposits that are used for monetary backing for performance guarantees.
(i) Impairment of receivables
The Group has no receivables past due as at 31 December 2017, nor does it consider there to be any potential impairment loss on these receivables.
(ii) Foreign exchange and interest rate risk
Information about the Group’s exposure to foreign currency risk and interest rate risk in relation to trade and other receivables is provided in Note 11.
(iii) Fair value measurement and credit risk
Due to the short-term nature of these receivables, their carrying amount is assumed to approximate their fair value.
The maximum exposure to credit risk at the end of the reporting period is the carrying amount of each class of receivables mentioned above. Refer to Note
11 for more information on the credit quality of the Group’s trade and other receivables.
55
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS (CONT')
NOTE 7. FINANCIAL ASSETS AND FINANCIAL LIABILITIES (CONT')
SIGNIFICANT ESTIMATES AND JUDGEMENTS
Certain input tax credits (VAT receivable) in overseas subsidiaries amounting to $16.4 million (31 December 2016: $5.8 million) have been
recognised at cost. The Group views these input tax credits as recoverable through a cash refund or tax credits based on interpretation of the
relevant tax and investment laws. Should management determine that some of these input tax credits are not recoverable in future, the Group will
reclassify those amounts to the cost base of related assets, or recognise an expense in the profit or loss in the period the determination is made.
(C) TRADE AND OTHER PAYABLES
Trade payables and accruals
Other payables
(i) Risk exposure
2017
US$’000
12,441
1,482
13,923
2016
US$’000
12,312
2,190
14,502
Trade payables are non-interest bearing and are normally settled on repayment terms between 7 and 30 days. Information about the Group’s exposure to
foreign exchange risk is provided in Note 11.
(ii) Fair value measurement
Due to the short-term nature of these payables, their carrying amount is assumed to approximate their fair value.
(D) FINANCE LEASES
Current
Finance leases
Non-current
Finance leases
2017
US$’000
276
276
1,000
1,000
2016
US$’000
-
-
-
-
Finance leases relate to equipment that is included in Property, Plant and Equipment. The finance lease liability is secured against this equipment which
reverts to the lessor in the event of default.
56
SYRAH RESOURCES > ANNUAL REPORT 2017 NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS (CONT')
NOTE 8. NON-FINANCIAL ASSETS AND NON-FINANCIAL LIABILITIES
(A) MINING ASSETS
Exploration and evaluation
Mine properties and development
Mines under construction
Total mining assets
Movements in mine properties and development are set out below:
2017
US$’000
988
33,297
239,255
273,540
EXPLORATION AND
EVALUATION
MINE
PROPERTIES AND
DEVELOPMENT
MINES UNDER
CONSTRUCTION
US$’000
US$’000
US$’000
890
39
-
59
988
890
2
-
(2)
890
31,094
-
-
2,203
33,297
31,395
-
-
(301)
31,094
123,328
108,824
3,742
3,361
239,255
13,668
116,277
4,484
(11,101)
123,328
For the financial year ended 31 December 2017
Balance at beginning of the year
Current year expenditure capitalised
Change in decommissioning and restoration provision
Exchange differences
Balance at end of the year
For the financial year ended 31 December 2016
Balance at beginning of the year
Current year expenditure capitalised
Change in decommissioning and restoration provision
Exchange differences
Balance at end of the year
Exploration and evaluation
2016
US$’000
890
31,094
123,328
155,312
TOTAL
US$’000
155,312
108,863
3,742
5,623
273,540
45,953
116,279
4,484
(11,404)
155,312
The balance of exploration and evaluation relates to the Vanadium project at Balama and continues to be carried forward in accordance with the
exploration and evaluation accounting policy. The ultimate recoupment of exploration and evaluation expenditure is dependent upon successful
development and commercial exploitation or alternatively the sale of the respective interests at an amount at least equal to book value.
Mines properties and development and Mines under construction
Mines properties and development and Mines under construction mainly relate to the development of the Balama Graphite Project in Mozambique.
57
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS (CONT')
NOTE 8. NON-FINANCIAL ASSETS AND NON-FINANCIAL LIABILITIES
(CONT')
(B) PROPERTY, PLANT AND EQUIPMENT
LAND AND
BUILDINGS
US$’000
PLANT AND
EQUIPMENT
COMPUTER
EQUIPMENT
ASSETS UNDER
CONSTRUCTION
US$’000
US$’000
US$’000
797
(67)
730
730
-
-
(45)
-
685
797
(112)
685
1,250
(43)
1,207
1,207
-
-
(47)
(430)
730
797
(67)
730
2,465
(1,572)
893
893
1,396
(100)
(749)
242
1,682
3,056
(1,374)
1,682
2,699
(1,590)
1,109
1,109
286
(8)
(364)
(130)
893
2,465
(1,572)
893
184
(71)
113
113
22
-
(48)
6
93
214
(121)
93
209
(27)
182
182
20
-
(53)
(36)
113
184
(71)
113
-
-
-
-
6,525
-
-
28
6,553
6,553
-
6,553
-
-
-
-
-
-
-
-
-
-
-
-
TOTAL
US$’000
3,446
(1,710)
1,736
1,736
7,943
(100)
(842)
276
9,013
10,620
(1,607)
9,013
4,158
(1,660)
2,498
2,498
306
(8)
(464)
(596)
1,736
3,446
(1,710)
1,736
At 1 January 2017
Cost
Accumulated depreciation and impairment
Net book amount
For the financial year ended 31 December 2016
Balance at beginning of the year
Additions
Disposals (at net book value)
Depreciation charge
Exchange differences
Balance at end of the year
At 31 December 2017
Cost
Accumulated depreciation and impairment
Net book amount
At 1 January 2016
Cost
Accumulated depreciation and impairment
Net book amount
For the financial year ended 31 December 2016
Balance at beginning of the year
Additions
Disposals (at net book value)
Depreciation charge
Exchange differences
Balance at end of the year
At 31 December 2016
Cost
Accumulated depreciation and impairment
Net book amount
58
SYRAH RESOURCES > ANNUAL REPORT 2017
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS (CONT')
NOTE 8. NON-FINANCIAL ASSETS AND NON-FINANCIAL LIABILITIES
(CONT')
(B) PROPERTY, PLANT AND EQUIPMENT (CONT')
Assets under construction
Assets Under Construction at 31 December 2017 consists of capitalised project development costs for the downstream Battery Anode Material (BAM)
project. Capitalised costs in relation to construction of the Balama Graphite Project are included in mines under construction (Refer to Note 8(a)).
Depreciation charge
Of the total depreciation charge for the financial year ended 31 December 2017, $0.3 million was charged to profit or loss (2016: $0.2 million), and
$0.6 million was capitalised to mine properties and development (2016: $0.2 million).
Leased assets
Property, plant and equipment includes equipment of $1.3 million (2016: Nil) that is held through a finance lease arrangement. The leased equipment is
also encumbered as security for the corresponding lease liability of $1. 3 million (2016: Nil).
SIGNIFICANT ESTIMATES AND JUDGEMENTS
Impairment of non-financial assets
The Group performs an impairment assessment where there is an indication of possible impairment. Impairment assessments are performed using
information from internal sources as well as external sources, including industry analysts and analysis performed by external parties.
The recoverable amount of each cash generating unit is considered to be the higher of fair value less costs of disposal or value-in-use. Where
an impairment assessment is required, the Group undertakes cash flow calculations based on a number of critical estimates, assumptions and
forward estimates including commodity price expectations, foreign exchange rates, discount rates, reserves and resources and expectations
regarding future development costs as well as production, sales and operating costs which are subject to risk and uncertainty.
Variations to expected future cash flows, and timing thereof, could result in significant changes to the impairment test results, which in turn could
impact future financial results.
No indicator of impairment was identified as at 31 December 2017.
Estimation of useful lives of assets
The Group determines the estimated useful lives and related depreciation and amortisation charges for its property, plant and equipment and finite
life intangible assets. The useful lives could change significantly as a result of change in ore reserves and technical innovations or some other event.
The depreciation and amortisation charge will increase where the useful lives are less than previously estimated lives, or technically obsolete or
non-strategic assets are abandoned or sold and written off or written down.
Determination of mineral resources and ore reserves
Mineral resources and ore reserves are based on information compiled by a Competent Person as defined in accordance with the Australasian
Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves of December 2012 (the JORC 2012 code). There are numerous
uncertainties inherent in estimating ore reserves and assumptions that are valid at the time of estimation may change significantly when new
information becomes available. Changes in forecast prices of commodities, exchange rates, production costs or recovery rates may change the
economic status of ore reserves and may, ultimately, result in the reserves being restated. Such changes in reserves could impact on depreciation
and amortisation rates, asset carrying values and provisions for decommissioning and restoration.
Declaration of commercial production
The Balama Graphite Project achieved first production of saleable Flake graphite in November 2017 and saleable Fines graphite in December
2017. As at 31 December 2017, the Balama Project remains in the commissioning and production ramp-up phase and has not achieved
commercial production. All commissioning and production ramp-up costs incurred at Balama, net of any revenue derived from the sale of graphite,
prior to the declaration of commercial production are capitalised against project development costs. Once commercial production is declared, the
capitalisation of operating costs, net of any revenue derived, will cease and revenues will be recognised as income in the period in which they are
earned and operating costs will either be attributed to inventory or expensed in the period in which they are incurred. It is also at this point that the
depreciation and amortisation of previously capitalised project development costs will commence. Costs that meet the criteria for recognition as
assets will continue to be capitalised in accordance with group accounting policies.
59
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS (CONT')
NOTE 8. NON-FINANCIAL ASSETS AND NON-FINANCIAL LIABILITIES
(CONT')
The Group will continue to assess the progress of commissioning and production ramp-up activities to determine when the project moves into the
commercial production stage. The major criteria to be considered in terms of declaring commercial production include, but may not be limited to,
the following:
1. All major capital expenditures to allow the mine to operate at up to name-plate capacity have been completed.
2.
The process plant, and other key areas of infrastructure have been transferred to the control of the Operations team from the
Commissioning team.
3. The plant is capable of continuously operating at or near planned throughput levels.
4. Ore head grades and process plant recoveries are consistently at or near expected levels for a continuous period.
5. Production consistently achieves grades and quality specifications at expected levels for a continuous period and has satisfied commercial
scale verification tests by key customers and end-users.
6. Operating costs are under control and within expectations.
Impairment of exploration and evaluation expenditure
The future recoverability of capitalised exploration and evaluation expenditure is dependent on a number of factors, including whether the Group
decides to develop and exploit an area of interest or, if not, whether it recovers the related exploration and evaluation asset through sale.
Factors that could impact the future recoverability include; the level of reserves and resources, future technological changes which could impact the
cost of mining, future legal changes and changes to commodity prices and foreign exchange rates.
To the extent that capitalised exploration and evaluation expenditure is determined not to be recoverable in the future, profits and net assets will be
reduced in the period this determination is made.
In addition, exploration and evaluation expenditure is capitalised if activities in the area of interest have not yet reached a stage that permits a
reasonable assessment of the existence or otherwise of economically recoverable reserves. To the extent it is determined in the future that this
capitalised expenditure should be written off, profits and net assets will be reduced in the period in which this determination is made.
60
SYRAH RESOURCES > ANNUAL REPORT 2017 NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS (CONT')
NOTE 8. NON-FINANCIAL ASSETS AND NON-FINANCIAL LIABILITIES
(CONT')
(C) PROVISIONS
Current
Employee benefits
Other provisions
Non-current
Employee benefits
Decommissioning and restoration
Movements in decommissioning and restoration provision
Balance at beginning of the year
Additional provisions:
- Capitalised to Mines under construction (Note 8a)
- Unwind of discount
-
Exchange differences
Balance at end of the year
Information regarding provisions
Employee benefits
2017
US$’000
2016
US$’000
696
199
895
33
8,285
8,318
2017
US$’000
4,504
3,742
39
-
8,285
250
-
250
27
4,504
4,531
2016
US$’000
1,031
4,484
11
(1,022)
4,504
Employee benefits provisions relate to employee entitlements such as annual leave and long service leave.
Decommissioning and restoration
Decommissioning, dismantling of property, plant and equipment and restoration are normal for the mining industry, and the majority of this expenditure will
be incurred at the end of a mine’s life. In determining an appropriate level of provision, consideration is given to the expected future costs to be incurred,
the timing of these expected future costs (largely dependent on the life of the mine), the estimated future level of inflation, and time value of money.
SIGNIFICANT ESTIMATES AND JUDGEMENTS
The ultimate cost of decommissioning and restoration is uncertain and costs can vary in response to many factors including progression of
construction/development activities, changes to the relevant legal requirements, the emergence of new restoration techniques or industry experience
at other mine sites. The expected timing of expenditure can also change, for example in response to changes in reserves or to production rates.
Changes to any of the estimates could result in significant changes to the level of provisioning required, which would in turn impact future financial
results. These estimates are reviewed annually and adjusted where necessary to ensure that the most up to date data is used.
The provision is the present value of estimated future expenditure to restore the current level of disturbance. These costs have been capitalised as
part of mine properties and development and will be amortised over the estimated life of the mine.
Additional decommissioning and restoration provisions required as a result of continuing activities or future operations will be recognised in the
future as and when new areas are disturbed or new structures built, and the obligation to remediate the affected areas arises.
61
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS (CONT')
NOTE 9. EQUITY
(A) ISSUED CAPITAL
Issued and fully paid ordinary shares
(i) Movements in ordinary share capital
2017
SHARES
297,022,766
297,022,766
2016
SHARES
263,757,392
263,757,392
2017
US$’000
452,601
452,601
31 December 2017
Balance at beginning of the year
Issue of new shares:
- Entitlement offer
- Institutional placement
- Exercise of options
- Equity-settled remuneration
Transfers from share based payment reserve on exercise of options and
issuance of shares as remuneration
Capital raising costs
Balance at end of the year
31 December 2016
Balance at beginning of the year
Issue of new shares:
- Institutional placement
- Equity-settled remuneration
- Exercise of options
Transfers from share based payment reserve on exercise of options and
issuance of shares as remuneration
Capital raising costs
Balance at end of the year
WEIGHTED
AVERAGE ISSUE
PRICE (A$)
A$3.38
A$3.38
A$4.05
- (1)
A$ 6.05
-(1)
A$ 2.76
NUMBER OF
SHARES
263,757,392
10,812,001
21,729,775
600,000
123,598
-
-
297,022,766
231,267,154
32,000,000
218,238
272,000
-
-
263,757,392
2016
US$’000
366,427
366,427
TOTAL
US$’000
366,427
29,148
57,450
1,863
-
896
(3,183)
452,601
225,008
144,116
-
555
943
(4,195)
366,427
(1) The cost associated with issuance of these shares is included in the ‘Transfer from share-based payment reserve on exercise of options and issuance of shares as remuneration line item.
(ii) Ordinary shares
Ordinary shares entitle the holder to participate in dividends and the proceeds of winding up of the Company in proportion to the number of and amounts paid
on the shares held.
Ordinary shares entitle their holder to one vote per share, either in person or by proxy, at a meeting of the Company. Ordinary shares have no par value and the
Company does not have a limited amount of authorised share capital.
(iii) Share options
The Company has a share-based payment scheme under which options to subscribe for the Company’s shares have been granted to Non-Executive Directors,
Executives and selected Senior Employees. Information in relation to the Group’s Long Term Incentive Plan and Share Option Plan including details of options
issued and exercised during the financial year and options outstanding at the end of the financial year are set out in Note 15.
There are no voting or dividend rights attached to share options. Voting and dividend rights will attach to the ordinary shares when the options have been exercised.
62
SYRAH RESOURCES > ANNUAL REPORT 2017
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS (CONT')
NOTE 9. EQUITY (CONT')
(A) ISSUED CAPITAL (CONT')
(iv) Share buy-back
There is no current on-market share buy-back.
(v) Capital risk management
The consolidated entity’s objectives when managing capital are to safeguard its ability to continue as a going concern, so that it can provide returns for
shareholders and benefits for other stakeholders and to maintain an optimum capital structure to reduce the cost of capital.
In order to maintain or adjust the capital structure, the consolidated entity may return capital to shareholders, or issue new shares.
(vi) Non-controlling interests
A future non-controlling non-diluting interest in Twigg Exploration and Mining Limitada to be made available to a Mozambique Government entity is further
explained in Note 19, Subsidiaries
(B) RESERVES
Foreign currency translation reserve
Share-based payments reserve
(i) Movements in reserves
Movements in each class of reserve are set out below:
31 December 2017
Balance at beginning of the year
Foreign currency translation
Share-based payments
Issuance of shares
Exercise of options
Transfer of expired/ lapsed options
Balance at end of the year
31 December 2016
Balance at beginning of the year
Foreign currency translation
Share-based payments
Issuance of shares
Exercise of options
Balance at end of the year
2017
US$’000
(15,864)
6,222
(9,642)
FOREIGN CURRENCY
RESERVE
SHARE-BASED
PAYMENTS RESERVE
US$’000
US$’000
(22,505)
6,641
-
-
-
-
(15,864)
(18,608)
(3,897)
-
-
-
(22,505)
10,644
-
2,275
(298)
(598)
(5,801)
6,222
7,894
-
3,691
(718)
(223)
10,644
2016
US$’000
(22,505)
10,644
(11,861)
TOTAL
US$’000
(11,861)
6,641
2,275
(298)
(598)
(5,801)
(9,642)
(10,714)
(3,897)
3,691
(718)
(223)
(11,861)
63
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS (CONT')
NOTE 9. EQUITY (CONT')
(B) RESERVES (CONT')
(ii) Nature and purpose of reserves
Foreign currency reserve
Exchange differences arising on translation of foreign controlled entities are recognised in other comprehensive income and accumulated in a separate
reserve within equity. The cumulative amount is reclassified to the profit and loss when the net investment is disposed of.
The Group assesses the functional currency of each entity in the consolidated group when there are changes in circumstances that could result in a change
in the currency that predominantly influences the economic results of each respective entity. With effect from 1 January 2017, the functional currency of
Twigg Exploration and Mining Limitada was changed from Mozambique Meticals (MZN) to the United States Dollar (USD) on the basis that the USD is the
currency that predominately influences the revenues, expenditures and financing activities of this entity going forward.
Share-based payments reserve
The share-based payments reserve is used to recognise the fair value of equity benefits issued by the Company.
NOTE 10. RECONCILIATION OF LOSS AFTER INCOME TAX TO NET CASH
OUTFLOW FROM OPERATING ACTIVITIES
2017
US$’000
2016
US$’000
(12,307)
(14,491)
299
2,018
48
548
-
(1,161)
-
(1,831)
(412)
107
550
1,415
(10,726)
286
3,691
11
-
34
-
(61)
3,171
413
(322)
134
-
(7,143)
Loss after income tax expense for the year
Adjustments for:
Depreciation and amortisation expense
Share-based payments
Unwind of discount on provisions
Bonus provision
Impairment of assets
Gain on fixed assets disposal
Other sundry income
Net foreign exchange (gain)/ loss
Changes in operating assets and liabilities:
(Increase)/Decrease in trade and other receivables
Increase/ (Decrease) in trade and other payables
Increase in provisions
Increase in deferred tax liability
Net cash outflow from operating activities
64
SYRAH RESOURCES > ANNUAL REPORT 2017
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS (CONT')
RISK
This section of the notes discusses the group’s exposure to
various risks and shows how these could affect the group’s
financial position and performance.
RISK
11
FINANCIAL RISK MANAGEMENT
PAGE
66
65
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS (CONT')
NOTE 11. FINANCIAL RISK MANAGEMENT
The Group’s activities expose it to a variety of financial risks: market risk (including currency risk, interest rate risk and price risk), credit risk and liquidity risk.
The Group’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the
financial performance of the Group. The Group uses different methods to measure different types of risks to which it is exposed. These methods include
sensitivity analysis in the case of interest rate risk, foreign exchange risk and aging analysis for credit risk.
Financial risk management is carried out by Audit Committee under guidelines established by the Board. The policies employed by the Company identify and
analyse financial risks and establish appropriate procedures and controls to mitigate risks which includes foreign exchange risk, credit risk, use of derivate
financial instruments and non-derivative financial instruments and investment of surplus cash reserves. The Group holds the following financial instruments:
Financial Assets
Cash and cash equivalents
Trade and other receivables
Available-for-sale financial assets
Financial Liabilities
Trade and other payables
Finance lease liability
(A) MARKET RISK
(i) Foreign exchange risk
2017
US$’000
111,912
23,657
91
135,660
13,923
1,276
15,199
2016
US$’000
163,275
9,563
85
172,923
14,502
-
14,502
The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the United States
Dollar (USD) and Mozambican Meticals (MZN).
Foreign exchange risk arises from recognised financial assets and financial liabilities denominated in a currency that is not the entity’s functional currency and the
impact of exchange rate movements on net investment in foreign subsidiaries. The risk is measured using sensitivity analysis and cash flow forecasting.
At this time the Group does not manage its prospective foreign exchange risk with currency hedges. The Group’s exposure to foreign currency risk at the
reporting date, expressed in USD, was as follows:
Assets
- US Dollars (1)
- Mozambique Meticals
Liabilities
- US Dollars
- Mozambique Meticals
- South African Rand
- Australian Dollars
Net surplus/(deficit) position
2017
US$’000
2016
US$’000
2,414
19,965
22,379
2,194
3,116
495
29
5,834
16,545
1,367
-
1,367
8,739
-
150
32
8,921
(7,554)
(1) Relates to US Dollar denominated financial assets and liabilities held by the parent entity, Syrah Resources Limited, which has an Australian dollar functional currency.
66
SYRAH RESOURCES > ANNUAL REPORT 2017
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS (CONT')
NOTE 11. FINANCIAL RISK MANAGEMENT (CONT')
(A) MARKET RISK (CONT')
(i) Foreign exchange risk (CONT')
Group sensitivity
Based on the financial instruments held at 31 December 2017 and the net investments in foreign subsidiaries, had the USD strengthened/weakened by 5%
against the above currencies with all other variables held constant, the impact on consolidated results for the financial year would have changed as follow:
IMPACT ON LOSS AFTER TAX (HIGHER)/LOWER
IMPACT ON EQUITY HIGHER/(LOWER)
USD +5%
USD -5%
2017
USD’000
(789)
872
2016
USD’000
(364)
393
2017
USD’000
(17,569)
19,418
2016
USD’000
(8,313)
8,476
(ii) Cash flow and fair value interest rate risk
The Group’s main interest rate risk relates to interest income on cash and cash equivalents. The entity does not hold any financial assets or liabilities whose
fair value would be impacted by interest rates.
(B) CREDIT RISK
Credit risk is managed on a Group basis. Credit risk arises from cash and cash equivalents and deposits with banks and financial institutions.
The Group limits its counterparty credit risk on liquid funds by dealing only with reputable global banks or financial institutions. The Group’s cash reserves
are also spread amongst financial institutions to reduce concentration of credit risk. The Group has no receivables past due as at 31 December 2017
(2016: Nil).
(C) LIQUIDITY RISK
Prudent liquidity risk management implies maintaining sufficient cash and marketable securities, the availability of funding through an adequate amount
of committed credit facilities and the ability to close out market positions. The Group manages liquidity risk by continuously monitoring forecast and actual
cash flows and matching the maturity profiles of financial assets and liabilities.
The consolidated entity has commenced production of saleable graphite products from the Balama Graphite Project but is not yet cashflow positive,
therefore the Company may require additional financing, in addition to current cash reserves to meet its working capital requirements, general and
administrative expenditure and the progression of BAM activities. If required, the Company considers that it would have a number of alternatives to raise
additional funding which may include both debt and equity sources of funding.
Maturities of financial liabilities
The table below analyses the Group’s financial liabilities into relevant maturity groupings based on the remaining period as at the reporting date to the
contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows.
67
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS (CONT')
NOTE 11. FINANCIAL RISK MANAGEMENT (CONT')
(C) LIQUIDITY RISK (CONT')
AS AT 31 DECEMBER 2017
LESS THAN
6 MONTHS
BETWEEN 6-
12 MONTHS
BETWEEN 1-
2 YEARS
BETWEEN 2-
5 YEARS
TOTAL
CONTRACTUAL
CASH FLOWS
CARRYING
AMOUNT
LIABILITIES
US$’000
US$’000
US$’000
US$’000
US$’000
US$’000
Non derivatives
Non-interest bearing
- Trade and other payables
Interest bearing
- Finance lease liability
Total non derivative liabilities
AS AT 31 DECEMBER 2016
Non derivatives
Non-interest bearing
Trade and other payables
Total non-derivatives
13,724
138
13,862
-
138
138
-
276
276
-
1,002
1,002
13,724
13,724
1,554
15,278
1,276
15,000
LESS THAN
6 MONTHS
BETWEEN 6-
12 MONTHS
BETWEEN 1-
2 YEARS
BETWEEN 2-
5 YEARS
US$’000
US$’000
US$’000
US$’000
OVER
5 YEARS
US$’000
TOTAL
CONTRACTUAL
CASH FLOWS
CARRYING
AMOUNT
LIABILITIES
US$’000
US$’000
14,502
14,502
-
-
-
-
-
-
-
-
14,502
14,502
14,502
14,502
(D) CAPITAL RISK MANAGEMENT
When managing capital, the Group’s objective is to safeguard the ability to continue as a going concern so that the Group continues to provide returns for
shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital.
Management is constantly reviewing and adjusting, where necessary, the capital structure. This involves the use of corporate forecasting models which
enable analysis of the Group’s financial position including cash flow forecasts to determine future capital management requirements. To ensure sufficient
funding, a range of assumptions are modelled to determine sensitivities of the Group’s financial position and capital requirements under different
circumstances and/ or potential outcomes.
68
SYRAH RESOURCES > ANNUAL REPORT 2017 NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS (CONT')
UNRECOGNISED ITEMS
This section of the notes provides information about items that
are not recognised in the financial statements as they do not
(yet) satisfy the recognition criteria.
UNRECOGNISED ITEMS
12
13
COMMITMENTS, CONTINGENCIES AND GUARANTEES
EVENTS OCCURRING AFTER THE REPORTING PERIOD
PAGE
70
70
69
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS (CONT')
NOTE 12. COMMITMENTS, CONTINGENCIES AND GUARANTEES
(A) CAPITAL EXPENDITURE COMMITMENTS
Significant capital expenditure contracted for at the end of the reporting period but not recognised as liabilities is as follows:
Mine properties and development
Property, plant and equipment
Total capital commitments
2017
US$’000
3,903
5,320
9,223
The above capital expenditure commitments are in relation to the development and construction of the Balama Graphite Project in Mozambique
and the development of the downstream Battery Anode Material (BAM) project.
(B) OPERATING LEASE EXPENDITURE COMMITMENTS
Commitments for minimum lease payments in relation to non-cancellable operating leases are payable as follows:
Within one year
After one year but not more than five years
Minimum lease payments
(C) CONTINGENCIES
2017
US$’000
316
532
848
2016
US$’000
30,506
-
30,506
2016
US$’000
469
659
1,128
The Group did not have any contingent assets or liabilities at the end of the current and previous financial years.
(D) GUARANTEES
Bank guarantees have been provided by Twigg Exploration and Mining Limitada, which unconditionally and irrevocably guarantee in favor of the
Ministry of Mineral Resources and Energy (MIREME) in Mozambique, the due and punctual payment of amounts up to a maximum amount of
MZN162 million (US$2.7 million) as at 31 December 2017 (2016: NIL) in relation to the rehabilitation or removal of project infrastructure as per the
mine closure plan for the Balama Project.
A parent company guarantee is required to be provided by Syrah Resources Limited in favour of the Government of Mozambique, which unconditionally and
irrevocably guarantees amounts up to a maximum of US$22.5 million to cover any loss or damage or other costs arising out of, or associated with, a breach
of the Mining Concession held by Twigg Exploration and Mining Limitada. This guarantee is required to remain in place for a period of two years after the
signing of the Mining Agreement.
NOTE 13. EVENTS OCCURRING AFTER THE REPORTING PERIOD
No event has occurred subsequent to 31 December 2017 that has significantly affected, or may significantly affect the Group’s operations, the results of
those operations, or the state of affairs in future financial periods.
70
SYRAH RESOURCES > ANNUAL REPORT 2017 NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS (CONT')
OTHER INFORMATION
This section of the notes includes other information that must
be disclosed to comply with the accounting standards and
other pronouncements, but that is not immediately related to
individual line items in the financial statements.
OTHER INFORMATION
RELATED PARTY TRANSACTIONS
SHARE-BASED PAYMENTS
REMUNERATION OF AUDITORS
EARNINGS PER SHARE
PARENT ENTITY FINANCIAL INFORMATION
SUBSIDIARIES
DEED OF CROSS GUARANTEE
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
14
15
16
17
18
19
20
21
PAGE
72
73
76
76
77
78
79
81
71
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS (CONT')
NOTE 14. RELATED PARTY TRANSACTIONS
(A) ULTIMATE PARENT
Syrah Resources Limited is the ultimate holding company of the Group.
(B) SUBSIDIARIES
Interests in subsidiaries are set out in Note 19.
(C) KEY MANAGEMENT PERSONNEL COMPENSATION
Short-term employee benefits
Post-employment benefits
Other benefits
Share-based payments
Detailed remuneration disclosures are provided in the Remuneration Report on page 19 to 40 of the Annual Report.
(D) TRANSACTIONS WITH RELATED PARTIES
Transactions with related parties are set out below:
Purchases of goods and services
Legal services provided by Sal & Caldeira Advogados, Lda (1)
Consultancy services provided by Proman Consulting Engineers Pty Ltd (2)
Consultancy services provided by Christina Lampe-Onnerud
Technology and Product Development services provided by Cadenza
2017
US$
2,412,899
113,992
367,279
1,418,787
4,312,957
2017
US$
384,045
26,866
-
1,501,800
1,912,711
2016
US$
1,714,463
97,091
-
2,318,079
4,129,633
2016
US$
338,931
66,987
130,000
-
535,918
(1) Represents legal services provided to the Company by Sal & Caldeira Advogados, Ltd in Mozambique. J Caldeira is a Non-Executive Director of the Company and is a Senior Partner at Sal &
Caldeira Advogados, Lda
(2) Represents consultancy services provided to the Company by R Brans who was a Non-Executive Director of the Company.
(3) C Lampe-Onnerud who is an Non-Executive Director of the Company is also Founder and Chief Executive Officer of Cadenza Innovation Inc. During the year, the Company entered into an
exclusive research and development agreement with Cadenza Innovation Inc. to fuel advancements in graphite anode technology for use in lithium-ion-based energy storage by establishing
an “Office of the Chief Technology Officer”, to lead knowledge exchange, deep technical partner and customer engagement and support the BAM processing plant in Louisiana.
These services are provided on normal commercial terms and conditions.
(E) OUTSTANDING BALANCES ARISING FROM PURCHASES OF GOODS
AND SERVICES
Trade and other payables
Related parties
72
2017
US$
26,275
26,275
2016
US$
108,770
108,770
SYRAH RESOURCES > ANNUAL REPORT 2017
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS (CONT')
NOTE 15. SHARE-BASED PAYMENTS
(A) TYPES OF SHARE BASED PAYMENT PLANS
The Group has a Long Term Incentive Plan and a Share Option Plan in existence.
These share based payment plans form an important part of a comprehensive remuneration strategy for the Company’s employees and Directors, and
align their interests with those of shareholders by linking rewards to the long term success of the Company and its financial performance.
(i) Long Term Incentive Plan (LTIP)
The LTIP was established and approved by shareholders at an Annual General Meeting held on 13 November 2015 and enables the Company, at the discretion
of the Board of Directors, to offer employees and Directors a number of equity related interests, including options, performance rights and shares.
(ii) Share option plan (SOP)
The SOP was established and approved by shareholders at an Annual General Meeting held on 19 November 2013 and enables the Company, at the
discretion of the Board of Directors, to offer employees and Directors options. No further options will be issued under this plan.
(B) SUMMARY AND MOVEMENT OF OPTIONS ON ISSUE
The table below summarises the number, weighted average exercise prices and movements in Options on issue during the financial year:
Balance at beginning of the year
Granted during the year
Exercised during the year (1)
Expired during the year
Balance at end of the year
Vested and exercisable at end of year
2017
2016
WEIGHTED AVERAGE
EXERCISE PRICE PER
SHARE OPTION
NUMBER
OF OPTIONS
WEIGHTED AVERAGE
EXERCISE PRICE PER
SHARE OPTION
A$5.16
A$4.26
A$4.05
A$5.40
A$4.70
A$5.03
8,675,000
2,900,000
(600,000)
(4,225,000)
6,750,000
3,850,000
A$5.17
A$5.18
A$2.76
A$7.48
A$5.16
A$5.36
NUMBER
OF OPTIONS
6,947,000
2,300,000
(272,000)
(300,000)
8,675,000
6,550,000
(1) The weighted average share price at the date of exercise of options during the year ended 31 December 2017 was A$4.39 (2016: A$6.18).
Each option is convertible into one ordinary share. There are no voting or dividend rights attached to the options. Voting and dividend rights will attach to
the ordinary shares when the options have been exercised.
The outstanding balance of options as at 31 December 2017 is represented by:
Options issued as part of the SOP
Options issued as part of the LTIP
2017
NUMBER
OF OPTIONS
2,450,000
4,300,000
EXERCISE PRICE
RANGE
A$4.05 to A$6.23
A$3.85 to A$5.09
2016
NUMBER
OF OPTIONS
5,675,000
3,000,000
EXERCISE PRICE
RANGE
A$nil to A$6.26
A$4.71 to A$5.09
73
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS (CONT')
NOTE 15. SHARE-BASED PAYMENTS (CONT')
(B) SUMMARY AND MOVEMENT OF OPTIONS ON ISSUE (CONT')
Share options outstanding at the end of the financial year have the following expiry date and exercise prices:
GRANT DATE
19-May-14
02-Oct-14
28-Jan-15
27-Apr-15
07-May-15
09-Jun-15
26-Oct-15
01-Dec-15
24-May-16
09-Jun-16
24-Oct-16
01-Mar-17
26-May-17
20-Oct-17
20-Oct-17
20-Oct-17
TOTAL Options
EXPIRY DATE
EXERCISE PRICE
19-May-19
02-Oct-19
28-Jan-18
27-Apr-17
07-May-18
09-Jun-18
26-Oct-20
01-Dec-18
24-May-19
09-Jun-19
24-Oct-19
01-Mar-20
26-May-20
20-Oct-20
20-Oct-20
20-Oct-20
A$5.38
A$6.23
A$4.05
-(1)
A$5.40
A$4.96
A$4.35
A$4.68
A$5.04
A$4.58
A$5.09
A$4.11
A$4.30
A$4.13
A$4.67
A$3.85
Weighted average remaining contractual life of options outstanding at the end of the year
2017
NUMBER
500,000
800,000
600,000
-
-
300,000
250,000
1,000,000
400,000
-
-
600,000
1,000,000
300,000
600,000
400,000
6,750,000
1.75 years
2016
NUMBER
500,000
2,800,000
1,200,000
125,000
500,000
300,000
250,000
1,000,000
400,000
1,000,000
600,000(2)
-
-
-
-
-
8,675,000
2.22 years
(1) Represents options that were granted to a selected senior employee for NIL consideration with exercise conditional on the achievement of certain performance hurdles that are aligned
with the creation of shareholder value.
Fair value of options granted
For the options granted during the current financial year, the valuation model inputs used to determine the fair value at the grant date are as follows:
GRANT DATE
EXPIRY DATE
SHARE PRICE AT
GRANT DATE
EXERCISE
PRICE
EXPECTED
VOLATILITY (1)
DIVIDEND
YIELD
RISK-FREE
INTEREST RATE
FAIR VALUE AT
GRANT DATE
1-Mar-17
26-May-17
20-Oct-17
20-Oct-17
20-Oct-17
1-Mar-20
26-May-20
20-Oct-20
20-Oct-20
20-Oct-20
A$2.80
A$2.60
A$3.71
A$3.71
A$3.71
A$4.11
A$4.30
A$4.13
A$4.67
A$3.85
55.30%
58.40%
55.19%
55.19%
55.20%
-
-
-
-
-
2.01%
1.73%
2.12%
2.12%
2.12%
A$0.75
A$0.66
A$1.31
A$ 1.17
A$1.39
(1) Expected volatility was calculated based on the historical market share price for the 12-month period prior to the Grant Date.
74
SYRAH RESOURCES > ANNUAL REPORT 2017
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS (CONT')
NOTE 15. SHARE-BASED PAYMENTS (CONT')
(C) SUMMARY AND MOVEMENT OF PERFORMANCE RIGHTS ON ISSUE
The table below summarises the number and movements in Performance Rights issued during the financial year:
Balance at the beginning of the year
Granted during the year
Lapsed during the year
Forfeited during the year
Balance at the end of the year
At 31 December 2017:
- Vested
- Unvested
Performance testing dates for unvested Performance Rights above are as follows:
- 31 December 2017
- 31 December 2018
- 31 December 2019
Balance at end of the year
2017
NUMBER
324,754
600,543
(65,945)
(214,514)
644,838
78,225
566,613
644,828
-
136,437
430,176
566,613
2016
NUMBER
100,707
232,296
-
(8,249)
324,754
-
324,754
324,754
100,707
224,047
-
324,754
Performance rights on issue as part of the LTIP have a nil exercise price.
(D) EXPENSES ARISING FROM SHARE-BASED PAYMENT TRANSACTIONS
Total expenses arising from share-based payment transactions recognised during the financial year as part of employee benefit expense were as follows:
Recognised in profit and loss
- Options issued under the LTIP and SOP
- Performance rights issued under the LTIP
- Shares issued as remuneration (1)
Capitalised as mining asset
2017
US$’000
1,665
310
43
2,018
257
2,275
2016
US$’000
2,998
264
429 (1)(2)
3,691
-
3,691
(1) Represents amount expensed for a once-off bonus of 142,745 shares awarded to T Kumova (shareholder approval obtained on 26 May 2016) and 75,493 shares awarded to selected senior
employees (issued on 19 February 2016) in recognition of the significant contribution made to ensure the finalisation of the feasibility study, the success of the Company’s fundraising activities,
the commencement of mine development and the on-going work to establish key sales and marketing targets as the mine moves towards commissioning.
(2) Represents the current year portion of a one-off payment of $148,880 (A$200,000) to J Askew for additional services provided to the Company as Executive Chairman from 5 October 2016
to 3 February 2017. This amount will be paid in shares, subject to shareholder approval. In the event the Company does not receive shareholder approval in relation to the proposed issue
of fully paid ordinary shares, the amount payable will be paid in cash.
The consolidated entity measures the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at the date at
which they are granted. The fair value of options granted is determined by using the Black-Scholes model considering the terms and conditions upon which the
instruments were granted and based upon the assumptions detailed above. The accounting estimates and assumptions relating to equity- settled share-based
payments would have no impact on the carrying amounts of assets and liabilities within the next annual reporting period but may impact profit or loss and equity.
75
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS (CONT')
NOTE 16. REMUNERATION OF AUDITORS
During the financial year the following fees were paid or payable for services provided by the auditor of the parent entity, its related practices and non-
related audit firms.
Assurance services:
PwC Australian firm
Network firms of PwC Australian firm
Total remuneration for audit services
Non-assurance services
Tax compliance services
Tax consulting services
Other consulting services
Total remuneration for non-assurance services
Total remuneration paid to PricewaterhouseCoopers
NOTE 17. EARNINGS PER SHARE
Earnings/ (losses) per share
Basic loss per share
Diluted loss per share
2017
US$’000
2016
US$’000
150
94
244
29
66
22
117
361
98
60
158
53
140
-
193
351
2017
US CENTS
(4.51)
(4.51)
2016
US CENTS
(5.84)
(5.84)
(A) RECONCILIATIONS OF EARNINGS USED IN CALCULATING EARNINGS
PER SHARE
Basic loss
Total profit/(loss) attributable to the ordinary equity holders of the Company used
in calculating basic loss per share
Diluted loss
Total profit/(loss) attributable to the ordinary equity holders of the Company used
in calculating diluted loss per share
2017
US$’000
2016
US$’000
(12,307)
(14,491)
(12,307)
(14,491)
76
SYRAH RESOURCES > ANNUAL REPORT 2017
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS (CONT')
NOTE 17. EARNINGS PER SHARE (CONT')
(B) WEIGHTED AVERAGE NUMBER OF SHARES USED AS THE DENOMINATOR
Weighted average number of ordinary shares used as the denominator in calculating basic loss per share
Weighted average number of ordinary shares used as the denominator in calculating diluted loss per share
2017
NUMBER
273,133,506
273,133,506
2016
NUMBER
248,338,800
248,338,800
Options
The rights to options held by option holders have not been included in the weighted average number of ordinary shares for the purposes of calculating diluted
EPS as they do not meet the requirements for inclusion in AASB 133 “Earnings per Share”. The rights to options are non-dilutive as the group is loss making.
NOTE 18. PARENT ENTITY FINANCIAL INFORMATION
(A) SUMMARY FINANCIAL INFORMATION
The individual financial statements for the parent entity show the following aggregate amounts:
Balance sheet
Current assets
Total assets
Current liabilities
Total liabilities
Shareholders’ equity
Issued capital
Reserves
Accumulated losses
Total equity
Loss after income tax for the year
Other comprehensive income
Total comprehensive income for the year
2017
US$’000
22,625
421,394
3,947
3,980
452,601
12,454
(47,641)
417,414
2016
US$’000
25,785
323,877
5,796
5,809
366,427
(6,987)
(41,372)
318,068
(12,072)
(15,122)
23,864
(5,094)
11,792
(20,216)
(B) CONTINGENT LIABILITIES OF THE PARENT ENTITY
The parent entity has no contingent liabilities as at 31 December 2017 and 31 December 2016.
(C) GUARANTEES OF THE PARENT ENTITY
A parent company guarantee is required to be provided by Syrah Resources Limited in favour of the Government of Mozambique, which unconditionally and
irrevocably guarantees amounts up to a maximum of US$22.5 million to cover any loss or damage or other costs arising out of, or associated with, a breach
of the Mining Concession held by Twigg Exploration and Mining Limitada. This guarantee is required to remain in place for a period of two years after the
signing of the Mining Agreement.
77
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS (CONT')
NOTE 19. SUBSIDIARIES
The consolidated financial statements incorporate the assets, liabilities and results of the following subsidiaries in accordance with the accounting policy
described in Note 21.
NAME
Jacana Resources Limited
Syrah Resources (KSA) Pty Ltd
Twigg Exploration and Mining, Limitada
Jacana Resources (Zambia) Ltd
Syrah Resources Saudi Arabia LLC
Syrah Resources Group Holdings Pty Ltd
Syrah Resources and Trading DMCC
Syrah Global DMCC(2)
Syrah US Holdings Pty Ltd(3)
Syrah Technologies LLC(4)
PERCENTAGE OF EQUITY INTEREST
HELD BY THE GROUP
PRINCIPAL PLACE OF BUSINESS /
COUNTRY OF INCORPORATION
Australia
Australia
Mozambique
Zambia
Saudi Arabia
Australia
United Arab Emirates
United Arab Emirates
Australia
United States of America
2017
(%)
100
100
100(1)
100
100
100
100
100
100
100
2016
(%)
100
100
100
100
100
100
100
100
-
-
(1) During the year ended 31 December 2017, Twigg Exploration and Mining Limitada (Twigg) finalised negotiations with the Ministry of Mineral Resources and Energy of the Republic
of Mozambique in relation to a Mining Agreement. The terms of the Mining Agreement provide for a 5% non-controlling non-diluting interest in Twigg to be made available to a
Mozambique Government entity. As at 31 December 2017, the Mining Agreement was not yet signed. This agreement will become binding and enforceable when the key terms are
gazetted, the Agreement is signed by Twigg and the Minister of Mineral Resources and Energy (on behalf of the Government of the Republic of Mozambique) and finally sanctioned by the
Administrative Court in Mozambique. A non-controlling interest in Twigg will be recognised after the issuance of shares to the Mozambique Government entity.
(2) Syrah Global DMCC was formerly known as Syrah Resources and Trading Operation DMCC.
(3) Syrah US Holdings Pty Ltd was incorporated on 15 February 2017.
(4) Syrah Technologies LLC was incorporated on 23 February 2017.
78
SYRAH RESOURCES > ANNUAL REPORT 2017
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS (CONT')
NOTE 20. DEED OF CROSS GUARANTEE
The following entities are party to a deed of cross guarantee under which each company guarantees the debts of the others:
Syrah Resources Limited
Jacana Resources Limited
By entering into the deed, the wholly-owned entities have been relieved from the requirement to prepare financial statements and a directors’ report under
Class Order 98/1418 (as amended) issued by the Australian Securities and Investments Commission (‘ASIC’).
The above companies represent a ‘Closed Group’ for the purposes of the Class Order, and as there are no other parties to the Deed of Cross Guarantee that
are controlled by Syrah Resources Limited, they also represent the ‘Extended Closed Group’.
(A) CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME AND SUMMARY OF
MOVEMENTS IN CONSOLIDATED ACCUMULATED LOSSES
Set out below is a consolidated statement of comprehensive income and a summary of movements in consolidated accumulated losses for the current or
previous financial year for the ‘Closed Group’.
Consolidated statement of comprehensive income
Revenue from continuing operations
Other income
Expenses
Employee benefits expense
Legal and consulting expense
Depreciation and amortisation expense
Impairment of available-for-sale financial assets
Foreign exchange loss - net
Other expenses
Loss for the year before income tax expense
Income tax expense
Loss after income tax expense for the year
Other comprehensive income
Exchange differences on translation of foreign subsidiaries
Total comprehensive income for the year
Summary of movements in consolidated accumulated losses
Balance at beginning of the year
Loss after income tax expense for the year
Transfer from Share-based payment reserve
Balance at end of the year
2017
US$’000
289
3
(6,495)
(2,937)
(147)
-
(463)
(2,322)
(12,072)
-
(12,072)
2016
US$’000
683
13
(6,831)
(2,247)
(86)
(34)
(4,908)
(1,712)
(15,122)
-
(15,122)
23,203
(2,972)
11,131
(18,094)
(42,388)
(12,072)
5,801
(48,659)
(27,266)
(15,122)
-
(42,388)
79
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS (CONT')
NOTE 20. DEED OF CROSS GUARANTEE (CONT')
(B) CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Set out below is a consolidated statement of financial position as at the end of the current and previous financial year for the ‘Closed Group’.
Current assets
Cash and cash equivalents
Trade and other receivables
Available-for-sale financial assets
Total current assets
Non-current assets
Mine properties and development
Exploration and evaluation
Property, plant and equipment
Investments in subsidiaries
Intangibles
Total non-current assets
Total assets
Current liabilities
Trade and other payables
Provisions
Total current liabilities
Non-current liabilities
Provisions
Total non-current liabilities
Total liabilities
Net assets
Equity
Issued capital
Reserves
Accumulated losses
Total equity
80
2017
US$’000
13,218
263
91
13,572
17,331
-
2,029
389,825
39
409,224
2016
US$’000
16,679
705
84
17,468
96,635
890
873
210,013
60
308,471
422,796
325,939
3,459
488
3,947
33
33
5,329
454
5,783
27
27
3,980
5,810
418,816
320,129
452,601
14,874
(48,659)
418,816
366,427
(3,910)
(42,388)
320,129
SYRAH RESOURCES > ANNUAL REPORT 2017 NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS (CONT')
NOTE 21. SUMMARY OF
SIGNIFICANT ACCOUNTING
POLICIES
The principal accounting policies adopted in the preparation of the
consolidated financial statements are set out below. These policies have
been consistently applied for all the periods presented, unless otherwise
stated.
The financial statements are for the consolidated entity consisting of Syrah
Resources Limited and its subsidiaries. Syrah Resources Limited and its
subsidiaries together are referred to in these financial statements as the
Group or the ‘consolidated entity’.
(A) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements incorporate the assets and liabilities
of all subsidiaries of Syrah Resources Limited (‘company’ or ‘parent entity’)
as at 31 December 2016 and the results of all subsidiaries for the financial
year then ended.
Subsidiaries are all those entities over which the consolidated entity has
control. The consolidated entity controls an entity when the consolidated
entity is exposed to, or has rights to, variable returns from its involvement
with the entity and has the ability to affect those returns through its
power to direct the relevant activities of the entity. Subsidiaries are
fully consolidated from the date on which control is transferred to the
consolidated entity. They are de-consolidated from the date that control
ceases. Details of subsidiaries are set out in Note 19.
The acquisition of subsidiaries is accounted for using the acquisition
method of accounting. A change in ownership interest, without the loss of
control, is accounted for as an equity transaction, where the difference
between the consideration transferred and the book value of the share
of the non-controlling interest acquired is recognised directly in equity
attributable to the parent.
Where the consolidated entity loses control over a subsidiary, it
derecognises the assets including goodwill, liabilities and non-controlling
interest in the subsidiary together with any cumulative translation
differences recognised in equity. The consolidated entity recognises the
fair value of the consideration received and the fair value of any investment
retained together with any gain or loss in the profit and loss.
Intercompany transactions, balances and unrealised gains on transactions
between Group entities are eliminated. Unrealised losses are also
eliminated unless the transaction provides evidence of the impairment
of the asset transferred. Accounting policies of subsidiaries have been
changed where necessary to ensure consistency with the policies adopted
by the Group.
Investments in subsidiaries are accounted for at cost in the individual
financial statements of Syrah Resources Limited.
(B) SEGMENT REPORTING
Operating segments are presented using the ‘management approach’,
where the information presented is on the same basis as the internal
reports provided to the Chief Operating Decision Maker (‘CODM’). The
CODM is responsible for the allocation of resources to operating segments
and assessing their performance. Refer to Note 2 for further information on
segment descriptions.
(C) FOREIGN CURRENCY TRANSLATION
Functional and presentation currency
Items included in the financial statements of each of the Group’s entities
are measured using the currency of the primary economic environment
in which the entity operates (‘the functional currency’). The consolidated
financial statements are presented in United States dollars (USD).
Transactions and balances
All foreign currency transactions during the financial period are translated
into the functional currency using the exchange rate prevailing at the dates
of the transactions. Foreign exchange gains and losses resulting from
the settlement of such transactions and from the translation at period
end exchange rates of monetary assets and liabilities denominated in
foreign currencies are recognised in the profit and loss, except when they
are deferred in equity as qualifying cash flow hedges and qualifying net
investment hedges or are attributable to part of the net investment in a
foreign operation.
Non-monetary items that are measured in terms of historical cost in foreign
currency are translated using the exchange rate as at the date of the
initial transaction. Non-monetary items measured at fair value in a foreign
currency are translated using the exchange rates at the date when the fair
value was determined.
Foreign exchange gains and losses that relate to borrowings are presented
in the statement of comprehensive income within finance costs. All
other foreign exchange gains and losses are presented in the statement
of comprehensive income on a net basis within other income or other
expenses.
Group companies
The results and financial position of all the Group entities (none of which
has the currency of a hyperinflationary economy) that have a functional
currency different from the presentation currency are translated into the
presentation currency as follows:
>
>
assets and liabilities for each balance sheet presented are translated
at the closing rate at the date of that balance sheet;
income and expenses for each statement of comprehensive
income are translated at average exchange rates (unless this is not
a reasonable approximation of the cumulative effect of the rates
prevailing on the transaction dates, in which case income and
expenses are translated at the dates of the transactions); and
>
all resulting exchange differences are recognised as a separate
component of equity.
On consolidation, exchange differences arising from the translation of any
net investment in foreign entities, and of borrowings and other financial
instruments designated as hedges of such investments, are taken to
shareholders’ equity. When a foreign operation is sold or any borrowings
forming part of the net investment are repaid, a proportionate share of such
exchange differences are recognised in the profit and loss, as part of the
gain or loss on sale where applicable. Goodwill and fair value adjustments
arising on the acquisition of a foreign entity are treated as assets and
liabilities of the foreign entities and translated at the closing rate.
81
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS (CONT')
NOTE 21. SUMMARY OF
SIGNIFICANT ACCOUNTING
POLICIES (CONT')
(D) REVENUE RECOGNITION
Revenue is recognised when it is probable that the economic benefit will
flow to the consolidated entity and the revenue can be reliably measured.
Revenue is measured at the fair value of the consideration received or
receivable.
Revenue is recognised for the major business transactions as follows:
SALES OF GRAPHITE
The Group recognises revenue related to the sale of graphite when control
of the goods passes to customers and the amount of revenue can be
measured reliably. The majority of the Group’s sales arrangements specify
that control passes when the product is transferred to the vessel on which
the product will be shipped. Revenues are generally recognised on the bill
of lading date. Revenue is recognised and measured at the fair value of the
consideration received or receivable, net of agency commissions. Sales
arrangements allow for an adjustment to the sales price based on a survey
of the goods by the customer (an assay for mineral content and particle
size distribution). If necessary, adjustments to sales revenues arising from
a survey of the goods by the customer are accounted for in the period in
which the Group agrees to such adjustments.
The Group sells a significant proportion of its products on CFR and
CIF Incoterms. This means that the Group is responsible for providing
shipping services after the date at which control of the goods passes to the
customer at the loading port. The Group treats freight, where applicable, as
a separate performance obligation and therefore recognises the revenue
and associated costs over time.
Revenue related to the sale of graphite during the commissioning and
production ramp-up phase, prior to the declaration of commercial
production (refer note 8), is treated as pre-production income and
recognised as a credit against capitalised project development costs (refer
to note 8).
Interest
Interest revenue is recognised as interest accrues using the effective
interest method. This is a method of calculating the amortised cost of a
financial asset and allocating the interest income over the relevant period
using the effective interest rate, which is the rate that exactly discounts
estimated future cash receipts through the expected life of the financial
asset to the net carrying amount of the financial asset.
Other revenue
Other revenue is recognised when it is received or when the right to receive
payment is established.
(E) INCOME TAX
The income tax expense or benefit for the period is the tax payable on
the current period’s taxable income based on the applicable income tax
rate for each jurisdiction, adjusted by changes in deferred tax assets and
liabilities attributable to temporary differences, unused tax losses and the
adjustment recognised for prior periods, where applicable.
82
The current income tax charge is calculated on the basis of the tax laws
enacted or substantively enacted at the end of the reporting period in the
countries where the company’s subsidiaries operate and generate taxable
income. Management periodically evaluates positions taken in tax returns
with respect to situations in which applicable tax regulation is subject to
interpretation. It establishes provisions where appropriate on the basis of
amounts expected to be paid to the tax authorities.
Deferred income tax is provided in full, using the liability method, on
temporary differences arising between the tax bases of assets and liabilities
and their carrying amounts in the consolidated financial statements.
However, deferred tax liabilities are not recognised if they arise from the
initial recognition of goodwill. Deferred income tax is also not accounted
for if it arises from initial recognition of an asset or liability in a transaction
other than a business combination that at the time of the transaction
affects neither accounting nor taxable profit or loss. Deferred income
tax is determined using tax rates (and laws) that have been enacted or
substantially enacted by the end of the reporting period and are expected to
apply when the related deferred income tax asset is realised or the deferred
income tax liability is settled.
Deferred tax assets are recognised for deductible temporary differences,
including unused tax losses, only if it is probable that future taxable
amounts will be available to utilise those temporary differences and losses.
Deferred tax liabilities and assets are not recognised for temporary
differences between the carrying amount and the tax bases of investments
in foreign operations where the company is able to control the timing of the
reversal of the temporary differences and it is probable that the differences
will not reverse in the foreseeable future.
Deferred tax assets and liabilities are offset when there is a legally
enforceable right to offset current tax assets and liabilities and when the
deferred tax balances relate to the same taxation authority. Current tax
assets and tax liabilities are offset where the entity has a legally enforceable
right to offset and intends either to settle on a net basis, or to realise the
asset and settle the liability simultaneously.
TAX CONSOLIDATION LEGISLATION
Syrah Resources Limited (the “head entity”) and its wholly-owned
Australian subsidiaries formed an income tax consolidated group on 1 July
2014. The head entity and each subsidiary in the tax consolidated group
continue to account for their own current and deferred tax amounts. The
tax consolidated group has applied the ‘separate taxpayer within group’
approach in determining the appropriate amount of taxes to allocate to
members of the tax consolidated group.
In addition to its own current and deferred tax amounts, the head entity also
recognises the current tax liabilities (or assets) and the deferred tax assets
arising from unused tax losses and unused tax credits assumed from each
subsidiary in the tax consolidated group.
Assets or liabilities arising under tax funding agreements within the tax
consolidated entities are recognised as amounts receivable from or payable
to other entities in the tax consolidated group. The tax funding arrangement
ensures that the intercompany charge equals the current tax liability or
benefit of each tax consolidated group member, resulting in neither a
contribution by the head entity to the subsidiaries nor a distribution by the
subsidiaries to the head entity.
SYRAH RESOURCES > ANNUAL REPORT 2017 NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS (CONT')
NOTE 21. SUMMARY OF
SIGNIFICANT ACCOUNTING
POLICIES (CONT')
(F) LEASES
Leases of property, plant and equipment where the Group, as lessee,
has substantially all the risks and rewards of ownership are classified as
finance leases. Finance leases are capitalised at the lease’s inception
at the fair value of the leased property or, if lower, the present value of
the minimum lease payments. The corresponding rental obligations, net
of finance charges, are included in current liabilities and non-current
liabilities. Each lease payment is allocated between the liability and
finance cost. The finance cost is charged to the profit and loss over the
lease period so as to produce a constant periodic rate of interest on the
remaining balance of the liability for each period. The property, plant and
equipment acquired under finance leases is depreciated over the asset’s
useful life or over the shorter of the assets useful life and the lease term if
there is no reasonable certainty that the group will obtain ownership at the
end of the lease term.
Leases in which a significant portion of the risks and rewards of ownership
are not transferred to the Group, as lessee, are classified as operating
leases. Payment made under operating leases (net of incentives received
from the lessor) are charged to the profit and loss on a straight-line basis
over the period of the lease.
(G) CURRENT AND NON-CURRENT
CLASSIFICATION
Assets and liabilities are presented in the balance sheet based on current
and non-current classification.
An asset is current when: it is expected to be realised or intended to be sold
or consumed in normal operating cycle; it is held primarily for the purpose
of trading; it is expected to be realised within 12 months after the reporting
period; or the asset is cash or cash equivalent unless restricted from being
exchanged or used to settle a liability for at least 12 months after the
reporting period. All other assets are classified as non-current.
A liability is current when: it is expected to be settled in normal operating
cycle; it is held primarily for the purpose of trading; it is due to be settled
within 12 months after the reporting period; or there is no unconditional
right to defer the settlement of the liability for at least 12 months after the
reporting period. All other liabilities are classified as non-current.
Deferred tax assets and liabilities are always classified as non-current.
(H) CASH AND CASH EQUIVALENTS
For the purpose of presentation in the statement of cash flows, cash and
cash equivalents comprises cash on hand, deposits held at call with
financial institutions, other short-term, highly liquid investments with
maturities of three months or less that are readily convertible to amounts of
cash and which are subject to an insignificant risk of changes in value, and
bank overdrafts. Bank overdrafts are shown within borrowings in current
liabilities on the balance sheet.
(I) TRADE AND OTHER RECEIVABLES
Other receivables are recognised at amortised cost, less any provision for
impairment.
(J) INVENTORIES
Inventories are valued at the lower of weighted average cost and estimated
net realizable value. Cost is determined primarily on the basis of weighted
average costs and comprises of the purchase price of direct materials and
the costs of production which include:
>
>
>
labour costs, materials and contractor expenses which are directly
attributable to the extraction and processing of ore;
depreciation of mining assets, property, plant and equipment used in
the extraction and processing of ore; and
production overheads directly attributable to the extraction and
processing of ore.
Stockpiles represent ore that has been extracted and is available for further
processing and work-in progress includes partly processed material.
If there is significant uncertainty as to when the stockpiled ore will be
processed it is expensed as mined. If the ore will not be processed within
12 months after the balance sheet date it is included within non-current
assets. Quantities of stockpiled ore are assessed primarily through surveys
and assays.
The net realisable value is the estimated selling price in the ordinary course
of business less the estimated costs of completion and the estimated
costs necessary to make the sale, including royalties.
The cost of inventories (ore stocks, consumable stores and finished
products) during the commissioning and production ramp-up phase, prior
to the declaration of commercial production is included in mining assets
(refer note 8).
(K) PROPERTY, PLANT AND EQUIPMENT
Plant and equipment is stated at historical cost less, where applicable, any
accumulated depreciation, amortisation or impairment in value. Historical
cost includes expenditure that is directly attributable to the acquisition of
the items.
Subsequent costs are included in the asset’s carrying amount or
recognised as a separate asset, as appropriate, only when it is probable
that future economic benefits associated with the item will flow to
the Group and the cost of the item can be measured reliably. The
carrying amount of any component accounted for as a separate asset
is derecognised when replaced. All other repairs and maintenance are
charged to profit and loss during the reporting period in which they are
incurred.
Land is not depreciated. Assets under construction are measured at
cost and are not depreciated until they are ready and available for use.
Depreciation on assets is calculated using either a straight-line or
diminishing value method to allocate the cost, net of their residual values,
over the estimated useful lives or the life of the mine, whichever is shorter.
Leasehold improvements and certain leased plant and equipment are
depreciated over the shorter lease term.
Other non-mine plant and equipment typically has the following estimated
useful lives:
Buildings
Plant and Equipment
Computer Equipment
20 years
2 to 10 years
3 to 5 years
83
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS (CONT')
NOTE 21. SUMMARY OF
SIGNIFICANT ACCOUNTING
POLICIES (CONT')
(M) MINE PROPERTIES AND
DEVELOPMENT (CONT')
Mines under construction
Expenditure incurred in constructing a mine is accumulated separately
for each area of interest. This expenditure includes all direct costs of
construction, borrowing costs capitalised during construction and
an appropriate allocation of attributable overheads up to the time of
commissioning the project. Upon successful commissioning of the project
the aggregated costs of construction are transferred to non-current
assets as either mine properties and development or property, plant and
equipment as appropriate.
The carrying value of mine properties and development for each area of
interest is assessed annually for impairment in accordance with Note 8.
(N) EXPLORATION AND EVALUATION
Exploration and evaluation expenditure comprises costs which are directly
attributable to:
>
>
>
>
research and analysing exploration data;
conducting geological studies, exploratory drilling and sampling;
examining and testing extraction and treatment methods; and
compiling scoping and feasibility studies.
Exploration and evaluation expenditure in relation to separate areas of
interest for which rights of tenure are current is carried forward as an asset
in the balance sheet where it is expected that expenditure will be recovered
through the successful development and exploitation of an area or interest,
or by its sale; or exploration and evaluation activities are continuing in an
area of interest and those activities have not reached a
stage which permits a reasonable estimate of the existence or otherwise of
economically recoverable reserves. Where a project or an area of interest
has been abandoned, the expenditure incurred thereon is written off to the
profit and loss in the financial period in which the decision is made.
Exploration and evaluation expenditure is reclassified to mine properties
and development in the financial period when the technical feasibility and
commercial viability of extracting a mineral resource is demonstrated. The
carrying value of the exploration and evaluation expenditure is assessed for
impairment prior to reclassification (Refer to Note 8).
(K) PROPERTY, PLANT AND EQUIPMENT
(CONT')
The assets residual values, useful lives and amortisation methods are
reviewed and adjusted if appropriate, at each financial period end.
An item of property, plant and equipment is derecognised upon disposal or
when no further economic benefits are expected from its use or disposal.
Any gain or loss arising on de-recognition of the asset (calculated as the
difference between the net disposal proceeds and the carrying amount
of the asset) is included in the profit and loss in the period the asset is
derecognised.
(L) INTANGIBLE ASSETS
Intangible assets acquired as part of a business combination, other
than goodwill, are initially measured at their fair value at the date of the
acquisition. Intangible assets acquired separately are initially recognised
at cost. Indefinite life intangible assets are not amortised and are
subsequently measured at cost less any impairment in value. Finite life
intangible assets are subsequently measured at cost less amortisation and
any impairment in value. The gains or losses recognised in profit and loss
arising from the de-recognition of intangible assets are measured as the
difference between net disposal proceeds and the carrying amount of the
intangible asset. The method and useful lives of finite life intangible assets
are reviewed annually. Changes in the expected pattern of consumption
or useful life are accounted for prospectively by changing the amortisation
method or period.
Software
Significant costs associated with software are deferred and amortised on
either a straight-line or diminishing value method over the estimated useful
life, being a finite life not exceeding 5 years.
(M) MINE PROPERTIES AND
DEVELOPMENT
Mine properties and development
Mine properties and development represents the accumulation of all
exploration, evaluation and development expenditure incurred by, or on
behalf of, the entity in relation to areas of interest in which construction
or development has commenced and/or mining of a mineral resource
has commenced. Where further development expenditure is incurred in
respect of a production property after the commencement of production,
such expenditure is carried as part of the cost of that production property
only when substantial future economic benefits arise, otherwise such
expenditure is classified as part of the cost of production.
Mine development costs for production properties in which the Group has
an interest are amortised over the life of the area of interest to which the
costs relate on a units of production basis over the estimated proved and
probable ore reserves and a proportion of other measured and indicated
mineral resources where there is a higher degree of confidence that they can
be extracted economically. Changes in the life of the area of interest and/or
or ore reserves and other mineral resources are accounted for prospectively.
84
SYRAH RESOURCES > ANNUAL REPORT 2017 NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS (CONT')
NOTE 21. SUMMARY OF
SIGNIFICANT ACCOUNTING
POLICIES (CONT')
(O) IMPAIRMENT OF ASSETS
Goodwill and other intangible assets that have an indefinite useful life are
not subject to amortisation and are tested annually for impairment, or
more frequently if events or changes in circumstances indicate that they
might be impaired.
At each reporting date, the Group assesses whether there is any indication
that other non-financial assets may be impaired. Where an indicator of
impairment exists, the Group makes a formal estimate of the recoverable
amount. Where the carrying amount of an asset exceeds its recoverable
amount the asset is considered impaired and is written down to its
recoverable amount. Impairment losses are recognised in profit and loss.
Recoverable amount is the greater of fair value less costs of disposal
and value-in-use. For the purposes of assessing impairment, assets are
grouped at the lowest levels for which there are separately identifiable cash
inflows which are largely independent of the cash inflows from other assets
or groups of assets (cash generating units).
Where there is no binding sale agreement or active market, fair value less
costs of disposal is based on the best information available to reflect the
amount the Group could receive for the cash generating unit in an arm’s
length transaction. In assessing value in use, the estimated future cash
flows are discounted to their present value using a post-tax discount rate
that reflects current market assessments of the time value of money and
the risks specific to the asset.
An assessment is also made at each reporting date as to whether there is
any indication that previously recognised impairment losses may no longer
exist or may have decreased. If such indication exists, the recoverable
amount is estimated. A previously recognised impairment loss is reversed
only if there has been a change in the estimates used to determine the
asset’s recoverable amount since the last impairment loss was recognised.
If that is the case the carrying amount of the asset is increased to its
recoverable amount. That increased amount cannot exceed the pre-
impairment value, adjusted for any depreciation that would have been
recognised on the asset had the initial impairment loss not occurred. Such
reversal is recognised in profit or loss.
After such a reversal the depreciation charge is adjusted in future periods
to allocate the asset’s revised carrying amount, less any residual value, on
a systematic basis over its remaining useful life.
(P) ORE RESERVES
The Company estimates its mineral resources and ore reserves based on
information compiled by Competent Persons as defined in accordance
with the Australasian Code for Reporting of Exploration Results, Mineral
Resources and Ore Reserves of December 2012 (the JORC 2012 code).
Reserves, and for certain mineral resources, determined in this way are
used in the calculation of depreciation, amortisation and impairment
charges.
In assessing the life of a mine for accounting purposes, mineral resources
are only taken into account where there is a high degree of confidence of
economic extraction.
(Q) INVESTMENTS AND OTHER
FINANCIAL ASSETS
Classification
The Group classifies its financial assets in the following categories: financial
assets at fair value through profit and loss, loans and receivables, held-
to-maturity financial assets and available-for-sale financial assets. The
classification depends on the purpose for which the investments were
acquired. Management determines the classification of its investments at
initial recognition, and in the case of assets classified as held-to-maturity,
re-evaluates this designation at each reporting date.
Financial assets at fair value through
profit or loss
Financial assets classified as held for trading purposes are included in the
category ‘financial assets at fair value through profit or loss’. Financial assets
are classified as held for trading if they are acquired for the purpose of selling
in the near term. Derivatives are also classified as held for trading unless
they are designated as effective hedging instruments. Gains or losses on
investments held for trading are recognised in profit or loss.
Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or
determinable payments that are not quoted in an active market. Such assets
are carried at amortised cost using the effective interest method. Gains and
losses are recognised in the profit and loss when the loans and receivables
are derecognised or impaired, as well as through the amortisation process.
Held-to-maturity investments
Bills of exchange and debentures are recorded at amortised cost using the
effective interest method less impairment, with revenue recognised on an
effective yield basis.
The effective interest method is a method of calculating the amortised cost
of a financial asset and of allocating interest income over the relevant period.
The effective interest rate is the rate that exactly discounts estimated future
cash receipts through the expected life of the financial asset, or, where
appropriate, a shorter period.
Available-for-sale financial assets
Financial assets that are available-for-sale are stated at fair value with
gains and losses arising from changes in fair value recognised directly in the
available-for-sale revaluation reserve, until the investment is disposed of
or is determined to be impaired, at which time the cumulative gain or loss
previously recognised in the available-for-sale revaluation reserve is included
in profit and loss for the period.
Impairment of financial assets
The Group assess at the end of each reporting period whether there is
objective evidence that a financial asset or group of financial assets is
impaired. A financial asset or group of financial assets is impaired and an
impairment loss is recognised in profit or loss only if there is evidence of a
‘loss event’ after initial recognition that has an impact on the estimated future
cash flows of the financial asset. In the case of equity instruments classified
as available-for-sale, a significant or prolonged decline in the fair value of the
security below its cost is considered an indicator that the assets are impaired.
Impairment losses on an equity instrument that were recognised in profit or
loss are not reversed through profit or loss in subsequent periods.
85
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS (CONT')
(T) EMPLOYEE ENTITLEMENTS
Short-term employee benefits
Liabilities for wages and salaries, including non-monetary benefits, annual
leave and long service leave expected to be settled within 12 months of the
reporting date are recognised in current liabilities in respect of employees’
services up to the reporting date and are measured at the amounts
expected to be paid when the liabilities are settled.
Other long-term employee benefits
The liability for annual leave and long service leave not expected to
be settled within 12 months of the reporting date are recognised in
non-current liabilities, provided there is an unconditional right to defer
settlement of the liability. The liability is measured as the present value
of expected future payments to be made in respect of services provided
by employees up to the reporting date using the projected unit credit
method. Consideration is given to expected future wage and salary levels,
experience of employee departures and periods of service. Expected future
payments are discounted using market yields at the reporting date on
corporate bonds with terms to maturity and currency that match, as closely
as possible, the estimated future cash outflows.
Defined contribution superannuation expense
Contributions to defined contribution superannuation plans are expensed
in the period in which they are incurred.
Share-based payments
Equity-settled and cash-settled share-based compensation benefits are
provided to employees.
Equity-settled transactions are awards of shares, or options over shares
that are provided to employees in exchange for the rendering of services.
Cash-settled transactions are awards of cash for the exchange of services,
where the amount of cash is determined by reference to the share price.
The cost of equity-settled transactions is measured at fair value on grant
date. Fair value is determined using the Black-Scholes option pricing
model that takes into account the exercise price, the term of the option,
the impact of dilution, the share price at grant date and expected price
volatility of the underlying share, the expected dividend yield and the
risk free interest rate for the term of the option, together with non-vesting
conditions that do not determine whether the consolidated entity receives
the services that entitle the employees to receive payment. No account is
taken of any other vesting conditions.
The cost of equity-settled transactions are recognised as an expense with
a corresponding increase in equity over the vesting period. The cumulative
charge to profit and loss is calculated based on the grant date fair value of
the award, the best estimate of the number of awards that are likely to vest
and the expired portion of the vesting period. The amount recognised in
profit and loss for the period is the cumulative amount calculated at each
reporting date less amounts already recognised in previous periods.
NOTE 21. SUMMARY OF
SIGNIFICANT ACCOUNTING
POLICIES (CONT')
(R) TRADE AND OTHER PAYABLES
Trade and other payables are carried at amortised cost and represent
liabilities for goods and services provided to the Group prior to the end of
the financial period that are unpaid. They arise when the Group becomes
obliged to make future payments in respect of the purchase of these goods
and services. The amounts are unsecured and are usually paid within 30
days of recognition.
(S) PROVISIONS
Provisions are recognised when the Group has a present obligation, it is
probable that there will be a future sacrifice of economic benefits and a
reliable estimate can be made of the amount of the obligation.
When the Group expects some or all of a provision to be recovered from
a third party, for example under an insurance contract, the receivable
is recognised as a separate asset but only when the reimbursement is
virtually certain and it can be measured reliably. The expense relating to
any provision is presented in the profit or loss net of any reimbursement.
If the effect of the time value of money is material, provisions are
discounted using a pre-tax rate that reflects the current market assessment
of the time value of money. Where this is the case, its carrying amount is
the present value of these estimated future cash flows. When discounting
is used, the increase in the provision due to the passage of time is
recognised as a finance cost.
Decommissioning and restoration provision
Decommissioning and restoration provisions include the dismantling
and demolition of infrastructure and the removal of residual materials
and remediation of disturbed areas. The provision is recognised in the
accounting period when the obligation arising from the related disturbance
occurs, whether this occurs during the mine development or during the
production phase, based on the net present value of estimated future
costs. The costs are estimated on the basis of a closure plan drawn in
accordance with the business plan and environmental regulations. The
cost estimates are calculated annually during the life of the operation to
reflect known developments and are subject to formal review at regular
intervals.
The amortisation or ‘unwinding’ of the discount applied in establishing
the net present value of provisions is charged to the profit or loss in
each accounting period as a finance cost. Any changes in the provision,
including those resulting from new disturbances, updated cost estimates,
changes to the lives of operations and revisions to discount rates, are
accounted for prospectively.
On initial recognition of the provision and for prospective changes in
estimates, an equivalent amount is capitalised as part of mine properties
and development, or the respective asset or area of interest that the
restoration obligation relates to. Capitalised decommissioning and
restoration provision costs are depreciated over the life of the respective
assets. Where future changes in the provision result in a significant addition
to the cost of the related asset, consideration will be given to whether an
indication of impairment exists and the impairment policy will apply.
86
SYRAH RESOURCES > ANNUAL REPORT 2017 NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS (CONT')
NOTE 21. SUMMARY OF
SIGNIFICANT ACCOUNTING
POLICIES (CONT')
(T) EMPLOYEE ENTITLEMENTS (CONT')
Share-based payments (CONT')
The cost of cash-settled transactions is initially, and at each reporting
date until vested, determined by applying the Black-Scholes option pricing
model, taking into consideration the terms and conditions on which the
award was granted. The cumulative charge to profit or loss until settlement
of the liability is calculated as follows:
>
>
during the vesting period, the liability at each reporting date is the fair
value of the award at that date multiplied by the expired portion of the
vesting period
from the end of the vesting period until settlement of the award, the
liability is the full fair value of the liability at the reporting date.
All changes in the liability are recognised in profit and loss. The ultimate
cost of cash-settled transactions is the cash paid to settle the liability.
(V) FAIR VALUE MEASUREMENT
When an asset or liability, financial or non-financial, is measured at fair
value for recognition or disclosure purposes, the fair value is based on the
price that would be received to sell an asset or paid to transfer a liability in
an orderly transaction between market participants at the measurement
date; and assumes that the transaction will take place either: in the
principal market; or in the absence of a principal market, in the most
advantageous market.
Fair value is measured using the assumptions that market participants
would use when pricing the asset or liability, assuming they act in
their economic best interest. For non-financial assets, the fair value
measurement is based on its highest and best use. Valuation techniques
that are appropriate in the circumstances and for which sufficient data are
available to measure fair value, are used, maximising the use of relevant
observable inputs and minimising the use of unobservable inputs.
(W) EARNINGS PER SHARE
Basic earnings per share
Basic earnings per share is calculated by dividing:
Market conditions are taken into consideration in determining fair value.
Therefore any awards subject to market conditions are considered to vest
irrespective of whether or not that market condition has been met, provided
all other conditions are satisfied.
>
>
If equity-settled awards are modified, as a minimum an expense is
recognised as if the modification has not been made. An additional
expense is recognised, over the remaining vesting period, for any
modification that increases the total fair value of the share-based
compensation benefit as at the date of modification.
the profit attributable to equity holders of the Company, excluding any
costs of servicing equity other than ordinary shares; by
the weighted average number of ordinary shares outstanding during
the financial period, adjusted for bonus elements in ordinary shares
issued during the period and excluding treasury shares.
Diluted earnings per share
Diluted earnings per share adjusts the figures used in the determination of
basic earnings per share to take into account:
If the non-vesting condition is within the control of the consolidated entity
or employee, the failure to satisfy the condition is treated as a cancellation.
If the condition is not within the control of the consolidated entity or
employee and is not satisfied during the vesting period, any remaining
expense for the award is recognised over the remaining vesting period,
unless the award is forfeited.
>
>
the after income tax effect of interest and other financing costs
associated with dilutive potential ordinary shares; and
the weighted average number of additional ordinary shares that
would have been outstanding assuming the conversion of all dilutive
potential ordinary shares.
If equity-settled awards are cancelled, it is treated as if it has vested
on the date of cancellation, and any remaining expense is recognised
immediately. If a new replacement award is substituted for the cancelled
award, the cancelled and new award are treated as if they were a
modification.
The dilutive effect, if any, of outstanding options is reflected as additional
share dilution in the computation of earnings per share.
(U) CONTRIBUTED EQUITY
Ordinary shares are classified as equity and recognised at the fair value of
the consideration received by the Company.
Incremental costs directly attributable to the issue of new shares or options
are shown in equity as a deduction, net of tax, of the share proceeds
received.
(X) GOODS AND SERVICES TAX (‘GST’)
AND OTHER SIMILAR TAXES
Revenues, expenses and assets are recognised net of the amount of
associated GST, unless the GST incurred is not recoverable from the tax
authority. In this case it is recognised as part of the cost of the acquisition
of the asset or as part of the expense.
Receivables and payables are stated inclusive of the amount of GST
receivable or payable. The net amount of GST recoverable from, or payable
to, the tax authority is included in other receivables or other payables in the
statement of financial position.
Cash flows are presented on a gross basis. The GST components of cash
flows arising from investing or financing activities which are recoverable
from, or payable to the tax authority, are presented as operating cash flows.
Commitments and contingencies are disclosed net of the amount of GST
recoverable from, or payable to, the tax authority.
87
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS (CONT')
(ii) AASB 15 Revenue from Contracts with Customers
(effective from 1 January 2018)
AASB 15 Revenue from Contracts with Customers will replace AASB
118 which covers contracts for goods and services and AASB 111
which covers construction contracts (and related interpretations).
Under AASB 15, revenue is recognised at an amount that reflects the
consideration to which an entity expects to be entitled in exchange for
transferring goods or services to a customer. The revenue recognition
model will change from one based on the transfer of risk and reward
of ownership to the transfer of control of ownership. This standard is
applicable to the Company from 1 January 2018.
The Company did not earn revenue from customers during the financial
year ended 31 December 2017 and in prior periods. Following the
commencement of production at Balama in November 2017 the
Company has adopted an accounting policy for revenue that is in
accordance with AASB15. Consequently, there is no impact on the
results presented in prior periods.
(iii) IFRS 16 Leases (effective from 1 January 2019)
IFRS 16 Leases will replace the current guidance in IAS 17 and
requires all operating leases to be recognised on the balance sheet.
The Group is applicable from 1 January 2019. The Company is yet to
undertake a detailed assessment of the impact of AASB 15. However,
based on the Company’s preliminary assessment, the standard is not
expected to have a material impact on the transactions and balances
recognised in the financial statements when it is first applied.
There are no other standards that are not yet effective and that would be
expected to have a material impact on the entity in the current or future
reporting periods and on foreseeable future transactions.
NOTE 21. SUMMARY OF
SIGNIFICANT ACCOUNTING
POLICIES (CONT')
(Y) COMPARATIVE FIGURES
Where necessary, comparative figures have been adjusted to conform to
changes in the presentation in the current period.
(Z) ROUNDING OF AMOUNTS
The amounts contained in the financial report have been rounded off to
the nearest $'000 (where rounding is applicable) under the relief available
to the Company under ASIC Corporations (Rounding in Financial Reports)
Instrument 2016/191. The Company is an entity to which the Class Order
applies.
(AA) NEW ACCOUNTING STANDARDS
AND INTERPRETATIONS
There were no new or amended accounting standards and interpretations
applicable for the first time for the reporting period commencing
1 January 2016.
Certain new accounting standards and interpretations have been
published that are not mandatory for 31 December 2016 reporting
periods. The Group’s assessment of the impact of these new standards
and interpretations is set out below:
(i) AASB 9 Financial Instruments, AASB 2009-11 Amendments to
Australian Accounting Standards arising from AASB 9 and AASB
2010-7 Amendments to Australian Accounting Standards arising
from AASB 9 (December 2010) and AASB 2012-6 Amendments
to Australian Accounting Standards – Mandatory Effective Date of
AASB 9 and Transition Disclosures (effective from 1 January 2018)
AASB 9 Financial Instruments addresses the classification,
measurement and derecognition of financial assets and liabilities
as well as impairment and hedge accounting. The standard is not
applicable until 1 January 2018 but is available for early adoption.
The Company intends to apply the standard from 1 January 2018. The
Company is yet to undertake a detailed assessment of the impact of
AASB 9. However, based on the Company’s preliminary assessment,
the standard is not expected to have a material impact on the
transactions and balances recognised in the financial statement when
it is first adopted for the year ended 31 December 2018.
88
SYRAH RESOURCES > ANNUAL REPORT 2017
DIRECTORS’
DECLARATION
In the Directors’ opinion:
(a) the financial statements and notes set out on pages 43 to 88 are in accordance with the Corporations Act 2001,
including:
(i) complying with Accounting Standards, the Corporations Regulations 2001 and other mandatory professional
reporting requirements, and
(ii) giving true and fair view of the consolidated entity’s financial position as at 31 December 2017 and of its
performance for the year ended on that date, and
(b) there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become
due and payable, and
(c) at the date of this declaration, there are reasonable grounds to believe that the members of the extended closed
group identified in Note 20 will be able to meet any obligations or liabilities to which they are, or may become,
subject by virtue of the deed of cross guarantee described in Note 20.
Note 1(a) confirms that the financial statements also comply with International Financial Reporting Standards as issued
by the International Accounting Standards Board.
The Directors have been given the declarations by the Managing Director and Chief Financial Officer as required by
section 295A of the Corporations Act 2001.
This declaration is made in accordance with a resolution of the Directors.
Shaun Verner
Managing Director
Melbourne, Australia
26 March 2018
89
INDEPENDENT
AUDITOR’S
REPORT
Independent auditor’s report
To the members of Syrah Resources Limited
Report on the audit of the financial report
Our opinion
In our opinion:
The accompanying financial report of Syrah Resources Limited (the Company) and its controlled
entities (together the Group) is in accordance with the Corporations Act 2001, including:
(a)
giving a true and fair view of the Group's financial position as at 31 December 2017 and of its
financial performance for the year then ended
(b)
complying with Australian Accounting Standards and the Corporations Regulations 2001.
What we have audited
The Group financial report comprises:
the consolidated statement of financial position as at 31 December 2017
the consolidated statement of comprehensive income for the year then ended
the consolidated statement of changes in equity for the year then ended
the consolidated statement of cash flows for the year then ended
the notes to the consolidated financial statements, which include a summary of significant
accounting policies
the directors’ declaration.
Basis for opinion
We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under
those standards are further described in the Auditor’s responsibilities for the audit of the financial
report section of our report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our opinion.
Independence
We are independent of the Group in accordance with the auditor independence requirements of the
Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical
Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant
to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities
in accordance with the Code.
PricewaterhouseCoopers, ABN 52 780 433 757
2 Riverside Quay, SOUTHBANK VIC 3006, GPO Box 1331 MELBOURNE VIC 3001
T: +61 3 8603 1000, F: +61 3 8603 1999, www.pwc.com.au
Liability limited by a scheme approved under Professional Standards Legislation.
90
SYRAH RESOURCES > ANNUAL REPORT 2017
INDEPENDENT AUDITOR’S
REPORT (CONT')
Our audit approach
An audit is designed to provide reasonable assurance about whether the financial report is free from
material misstatement. Misstatements may arise due to fraud or error. They are considered material if
individually or in aggregate, they could reasonably be expected to influence the economic decisions of
users taken on the basis of the financial report.
We tailored the scope of our audit to ensure that we performed enough work to be able to give an
opinion on the financial report as a whole, taking into account the geographic and management
structure of the Group, its accounting processes and controls and the industry in which it operates.
The Group’s operations consist principally of the Balama Graphite Project located in Mozambique, as
well as the downstream strategy to produce spherical graphite (Battery Anode Material Project).
Materiality
Audit scope
Key audit matters
Our audit focused on where the
Amongst other
Group made subjective
judgements; for example,
significant accounting estimates
involving assumptions and
inherently uncertain future events.
The Australian engagement team
directed the involvement of the
Mozambique component audit
team, which performed an audit of
the financial information of
TWIGG Exploration & Mining
Limitada given its financial
significance to the Group. Their
procedures included a visit to the
Balama site.
relevant topics, we
communicated the
following key audit
matters to the Audit
and Risk Committee:
Liquidity and
capital
management
Capitalisation of
development costs
These are further
described in the Key
audit matters section
of our report.
For the purpose of our audit we used
overall Group materiality of
US$4,185,000 million, which
represents approximately 1% of the
Group’s total assets.
We applied this threshold, together
with qualitative considerations, to
determine the scope of our audit and
the nature, timing and extent of our
audit procedures and to evaluate the
effect of misstatements on the
financial report as a whole.
Given the stage of development of
the Balama Project and that
production has only recently
commenced, total assets was
considered an appropriate
benchmark. We selected 1% based
on our professional judgement
noting that it is within the range of
commonly accepted asset-related
thresholds.
We, the Australian engagement
team, determined and undertook
an appropriate level of involvement
in the work performed by the
Mozambique component audit
team, in order for us to be satisfied
that sufficient audit evidence had
been obtained to support our
91
INDEPENDENT AUDITOR’S
REPORT (CONT')
opinion on the Group financial
report as a whole. We had regular
communication with the
Mozambique component audit
team throughout the year and
performed a review of their audit
working papers.
All other audit procedures were
performed by the Australian
engagement team.
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in
our audit of the financial report for the current period. The key audit matters were addressed in the
context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do
not provide a separate opinion on these matters. Further, any commentary on the outcomes of a
particular audit procedure is made in that context.
Key audit matter
How our audit addressed the key audit matter
Liquidity and capital management
Refer to note 11 (C)
The Group has commenced production and sales from
the Balama Graphite Project, however the project has
not reached commercial production and is not
currently cash flow positive. Although there are cash
conservation measures available to the Group if
necessary, it is possible that the Group may require
additional funding for working capital, other corporate
activities and the Battery Anode Materials (BAM)
project. There are risks associated with cash flow
conservation and the ability to obtain a debt facility or
alternative sources of financing. As a result, our
assessment of liquidity and capital management as it
relates to the basis of preparation of the financial
statements, is considered a key audit matter.
To support its basis of preparation of the financial
statements, the Group has prepared a forecast of its
cash flows, which includes a number of assumptions
such as timing of commissioning and production ramp-
up activities, expected revenues from production, and
operating and capital costs.
We assessed the main assumptions in the Group’s cash
flow forecast for at least 12 months from the date of
signing the auditor’s report, by performing the
following procedures, amongst others:
We assessed the reasonableness of the
commodity prices and foreign exchange rates
used in the forecast against available
information.
We compared a sample of significant
operational cash outflows in the forecast to the
relevant contracts.
We considered project reports and held
discussions with senior management to
evaluate the project status and risks to the
estimated date for commissioning and
production ramp-up.
We discussed the risks surrounding the ramp-
up of production and timing of sales forecasts
including management’s view of future supply
and demand. We also read a sample of the
92
SYRAH RESOURCES > ANNUAL REPORT 2017
INDEPENDENT AUDITOR’S
REPORT (CONT')
Key audit matter
How our audit addressed the key audit matter
contracts currently in place with customers.
We considered the cash position under various
scenarios to evaluate the Group’s ability to fund its
working capital requirements. We further evaluated the
Group’s potential opportunities for cash conservation
as well as various options for raising additional funds.
We also considered the appropriateness of the liquidity
risk disclosures included within the financial
statements.
We developed an understanding of and evaluated the
Group’s controls in relation to the capitalisation of
costs to mine, properties and development.
We tested a sample of additions to mine, property and
development for the current period to test whether the
capitalised costs were supportable and appropriate.
We performed testing of a sample of costs incurred
both immediately prior to and post balance date to test
whether costs were recorded in the period in which the
goods or services were delivered.
We performed testing over the capitalisation of
operating costs and the offsetting of revenue received
during the commissioning phase.
We recalculated a sample of the conversion of foreign
currency costs into the functional currency of the entity
incurring the costs.
We considered the Group’s assessment of indicators of
impairment, including the completeness of the list of
indicators.
Capitalisation of development costs
Refer to note 8(a)
Syrah’s Balama Graphite Project in Mozambique is in
the development phase. During the year ended 31
December 2017, the Group capitalised costs of $108.9
million which increased the carrying value of the
project at 31 December 2017 to $272.6 million. Given
the financial significance of the amounts capitalised
this has been identified as a key audit matter.
The capitalisation of costs gives rise to financial
reporting risks, as follows:
Capitalisation of costs not directly attributable
to the Project or project costs incorrectly
expensed (risk of incorrect classification of
costs).
Capitalisation of operating costs and offsetting
revenue while in the commissioning phase not
in accordance with the accounting standard.
Inaccurate recording of costs due to factors
such as exchange rate conversions.
Any indicators that the carrying value of the
Project may be in excess of its recoverable
amount.
93
INDEPENDENT AUDITOR’S
REPORT (CONT')
Other information
The directors are responsible for the other information. The other information comprises the
information included in the Group’s annual report for the year ended 31 December 2017, including
Company Profile, 2017 Highlights, Chairman’s Letter, Managing Director and CEO’s Letter, Directors
Report and Additional ASX Information but does not include the financial report and our auditor’s
report thereon.
Our opinion on the financial report does not cover the other information and accordingly we do not
express any form of assurance conclusion thereon.
In connection with our audit of the financial report, our responsibility is to read the other information
identified above and, in doing so, consider whether the other information is materially inconsistent
with the financial report or our knowledge obtained in the audit, or otherwise appears to be materially
misstated.
If, based on the work we have performed, we conclude that there is a material misstatement of this
other information, we are required to report that fact. We have nothing to report in this regard.
Responsibilities of the directors for the financial report
The directors of the Company are responsible for the preparation of the financial report that gives a
true and fair view in accordance with Australian Accounting Standards and Corporations Act 2001
and for such internal control as the directors determine is necessary to enable the preparation of the
financial report that gives a true and fair view and is free from material misstatement, whether due to
fraud or error.
In preparing the financial report, the directors are responsible for assessing the ability of the Group to
continue as a going concern, disclosing, as applicable, matters related to going concern and using the
going concern basis of accounting unless the directors either intend to liquidate the Group or to cease
operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial report
Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free
from material misstatement, whether due to fraud or error, and to issue an auditor’s report that
includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an
audit conducted in accordance with the Australian Auditing Standards will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and are considered material
if, individually or in the aggregate, they could reasonably be expected to influence the economic
decisions of users taken on the basis of the financial report.
A further description of our responsibilities for the audit of the financial report is located at the
Auditing and Assurance Standards Board website at:
http://www.auasb.gov.au/auditors_responsibilities/ar1.pdf. This description forms part of our
auditor's report.
94
SYRAH RESOURCES > ANNUAL REPORT 2017
INDEPENDENT AUDITOR’S
REPORT (CONT')
Report on the remuneration report
Our opinion on the remuneration report
We have audited the remuneration report included in pages 19 to 39 of the directors’ report for the
year ended 31 December 2017.
In our opinion, the remuneration report of Syrah Resources Limited for the year ended 31 December
2017 complies with section 300A of the Corporations Act 2001.
Responsibilities
The directors of the Company are responsible for the preparation and presentation of the
remuneration report in accordance with section 300A of the Corporations Act 2001. Our responsibility
is to express an opinion on the remuneration report, based on our audit conducted in accordance with
Australian Auditing Standards.
PricewaterhouseCoopers
John O'Donoghue
Partner
Melbourne
26 March 2018
95
ADDITIONAL ASX
INFORMATION
Additional information required by the Australian Securities Exchange Limited and not shown elsewhere in this report is as follows. The shareholder
information set out below was applicable as at 21 March 2018 except where otherwise indicated.
EQUITY SECURITY HOLDERS
TOP 20 LARGEST QUOTED SECURITY HOLDERS AS AT 21 MARCH 2018
The names of the twenty largest security holders of quoted equity securities are listed below:
RANK
NAME
UNITS
% OF UNITS
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
J P MORGAN NOMINEES AUSTRALIA LIMITED
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
CITICORP NOMINEES PTY LIMITED
NATIONAL NOMINEES LIMITED
COPPER STRIKE LIMITED
UBS NOMINEES PTY LTD
BNP PARIBAS NOMINEES PTY LTD
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