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Ero CopperAnnual Repor t 2019
Level 28, 360 Collins Street
Melbourne VIC 3000 Australia
p: +61 3 9670 7264
e: enquiries@syrahresources.com.au
www.syrahresources.com.au
CORPORATE DIRECTORY
DIRECTORS
SHARE REGISTRY
James Askew Non-Executive Chairman
Shaun Verner Managing Director and Chief Executive Officer
Sam Riggall Non-Executive Director
José Manuel Caldeira Non-Executive Director
Lisa Bahash Non-Executive Director
Sara Watts Non-Executive Director
Computershare Investor Services Pty Limited
Yarra Falls, 452 Johnston Street
Abbotsford VIC 3067
Telephone: 1300 850 505 (within Australia)
+61 3 9415 4000 (overseas)
Email: web.queries@computershare.com.au
Website: www.computershare.com.au
COMPANY SECRETARY
Melanie Leydin
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
Millennium Park Building
Avenida Vladimir Lenine
Nr 174, Block B, Level 5
Maputo, Mozambique
Website: www.twigg.co.mz
Louisiana Office
Syrah Technologies LLC
2001 D. A.
Biglane Road, Vidalia
LA, 71373
United States of America
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)
PAGE CONTENTS
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107
COMPANY PROFILE
2019 HIGHLIGHTS
CHAIRMAN’S LETTER
MANAGING DIRECTOR & CEO’S LETTER
DIRECTORS' REPORT
REMUNERATION REPORT
AUDITOR’S INDEPENDENCE DECLARATION
FINANCIAL STATEMENTS
DIRECTORS’ DECLARATION
INDEPENDENT AUDITOR’S REPORT
ADDITIONAL ASX INFORMATION
COMPANY PROFILE
2019 HIGHLIGHTS
OUR VISION
To 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:
> GOOD HEALTH and WORKING SAFELY
at all times
> PARTNERING with the COMMUNITY and
STAKEHOLDERS for sustainability
> INTEGRITY and FAIRNESS in all our
business dealings
> Being ACCOUNTABLE for our decisions
and actions
> CHALLENGE and SUPPORT our people
to achieve their potential
We will work as a team and act like owners to
deliver shareholder value
> Strong health and safety record with Total
Recordable Injury Frequency Rate (TRIFR)
of 0.6 as at end of 2019
> Demonstrated capability to produce
high grade, low impurity products from
Balama Graphite Operation (“Balama”) in
Mozambique, with production of 153kt in
2019
> Position in the global natural graphite
market further established, with 123%
increase in sales in 2019 versus prior year
(163kt in 2019 versus 73kt in 2018)
> Progression of strategy to become the first
ex-China vertically integrated producer of
active anode material, with installation of
batch scale spherical graphite purification
plant completed at the Battery Anode
Material (“BAM”) project in the USA and
first production of purified spherical
graphite, with purity of >99.95% carbon
achieved
1
CHAIRMAN'S LETTER
For the past two years, Syrah’s key focus has been on
establishing products from Balama in key markets and
geographies – the most important of those being the active
anode material market, and China. Balama product quality
continues to have strong market acceptance with substantial
sales into China, which we saw transition from a net export to
a net import position for natural graphite during 2019.
Significant operational progress was made at Balama with
the ongoing embedding of operational management systems
and processes that improved plant reliability, process control
and product quality, and optimised outbound logistics.
Balama continued to embed and mature its governance
processes in-line with the Company’s Risk Management
Framework and Crisis and Emergency Management
Procedures.
Although Balama was positioned operationally for continued
production ramp-up, natural graphite market demand was
lower than expected during H2 2019, primarily due to lower
year-on-year Electric Vehicle (“EV”) sales growth in China
during the second half of the year. We view this demand
weakness as short-term given China’s ambitious targets for
longer term EV sales remain intact. Notwithstanding, the
weaker than expected demand in 2019 caused a market
imbalance in the third quarter, resulting in downward
pressure on global natural graphite prices and led to the
decision to moderate production at Balama and undertake a
companywide cost restructure in the last quarter of the year.
Despite a year of challenging market conditions and
significant operational change, Syrah continued its positive
experience operating in Mozambique. The company has not
wavered in its commitment to be a constructive corporate
citizen in Mozambique and to the host communities, with the
cost restructure being executed with preservation of existing
Environmental Social and Governance (“ESG”) best practices
and in-line with the company’s core values. We are proud of
our safety record, which combined with our environmental
and community initiatives underpin our license to operate.
An equity issue during the year positions Syrah’s balance
sheet to navigate near term market imbalances in an orderly
manner. A Convertible Note issue was announced
in conjunction with the equity issue in the second quarter
which had a 120-day option to allow for completion of an
in-progress process to assess debt funding options. The
120-day option period coincided with the sudden and
material drop in prices observed through the third quarter,
and subsequently the Convertible Note was issued.
As foreshowed in my 2018 Chairman’s letter, we made
one additional appointment to the Board in 2019 with the
appointment of Sara Watts. Sara brings significant audit and
risk committee experience and over 30 years of financial,
operational and international experience.
Balama’s scale, quality and low production costs at full
production capacity are key competitive advantage enablers
in the delivery of Syrah’s BAM strategy. We have made
important progress with our anode material processing
facility in Louisiana, USA and during the year reached an
important milestone of first purified spherical graphite
production from our Vidalia facility.
The primary focus for 2020 will be to further establish
Balama’s position in the Lithium-ion battery supply chain by
ensuring that the asset is adaptable to market conditions,
and the ongoing development of our downstream business.
At the time of writing, the commercial and market impact
of COVID 19 through 2020 remains unclear. However, it has
already accentuated the issues relating to current supply
chain concentration in China and the criticality of ex-China
supply chains.
We thank you for your continued support and we expect
improved demand in end user markets to translate to
improvement in the equity value of your stockholding. We
are confident that we have the management team to deliver
improved results and we continue with the vision to deliver
Syrah as the leading high-quality natural graphite producer
and downstream anode company globally.
Jim Askew
Chairman
2
SYRAH RESOURCES > ANNUAL REPORT 2019
MANAGING DIRECTOR AND CEO’S LETTER
During the year, Syrah’s sales into the key natural graphite
end market of China were driven through our Dubai
Marketing Hub and our in-country sales liaison, and we
were pleased to announce a major sales agreement with
Gredmann (HK) Limited, (“Gredmann”) for supply of fines
natural graphite across a range of fixed carbon grades, with
direct sales by Syrah continuing to certain key end users.
Almost all active anode material for the Lithium-ion battery
supply chain is currently produced in Asia between China,
Japan and Korea. Critically 100% of natural graphite
precursor production (purified spherical graphite) is
produced in China – a situation that is not sustainable for
long term global battery manufacturing capacity growth.
Awareness of this risk of supply chain concentration has
been heightened through US/China trade restrictions in 2019
and the more recent impacts from COVID 19 disruption.
Over the past year both the USA and Europe have formally
identified graphite supply as a strategic raw material for
future battery production. Through development of the
Vidalia BAM operation, Syrah is positioning to become a
complementary and alternate potential source of supply
for purified spherical graphite and active anode material
for emerging ex-Asia markets of the Americas and Europe.
Discussions with potential customers and the assessment
of strategic relationship options continue, with the critical
advantage for Syrah being an integrated and operating high
quality and volume upstream operation.
The team at Syrah will continue to work relentlessly to
achieve our strategic objectives, including reducing unit
costs at Balama, whilst maximising our realised sales price
outcomes. We will continue to carefully develop our BAM
and Vanadium options, whilst continuing to highlight the
ESG differentiation of the Balama and Vidalia assets, which
have been developed with this long-term difference in mind.
Though the impacts of COVID 19 are uncertain at the time
of writing, the Balama Asset and BAM development are
strategically positioned to benefit from USA and EU focus on
long term critical battery mineral supply, and the Company
will continue commercial and government engagement to
grow shareholder value through Syrah’s unique position in
this rapidly developing global market.
Shaun Verner
Managing Director and Chief Executive Officer
Syrah’s licence to operate is underpinned by Health, Safety,
Environmental and Community (“HSEC”) performance.
Through 2019, Syrah focused on further embedding the
highest international HSEC standards and performance
into our operational, commercial and corporate activity.
Balama continued to demonstrate best practice safety
performance, with a Total Recordable Injury Frequency
Rate ("TRIFR") of 0.6 as at 31 December 2019. Compliance
with all environmental license conditions and increasing
community commitment made through the Balama Local
Development Committee were also achieved through the
year, with Syrah and its Mozambican subsidiary recognised
with several ESG related awards.
Significant operational progress was made at Balama with
embedding of management systems and processes that
improved plant reliability during 2019. Production for the
year was 153kt of natural graphite, which whilst lower than
planned primarily due to market conditions prevailing in
the second half of the year still saw Balama become the
largest integrated natural graphite producer in the world.
The ongoing ramp-up of Balama toward operational
capacity of ~350kt per annum was premised on the
ongoing growth in the end user demand for natural graphite
in battery manufacture for energy storage and particularly
in EVs. Softer than previously expected demand growth in
this market through 2019 prompted an operational review to
adapt the asset to prevailing market conditions. Specifically,
a companywide cost restructure was undertaken and
Balama output was moderated to lower production levels
to mitigate impacts on the global market balance, and on
Syrah’s cashflow.
Several factors contributed to market imbalances in the
battery raw materials supply chain observed during 2019.
After a long period of growth, global auto sales had the
most significant slump since the 2008 financial crisis.
This decline in auto sales coincided with Chinese Central
Government EV subsidy reductions and an increase in
supply of battery raw materials. In the early part of 2020,
significant disruption to global supply chains is occurring
as a result of COVID 19, with the full impact not yet known.
Despite short-term headwinds in EV end market demand,
significant growth in this market over the longer term is
increasingly certain. The market is going through a normal
supply and pricing evolution, and Syrah is very well
placed to work through and adapt to this period, and more
importantly emerge as stronger business with an even
lower cost base.
We continue to review further cost reduction initiatives
to stabilise operations at lower volumes into 2020, whilst
ensuring the operation continues to be underpinned by
the highest HSEC operational standards. The outstanding
commitment of operational leadership team at Balama
to learning and innovation, and the high level of local
employment commitment provide confidence that further
improvements will be achieved.
Syrah’s sales and marketing strategy continues to be
focused on long term diversification across customers,
market segments and geographies, with a key focus on
development in the Lithium-ion battery sector. In a short
space of time we have established Balama as the globally
significant supplier of high-quality natural graphite into this
key sector.
3
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
Shaun Verner
Managing Director and Chief Executive Officer
Sam Riggall
Non-Executive Director
José Manuel Caldeira
Non-Executive Director
Lisa Bahash
Non-Executive Director
Sara Watts
Non-Executive Director (appointed 3 June 2019)
Christina Lampe-Onnerud
Non-Executive Director (ceased 24 March 2019)
4
SYRAH RESOURCES > ANNUAL REPORT 2019 INFORMATION ON DIRECTORS
The information on Directors in office as at the date of this
report is as follows:
Special responsibilities:
> Managing Director and Chief Executive Officer
Length of service: 3 years and 2 months
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 been
continuously involved with the African mining industry since
1985.
Other current directorships in listed entities:
> Non-Executive Director of Evolution Mining Limited
> Non-Executive Director of Endeavour Mining Corporation
Directorships of listed entities within the past three years:
> Non-Executive Director of Evolution Mining Limited (since
November 2011)
> Chairman of OceanaGold Corporation (March 2007 to
June 2019)
> Non-Executive Director of Endeavour Mining Corporation
(since July 2017)
> Chairman of Asia Minerals Resources Limited (January
2015 to March 2017)
Special responsibilities:
> Chairman of the Sustainability Committee
> Member of the Remuneration, Nomination and
Governance Committee
> Member of the Audit and Risk Committee (ceased
25 July 2019)
Length of service: 5 years and 5 months
Interest in shares, options and performance rights:
SECURITIES
Ordinary shares
Options over ordinary shares
Performance rights
NUMBER
377,517
Nil
Nil
Shaun Verner
Managing Director and Chief Executive Officer
Experience and expertise: Mr Verner is a senior resource
industry executive with extensive general management and
cross-functional commercial, operations, supply chain, and
leadership experience. Prior to joining Syrah in October
2016, Mr Verner was at BHP 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 entities: None
Directorships of listed entities within the past three
years: None
Interest in shares, options and performance rights:
SECURITIES
Ordinary shares
Options over ordinary shares
Performance rights
NUMBER
260,701
1,000,000
311,532(1)
(1) The 311,532 Performance Rights noted above for S Verner are
current as at the date of the Director’s Report. 121,773 Performance
Rights lapsed on 21 February 2020 and are not included in this
number.
Sam Riggall
Non-Executive Director
Experience and expertise: Mr Riggall is Chief Executive
Officer of CleanTeQ Holdings Limited, an Australian
and Canadian-listed technology company focused on
development of resources for new energy and materials
markets, and director of VRB Energy, one of China’s largest
vanadium redox flow battery manufacturers. Previously
Executive Vice-President of Business Development and
Strategic Planning at Ivanhoe Mines Ltd, and Director of
Oyu Tolgoi LLC, and has over a decade's experience with
Rio Tinto Ltd covering industrial minerals, project generation
and evaluation, business development and capital market
transactions. He brings significant insight to the impact of
disruptive technologies on metals markets with a strong track
record of identifying and building value through innovation.
Other current directorships in listed entities:
> Chief Executive Officer of CleanTeQ Holdings Limited
Directorships of listed entities within the past three years:
> Managing Director and Chief Executive Officer of
CleanTeQ Holdings Limited (since July 2015)
Special responsibilities:
> Member of the Remuneration, Nomination and
Governance Committee (ceased as Chair 25 July 2019)
> Member of the Audit and Risk Committee (ceased as
Committee Chair 25 July 2019)
Length of service: 5 years and 5 months
Interest in shares, options and performance rights:
SECURITIES
Ordinary shares
Options over ordinary shares
Performance rights
NUMBER
24,752
Nil
Nil
José Manuel Caldeira
Non-Executive Director
Experience and expertise: Mr Caldeira is a prominent and
senior lawyer in Mozambique with over 30 years commercial
and government experience. He is a senior partner at Sal
and Caldeira Advogados, Lda in Mozambique, one of the
leading law firms in Mozambique and a former judge of the
Maputo City Court.
5
Other current directorships in listed entities: None
Other current directorships in listed entities: None
Directorships of listed entities within the past three
years: None
Directorships of listed entities within the past three years:
None
Special responsibilities:
> Member of the Audit and Risk Committee
> Member of the Sustainability Committee
Length of service: 5 years and 7 months
Interest in shares, options and performance rights:
Special responsibilities:
> Chair of Audit and Risk Committee (appointed to the
Committee and as Chair 25 July 2019)
Length of service: 10 months
Interest in shares, options and performance rights:
SECURITIES
Ordinary shares
Options over ordinary shares
Performance rights
NUMBER
12,082
Nil
Nil
SECURITIES
Ordinary shares
Options over ordinary share
Performance Rights
NUMBER
38,000
Nil
100,000(1)
Lisa Bahash
Non-Executive Director
Experience and expertise: Ms Bahash has 30 years
experience in the automotive OEM, Tier 1 supplier and
aftermarket sectors. Her prior roles included Senior Vice
President, Automotive and Transportation with Jabil Inc., one
of the world’s leading electronics manufacturing services
company, and Group Vice President and General Manager
of Johnson Control’s Power Solutions business, one of the
world’s largest automotive battery manufacturers leading the
OEM and technology strategies including advanced energy
storage and Lithium-ion technologies.
Other current directorships in listed entities: None
Directorships of listed entities within the past three
years: None
Special responsibilities:
> Chair of the Remuneration, Nomination and Governance
Committee (appointed as the Committee Chair 25 July
2019)
> Member of the Sustainability Committee
Length of service: 1 year and 9 months
(1) Pending approval at the 2020 Annual General Meeting
INFORMATION ON FORMER DIRECTORS
Christina Lampe-Onnerud
Non-Executive Director (ceased 24 March 2019)
Experience and expertise: Dr Lampe-Onnerud is an authority
on battery system innovation and design. She is the founder of
Cadenza Innovation Inc. and has over 20 years of experience
in the research, development and commercialisation of
Lithium-ion battery technologies for consumer electronics,
electric automotive and energy storage applications. She was
also 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 entities:
> Director of Fuel Cell Energy, Inc.
Directorships of listed entities within the past three years:
> Director of Fuel Cell Energy, Inc. (since November 2018)
Special responsibilities:
> Member of the Remuneration Nomination and Governance
Interest in shares, options and performance rights:
Committee
Length of service: 2 years and 10 months
Interest in shares, options and performance rights:
SECURITIES
Ordinary shares
Options over ordinary shares
Performance rights
NUMBER
Nil
Nil
Nil
SECURITIES
Ordinary shares
Options over ordinary shares
Performance rights
NUMBER
15,583
400,000
Nil
Sara Watts
Non-Executive Director (appointed 3 June 2019)
Experience and expertise: Ms Watts has been a director
and audit and risk chair for 10 years across a range of
sectors including technology, logistics, arts and disability. She
has over 30 years of financial, operational and international
experience and has been involved in multiple technology
transformation projects. Her executive experience includes
head of Internal Audit for IBM Asia Pacific, Chief Financial
Officer of IBM Australia/New Zealand, Vice-Principal
(Operations) at the University of Sydney, and interim CEO of
City West Housing.
6
SYRAH RESOURCES > ANNUAL REPORT 2019 COMPANY SECRETARY
Melanie Leydin
Company Secretary (appointed 5 September 2019)
Experience and expertise: Ms Leydin is an experienced
Company Secretary and Chief Financial Officer having held
these positions at a number of small public companies. Ms.
Leydin is the Principal of Leydin Freyer Corporate Pty Ltd, a
company that specialises in outsourced company secretarial
and accounting services to public listed companies in the
biotechnology and resources industry. She was previously
Company Secretary of Syrah from May 2011 to November
2017.
Jennifer Currie
Chief Legal Officer and Company Secretary (ceased
5 September 2019)
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, Bachelor of Laws, a Master of Laws
and a Graduate Diploma in Applied Corporate Governance.
PRINCIPAL ACTIVITIES
The principal continuing activities of the Group (being Syrah
Resources Limited and its wholly owned subsidiaries) during
the year consisted of:
> Production ramp-up of Balama in Mozambique;
> Sales of natural graphite and ongoing development of
logistics, sales and marketing arrangements with targeted
customers;
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 2019 was $130.5 million
(2019: loss after income tax of $29.0 million).
Balama transitioned to operations on 1 January 2018
following the achievement of first production of natural
graphite in late 2017 and declared commercial production
effective on 1 January 2019. All revenues derived from
the sales of natural graphite prior to the declaration of
commercial production on 1 January 2019 were offset
against costs incurred and capitalised against project
development costs, while revenues derived since 1 January
2019 are recognised as revenue in the period in which
they are earned, and costs of sales are also recognised
separately.
Revenue for the year ended 31 December 2019 comprised
sales of natural graphite products of $72.2 million (2018: nil)
and interest income of $1.1 million (2018: $1.2 million) from
cash reserves placed on term deposits during the year.
Cost of sales reported for the financial period was $105.5
million (2018: nil), mainly comprised of mining and
production costs of $79.2 million (2018: nil), logistics costs of
$14.8 million (2018: nil), and depreciation and amortisation
expense relating to Balama of $11.9 million (2018: nil). Total
other expenses for the financial period were $26.8 million
(2018: $32.0 million) and included the following:
> Distribution costs of $11.2 million (2018: nil), of which
$8.5 million (2018: nil) were shipping costs;
> Administrative expenses of $8.6 million (2018: $30.8
million), of which $5.7 million (2018: $10.2 million) related
to employee benefits; and,
> Continued development of the use of high-quality
graphite from Balama as an input into the production of
BAM and industrial products; and
> Write-down of inventories due to valuation of inventories
at the lower of cost or net realisable value of $6.7 million
(2018: nil).
> Development and execution of a downstream, BAM
strategy in the USA.
DIVIDENDS
There were no dividends paid, recommended or declared
during the current financial year or previous financial year.
The consolidated entity recorded a pre-tax impairment of the
carrying value of assets relating to Balama of $96.9 million
(2018: nil), impacting Mining Assets and Property, Plant and
Equipment as a result of short term pricing expectations
and resulting production volume management, largely due
to impacts relating to CNY devaluation and natural graphite
market imbalance.
Net finance expense of $0.9 million (2018: net finance
income of $1.1 million) related to income from investment in
term deposits of $1.1 million (2018: $1.2 million), offset by
finance expense relating to the adoption of new accounting
standard AASB 16 Leases of $1.3 million (2018: nil) and
interest expense of $0.6 million (2018: nil) on the Convertible
Note.
Total comprehensive loss attributable to shareholders of
Syrah Resources Limited for the year was $131.5 million
(2018: 30.1 million).
7
Statement of Cash Flows
Cash Flows from Operating Activities
Net cash outflow from operating activities for the year
ended 31 December 2019 was $33.6 million (2018: $10.0
million), and principally consisted of receipts from the sale
of natural graphite products, offset by payments relating to
expenses from operating Balama, as well as corporate office,
compliance and other employee benefits expenses.
Cash Flows from Investing Activities
Net cash outflow from investing activities was $36.6 million
for the year (2018: $94.6 million) and principally consisted of
payments for progression of the downstream BAM project,
partially offset by an Input Tax Credit recoveries from Balama
construction period.
Cash Flow from Financing Activities
Net cash inflow from financing activities was $73.6 million
during the year ended 31 December 2019 (2018: $70.5
million) and principally consisted of proceeds received from
the Entitlement Offer and Convertible Note issuance during
the year, net of transaction costs.
SEGMENT REVIEW
BALAMA GRAPHITE OPERATION
Financial Summary
The segment result for Balama for the year ended
31 December 2019 was a net loss before income tax of
$148.5 million (2018: net loss before tax of $20.6 million).
This loss principally consisted of Cost of Goods Sold of
$105.5 million (2018: nil), Write-down of Inventories due to
valuation of inventories at the lower of costs or net realisable
value of $6.7 million (2018: nil), and Shipping Costs of
$8.5 million (2018: nil).
Total segment assets for Balama were $304.7 million as at
31 December 2019 (2018: $369.5 million) and principally
comprised of Mining Assets of $120.7 million (2018:
$331.2 million); Property, Plant and Equipment and Right of
use Assets of $114.9 million (2018: $1.7 million), Deferred
Tax Assets of $27.8 million (2018: $0.5 million), and
Trade and Other Receivables of $3.6 million (2018: $11.6
million), The decrease in total segment assets relates to
the impairment of Mining Assets and Property Plant and
Equipment.
Following are the key activities and achievements at Balama
during the financial year.
Statement of Financial Position
Total assets of the consolidated entity as at 31 December
2019 were $432.1 million (2018: $473.8 million), with the
decrease principally as a result of an impairment of Mining
Assets and Property Plant and Equipment in relation to
Balama ($96.9 million) offset by the successful completion of
a fully underwritten Entitlement Offer ($39.2 million) and issue
of the Convertible Note ($39.1 million).
The consolidated entity’s Cash and Cash Equivalents as at 31
December 2019 were $80.6 million (2018: $77.1 million) and
working capital, being Current Assets less Current Liabilities,
was $89.5 million (2018: $71.8 million). The net increase in
Cash and Cash Equivalents and working capital is a result
of proceeds received from the Entitlement Offer, the issue of
the Convertible Note and the reduced capital expenditure as
a result of the completion of major development of the BAM
Project, offset by cash outflow associated with the ramp-up
in production and sales of Balama, and prevailing pricing
conditions.
Mining Assets decreased to $120.7 million as at 31
December 2019 (2018: $331.2 million) mainly due to the
completion of project development and construction of
Balama, which resulted in a transfer to Property, Plant and
Equipment and Inventories, and the impairment recognised
in relation to Balama.
Property, Plant and Equipment increased to $160.7 million as
at 31 December 2019 (2018: $31.4 million), with the majority
of the increase relating to the transfer of project development
and construction costs of Balama, and the capitalisation
of costs associated with progression of downstream BAM
strategies, offset by the impairment recognised in relation to
Balama.
Non-Current Trade and Other Receivables increased to
$19.6 million as at 31 December 2019 (2018: $20.8 million)
with the majority relating to outstanding Input Tax Credits in
Mozambique of $14.4 million (2018: $16.8 million). During
the year ended 31 December 2019 cash refunds totaling
$10.7 million were received for Input Tax Credits (2018: $5.6
million). The Group views the outstanding balance of Input
Tax Credits as ultimately recoverable and continues to work
with relevant authorities in Mozambique to recover these
amounts.
The consolidated entity also has a deposit of $5.0 million
as at 31 December 2019, placed as security for an
environmental guarantee in favour of the Ministry of Mineral
Resources and Energy in Mozambique.
The consolidated entity had total liabilities of $80.3 million as
at 31 December 2019 (2018: $28.6 million), which includes
Trade and Other Payables of $11.5 million (2018: $15.9
million); a provision for decommissioning and rehabilitation
for Balama of $10.0 million (2018: $6.6 million); Borrowings
from issue of Convertible Note including capitalised interest
expense and transaction costs of $39.7 million (2018: nil) and
Lease Liabilities of $18.6 million (2018: $5.6 million).
Net assets of the consolidated entity decreased during the
financial period to $351.9 million as at 31 December 2019
(2018: $445.2 million).
8
SYRAH RESOURCES > ANNUAL REPORT 2019 Sustainability
Syrah adopts a risk and opportunities based approach to
managing material sustainability matters across the business,
with all relevant information captured under the Company’s
Risk Management Framework.
Asset-level sustainability reporting is guided by the Global
Reporting Initiative (GRI), the United Nations Sustainable
Development Goals, the International Council on Mining &
Metals (ICMM) 10 Principles for Sustainable Development
and other internationally recognised standards to assess
and report sustainability performance in line with industry
benchmarks.
Syrah continues to commit to leading practice standards with
ISO:45001 Occupational Health and Safety Management
Systems and ISO:14001 Environmental Management
Systems re-certification achieved through 2019.
Syrah was recognised in 2019 as Sector Leader in ESG
Reporting by the Australian Council of Superannuation
Investors (ACSI).
Health and Safety
The Company considers Health and Safety to be the highest
priority for the Company. Through a year of significant
operational change, Syrah continued its strong health and
safety performance at Balama with a Total Recordable Injury
Frequency Rate ("TRIFR") of 0.6 as at 31 December 2019.
Mandatory screening program to proactively identify low
parasitemia individuals not yet presenting with malaria
symptoms continued through 2019. The screening program
prevented 821 individuals from falling ill with malaria and
minimised employee and local community transmission rates.
Environment
In 2019, the Environmental Monitoring Program continued
with over 200 environmental license conditions met with no
significant incidents or major non-compliance. Monitoring
initiatives including the 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 2019, the Company has placed in
favour of the Ministry of Mineral Resources and Energy
(“MIREME”) in Mozambique a bank guarantee totaling
$5.0 million in relation to the rehabilitation or removal of
project infrastructure for Balama as per the Mine Closure
Plan commitments. The total amount of this bank guarantee
will increase to $6.2 million for the year ending 31 December
2020.
The Company has not wavered in its commitment to be a
constructive corporate citizen in Mozambique and to the host
communities. The companywide cost restructure initiated
during 2019 was executed with preservation of existing ESG
best practices and in-line with the Company’s core values.
Specifically, core environmental programs include:
> the Livelihood Development Program ("LDP"), a
collaboration with the Mozambique Institute of
Agricultural Research (Montepuex Delegation) to
equip local farmers with new and improved agricultural
techniques; and,
> the Balama Nursery established to cultivate native tree
species for rehabilitation and ecological preservation.
Quantifying and benchmarking the carbon footprint of battery
anode material made from Balama natural graphite versus
other raw materials (natural and synthetic) is an ongoing
strategic priority for the Company. The Balama team continue
to assess options to reduce the carbon footprint of the
operation, including assessment of lower carbon options for
onsite power generation.
Community Development
As at the end of 2019, 96% of Balama’s direct employees
are Mozambican nationals with 49% from the local host
communities and 21% are female.
Training commenced at the Balama Professional Training
Centre ("BPTC") in January 2019. Syrah has prepared all
training material in conjunction with the National Institute
of Professional Training & Labour Studies (“IFPELAC”) and
will continue to develop the BPTC training curriculum over
the coming years in line with community needs. 110 Host
Community members were successfully trained at the BPTC
in 2019. This is consistent with Syrah’s commitment to train
a minimum of 500 members of the local community over the
five years to the end of 2023 in areas of health and work
readiness and basic mechanical and electrical disciplines.
BPTC selection criteria requires that women hold a minimum
representation of 30% on each training cohort.
Syrah was named AAMEG Africa Awards 2019 Winner - Best
Innovation in Corporate Social Development for the design,
construction and operation of the Balama Professional
Training Centre (“BPTC”).
Production
Balama produced 153kt of natural flake graphite in 2019,
average fixed carbon grade achieved was 95%.
Table 1: Balama Graphite Operation Production Summary
Total Material Mined
Plant Feed
Plant Feed Grade (TGC)(1)
Recovery
Graphite Produced
Average Fixed Carbon
(1) TGC = Total Graphitic Carbon
2019
2,351kt
1,154kt
19%
68%
153kt
95%
2018
2,039kt
1,120kt
17%
53%
104kt
95%
Significant progress was made at Balama with the ongoing
embedding of operational management systems and
processes that improved plant reliability, process control and
product quality, and debottlenecked outbound logistics.
Production averaged approximately 45kt per quarter to end
Q3 2019. Production was moderated to just 15kt in the fourth
quarter in response to the sudden and material decrease in
prices observed in October 2019.
Average graphite recovery achieved in 2019 was 68%.
Significant improvement in recovery was achieved over the
course of the year as a result of the production improvement
plan. Recovery was 76% in December with recoveries of
greater than 80% achieved during steady state operations,
providing comfort that greater than 80% recoveries are
achievable on a sustained basis.
9
Graphite Mineral Resources and Ore Reserves Estimate
A 2012 Edition of the “Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves” ("JORC
Code") compliant Mineral Resource estimate using a 3% Total Graphitic Carbon ("TGC") cut-off has been determined by MPR
Geological Consultants Pty Ltd ("MPR") as shown in the following table released by the Company on 29 March 2019.
Resource Competent Person’s Statement
The information in this report related to Mineral Resource estimates as at 31 December 2019 is based on information compiled
by Mr Jonathon Abbott, a Competent Person who is a member of the Australian Institute of Geoscientists. Mr Abbott is
employed by MPR Geological Consultants Pty Ltd and is an independent consultant to Twigg Exploration and Mining Limitada.
Mr Abbott has sufficient experience that is relevant to the style of mineralisation and type of deposit under consideration and
to the activity which he is reporting to qualify as a Competent Person as defined in the JORC Code. Mr Abbott consents to the
inclusion in this report of the matters based on his information in the form and context in which it appears.
Table 2: Graphite Mineral Resource estimate at 3% TGC cut-off grade
As at 31 December 2018
As at 31 December 2019
CLASSIFICATION
Balama West
Measured
Indicated
Inferred
Balama East
Measured
Indicated
Inferred
Total
Measured
Indicated
Inferred
TONNES
(Mt)
TGC
(%)
640
24.3
256
360
783
-
123
660
1,423
24.3
379
1,020
10
17.6
10.2
9.3
11
-
13.4
10.1
10
17.6
11.2
9.8
CLASSIFICATION
Balama West
Measured
Indicated
Inferred
Balama East
Measured
Indicated
Inferred
Total
Measured
Indicated
Inferred
TONNES
(Mt)
TGC
(%)
639
23.5
255
360
783
-
123
660
1,422
23.5
378
1,020
10
17.5
10.2
9.3
11
-
13.4
10.1
10
17.5
11.2
9.8
Explanation of material changes:
The figures in this table are rounded to reflect the precision of the estimates and include rounding errors. The estimates are
derived from block models constructed by MPR for Balama West and Balama East in mid-2017. For Balama West, the model
is reported as at the end December 2019 with adjusted for as-mined survey supplied by Twigg. There has been no production
from Balama East, and for this zone the estimates are unchanged.
10
SYRAH RESOURCES > ANNUAL REPORT 2019 Table 3: Vanadium Mineral Resources Estimate
As at 2013 @ 5% Cut-off (1)
As at 31 December 2019 @ 3% Cut-off
CLASSIFICATION
Balama West
Measured
Indicated
Inferred
Balama East
Measured
Indicated
Inferred
Total
Measured
Indicated
Inferred
TONNES
(Mt)
568
-
-
568
579
-
-
579
1,150
-
-
V2O5
(%)
0.21
-
-
0.21
0.26
-
-
0.26
0.24
-
-
CLASSIFICATION
Balama West
Measured
Indicated
Inferred
Balama East
Measured
Indicated
Inferred
Total
Measured
Indicated
1,150
0.24
Inferred
TONNES
(Mt)
639
23.5
255
360
783
-
123
660
1,422
23.5
378
1,020
V2O5
(%)
0.2
0.34
0.21
0.2
0.2
-
0.35
0.2
0.2
0.34
0.26
0.2
(1) Vanadium Resources last featured in Syrah annual report in the 2015 Annual Report. A detailed statement of the Vanadium Mineral Resources
featured in the 2015 Annual Report can be found in ASX announcements dated 23 January 2013 and 27 May 2013.
Explanation of material changes:
The Vanadium Mineral Resource Estimate has been restated to align to the information compiled by the Competent Person
related to Mineral Resource estimates as at 31 December 2019. The change compared to the Vanadium Mineral Resource in
the 2015 Annual Report reflect subsequent updates to the Resource model and a reduction of the reported cut-off grade to
align to the cut-off grade applied to the graphite Mineral Resource estimate as of 31 December 2019.
Reserve Competent Person’s Statement
The Competent Person for the Ore Reserve estimate as at 31 December 2019 is Mr Jon Hudson. Mr Hudson was the
Competent Person for the December 2018 Ore Reserve update. Mr Hudson completed a site visit in January 2019. Mr Jon
Hudson who is an employee of Snowden Mining Industry Consultants Pty Ltd and a Fellow of the South African Institute of
Mining and Metallurgy (a recognised overseas professional organisation, or ROPO). Mr Hudson is independent of Syrah. Mr
Hudson has sufficient experience relevant to the style of mineralisation and type of deposit under consideration and to the
activity that he has undertaken to qualify as a Competent Person as defined in the JORC Code.
The Competent Person for the metallurgical and processing Modifying Factors supporting the Ore Reserve estimate is Mr
Christopher Hull. Mr Hull is an employee of Syrah and Member of the Australian Institute of Mining and Metallurgy. Mr Hull has
sufficient experience relevant to the style of mineralisation and type of deposit under consideration and to the activity that he
has undertaken to qualify as a Competent Person as defined in the JORC Code.
11
Table 4: Ore Reserve estimate
As at 31 December 2018 (7.2% TGC cut-off grade)
As at 31 December 2019 (7.2% TGC cut-off grade)
TONNES
(Mt)
TGC
(%)
GRAPHITE
(MT)
CLASSIFICATION
Balama West(1)
Proved
Probable
TONNES
(Mt)
TGC
(%)
GRAPHITE
(MT)
59.79
16.86
10.08
-
-
-
59.79
16.86
10.08
CLASSIFICATION
Balama West(1)
Proved
Probable
Mualia
Proved
Probable
Balama East
Proved
Probable
Stockpiles
Proved
Probable
Total
Proved
Probable
22.76
5.15
17.61
33.89
-
33.89
56.41
-
56.41
0.24
0.24
-
113.29
5.39
107.9
17.41
17.20
17.48
18.74
-
18.74
14.51
-
14.51
17.18
17.18
-
16.36
17.20
16.32
4.0
0.9
3.1
6.4
-
6.4
8.2
0.0
8.2
Proved
Probable
0.04
0.04
Stockpiles
Proved
-
Probable
18.5
0.9
17.6
Total
Proved
Probable
Balama East
46.98
14.38
-
46.98
0.77
-
0.77
107.54
-
-
14.38
10.84
-
10.84
15.73
-
6.76
-
6.76
0.08
-
0.08
16.92
-
107.54
15.73
16.92
(1) Balama West is exclusive of Mualia, with Mualia reported seperatly in 2018. Mualia is reported within in Balama West Reserve for 2019.
The overall reduction in Ore Reserve of 5% tonnes, 4% grade and 9% contained TGC is attributed to:
> Depletions during 2019 of 1.39 Mt ore;
> The December 2018 Ore Reserve was completed on a Mineral Resource estimate (MRE) compiled by The MSA Group
(MSA). The previous MSA Mineral Resource estimates were disclosed to the ASX on 15 November 2016 (Mualia) and 29
May 2015 (Ativa and Mepiche). The December 2019 Ore Reserve estimate was based on the updated Mineral Resource
estimate compiled by MPR Geological Consultants Pty Ltd Updated Mineral Resource model that adjusts tonnes, grade
and classification.
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 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
SYRAH RESOURCES > ANNUAL REPORT 2019 Sales and Marketing
Table 5: Natural Graphite Sales Summary 2019
Graphite Sold and Shipped
Inventory at Nacala at end of period
Inventory at Balama/USA at end of period
Total Production
2019
163kt
7kt
8kt
2018
73kt
20kt
11kt
153kt
104kt
During the year, shipments were made to a global
customer base across the high growth battery sector
and traditional industrial markets. Customer feedback on
product quality was positive. Increased understanding of
customer specifications and value have led to opportunities
to differentiate Syrah products and pricing through
management of carbon grade, impurities, and particle size
distribution.
Syrah continued to establish itself as the first major exporter
of natural graphite into China, with China transitioning from
a net exporter to a net importer of natural graphite during
2019, primarily driven by the import of Syrah material. This
change fundamentally alters natural graphite trade flows
globally and is expected to continue to develop as the
Lithium-ion battery market expands.
For the full year 2019, Syrah sold and shipped 163kt
of natural graphite. Sales were moderated in line with
production during the fourth quarter in response to the
sudden and material decrease in prices observed in the
third quarter.
Higher sales than production through 2019 and reprocessing
of some off-specification material from earlier production
resulted in finished product inventories 14kt Balama and
Nacala, a significant reduction compared to 31kt a year
prior, which positions Balama for prevailing demand to drive
production volume through 2020.
Syrah announced a sales agreement with Gredmann (HK)
Limited, (“Gredmann”) for sales into China during 2019. The
agreement is for supply of 9kt per month of fines natural
graphite across a range of fixed carbon grades. Gredmann
became Syrah’s preferred trader of standard fines products
in China for the term of the Agreement, with direct sales by
Syrah continuing in China to certain end users. Sales to a
broader range of end-users outside China also continued
to develop throughout the year, including Asia, Europe, and
North America.
Logistics
The supply chain was optimised through 2019, allowing sales
volumes able to exceed production volumes through 2019.
Logistics operations from mine to port were adjusted during
the cost restructure process in the fourth quarter, with the
truck fleet and utilisations reduced for lower than previous
planned 2020 production volumes.
Graphite Pricing
In 2019, Syrah achieved a weighted average price of US$443
per tonne (CIF).
Syrah’s entry into the international natural graphite market
has seen a significant impact on the global supply and
demand balance and change to the traditionally seasonal
availability of product both within China and from China into
the export market. This combined with market imbalances
due to lower than expected end user demand growth from
EV sales and energy storage market development put
downward pressure on prices through 2019. A sudden
and material decline in prices in the third quarter prompted
Syrah to moderate production at Balama and undertake a
companywide restructure.
The current fines price achieved by Syrah continues
to be influenced primarily by China’s domestic market
fundamentals (domestic supply and demand balance relative
to the international balance at any given point in time), as well
as VAT, inland logistic costs and exchange rates.
Market pricing dynamics are evolving rapidly – and Syrah
expects prices for natural graphite into the battery market
to become globally integrated in line with the majority of
internationally traded commodities. Value-in-use pricing
differentials for relative product quality are expected to
continue to broaden as the market develops.
The transition to global pricing is expected to provide
increased price transparency, which assists to induce global
supply in an orderly manner over the medium to long term.
And as demand growth continues, the importance of product
grade, quality, and consistent supply availability are expected
be evident in prices paid.
CORPORATE
Financial Summary
The segment result for Corporate for the year ended
31 December 2019 was a net loss before income tax of
$9.3 million (2018: net loss before tax of $10.1 million).
Total segment expenses for the year were $9.6 million
(2018: $11.5 million) comprising employee benefits, legal
and consulting costs and general corporate administration
costs. These costs include ‘non-cash’ costs of $1.3 million
(2018: $4.3 million), relating to share-based payments and
depreciation and amortisation of corporate assets.
Total segment assets were $82.0 million as at 31 December
2019 (2018: $74.0 million), with the increase mainly driven by
the increase of Cash and Cash Equivalents balance following
proceeds received from the Entitlement Offer and issue of
the Convertible Note during the year.
Corporate segment assets as at 31 December 2019 include
$80.6 million of cash and cash equivalents (2018:
$73.4 million) which will be used to fund:
> Ongoing working capital for Balama;
> Additional capital expenditure relating to Balama;
> Capital expenditure relating to the BAM Project; and,
> General corporate and administrative activities.
13
BAM PROJECT
The segment result for the BAM Project for the year ended 31
December 2019 was a loss before income tax of $0.1 million
(2018: net loss before tax of $0.2 million).
Revenue for the year ended 31 December 2019 comprised
of interest income of $0.1 million (2018: $0.2 million) from
cash reserves placed on deposit with financial institutions
during the year.
Total segment assets for BAM were $45.4 million as at
31 December 2019 (2018: $30.3 million) and principally
comprised of capitalised construction costs for BAM.
Following are the key activities and achievements of the BAM
Project during the financial year.
> First dispatch of unpurified spherical graphite samples for
qualification by potential customers commenced during
the first quarter of 2019;
> Construction of the purification plant was completed
in the fourth quarter, with first production of purified
spherical graphite with purity >99.95% achieved using
Balama feed;
> Supply chain engagement, operational learnings from
the existing plant in Vidalia and ongoing research and
development work will inform ongoing studies for scale up
of the existing plant to commercial production volumes;
product development with Cadenza Innovation Inc.
(“Cadenza”) was ongoing through 2019, with focus on
development of carbon coated product for production
at Vidalia in 2020 and graphitisation processes for
development of anode material.
BALAMA VANADIUM PROJECT
In addition to Balama’s substantial graphite Ore Reserves,
the deposit also hosts a significant Vanadium Inferred
Resource of 1.4Bt at 0.2% V2O5
A review of the 2014 Vanadium Scoping Study was
completed in 2018 and confirmed that the project warrants
progression to formal Pre-Feasibility Study ("PFS") stage.
Sampling and analysis of Vanadium content within the
graphite processing circuit was completed in 2019, which
confirmed prior understanding of Vanadium concentrations
in key process streams in the Balama graphite circuit and
will be used to inform metallurgical test work as the project
progresses.
FUTURE OUTLOOK
The likely developments in Group operations for future
financial years include:
Balama Graphite Operation
Adaption of Balama to prevailing market conditions,
targeting:
> Natural flake graphite production for 2020 driven by
market demand;
> Recovery sustained above 75% in 2020, beyond 80%
thereafter;
> Average product fixed carbon ("FC") grade 95% with
targeted range of 95% - 97% FC;
> Cash operating costs (FOB Port of Nacala) trending
downwards towards $450 per tonne during 2020 at an
annualised production rate of 180,000 tonnes per annum
(15kt per month).
Sales and Logistics
Low finished product inventory levels and moderated
production at Balama late in 2019 positions the asset to
match 2020 production to prevailing demand.
Balama product differentiators will continue to be strategically
important through 2020. In particular:
> Product quality (fixed carbon grade and impurities);
> Capability as a base load supplier of natural graphite into
the battery raw material supply chain; and,
> Syrah’s best practice ESG credentials.
BAM Project
The plant at Vidalia will be utilised through 2020 for:
> Qualification of material in the battery supply chain;
> Supply chain engagement to inform ongoing feasibility
work for development of a larger scale facility capable of
commercial production rates; and,
> Development of options for strategic and financial
partnerships.
Vanadium Project
The Vanadium resource at Balama remains an attractive
future growth option for the company.
Investment to progress the evaluation of the project will be
made upon stabilisation of Balama cash flows.
14
SYRAH RESOURCES > ANNUAL REPORT 2019 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 achieve its corporate objectives. Set out
below are the business risks 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.
It should be noted that the Group continues to assess
business risks associated with the more recent impacts of
COVID 19.
MARKET RISK
The demand for, and the price of, natural flake and spherical
graphite is highly dependent on a variety of factors,
including international supply and demand of graphite and
substitutes, the price and availability of substitutes, actions
taken by governments, and global economic and political
developments (including, without limitation, global events
such as the COVID 19 outbreak). Syrah’s operational and
financial performance, as well as the ongoing economic
viability of Balama, is heavily reliant on the price of graphite,
among other things. In this respect, prospective investors
should note that, at present, there is no transparent market for
graphite pricing; rather, prices are negotiated on a bilateral
basis and therefore subject to factors including those set
out below as well as the preferences and requirements of
customers.
Failure by Syrah to negotiate favourable pricing terms (which
may provide for fixed or market-based pricing) may materially
affect the profitability and financial performance of Syrah.
Further, failure by Syrah to negotiate favourable terms with
agents or other third parties engaged to market and/or sell
graphite and/or of BAM graphite products ("Products") on
its behalf, or failure by such agents or third parties to sell
Products at favourable prices, may have a similar effect. Any
sustained low price for Products (or low sale price achieved
by Syrah, whether directly or via agents or other third
parties) may adversely affect Syrah’s business and financial
results, its ability to finance, and the financing arrangements
for its future activities or its planned capital expenditure
commitments.
The factors which affect the price for the Products (many
of which are outside the control of Syrah) include, among
many other factors, the quantity of global supply of graphite
as a result of the commissioning of new mines and the
decommissioning of others; political developments in
countries which produce and consume material quantities
of Products; the weather in such countries; the price and
availability of substitutes; advancements in technologies
and the uses and potential uses of the Products, and the
demand for the applications for which the Products may be
used (including, for example, in the steel, manufacturing,
construction, and battery industries); the grade, quality and
particle size distribution of the Products produced; and
sentiment or conditions in the countries and sectors in which
Syrah and its business/commercial partners sell or intend
to sell the Products. Such sentiment or conditions are
further affected by global trends and/or events such as
the COVID 19 outbreak.
Given the range of factors which contribute to the price
of the Products, and the fact that pricing is subject to
negotiation, it is particularly difficult for Syrah to predict with
any certainty the prices at which Syrah will sell its Products.
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
Mineral Resources and Ore Reserves are estimates of
mineralisation that have reasonable prospects for eventual
economic extraction in the future, as defined by the 2012
Edition of the Australasian Code for Reporting of Exploration
Results, Mineral Resources and Ore Reserves ("JORC
Code"). JORC Code compliant statements relating to Syrah’s
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. As further information
becomes available through additional fieldwork and analysis,
the estimates are likely to change and may be updated from
time to time. This may result in alterations to mining plans or
changes to the quality or quantity of Syrah’s Ore Reserves
and Mineral Resources, which may, in turn, adversely affect
Syrah’s operations.
Mineral production involves risks, which even a combination
of experience, knowledge and careful evaluation may not be
able to adequately mitigate.
No assurance can be given that the anticipated tonnages
or grade of minerals will be achieved during production or
that the indicated level of recovery rates will be realised.
Additionally, material price fluctuations, as well as increased
production and operating costs or reduced recovery rates,
may render any potential mineral Resources or Reserves
containing relatively lower grades uneconomic or less
economic than anticipated, 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.
Moreover, short term operating factors relating to such
potential mineral Resources or Reserves, such as the need
for sequential development of mineral bodies and the
processing of new or different mineral types or grades, may
cause a mining operation to be unprofitable in any particular
period. In any of these events, a loss of revenue or profit
may be caused due to the lower than expected production
or ongoing unplanned capital expenditure in order to meet
production targets, or the higher than expected operating
costs.
15
OPERATIONAL RISK
During the production ramp-up and operational phase of
Balama, there is a risk that difficulties may arise as part
of the processing and production of minerals, including
failures in plant and equipment, difficulties in obtaining
and importing replacement equipment, and difficulties with
product liberation, separation, screening, filtration, drying
and bagging.
Other risks during the production ramp-up and operational
phase include, and are not limited to, weather, availability
of materials, availability and productivity of skilled and
experienced workers and contractors, industrial and
environmental accidents, industrial disputes and unexpected
shortages or increases in the costs of labour, consumables,
spare parts, plant and equipment IT failures or disruptions
and risks associated with increased global uncertainty and/or
global events such as the COVID 19 outbreak (including the
national or regional governmental response to such events).
The production ramp-up process may uncover failures or
deficiencies in processes, systems, plant and equipment
required for Balama, and addressing such failures or
deficiencies may result in Syrah incurring unexpected costs
and production ramp-up delays. Any of these outcomes
could have a material adverse impact on Syrah’s results of
operations and financial performance.
In addition, there is a risk that unforeseen geological or
geotechnical issues may be encountered when developing
and mining ore reserves, such as unusual or unexpected
geological conditions, pit wall failures, tailings storage facility
failures, rock bursts, seismicity and cave ins. In any of these
events, a loss of revenue may be caused due to the lower
than expected production and/or higher than anticipated
operation and maintenance costs and/or ongoing unplanned
capital expenditure in order to meet production targets.
Due to the remoteness of Balama, Syrah is subject to an
increased number of risks including a lack of access to
key infrastructure, security requirements, rising fuel costs,
unexpected delays and accidents that could, singularly
or collectively, materially negatively impact upon Syrah’s
financial performance and position. Any prolonged
interruption to access to key infrastructure and logistics
processes, including, for example, road access and integrity,
bridge access and integrity, transport of product to the Port
of Nacala, clearing of product through customs and shipping
from the port, including shipping delays and rescheduling,
could have significant adverse effects on the Company’s
ability to produce and sell product and therefore generate
revenue. Further, as Syrah’s primary asset is located in
a remote part of Africa, it is particularly susceptible to
the availability of personnel, specialist services, parts,
equipment and supplies on a timely basis.
Higher than expected inflation rates generally, or specific
to the mining industry in particular, could be expected
to increase operating and capital expenditure costs 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.
16
COUNTERPARTY RISK
The ability of Syrah to achieve its stated objectives will
depend on the performance of contractual counterparties.
Syrah has entered into sales, marketing and distribution
agreements for Balama, and will seek to renew or replace
contracts in order to match anticipated production over
time or as those agreements approach their respective
expiry dates. Global demand may fluctuate (based on steel
production, electric vehicle and energy storage system
battery demand in particular) and there is no guarantee that
sales forecasts or timing will be achieved, or that supply and
demand analysis will be accurate.
The agreements are a mix of term agreements and spot sale
agreements. Syrah’s revenue and profitability depends on
counterparties performing on their obligations under such
agreements, and on counterparties with term agreements
continuing to enter into new agreements at the end of the
existing term and spot sale counterparties entering into new
sales. Global events and/or trends such as the COVID 19
outbreak may also affect the ability of Syrah’s customers to
carry out their obligations under such agreements and/or
influence renewal or subsequent contracting decisions.
In addition, the sale of Products by Syrah is subject to
commercial verification and qualification processes to ensure
any Products produced meet the specifications for industrial
supply required by customers (including the industrial
graphite markets and the battery sector). 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 of Syrah’s Products to
qualify for purchase, or any unanticipated delay in qualifying
Syrah’s Products, may adversely impact Syrah’s financial
performance and position (including by resulting in Syrah
generating less revenue or profit than anticipated and/or
incurring higher costs than anticipated).
Syrah has entered into various agreements for Balama and
the BAM Project (including the supply of key goods and
services including diesel fuel supply, logistics, contract
mining and other services). Risks associated with such
agreements, some of which have arisen, include rising
contract prices as well as disputes regarding variations,
extensions of time and costs, and global events impacting
contract performance and liability (such as the COVID
19 outbreak) all of which may give rise to delays and/
or increased costs. Furthermore, the risk of variations in
contract prices is a function of the inclusion of certain
‘rise and fall’ provisions in some of Syrah’s operational
agreements. Such provisions provide a mechanism by which
prices charged for certain inputs are periodically adjusted
based on movements in certain indices. Should any of these
risks materialise, this could have a material adverse impact
on Syrah’s profitability, financial performance and position.
If Syrah’s counterparties default on the performance of their
respective obligations, for example if the counterparty under
a sales agreement defaults on payment or a supplier defaults
on delivery, unless Syrah is protected by a letter of credit
(which is often, but not always the case in sales agreements),
it may be necessary to approach a Mozambique or other
international court to seek enforcement or some other legal
remedy, if no alternative settlement can be reached. Such
legal action can be uncertain, lengthy and costly. There is
a risk that Syrah may not be able to seek the legal redress
that it could expect under Australian law against a defaulting
counterparty, or that a legal remedy will not be granted on
satisfactory terms.
SYRAH RESOURCES > ANNUAL REPORT 2019 HEALTH, SAFETY, ENVIRONMENT AND
COMMUNITY
Environmental regulations in the jurisdictions in which Syrah
has operations impose significant obligations on companies
that conduct the exploration for and mining of commodities.
These regulations also cover the processing of ores into final
products and subsequent transportation of those produced
minerals as well as the possible effects of such activities upon
the environment and local communities.
Syrah must comply with all known standards, existing laws,
and regulations in each case which may entail greater or
lesser costs and delays depending on the nature of the
activity to be permitted and how vigorously and consistently
the regulations are administered by the local authorities.
There are inherent environmental risks in conducting
exploration and mining activities, giving rise to potentially
substantial costs for environmental 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 and uncontrolled releases of hydrocarbons that
may lead to material adverse impacts on Syrah's people, host
communities, assets and/or the Company's licence to operate.
Changes in environmental laws and regulations or their
interpretation or enforcement may adversely affect Syrah’s
operations, including the potential profitability of its
operations. Further, environmental legislation is evolving in a
manner which may require stricter standards and enforcement
(with associated additional compliance costs) and expose
relevant operators to the risk of increased fines and
penalties for non-compliance, more stringent environmental
assessments of proposed projects and a heightened degree
of responsibility for companies and their officers, directors
and employees. There is no assurance that future changes
in environmental regulation, if any, will not adversely affect
Syrah’s operations.
Syrah currently holds an environmental licence for Balama
(due to expire in 1 January 2025), having successfully
renewed this licence for a further five-year period in January
2020. Renewal of the licence is conditional on the update
and resubmission of the environmental management plan
and monitoring program. Syrah’s practices are reflected
in the ISO14001 and OHSAS:18001 certification status.
However, there are no guarantees that environmental issues
or concerns will not arise. If such issues or concerns were
to arise, this may have an adverse effect on Syrah’s ability to
operate, reputation and relationships with key stakeholders,
which may in turn negatively impact its financial and
operational performance.
Syrah is also required to close its operations and rehabilitate
the lands that it disturbs in accordance with environmental
licence conditions and applicable laws and regulations.
A closure plan and estimate of closure and rehabilitation
liabilities have been prepared for Balama. 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 licence 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 Balama.
For the current BAM facility in the USA, all regulatory air and
water environmental discharge requirements have been met
based on current qualification volumes. A commercial scale
facility may require additional permits, authorisation and/or
licences in relation to a variety of matters including air source
emissions, water discharge, and/or hazardous materials.
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 licences could
have a material adverse effect on the BAM operations and
the recoverable amount of assets.
The impacts of climate change may affect Syrah’s operations
and the markets in which the Company sells its 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 BAM
strategy and products; the effects of climate change on
the Company's assets may also include changes in rainfall
patterns, water shortages and an increase the ultimate cost
of fossil fuels used in Syrah's operations for transport and
power generation.
Mining, construction, production and logistics are potentially
hazardous activities. There are numerous occupational health
risks associated with mining and production operations
and associated supporting activities such as logistics. 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, the location
of Balama means Syrah’s employees and contractors could
be affected by mosquito borne diseases such as malaria
which could adversely impact operations.
Changes in health, safety and environmental laws and
regulations or their interpretation or enforcement or
unexpected global health risks and/or events (such as the
COVID 19 outbreak) may adversely affect Syrah’s obligations
and/or operations.
Syrah’s mining activities may cause issues or concerns with
the local community in connection with, among other things,
the potential effect on the environment as well as other social
impacts relating to employment, use of infrastructure and
community development.
In response to such risks, Syrah has signed a Community
Development Agreement with local key stakeholders
and established ongoing engagement and management
programs focused on optimising positive impacts and
minimising the risk of negative impacts on the community.
However, these programs are no guarantee that other issues
or concerns will not arise with the local community. If such
issues or concerns were to arise, this may have an adverse
effect on Syrah’s reputation and relationships with key
stakeholders, which may in turn negatively impact its financial
and operational performance.
17
SOVEREIGN RISK
Syrah’s operations could be affected by political instability
in Australia, Mozambique, the USA, UAE, China, or other
countries or jurisdictions in which it has operations,
investment interests, conducts exploration activities or has
sales into. Syrah is therefore subject to the risk that it may not
be able to carry out its operations as it intends or to ensure
the security of its assets and its people. Syrah is subject to
the risk of, among other things, loss of revenue, property
and equipment as a result of expropriation, war, insurrection,
civil disturbance, acts of terrorism and geopolitical
uncertainty and political/civil unrest and violent criminal
acts have occurred in the north of Mozambique. At this time
the majority of such acts have been at least 300km from
Balama and have not directly impacted Balama or transport
routes, however there is no guarantee that such acts will
not spread closer to Balama. Syrah has strengthened its
security measures and protocols in response to these events,
however such security measures and protocols are no
guarantee that such risks will not arise.
As with any mining operation, Syrah is also at risk of natural
disasters, both to the mine site and also to the logistics
chain, which may include among other matters, abnormal or
severe weather conditions, floods, cyclones and other natural
disasters or unexpected global trends (such as the COVID 19
outbreak).
The effect of these risks is difficult to predict and any
combination of one or other of the above may have a material
adverse effect on Syrah. Syrah has a limited ability to insure
against some of these risks and other ‘force majeure’ risks
(such as natural disasters).
Syrah’s primary asset is located in Mozambique and so it
is subject to risks associated with operating in that country.
Risks of operations in Mozambique may include economic,
social or political instability or change, hyperinflation,
widespread health emergencies or pandemics, reduced
convertibility of local currency, sovereign loan default or
collapse of the country’s financial system, difficulty in
engaging with the local community, instability and changes
of law affecting foreign ownership, government participation,
taxation, working conditions, rates of exchange, exchange
control, exploration licencing, export duties, repatriation of
income or return of capital, environmental protection, mine
safety, labour relations as well as government control over
mineral properties or government regulations that require
the employment of local staff or contractors or require other
benefits to be provided to local residents.
The occurrence of these various factors and uncertainties
cannot be accurately predicted and could have an adverse
effect on the operations, profitability or the recoverable
amount of the assets of Syrah.
REGULATORY RISK
Syrah’s businesses are subject, in each of the countries
in which it operates, or the countries into which it sells its
Products, to various national and local laws and regulations
relating to, among other things, construction, exploration
and mining activities as well as the import, export, marketing
and sale of goods. A change in the laws which apply to
Syrah’s businesses or the way in which they are regulated, or
changes to the laws affecting the sale of the Products such
as trade sanctions or tariffs 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.
The Balama Graphite Operation is subject to the laws of
Mozambique. Under those laws, certain rights are granted
in favour of the Mozambique Government and certain
obligations imposed on Syrah.
To manage the impact of this risk, Syrah through its
wholly owned subsidiary, has entered into a binding and
enforceable agreement with the Mozambique Government
(“Mining Agreement”). 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
Balama in Mozambique. A summary of the key commercial
terms of the Mining Agreement can be found in the
Company’s ASX Release dated 27 September 2018. Syrah’s
operations could be adversely affected by government
actions in Mozambique which alter the terms or operation
of the Mining Agreement in respect of Balama or otherwise
impact upon the manner in which Syrah conducts its
operations and/or Syrah’s relationship with, and obligations
to, the Mozambique Government. Such government action
could adversely impact Syrah’s financial and operational
performance and its financial position, in particular if it results
in an increase in royalty payments, taxes or similar payments
that Syrah is required to make or if it otherwise reduces the
proportion of revenues or profits derived from Balama which
Syrah is entitled to retain.
Syrah’s business activities are also subject to obtaining, and
maintaining the necessary titles, authorisations, permits and
licences 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 licences 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.
BATTERY ANODE MATERIAL
Relative to Balama, Syrah’s BAM Project is at an early 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:
> In relation to the commissioning of the milling equipment,
the risks inherent in any commissioning activities are
present including in relation to performance of the
processing plant and associated infrastructure, product
grade or quality and other production related activities
(including failures or deficiencies in processes, plant or
equipment);
> Market risk associated with BAM including in relation
to pricing and demand (see further details outlined in
“Market Risk” section above);
> Construction and the commissioning risk of the purification
equipment for batch processing of purified spherical
graphite;
18
SYRAH RESOURCES > ANNUAL REPORT 2019 > Any subsequent expansion including risks relating
to weather, availability of materials, availability and
productivity of skilled and experienced workers and
contractors, industrial and environmental accidents,
industrial disputes and unexpected shortages
or increases in the costs or availability of labour,
consumables, spare parts, plant and equipment, IT
failures or disruptions and other global trends or events
(such as the COVID 19 outbreak), including the national
or regional governmental response to such events.
The commissioning process may uncover failures or
deficiencies in processes, systems, plant and equipment
required for the BAM Project and addressing such failures
or deficiencies may result in Syrah incurring unexpected
costs and production commencing later than anticipated.
Any of these outcomes could have a material adverse
impact on Syrah’s results of operations and financial
performance;
> Operational risks including that the performance of the
qualification plant may be below expectations;
> Obtaining all necessary permits, authorisations and
approvals for the intended purified spherical graphite and
anode material operations and any expansion of those
operations beyond the initial plant capacity, including in
relation to the discharge of wastewater, air emissions and
a potential (but unlikely) change in design basis requiring
the utilisation of hazardous materials;
> The costs of developing a commercial scale BAM plant
(should this be considered in the best interests of the
Company); and
> The success of any strategic relationships into which
Syrah enters with third parties in connection with the
execution of the BAM strategy.
The risks and costs relating to a commercial plant
development will be further assessed in the feasibility study
which is currently underway. If any of these risks or variables
were to materialise, costs were greater than expected or if
there is lower than expected demand for Syrah’s BAM, then
Syrah’s BAM Project related activities may not proceed as
presently intended, or (if they do proceed) they may take
longer or cost more than anticipated and/or not generate the
expected levels of revenue or profit. This in turn could have a
material adverse effect on the recoverable amount of assets.
LIQUIDITY AND CAPITAL MANAGEMENT
Syrah's continued ability to operate its business and
effectively implement its business plan over time will depend
in part on its ability to generate free cash flow, to raise funds
for operations and growth activities and to service, repay and
refinance debts as they fall due. The Group has commenced
production of saleable Products from Balama but is not yet
cash flow positive. The Company may require additional
financing, in addition to cash reserves, to meet operation
and capital expenditure requirements for Balama, general
administrative expenditures and BAM Project activities,
as well as acquisitions and new or existing projects. This
includes Syrah’s BAM Project, and any further optimisation
projects (including Vanadium) at Balama for which Syrah
may require additional funding in the future to execute on that
strategy.
While Syrah believes there are a number of funding
alternatives (which may include both debt and equity sources
of funding), there can be no guarantee that Syrah will be able
to raise additional funding on acceptable terms or at all. An
inability to obtain finance on acceptable terms or at all may
cause, among other things, substantial delays in, or prevent,
the operation of Balama, potential Vanadium development,
the BAM plant and/or the development of Syrah’s BAM
strategy.
To the extent that Syrah does require funding for its future
capital needs, the availability and terms of such funding
are uncertain and may be less favourable to Syrah than
anticipated, which may negatively impact Syrah’s future
profitability and financial flexibility. Funding terms may also
place restrictions on the manner in which Syrah conducts its
business and impose limitations on Syrah’s ability to execute
its business plan and growth strategies (including its BAM
strategy).
Under the terms of the Convertible Note issued to
AustralianSuper on 28 October 2019 on the terms
summarised in ASX Release dated 19 June 2019, there is a
possibility that the Note may need to be redeemed (wholly
or in part) either at maturity or earlier in accordance with the
terms of the Convertible Note. Specifically, Syrah may be
required to redeem the Note for cash, if: (i) AustralianSuper
has not elected to convert the Convertible Note prior to
maturity (5 years from issue); (ii) a third party takeover offer
or scheme of arrangement in respect of all of the shares of
Syrah becomes unconditional, and AustralianSuper does not
elect to convert the Convertible Note into fully paid ordinary
shares of Syrah; or (iii) AustralianSuper elects to redeem
rather than convert the Convertible Note in connection with
an event of default (which includes customary events such
as in relation to failure to repay amounts due, insolvency
events, committing an event of default under any of its
debt financing arrangements over an agreed cap, liabilities
over an agreed cap, fundamental and material changes to
business undertaking, ceasing to be listed on the ASX or any
breach of warranty or representation).
WATER SOURCES
Any restrictions on Syrah’s ability to access water may
adversely impact the costs, production levels and financial
performance of its operations. There is no guarantee that
there will be sufficient future rainfall, or that the water level at
the Chipembe Dam will be sufficient, to support Syrah’s water
demands in relation to its sites and operations or that access
to water will otherwise remain uninterrupted. Likewise, the
availability of water for the BAM plant cannot be guaranteed.
Any interruption to water access could adversely affect
production and Syrah’s ability to develop or expand projects
and operations in the future.
In addition, and while there are potential alternative water
sources, there can be no assurance that Syrah will be able
to obtain access to them on commercially reasonable terms
or at all in the event of prolonged drought conditions or other
interruptions to existing water access arrangements.
19
KEY PERSONNEL AND LABOUR MARKET
RISK
Syrah has a number of key management personnel on
whom it depends to manage and run its business. From
time to time, Syrah will require additional key personnel or
operational staff. In addition, Syrah has certain obligations
regarding employment of local labour. The loss of any key
personnel, coupled with any inability to attract additional or
replacement suitably qualified personnel or to retain current
personnel, could have a material adverse effect on Syrah’s
operational and financial performance. This difficulty may be
exacerbated given the remoteness of facilities, the lack of
infrastructure in the nearby surrounding areas (in respect of
Balama), variability in production profiles and strategies in
response to market conditions, the shortage of local, readily
available skilled labour and global events/trends (such as
the COVID 19 outbreak), including the national or regional
governmental response to such events, which may impact
a number of factors including but not limited to personnel
availability, mobility and health and safety. A limited supply
of skilled workers could lead to an increase in labour costs
and Syrah being ultimately unable to attract and retain the
employees it needs. When new workers are hired, it may also
take a considerable period of training and time before they
are equipped with the requisite skills to work effectively and
safely.
CURRENCY AND EXCHANGE RATE RISK
Syrah’s activities may generate revenues, and Syrah may
incur expenses, in a variety of different currencies, meaning
its financial performance and position are impacted by
fluctuations in the value of relevant currencies and exchange
rates. In particular, it is anticipated that Syrah will be required
to make certain payments under contracts for Balama
in the local Mozambique currency. A lack of liquidity or
depreciation in the value of the local Mozambique currency,
or the failure of or difficulties in implementing exchange
control mechanisms in Mozambique, could adversely
impact the financial position and performance of Syrah,
including by making it more difficult or costly to convert
the local currency or transfer funds out of Mozambique.
In addition, to date Syrah has raised capital in Australian
dollars, while development costs are largely in US dollars
or other currencies. Syrah may also hold funds on deposit
in a number of currencies. Changes in exchange rates may
impact the extent to which Australian dollar denominated
capital is able to fund development in other currencies.
COMPETITION
Competition from other international graphite producers
and explorers may affect the potential future cash flow and
earnings which Syrah may realise from its operations. This
includes competition from existing production and new
entrants into the market. The introduction of new mining and
processing facilities and any increase in competition and
supply in the global graphite market could lower the price of
this commodity. Syrah may also encounter competition from
other mining and exploration companies for the acquisition
of new projects required to sustain or increase its potential
future production levels. Syrah’s downstream BAM Project
may also be impacted by new entrants to the market, or
existing graphite producers, pursuing a similar strategy
aimed at qualifying spherical graphite or other BAM products
for battery purposes.
TAX AND CUSTOMS RISK
Syrah is subject to taxation and other imposts in Australia,
Mozambique, the USA and the UAE, as well as other
jurisdictions in which Syrah has activities, sales and
investments. Changes in taxation, customs or importation
laws (including double taxation treaties, royalties and similar
levies, transfer pricing, tariffs and duties), or changes in
the interpretation or application of existing laws by courts
or applicable revenue authorities, may affect the taxation
or customs treatment of Syrah’s business activities and
adversely affect Syrah’s financial condition.
Syrah’s international contractual arrangements, asset, liability,
revenue and expense recognition and taxation administration
requires management judgment in relation to the application
of tax laws in a number of jurisdictions. There are many
transactions and calculations undertaken during the ordinary
course of business where the ultimate tax determination is
uncertain or in relation to which tax authorities or adjudicating
bodies may take a view which is different to the view taken by
Syrah. Syrah 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.
Further, there may be delays in processing tax or duty
rebates or refunds for which Syrah has applied. Should
it become unlikely that Syrah will recover such rebates or
refunds, this could also adversely affect Syrah’s financial
condition and require a reclassification of assets or
recognition of expenses in the Company’s accounts.
The revenue and profit from Balama will be subject to certain
payments to the Mozambique Government (including in the
form of taxes and royalties) as provided for in the Mining
Agreement (see above).
INSURANCE RISKS
Syrah maintains insurance coverage as determined
appropriate by its Board and management, but no assurance
can be given that Syrah will continue to be able to obtain
such insurance coverage at reasonable rates (or at all)
for certain events, or that any coverage it obtains will be
adequate and available to cover all claims.
LITIGATION
Syrah may be involved in litigation and disputes from time
to time with its contractors, sub-contractors and other
parties. Litigation and disputes can be costly, including
amounts payable in respect of judgments and settlements
made against, or agreed to by, Syrah. They can also take
up significant time and attention from management and
the Board. Accordingly, Syrah’s involvement in litigation
and disputes could have an adverse impact on its financial
performance and position.
GLOBAL ECONOMIC CONDITIONS
Economic conditions, both domestic and global, may
affect the performance of Syrah. Adverse changes in
macroeconomic conditions, including global and country
specific growth rates, the cost and availability of credit, the
rate of inflation, interest rates, exchange rates, government
policy and regulations, general consumption and consumer
spending, input costs, employment rates and industrial
20
SYRAH RESOURCES > ANNUAL REPORT 2019 disruptions, other significant global matters (such as the
COVID 19 outbreak) among others, are variables which
while generally outside Syrah’s control, may result in material
adverse impacts on Syrah’s businesses and its operational
and financial performance, and position.
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;
> Risk tolerance and escalation criteria are specified;
> 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 and Risk Committee, the
Sustainability Committee and the Remuneration, Nomination
and Governance 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.
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; and
> 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
For the year ending 31 December 2019, 75.9% of revenues
were generated by sales of natural graphite products to
customers in China. In addition, the company sources a
range of supplies and equipment from companies in China.
Through the first three months of 2020, COVID 19 impacted
a range of sectors of the Chinese economy, including our
direct customers and suppliers, the electric vehicle supply
chain including battery manufacturing, consumer demand
for electric vehicles, people movement, and logistics. At this
point in time, there appears to be some improvement in China
in terms of managing the virus directly, and the economic
impacts, while the situation in many parts of the rest of the
world is becoming increasingly challenging from a health and
economic perspective with impacts to a number of the areas
outlined above. All of the countries in which we operate have
implemented restrictions on business activities and people
movement, including Mozambique where measures have
been implemented which restrict people movement both
internationally and domestically. The combination of these
measures limit the mobility of the Balama workforce and the
Company therefore temporarily suspended production at
Balama from 28 March 2020 (refer ASX announcement dated
27 March 2020). While sales orders from existing finished
product inventory will continue to be dispatched from Nacala
through the Port of Nacala, a further impact of COVID 19 is
that transportation of goods may be interrupted due to lower
end-use demand or supply of land or ocean transport, and it
is possible that this may change. We continue to assess the
impact of the COVID 19 virus on our business, noting that the
Company had already planned for lower production during
much of this period in order to restore balance between
supply and demand and had taken steps to reduce its cost
base accordingly. The level of liquidity and the recently
implemented companywide cost restructure positions the
Company well to manage an extended period of uncertainty.
We also note that to counter the impacts of COVID 19,
governments of various countries are announcing a broad
variety of economic stimulus measures, and that
ex-China users of natural graphite have experienced
issues in obtaining natural graphite from their China based
suppliers, which presents an opportunity for Syrah. This event
also highlights the risks of supply chain concentration in the
natural graphite supply chain, while Syrah represents the
most significant opportunity for downstream users to diversify
in this area.
No other events have occurred subsequent to 31 December
2019 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.
LIKELY DEVELOPMENTS AND
EXPECTED RESULTS OF OPERATIONS
Commentary on likely developments and expected results of
operations is set out in the Review of Operations.
21
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 2019, and the number of meetings attended by each Director was:
DIRECTOR
BOARD
AUDIT AND RISK
COMMITTEE
SUSTAINABILITY
COMMITTEE
J Askew
S Verner
S Riggall(1)
J Caldeira
C Lampe Onnerud(2)
L Bahash(3)
S Watts(4)
A
15
15
11
15
3
13
10
B
15
15
15
15
3
15
10
A
4
-
6
6
-
-
3
B
4
-
6
6
-
-
3
A
4
-
-
4
-
4
-
B
4
-
-
4
-
4
-
REMUNERATION,
NOMINATION AND
GOVERNANCE
COMMITTEE
A
4
-
4
-
1
4
-
B
4
-
4
-
2
4
-
(A) Number of meetings attended, during the time the Director held office or was a member of the committee during the year ended 31 December
2019.
(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 2019.
(1) The usual program of Board meetings for the year ended 31 December 2019 was increased by 8 additional meetings, convened on an as needed
basis, including in relation to the operational review and restructure during the year. S Riggall attended all meetings convened according to the
usual program and 4 of the additional, ad hoc meetings.
(2) C Lampe-Onnerud ceased as a Non-Executive Director on 24 March 2019.
(3) The usual program of Board meetings for the year ended 31 December 2019 was increased by 8 additional meetings, convened on an as needed
basis, including in relation to the operational review and restructure during the year. L Bahash attended all meetings convened according to the
usual program and 6 of the additional, ad hoc meetings.
(4) S Watts was appointed as Non-Executive Director on 3 June 2019.
22
SYRAH RESOURCES > ANNUAL REPORT 2019 REMUNERATION REPORT
The Remuneration Report contains
details of remuneration paid to the
Non-Executive Directors, Executive
Directors and Key Management
Personnel of the Group as well
as the remuneration strategy and
policies that were applicable in the
financial year ended 31 December
2019. 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
(H)
(I)
(J)
TERMS AND CONDITIONS OF SHARE-BASED PAYMENT
ARRANGEMENTS
DIRECTORS AND KEY MANAGEMENT PERSONNEL EQUITY
HOLDINGS
OTHER TRANSACTIONS WITH DIRECTORS AND KEY MANAGEMENT
PERSONNEL
(K)
ADDITIONAL INFORMATION
23
(A) REMUNERATION GOVERNANCE
REMUNERATION, NOMINATION AND GOVERNANCE COMMITTEE
The Board has established a Remuneration, Nomination and Governance Committee consisting solely of independent, Non-
Executive Directors to assist the Board in achieving its objective in relation to the following:
> having a Board 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;
> observing 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;
> communicating the Company’s remuneration policy to shareholders, any proposed changes to that remuneration policy
and the Committee’s work on behalf of the Board; and
> oversight and monitoring of the implementation of the Company’s corporate governance systems and policies.
During the year ended 31 December 2019 the Remuneration, Nomination and Governance Committee comprised of Lisa
Bahash (Committee Chair), James Askew and Sam Riggall.
The Charter for the Remuneration, Nomination and Governance Committee is available on the Company’s website.
(B) DIRECTOR AND KEY MANAGEMENT PERSONNEL DETAILS
DIRECTORS
The following persons were directors of Syrah Resources Limited (“Syrah” or the “Company”) during the financial year ended
31 December 2019 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
Lisa Bahash
POSITION
Non-Executive Chairman
Managing Director and Chief Executive Officer
Non-Executive Director
Non-Executive Director
Non-Executive Director
Christina Lampe-Onnerud
Non-Executive Director (ceased 24 March 2019)
Sara Watts
Non-Executive Director (appointed 3 June 2019)
KEY MANAGEMENT PERSONNEL
The following persons were the Key Management Personnel of Syrah during the year ended 31 December 2019 and up to the
date of this report, unless otherwise stated:
KEY MANAGEMENT PERSONNEL
NAME
Shaun Verner
Stephen Wells
Julio Costa
Jennifer Currie
Jordan Morrissey
David Corr
Robert Schaefer
POSITION
Managing Director and Chief Executive Officer
Chief Financial Officer (commenced 2 September 2019)
Chief Operating Officer
Chief Legal Officer and Company Secretary (ceased as Company Secretary 5 September
2019; ceased as Chief Legal Officer 28 January 2020(1))
Chief People Officer (role restructured to that of a Transition Officer effective 18 October
2019 and ceased employment with Syrah on 31 March 2020)
Chief Financial Officer (ceased 31 October 2019)
Chief Commercial Officer (ceased 31 December 2019)
(1) J Currie was on maternity leave from 6 November 2019.
24
SYRAH RESOURCES > ANNUAL REPORT 2019 (C) KEY REMUNERATION OUTCOMES AND UPDATES
(i)
What has changed in relation to remuneration during the year ended 31 December 2019
Non-Executive Director
Remuneration
Executive Remuneration
STI Outcomes
LTI Outcomes
> Non-Executive Directors received no fee increases during the year ended 31 December 2019
> A new Chief Financial Officer, Stephen Wells, commenced on 2 September 2019
> None of Syrah’s Key Management Personnel received a remuneration increase during the
year ended 31 December 2019
> The ‘at risk’ variable remuneration components (comprised of a Short-Term Incentive ("STI")
component and a Long-Term Incentive (“LTI”) component) continued to be 75% of Total Fixed
Remuneration (“TFR”) for the Managing Director and 50% of TFR for other executives in 2019
> The average STI outcome for the Managing Director and Chief Executive Officer and Key
Management Personnel was 89.58% of Target opportunity for the year ended 31 December
2019 based on the assessment of corporate and personal performance metrics, and
including the outcomes from the corporate reorganisation and cost improvement programme
in the second half of 2019
> For the Performance Rights awarded during the 2017 financial year and tested as at 31
December 2019, none vested. This reflects the Total Shareholder Return ("TSR") performance
of the Company during the three years to 31 December 2019 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 2020
LTI Performance Hurdles The Board of Directors has resolved to adopt the same performance hurdles for the 2020 LTI
Program as were used in 2019, 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 (ASX:XKO) as at 1 January 2020, classified
under the “Materials” (previously “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 2020, 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.
Non-Executive Director
Remuneration
The Board of Directors has resolved to implement a new Non-Executive Director Share Rights
Plan (“NEDSP”), subject to receiving shareholder approval at the Company’s next Annual General
Meeting. The NEDSP will enable Non-Executive Directors to receive a portion of their remuneration
as Performance Rights and is intended to operate as follows:
(a) The NEDSP will commence on 1 February 2020, subject to the receipt of shareholder
approval at the Company’s next Annual General Meeting;
(b) Non-Executive Directors will elect the proportion they would like paid in cash and paid in
share rights on an annual basis;
(c) The cash and share rights components will be settled at the end of each quarter (March,
June, September and December);
(d) The amount to be settled in share rights on a quarterly basis will be determined using a
30-day VWAP at the end of the quarter; and,
(e) The date of grant for the share rights will be the last day of each quarter for the relevant
financial year
25
Five Year Performance
and Retention Incentive
> The Board of Directors has implemented a Five Year Performance and Retention Incentive
(“5YPRI”) by way of a proposed one off issue of Performance Rights for selected senior
personnel, designed to take into account the recent operational review and restructure in
late 2019, including the recent restructure of the senior executive team. The program is also
designed to align with the maturity date of the Convertible Note and to ensure that selected
personnel are remunerated in a manner which encourages high performance and is aligned
with driving growth in Shareholder value.
> A summary of the Five Year Performance and Retention Incentive is outlined below:
(a) The new 5YPRI will be performance based, incentivising performance each year for selected
senior personnel;
(b) The Performance Rights will have a term of 5 years;
(c) At the performance assessment date (occurring annually), the Board will determine the
amount of Performance Rights to vest based on agreed Key Performance Indicators (“KPIs”)
set at the beginning of each financial year, with the applicant being issued with a vesting
notice confirming any vested Rights following the assessment process. The performance
assessment will generally take place around February of each year, in respect of the KPIs
for the year just passed;
(d) The Performance Rights can be exercised from the vesting date for a two-year period;
(e) Each participant must be employed for the full calendar year applicable to the assessment
of the award (the Performance Rights do not partially vest for the year in the event of
termination of employment unless otherwise determined by the Board).
> The general KPIs will be structured as follows:
(a) For the first 2 years, the KPIs will be based on operating performance – cash position, sales,
production, and BAM project milestones;
(b) For the following 3 years, the KPIs will be based on overall relative corporate performance to
be defined and approved by the Board on an annual basis, concurrent with Board approval
of the annual budget.
> The proposed issue of the 5YPRI for S Verner will be subject to shareholder approval at
the upcoming Annual General Meeting. It is proposed that S Verner be issued 4,000,000
performance rights under the 5YPRI program and is in addition to the 865,892 Performance
Rights issued under the LTI in respect of the period commencing 1 January 2020, which is
also subject to shareholder approval. The other proposed participants of the 5YPRI include
the COO, J Costa who will receive 3,250,000 performance rights, the CFO, S Wells who will
receive 2,500,000 performance rights and two General Managers each receiving 1,125,000
performance rights. The maximum potential award per annum will be calculated by dividing
the total Performance Rights issued upfront as described above, by the 5-year term such
that one fifth of the total amount granted will vest in each 12 month period, subject to the
attainment of the KPIs.
26
SYRAH RESOURCES > ANNUAL REPORT 2019 (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 2019, however changes are planned for the year ending 31 December 2020 (refer to Section C for
details of the proposed NEDSP, which will be subject to shareholder approval at the 2020 Annual General Meeting).
EXECUTIVE REMUNERATION
The Board in consultation with the Remuneration, Nomination and Governance 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. No remuneration consultants were engaged for the year ended 31 December 2019.
During the year ended 31 December 2018, the Company engaged a specialist remuneration consultant (2018: $41,046 for
consultancy assistance provided by Mercer Australia) for remuneration benchmarking purposes, however this was not a
remuneration recommendation for the purposes of the Corporations Act 2001 (Cth) (“Corporations Act”).
EQUITY INCENTIVE PLAN RULES
The Company has an Equity Incentive Plan established and approved by shareholders at the Annual General Meeting on
17 May 2018 (“Equity Incentive Plan”), which applies to all shares, performance rights and options offered for grant from
17 May 2018 onwards. Under the Equity Incentive Plan, 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 the Board of Directors. Any performance rights, options and shares granted under
the Equity Incentive Plan may be subject to such vesting conditions (if any) as determined by the Board of Directors.
The Company also has:
(i) a former Share Option Plan (“SOP”) in existence. The SOP was established and approved by shareholders at an Annual
General Meeting held on 19 November 2013 and enabled the Company, at the discretion of the Board of Directors, to offer
employees and directors options. The SOP is now effectively dormant applying only to options granted prior to November
2015, with no new options issued under this plan.
(ii) a former Long-Term Incentive Plan (“LTIP”) in existence. 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.
The LTIP is now effectively dormant, applying only to performance rights and options granted from 13 November 2015 up
until 16 May 2018. No new performance rights, options or shares will be issued under this LTIP.
27
(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 the options set out in Section H of the Remuneration Report,
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 2019 and the maximum currently stands at A$1,000,000 per annum which
was approved by shareholders at an Annual General Meeting on 26 May 2016.
The annual Non-Executive Director fees (inclusive of superannuation contribution amounts where applicable) for being a
member of the Board and participating on its sub committees were as follows:
Table 1: Non-Executive Director Annual Fees
ANNUAL FEES
Board Fees
Sub-Committees
Chairperson
Members
Audit and Risk Committee
Chairperson
Sustainability Committee
Chairperson
Members
Remuneration, Nomination and
Governance Committee
Members
Chairperson
Members
2019
2018
A$
160,000
US$(1)
111,198
A$
160,000
95,000
66,024
95,000
US$
119,648
71,041
20,000
10,000
15,000
10,000
15,000
13,900
6,950
10,425
6,950
10,425
20,000
10,000
15,000
10,000
15,000
14,956
7,478
11,217
7,478
11,217
10,000
6,950
10,000
7,478
(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 2019 of 0.6950 (2018: 0.7478).
In addition to the above fees, Non-Executive Directors are entitled receive a travel stipend of $3,475 (A$5,000) for each
international trip where the travel time is in excess of seven hours of international travel (2018: $3,739 (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 eligible to participate
in the Company’s Equity Incentive Plan (as approved by shareholders), however such participation has been limited to a one-
off grant of options at or around the time of appointment as a Director, as set out in Section H of this Remuneration Report.
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 STI payments made in 2019 were between 0% and 50% paid in the Company’s
fully paid ordinary shares (“Shares”) (2018: 100% in shares), otherwise, this policy remains identical to the remuneration
structure for the year ending 31 December 2018. These components for the year ended 31 December 2019 are summarised
below:
28
SYRAH RESOURCES > ANNUAL REPORT 2019
Table 2: Remuneration Components
ELEMENT
Total Fixed
Remuneration
DELIVERY
100% Cash
Short-Term
Incentive
Cash and/or
Shares
PURPOSE
To attract high calibre executives
by offering competitive market
salary including superannuation
and non-monetary benefits
Reward for annual performance
based on the Performance
Metrics. 100% awarded in shares
to encourage executives to hold
shares in the Company
PERFORMANCE METRICS
Nil
POTENTIAL VALUE (1)
Positioned between the
25th and 50th percentile
of a comparative group
of companies
Combination of corporate and
personal performance measures
weighted 50:50
Managing Director
75% of TFR
Long-Term
Incentive
100%
Performance
Rights or
other equity
instruments
Alignment to long-term shareholder
value. Award given in shares to
encourage executives to hold
shares in the Company
3 year Company TSR
performance with 50% relative
to the nominated Comparator
Group and 50% relative to the
nominated Absolute Measure
Performance Metrics.
Other executives
50% of TFR
Managing Director
75% of TFR
Other executives
50% of TFR
(1) The Board of Directors reserves the discretion to reward exceptional achievement for stretch performance on any particular performance measure.
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:
Table 3: Remuneration Components
NAME
Executive Directors
S Verner
Key Management Personnel
D Corr(1)
S Wells(2)
J Costa
J Currie(3)
J Morrissey(4)
R Schaefer(5)
TOTAL FIXED
REMUNERATION
AT RISK REMUNERATION
STI
LTI
DEC-19
DEC-18
DEC-19
DEC-18
DEC-19
DEC-18
40%
50%
50%
50%
50%
50%
50%
40%
50%
-
50%
50%
50%
50%
30%
30%
30%
30%
25%
25%
25%
25%
25%
25%
25%
-
25%
25%
25%
25%
25%
25%
25%
25%
25%
25%
25%
-
25%
25%
25%
25%
(1) D Corr ceased employment with the Company as Chief Financial Officer on 31 October 2019.
(2) S Wells commenced employment with the Company as Chief Financial Officer on 2 September 2019 and his eligibility to participate in the STI plan
was determined at 40% for the year ended 31 December 2019.
(3) J Currie ceased employment with the Company as Chief Legal Officer on 28 January 2020.
(4) J Morrissey ceased employment with the Company on 31 March 2020. From 18 October 2019, J Morrissey transitioned to the role of Transition
Officer. Accordingly, his STI eligibility was determined to be 110% for the year ended 31 December 2019 to reflect the additional responsibilities and
accountabilities of that role. All other elements of his remuneration remained unchanged.
(5) R Schaefer ceased employment with the Company on 31 December 2019.
TOTAL FIXED REMUNERATION
The Remuneration, Nomination and Governance Committee 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 current Key Management Personnel is currently positioned between the 50th and 75th percentile of a
comparative group of companies (based on remuneration benchmarking in February 2020).
Total Fixed Remuneration for Key Management Personnel for financial year ended 31 December 2019 is set out in Section F.
29
‘AT RISK’ PERFORMANCE BASED REMUNERATION
Short Term Incentive
The objective of the STI Program is to align reward of Executives with the attainment of Key Performance Indicators (“KPIs”)
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, Nomination and Governance Committee with oversight from the Board of Directors.
(i)
Short Term Incentive Program – 31 December 2019
Table 4: STI Program (31 December 2019)
FEATURE
Target
Opportunity
DESCRIPTION
Managing Director – 75% of Total Fixed Remuneration ("TFR") for target performance.
Other Executives – 50% of Total Fixed Remuneration for target performance.
Group
Performance
Metrics & Award
Outcome
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 ending
31 December 2019:
METRIC
WEIGHTING REASON FOR SELECTION
Corporate Performance
measures:
Sustainability (HSSEC)/Compliance
& Governance
Balama Production & Cost
BAM Progress
Sales Volume & Price
Corporate measures are aligned with the strategic
priorities for the Group
Promoting a strong culture of safe practices, social
licence to operate, and good corporate governance
and compliance in all activities
Delivery against production and operating cost
targets
Progression of BAM growth strategies
Delivery against volume and weighted average
basket price targets
10%
10%
10%
10%
Capital Management
10%
Balance sheet strength for operations and growth
Total corporate performance
measures
Personal performance metrics
Total
50%
50%
100%
Targeted metrics relevant to individual roles
The Board assessed an overall attainment of 25% out of 50% for the corporate performance metrics for the
year ended 31 December 2019. This was based on recognition of the Company’s underperformance relative
to plan on Balama production and cost, BAM progress, sales volumes and weighted average price, whilst also
recognising the substantial progress made as well as challenges overcome in these areas. Additionally the
determination reflected continued development and high performance in safety management, with a TRIFR of
0.6; the early completion of the Environmental Licence Application submission (licence renewal has since been
granted), no significant regulatory non-compliances; first production of BAM purified spherical graphite from
Vidalia; the significant work in reducing costs across the business in response to the sudden change in market
conditions; and, the successful completion of funding activities (Entitlement Offer and Convertible Note issue).
Determination of
Outcomes
Delivery of STI
The STI outcomes were determined by the Remuneration, Nomination and Governance Committee, with
oversight from the Board of Directors.
Between 0% and 50% of the STI for the year ending 31 December 2019 was paid in shares, issued under
the Company’s Equity Incentive Plan.
30
SYRAH RESOURCES > ANNUAL REPORT 2019
The following table shows details of the STI opportunity, as a percentage of TFR, for each of the Key Management Personnel
and the amounts granted for the year ended 31 December 2019.
Table 5: STI Opportunity (31 December 2019)
NAME
Executive Director
S Verner
Key Management Personnel
D Corr(2)
S Wells(3)
J Costa
J Currie(4)
J Morrissey(5)
R Schaefer(6)
TARGET OPPORTUNITY
% OFFER
AMOUNT$(1)
75%
$256,846
50%
50%
50%
50%
50%
50%
$123,363
$142,692
$152,205
$114,154
$114,154
$114,154
AMOUNT
GRANTED
AMOUNT
FORFEITED
%
67%
N/A
75%
85%
100%
110%
100%
%
33%
N/A
25%
15%
-
-
-
(1) Amounts translated from Australian Dollars to US Dollars using an average exchange rate for the year ended 31 December 2019 of 0.6950.
(2) D Corr ceased employment with the Company as Chief Financial Officer on 31 October 2019.
(3) S Wells commenced employment with the Company as Chief Financial Officer on 2 September 2019 and his pro-rata eligibility to participate in the STI
plan was determined at 40% for the year ended 31 December 2019.
(4) J Currie ceased employment with the Company as Chief Legal Officer on 28 January 2020, with STI outcomes reflecting company and individual
performance and the corporate reorganisation and cost improvement programme in the second half of 2019.
(5) J Morrissey ceased employment with the Company on 31 March 2020. From 18 October 2019, J Morrissey transitioned to the role of Chief Transition
Officer as a result of the corporate reorganisation and cost improvement programme in the second half of 2019. Accordingly, his STI eligibility was
determined to be 110% for the year ended 31 December 2019 to reflect the additional responsibilities and accountabilities of that role. All other
elements of his remuneration remained unchanged.
(6) R Schaefer ceased employment with the Company on 31 December 2019, with STI outcomes reflecting company and individual performance and the
corporate reorganisation and cost improvement programme in the second half of 2019.
31
(ii)
Short Term Incentive Program – 31 December 2020
Table 6: STI Program (31 December 2020)
FEATURE
Target
Opportunity
DESCRIPTION
Managing Director – 75% of Total Fixed Remuneration ("TFR") for target performance.
Other executives – 50% of Total Fixed Remuneration ("TFR") for target performance.
Group
Performance
Metrics & Award
Outcome
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 ending 31 December 2020:
METRIC
WEIGHTING REASON FOR SELECTION
Corporate performance
measures:
Sustainability (HSSEC)/Compliance
& Governance
Balama Production & Cost
BAM Progress
Sales Volume & Price
10%
10%
10%
10%
Corporate measures are aligned with the strategic
priorities for the Group
Promoting a strong culture of safe practices, social
licence to operate, and good corporate governance
and compliance in all activities
Delivery against production and operating cost
targets
Progression of BAM growth strategies and finalise
BAM investment decision
Delivery against volume and weighted average
basket price targets
Capital Management
10%
Balance sheet strength for operations and growth
Total corporate performance
measures
Personal performance metrics
Total
50%
50%
100%
Targeted metrics relevant to individual roles
Determination of
Outcomes
Delivery of STI
The STI outcomes will be determined by the Remuneration, Nomination and Governance Committee, with
oversight from the Board of Directors.
The delivery of the STI for the year ending 31 December 2020 will be determined by the Remuneration,
Nomination and Governance Committee, with oversight from the Board of Directors.
Five Year Performance and Retention Incentive
In addition to the LTI Program described below, the Board of Directors has implemented a new Five Year Performance and
Retention Incentive for selected senior personnel (see Section C above for details).
Long-Term Incentive
The LTI Program 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 Program 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. These performance rights are issued
under the Equity Incentive Plan (from 17 May 2018) or the LTIP (prior to 17 May 2018).
The potential maximum value of the annual grant of performance rights over a three year period represents between 20% and
75% of an eligible employee’s 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 preceding
the commencement and the end of the performance period.
32
SYRAH RESOURCES > ANNUAL REPORT 2019
Performance Hurdles
The performance hurdles for 2019 and 2020 are based on the Company’s TSR performance:
(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 (ASX:XKO) as at 1 January 2020, classified under the “Materials” (formally 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 2018, 2019 and 2020 years, 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/ASX300 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 Board of Directors 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
COMPARATOR GROUP (100% OF
PERFORMANCE RIGHTS FOR 2016
TO 2017 AND 50% OF PERFORMANCE
RIGHTS FROM 2018 ONWARDS)
TSR performance is at or below the
median performance of the comparator
group
PERFORMANCE AGAINST ABSOLUTE
TSR MEASURE
(50% OF PERFORMANCE RIGHTS
FROM 2018 ONWARDS)
TSR performance is at or below threshold
performance (8.6% CAGR)
PERCENTAGE OF PERFORMANCE
RIGHTS ELIGIBLE TO VEST
0%
TSR performance of between the median
and 75th percentile performance of the
comparator group
TSR performance is between threshold
(8.6% CAGR) and maximum performance
(18.8% CAGR)
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 18.8% CAGR)
100%
In the event that a participant in the LTI Program 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/Board, if the participant is a “bad leaver”
(for reasons such as resignation, dismissal for poor performance or as otherwise determined by the Remuneration, Nomination
and Governance Committee/Board), 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 Board also has power to deem that performance rights will lapse or be deemed to be forfeited 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,
brings the Group (or any member thereof) into disrepute or if the Board determines there has been a material misstatement or
omission in the financial statements.
In the event of a change of control, all unvested performance rights will vest (in the case of performance rights granted up until
16 May 2018) or (in the case of performance rights granted from 17 May 2018 onwards) will vest unless the Board of Directors
exercises its discretion to determine otherwise.
33
TSR Comparator Groups (2017 to 2019 Grants)
Performance rights will be tested against Syrah’s TSR performance relative to the comparative group on the Performance Date.
Year ended 31 December 2017 Grant
i.
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 was as follows:
Ferroglobe PLC
HudBay Minerals Inc
Iluka Resources Limited
Imperial Metals Corp
Independence Group NL
Ivanhoe Mines Ltd
Magnis Energy Technologies Ltd(1)
Sandfire Resources NL
Materion Corporation
Metals X Limited
OZ Minerals Limited
Polymet Mining Corp
Nevsun Resources Ltd
Talga Resources Limited
Tokai Carbon Co. Ltd
Vedanta Resources plc
Western Areas Limited
(1) Previously named Magnis Resources Limited
Outcome for 31 December 2017 Grant
None of the performance rights granted for the 2017 financial year and tested as at 31 December 2019 vested, as the TSR
performance of Syrah was below the median TSR performance of the comparator group over the Performance Period.
Year ended 31 December 2018 Grant
ii.
The TSR comparator group as selected by the Board of Directors for the performance rights for the year ended 31 December
2018 for testing as at 31 December 2020 are the companies in the S&P/ASX300 Index (ASX:XKO) as at 1 January 2018,
classified under the “Metals & Mining” (now renamed “Materials”) industry under the GICS classification system, being:
Alacer Gold Corp.
Alumina Limited
Ausdrill Limited
Independence Group NL
Regis Resources Limited
Lynas Corporation Limited
Resolute Mining Limited
MACA Limited
Rio Tinto Limited
Beadell Resources Limited
Magnis Energy Technologies Ltd
Sandfire Resources NL
BHP Group Limited
Metals X Limited
Saracen Mineral Holdings Limited
BlueScope Steel Limited
Mineral Resources Limited
Silver Lake Resources Limited
Dacian Gold Limited
Newcrest Mining Limited
Sims Metal Management Limited
Evolution Mining Limited
Northern Star Resources Limited
South32 Limited
Fortescue Metals Group Limited
OceanaGold Corporation
St Barbara Limited
Galaxy Resources Limited
Orocobre Limited
Gold Road Resources Limited
OZ Minerals Limited
Iluka Resources Limited
Imdex Limited
Perseus Mining Limited
Pilbara Minerals Limited
Syrah Resources Limited
Western Areas Limited
Westgold Resources Limited
The Board reserves the right to adjust the composition and number of the companies in the TSR Comparator Groups (2017
and 2018 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.
34
SYRAH RESOURCES > ANNUAL REPORT 2019
Year ended 31 December 2019 Grant
iii.
The TSR comparator group as selected by the Board of Directors for performance rights for the year ending 31 December
2019 comprise of the companies in the S&P/ASX300 Index (ASX:XKO) as at 1 January 2019, classified under the “Materials”
(formally “Metals & Mining”) industry under the GICS classification system as follows:
Adelaide Brighton Limited
Iluka Resources Limited
Orica Limited
Altura Mining Limited
Alumina Limited
Amcor Limited
IMDEX Limited
Ioneer Limited
OZ Minerals Limited
Pact Group Holdings Limited
Incitec Pivot Limited
Pilbara Minerals Limited
Aurelia Metals Limited
James Hardie Industries Plc
Perseus Mining Limited
Ausdrill Limited
BHP Group Limited
Jupiter Mines Limited
Rio Tinto Limited
Kidman Resources Limited
Regis Resources Limited
BlueScope Steel Limited
Lynas Corporation Limited
Resolute Mining Limited
Boral Limited
Brickworks Limited
CSR Limited
Dacian Gold Limited
DuluxGroup Limited
Evolution Mining Limited
Fletcher Building Limited
Mineral Resources Limited
South32 Limited
MACA Limited
Metals X Limited
Newcrest Mining
Saracen Mineral Holdings Limited
St Barbara Limited
Sandfire Resources NL
New Century Resources Limited
Sims Metal Management Limited
Northern Star Resources Limited
Syrah Resources Limited
Nufarm Limited
Wagners Holding Company Limited
Fortescue Metals Group Limited
OceanaGold Corporation
Westgold Resources Limited
Gold Road Resources Limited
Om Holdings Limited
Western Areas Limited
Galaxy Resources Limited
Independence Group NL
Orora Limited
Orocobre Limited
Year ended 31 December 2020 Grant
iv.
The TSR comparator group as selected by the Board of Directors for performance rights for the year ending 31 December
2020 comprise of the companies in the S&P/ASX300 Index (ASX:XKO) as at 1 January 2019, classified under the “Materials”
(formally “Metals & Mining”) industry under the GICS classification system as follows:
Adelaide Brighton Limited
Alacer Gold Corp
Alumina Limited
Amcor Plc Cdi
Aurelia Metals Limited
Bellevue Gold Limited
BHP Group Limited
IMDEX Limited
Ioneer Limited
Incitec Pivot Limited
James Hardie Indust
Jupiter Mines Limited
Pact Group Holdings Limited
Pilbara Minerals Limited
Perenti Global Limited
Perseus Mining Limited
Rio Tinto Limited
Lynas Corporation Limited
Ramelius Resources
Macmahon Holdings Limited
Regis Resources Limited
Bluescope Steel Limited
Mount Gibson Iron Limited
Resolute Mining Limited
Boral Limited
Brickworks Limited
Mineral Resources Limited
South32 Limited
MACA Limited
Saracen Mineral Holdings Limited
Champion Iron Limited
Newcrest Mining Limited
Sty Barbara Limited
CSR Limited
Dacian Gold Limited
New Century Resources Limited
Sandfire Resources NL
Nickel Mines Limited
Sims Limited
Evolution Mining Limited
Northern Star Resources Limited
Silver Lake Resources Limited
Fletcher Building Foreign Exempt NZX
Nufarm Limited
Fortescue Metals Group Limited
Oceanagold Corp
Gold Road Resources Limited
Orora Limited
Galaxy Resources
IGO Limited
Iluka Resources
Orocobre Limited
Orica Limited
OZ Minerals Limited
Syrah Resources Limited
West African Resources Limited
Westgold Resources Limited
Western Areas Limited
35
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 issued under the Equity Incentive Plan during
the year:
Table 7: Equity Incentive Plan Performance Rights
Movement for the year ended 31 December 2019:
Balance at the beginning of the year
Granted during the year
Lapsed during the year
Forfeited during the year
Exercised during the year
Balance at the end of the year
At 31 December 2019:
Vested
Unvested
Total
2019
NUMBER
2018
NUMBER
69,205
1,862,733
(297,296)
(96,692)
(24,480)
-
69,205
-
-
-
1,513,470
69,205
12,240
-
1,501,230
69,205(1)
1,513,470
69,205
(1) 36,720 of these rights vested in 2019, of which 24,480 were exercised on 31 January 2019.
The Board of Directors has resolved to grant 865,892 EIP performance rights to S Verner, subject to shareholder approval, and
994,172 performance rights to other Key Management Personnel for the year ending 31 December 2019. The performance
rights granted to S Verner remain subject to shareholder approval. The Board of Directors also resolved to grant 2,032,788
performance rights to other executives and senior managers for the year ended 31 December 2019 in accordance with the
relevant employment contracts. These performance rights were issued on 12 March 2020 and are not included in the above
table. See also Section C for details of the 5YPRI.
The table below summarises the number and movements in performance rights issued under the LTIP during the year:
Table 8: LTIP Performance Rights
Movement for the year ended 31 December 2019:
Balance at the beginning of the year
Granted during the year
Lapsed during the year
Forfeited during the year
Exercised during the year
Balance at the end of the year
At 31 December 2019:
Vested
Unvested
Total
(1) 285,256 of these rights lapsed in 2020 as the performance criteria were not met.
36
2019
NUMBER
2018
NUMBER
1,020,826
-
710,783
563,511
(332,624)
(175,213)
(56,035)
-
(118,663)
(78,255)
513,504(1)
1,020,826
-
-
513,504
1,020,826
513,504
1,020,826
SYRAH RESOURCES > ANNUAL REPORT 2019 Share Options
Former Share Option Plan ("SOP")
As at 31 December 2019, there were no options outstanding (31 December 2018: 900,000) under this plan. The table below
summarises the number and movements in Options under this plan during the year:
Table 9: SOP Options
Movement for the year ended 31 December 2019:
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 2019:
Vested
Unvested
TOTAL
2019
NUMBER
2018
NUMBER
900,000
2,450,000
-
-
(900,000)
(1,550,000)
-
-
-
-
900,000
900,000
-
900,000
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 three 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.
Former Long Term Incentive Plan ("LTIP")
As at 31 December 2019, there were 1,000,000 options outstanding (31 December 2018: 3,300,000) under the LTIP. The table
below summarises the number and movements in options under this plan during the year:
Table 10: LTIP Options
Movement for the year ended 31 December 2019:
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 2019:
Vested
Unvested
TOTAL
2019
NUMBER
2018
NUMBER
3,300,000
4,300,000
-
(1,500,000)
-
-
(800,000)
(1,000,000)
1,000,000
3,300,000
1,000,000
3,300,000
-
-
1,000,000
3,300,000
In the event that a participant in the LTIP 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 or be forfeited 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 or if the Plan Committee determines there has been a material
misstatement or omission in the financial statements which affects those options.
In the event of a change of control, all unvested options will vest.
37
Current Equity Incentive Plan
As at 31 December 2019, there were 1,600,000 options outstanding under this plan (31 December 2018: 600,000).
The table below summarises the number and movements in Options under this plan during the year:
Table 11: Equity Incentive Plan Options
Movement for the year ended 31 December 2019:
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 2019:
Vested
Unvested
TOTAL
2019
NUMBER
2018
NUMBER
600,000
-
1,000,000
600,000
-
-
-
-
1,600,000
600,000
1,000,000
-
600,000
600,000
1,600,000
600,000
In the event that a participant in the Equity Incentive Plan ceases to be an employee of the Group, the treatment of any options
held by the participant will depend on the circumstances surrounding the cessation of his/her employment. In general terms,
and subject to the discretion of the Board of Directors, if the participant is a “bad leaver” (for example resigns or ceases
employment due to poor performance), any unvested options will immediately lapse and any vested options must be exercised
within 60 days of ceasing employment after which time the vested options 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 has elapsed).
In the case of a director who participates in the Equity Incentive Plan and subject to the discretion of the Board of Directors,
if a director ceases to hold office as a director of the Company all unvested options will lapse and all vested but exercised
options will remain on foot and will be exercisable until the last exercise date (after which time they will lapse).
The Board of Directors also has power to deem that options will lapse or be forfeited 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
Group (or any member thereof) into disrepute or if the Board determines there has been a material misstatement or omission
in the financial statements that the Board of Directors considers may require a re-statement of the Group’s financial accounts.
In the event of a change of control, all unvested options will vest unless the Board determines otherwise.
(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:
38
SYRAH RESOURCES > ANNUAL REPORT 2019
Table 12: Remuneration for the financial year ended 31 December 2019
FIXED REMUNERATION
VARIABLE REMUNERATION
SALARY
& FEES(1)
LEAVE(2)
SUPER-
ANNUA-
TION
OTHER
STI
CASH(3)
STI
SHARES(3)
LTI
RIGHTS(4) OPTIONS(4)
TOTAL
US$
US$
US$
US$
US$
US$
US$
US$
NON-EXECUTIVE DIRECTORS
139,442
J Askew(5)
S Riggall
J Caldeira
L Bahash
S Watts(6)
C Lampe-Onnerud(7)
Sub-total
Non-Executive
Directors
84,707
86,873
91,862
47,988
21,718
472,590
EXECUTIVE DIRECTOR
S Verner
325,085
-
-
-
-
-
-
-
-
8,047
-
-
4,559
-
12,606
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
21,329
17,375
9,236
86,041
86,041
252,256
Sub-total Executive
Directors
325,085
21,329
17,375
9,236
86,041
86,041(8)
252,256
-
-
-
139,442
92,754
86,873
52,819
144,681
-
-
52,547
21,718
52,819
538,015
-
-
797,363
797,363
KEY MANAGEMENT PERSONNEL
J Costa
277,994
21,176
26,409
S Wells(9)
J Currie(10)
102,909
5,151
9,776
208,495
7,757
19,807
J Morrissey(12)
208,495
15,634
19,807
-
-
-
-
97,029
21,257
114,151
32,343
21,257
80,171
91,733
626,855
- (9)
18,497
178,847
- (56,953)(11)
- (11)
293,257
82,760
42,807
77,302
D Corr(13)
187,765
10,053
17,837
102,389
-
-
(512,190)
R Schaefer(14)
208,495
14,162
21,331
40,095
57,076
57,076
108,030
-
-
-
446,805
(194,146)
506,265
Sub-total Key
Management
Personnel
TOTAL(15)
1,194,153
73,933
114,967
142,484
372,273
153,483
(303,640)
110,230 1,857,883
1,991,828
95,262
144,948
151,720
458,314
239,524
(51,384)
163,049 3,193,261
(1) All amounts translated from Australian Dollars to United States Dollars at an average exchange for the year ended 31 December 2019 of 0.6950.
(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 shares and/or cash on 12 March 2020, in respect of performance for the year ended 31 December 2019 as
approved by the Remuneration, Nomination and Governance 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.
(6) The Board of Directors has also resolved to grant 100,000 performance rights to S Watts as part of her Director Contract, subject to shareholder
approval at the 2020 Annual General Meeting.
(7) C Lampe-Onnerud ceased as a Non-Executive Director of the Company effective from 24 March 2019.
(8) The Board of Directors has resolved to grant 865,892 EIP performance rights to S Verner, subject to shareholder approval, and 994,172
performance rights to other Key Management Personnel for the year ending 31 December 2019. The performance rights granted to S Verner remain
subject to shareholder approval.
(9) S Wells commenced employment with the Company as Chief Financial Officer on 2 September 2019 and he received a pro rata grant of 48,015
performance rights for the 2019 year on 12 March 2020
(10) J Currie ceased employment with the Company as Chief Legal Officer on 28 January 2020.
(11) J Currie relinquished all of her options and performance rights on 16 December 2019.
(12) J Morrissey ceased employment with the Company on 31 March 2020.
(13) D Corr ceased employment with the Company as Chief Financial Officer on 31 October 2019.
(14) R Schaefer ceased employment with the Company on 31 December 2019.
(15) Non-Executive Directors are entitled receive a travel stipend of $3,475 (A$5,000) for each international trip where the travel time is in excess of
seven hours of international travel.
39
Table 13: Remuneration for the financial year ended 31 December 2018
FIXED REMUNERATION
VARIABLE REMUNERATION
SALARY
& FEES(1)
SUPER-
ANNUA-
LEAVE(2)
TION OTHER
STI
CASH(3)
STI
SHARES(3)
LTI
RIGHTS(4) OPTIONS(4)
TOTAL
US$
US$
US$
US$
US$
US$
US$
US$
NON-EXECUTIVE DIRECTORS
138,122
J Askew(5)
82,315
94,098
85,997
41,440
83,304
S Riggall
J Caldeira
C Lampe-Onnerud(6)
L Bahash(7)
S Giorgini(8)
Sub-total
Non-Executive
Directors
-
-
-
-
-
-
-
7,820
-
-
-
7,559
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
138,122
90,135
94,098
85,997
41,440
334,741
425,604
-
334,741
875,396
525,276
-
15,379
EXECUTIVE DIRECTOR
S Verner
352,003
4,528
16,481
9,938
-
174,106
179,306
197,817
934,179
Sub-total
Executive
Directors
352,003
4,528
16,481
9,938
-
174,106
179,306
197,817
934,179
KEY MANAGEMENT PERSONNEL
D Corr
242,437
3,388
23,032
-
J Costa(9)
J Currie
J Morrissey
R Schaefer
Sub-total Key
Management
Personnel
TOTAL(10)
172,565
15,203
16,394
37,390
224,340
5,957
21,312
215,914
(4,982)
20,486
224,340
5,011
21,312
-
-
-
1,079,596
24,577
102,536
37,390
1,956,875
29,105
134,396
47,328
-
-
-
-
-
-
-
66,367
427,275
-
762,499
92,120
31,736
133,728
499,136
92,120
61,281
421,751
826,761
92,120
85,914
-
409,452
79,837
75,072
55,344
460,916
422,564
681,278
610,823 2,958,764
596,670
860,584
1,143,381 4,768,339
(1) All amounts translated from Australian Dollars to United States Dollars at an average exchange for the year ended 31 December 2018 of 0.7478.
(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 shares on 21 March 2019, in respect of performance for the year ended 31 December 2018 as approved by the
Remuneration, Nomination and Governance 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.
(6) C Lampe-Onnerud ceased as a Non-Executive Director of the Company effective from 24 March 2019.
(7) L Bahash commenced as a Non-Executive Director of the Company effective from 16 July 2018.
(8) S Giorgini ceased as a Non-Executive Director of the Company effective from 6 December 2018.
(9) J Costa commenced employment with the Company as Chief Operating Officer on 4 June 2018.
(10) Non-Executive Directors are entitled receive a travel stipend of $3,739 (A$5,000) for each international trip where the travel time is in excess of
seven hours of international travel.
40
SYRAH RESOURCES > ANNUAL REPORT 2019
(G) EXECUTIVE SERVICE AGREEMENTS
Remuneration and other key terms of employment for Executive Directors and Key Management Personnel for the year ending
31 December 2019 as formalised in Employment Agreements and summarised in the following table:
Table 14: Overview of Executive Service Agreements
TERM OF
AGREEMENT
TOTAL
FIXED
REMUNER-
ATION
ANNUAL STI
OPPORT-
UNITY
ANNUAL LTI
GRANT
NOTICE
PERIOD BY
EXECUTIVE
NOTICE
PERIOD BY
COMPANY
TERMINATION
PAYMENT
NAME
POSITION
S Verner
Managing Director
and Chief Executive
Officer
D Corr
Chief Financial
Officer
S Wells
Chief Financial
Officer
J Costa
Chief Operating
Officer
J Currie
Chief Legal Officer
and Company
Secretary
Ongoing
A$492,750 75% of TFR
75% of TFR 3 months
3 months
Ceased(1)
A$355,000 50% of TFR
50% of TFR 3 months
3 months
Ongoing(2)
A$410,625 50% of TFR
50% of TFR 3 months
3 months
Ongoing
A$438,000 50% of TFR
50% of TFR 6 months
6 months
Ongoing(3)
A$328,500 50% of TFR
50% of TFR 3 months
3 months
J Morrissey Chief People
Ongoing(4)
A$328,500 50% of TFR
50% of TFR 3 months
3 months
Officer
R Schaefer Chief Commercial
Officer
Ceased(5)
A$328,500 50% of TFR
50% of TFR 3 months
3 months
(1) D Corr ceased employment with the Company as Chief Financial Officer on 31 October 2019.
(2) S Wells commenced employment with the Company as Chief Financial Officer on 2 September 2019.
(3) J Currie ceased employment with the Company as Chief Legal Officer on 28 January 2020.
(4) J Morrissey ceased employment with the Company on 31 March 2020.
(5) R Schaefer ceased employment with the Company on 31 December 2019.
12 months
Total Fixed
Remuneration
6 months
Total Fixed
Remuneration
6 months
Total Fixed
Remuneration
6 months
Total Fixed
Remuneration
3 months
Total Fixed
Remuneration
3 months
Total Fixed
Remuneration
3 months
Total Fixed
Remuneration
41
(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:
Table 15: Overview of Performance Rights
GRANT DATE
21-Mar-17
26-May-17
14-Mar-18
18-May-18
25-Jun-18
21-Mar-19
27-May-19
12-Mar-20
12-Mar-20
VESTING
DATE
1-Jan-20
1-Jan-20
1-Jan-21
1-Jan-21
1-Jan-21
1-Jan-22
1-Jan-22
1-Jan-23
1-Jan-22
EXERCISE
PRICE
-
NUMBER OF
RIGHTS(1)
100,012
VALUE PER RIGHT AT
GRANT DATE
A$2.88
-
-
-
-
-
-
-
-
121,773
66,130
93,974
32,485
257,846
217,558
994,172(2)
48,015(3)
A$2.88
A$3.93
A$3.93
A$3.93
A$1.70
A$1.70
A$0.43
A$0.43
(1) The Board of Directors has also resolved to grant 100,000 performance rights to S Watts as part of her Director Contract, subject to shareholder
approval at the 2020 Annual General Meeting.
(2) 994,172 Performance Rights were issued to Key Management Personnel pursuant to the LTI program in respect of the period commencing 1 January
2020. In addition, the Board of Directors has also resolved to grant 865,892 Performance Rights to S Verner as his LTI, subject to shareholder approval.
(3) 48,015 Performance Rights were issued to Key Management Personnel pursuant to the LTI program in respect of the period commencing 1 January
2019 as a pro-rata allocation to Key Management Personnel who commenced employment with the Company part way through 2019.
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 LTIP 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 years from the First Exercise
Date (unless otherwise stated in the relevant offer letter or certificate). The Equity Incentive Plan provides that performance rights
will lapse on the earlier of the date so nominated in the offer letter (2019/2018: two years from the date of the vesting notice), 15 years
after allocation (if no date is specified), in accordance with the rules of the Equity Incentive Plan, upon a failure to meet a Vesting
Condition (or any other applicable condition) or receipt of a notice from the participant electing to surrender the Right.
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:
Table 16: Overview of Options
GRANT DATE
26-May-17
25-Jun-18
27-May-19
7-Oct-19
VESTING
DATE
26-May-18
4-Jun-19
16-Jul-19
7-Oct-20
EXPIRY
DATE
26-May-20
25-Jun-21
16-Jul-21
7-Oct-22
EXERCISE
PRICE
A$4.27(1)
A$4.34(1)
A$2.86
A$0.70
NUMBER OF
RIGHTS
1,000,000(2)
VALUE PER RIGHT
AT GRANT DATE
A$0.66
600,000(3)
400,000(4)
600,000(5)
A$0.52
A$0.19
A$0.19
(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. Subsequently, effective from 30 July 2019, 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 5 pro-rata accelerated non-renounceable entitlement offer.
(2) 1,000,000 unlisted options issued to S Verner, Managing Director and Chief Executive Officer.
(3) 600,000 unlisted options issued to J Costa, Chief Operating Officer.
(4) 400,000 unlisted options issued to L Bahash, Non-Executive Director in accordance with the resolution passed at the Annual General Meeting
on 24 May 2019.
(5) 600,000 unlisted options issued to S Wells, Chief Finance Officer.
42
SYRAH RESOURCES > ANNUAL REPORT 2019 (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:
Table 17: Shares Held by Directors/Key Management Personnel
BALANCE
1 JANUARY
2019
ORDINARY
SHARES
GRANTED
ORDINARY
SHARES
ISSUED ON
EXERCISE OF
OPTIONS
ON MARKET
ACQUISITIONS/
(DISPOSALS)
DIRECTORS
J Askew
S Riggall
J Caldeira
L Bahash
S Watts(2)
107,517
20,627
12,082
15,583
-
-
-
-
-
-
EXECUTIVE DIRECTOR
S Verner
80,231
180,470 (3)(4)
KEY MANAGEMENT PERSONNEL
S Wells(4) (7)
D Corr(8)
J Costa
J Currie(9)
J Morrissey
R Schaefer(10)
-
-
59,594
187,456 (5)(6)
-
95,487 (4)(5)
9,321
95,487 (5)
29,512
95,487 (4)(5)
29,072
82,755
(5)
-
-
-
-
-
-
-
-
-
-
-
-
250,000
-
-
-
38,000
-
-
-
-
(104,808)
(108,856)
(7,500)
BALANCE
31 DECEMBER
2019
377,517
24,752
12,082
15,583
38,000
260,701
-
-
OTHER
20,000(1)
4,125(1)
-
-
-
-
-
(247,050)(8)
19,097(1)
114,584
-
-
22,364
-
16,143
126,691
(1) Shares acquired through participation in the Retail Entitlement Officer announced on 19 June 2019.
(2) S Watts appointed as a Non-Executive Director of the Company 3 June 2019.
(3) Fully paid ordinary shares issued to S Verner pursuant to the resolution passed at Annual General Meeting 24 May 2019.
(4) The Board of Directors resolved to issue 286,473 shares to S Verner and 320,983 shares to Key Management Personnel pursuant to the STI
Program for the 2019 year. The shares to be to be issued to S Verner remain subject to shareholder approval at the Annual General Meeting. The
shares issued to Key Management Personnel were issued on 12 March 2020 and are not included in the above reconciliation.
(5) Shares issued on 21 March 2019 pursuant to the STI Program in respect of the year ended 31 December 2018.
(6) Shares granted also includes the shares issued on exercise of the performance rights that vested under the LTI Program.
(7) S Wells commenced as Chief Financial Officer on 2 September 2019.
(8) D Corr ceased his role as Chief Financial Officer on 31 October 2019.
(9) J Currie ceased employment with the Company on 28 January 2020.
(10) R Schaefer ceased employment with the Company on 31 December 2019. 178,145 shared issued on 6 January 2020 pursuant to the STI program
for the 2019 year.
43
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.
Table 18: Performance Rights Held by Directors/Key Management Personnel
BALANCE
1 JANUARY
2019
GRANT
GRANTED
DURING
THE
PERIOD
LAPSED
DURING
THE
PERIOD
NET
CHANGE
OTHER
BALANCE
31 DECEMBER
2019
VESTED UNVESTED
-
-
-
-
-
-
DIRECTORS
S Verner(5)
2019(1)
2018
2017
Total
-
217,558
93,974
121,773
-
-
215,747
217,558
-
-
-
-
KEY MANAGEMENT PERSONNEL
D Corr
2019
-
104,492
(104,492)
2018
2018
2017
2016
Total
2019(1)
2018
Total
2019
2018
2018
Total
2019
2018
2017
2016
Total
2019
2018
2017
Total
2019(1)
Total
45,136
118,663
61,679
45,946(2)
271,424
-
32,485
32,485
-
41,766
14,269(4)
56,035
-
38,286
52,319
12,597
103,202
-
41,766
47,693
89,459
-
-
J Costa(5)
J Currie
J Morrissey
R Schaefer
S Wells(5)
-
-
-
-
(45,136)
-
(118,663)
(61,679)
(45,946)
-
-
104,492
128,923
(257,253)
-
(118,663)
-
-
-
128,923
96,692
-
-
-
(96,692)
(41,766)
(14,269)
96,692
96,692
(152,727)
-
-
-
-
96,692
96,692
-
-
96,692
-
-
-
-
(12,597)
(12,597)
(64,461)
(13,922)
-
(78,383)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
217,558
93,974
121,773
433,305
-
-
-
-
-
-
128,923
32,485
161,408
-
-
-
-
96,692
38,286
52,319
-
187,297
32,231
27,844
47,693
107,768
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
217,558
93,974
121,773(3)
433,305
-
-
-
-
-
-
128,923
32,485
161,408
-
-
-
-
96,692
38,286
52,319(3)
-
187,297
32,231
27,844
47,693(3)
107,768
-
-
(1) The Board of Directors has also resolved to grant 865,892 Performance Rights to S Verner as his LTI, subject to shareholder approval. 3,026,960
Performance Rights were issued to Key Management Personnel and other executives and senior managers pursuant to the LTI program in respect
of the period commencing on 1 January 2020. The performance rights issued to Key Management Personnel were issued on 12 March 2020 and
are not included in the above reconciliation. J Costa and S Wells were granted 513,121 and 481,051 performance rights respectively in relation
to the LTI program in respect of the period commencing on 1 January 2020. S Wells was also granted 48,015 performance rights in relation to
his pro-rata LTI in respect of the period commencing on 1 January 2019, along with other employees totaling 19,272 performance rights; these
performance rights were issued on 12 March 2020.
(2) Additional performance rights issued to D Corr on 14 March 2018 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 previous three years.
(3) The performance rights issued under the LTI Program in 2017, were subject to testing of vesting conditions in early 2020. All such rights lapsed on
their terms.
(4) Performance rights issued on a pro-rata basis in respect of 2017 LTI Program entitlements and were granted on 14 March 2018.
(5) A total of 9,750,000 Performance rights are proposed to be issued to Key Management Personnel under the 5YPRI (as summarised in Section C
of this report). S Verner is proposed to be issued 4,000,000 performance rights (subject to shareholder approval), J Costa 3,250,000 performance
rights and S Wells 2,500,000 performance rights under the 5YPRI.
44
SYRAH RESOURCES > ANNUAL REPORT 2019
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:
Table 19: Options Held by Directors/ Key Management Personnel
BALANCE
1 JANUARY
2019
GRANTED
BALANCE
DURING
THE
PERIOD
OPTIONS
EXERCISED
DIRECTORS
J Caldeira
C Lampe-
Onnerud(2)
S Giorgini(3)
L Bahash(4)
400,000
400,000
400,000
-
-
-
-
400,000
EXECUTIVE DIRECTOR
S Verner(5)
1,000,000
KEY MANAGEMENT PERSONNEL
J Costa
600,000
-
-
S Wells(6)
J Currie(7)
-
600,000
600,000
R Schaefer(8)
600,000
-
-
NET
CHANGE
OTHER (INC
EXPIRY /
LAPSE)
(400,000)
(400,000)
(400,000)
-
-
-
-
(600,000)
(600,000)
BALANCE
31 DECEMBER
2019 VESTED UNVESTED
EXERCISE
PRICE
-
-
-
-
-
-
400,000
400,000
-
-
-
-
$6.20(1)
$5.04
$3.85
$2.86(1)
1,000,000 1,000,000
-
$4.27(1)
600,000
600,000
-
$4.34(1)
600,000
-
-
-
-
-
600,000
$0.70
-
-
$4.64(1)
$4.08(1)
-
-
-
-
-
-
-
-
-
(1) Effective from 30 July 2019, 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 5 pro-rata
accelerated non-renounceable entitlement offer.
(2) 400,000 unlisted options issued to C Lampe-Onnerud, Non-Executive Director expired effective 24 May 2019 in accordance with their terms
following C Lampe-Onnerud’s resignation on 24 March 2019.
(3) 400,000 unlisted options issued to S Giorgini, Non-Executive Director expired on 5 February 2019 in accordance with their terms following Mr
Giorgini’s resignation on 6 December 2018.
(4) 400,000 unlisted options issued to L Bahash, Non-Executive Director in accordance with the resolution passed at the Annual General Meeting on
24 May 2019.
(5) 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$4.30 and expiring in three years from the date of grant. The issuance of
these options was approved by the shareholders at the Annual General Meeting held on 19 May 2017 and issued on 26 May 2017.
(6) S Wells commenced employment with the Company as Chief Financial Officer on 2 September 2019. 600,000 options were issued to S Wells upon
his appointment and vest one year from that date.
(7) J Currie’s option lapsed in accordance with their terms on cessation of employment.
(8) R Schaefer ceased employment with the Company on 31 December 2019 and his options lapsed in accordance with their terms.
45
(J) OTHER TRANSACTIONS WITH DIRECTORS AND KEY MANAGEMENT
PERSONNEL
Aggregate amounts of other transactions with Directors and Key Management Personnel is set out below:
Table 20: Transactions with Directors/ Key Management Personnel
Provision of services
Product technology development services provided Cadenza Innovation Inc(1)
Legal services provided by Sal & Caldeira Advogados, Lda(2)
2019
US$
2018
US$
301,119
1,990,282
195,343
125,950
496,462
2,116,232
(1) C Lampe-Onnerud who is a Non-Executive Director of the Company is also Founder and Chief Executive Officer of Cadenza Innovation Inc. During
the year, the Company had 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 and support the BAM processing plant in Louisiana. C Lampe-Onnerud ceased as a
Non-Executive Director effective 24 March 2019. The contract with Cadenza has continue subsequent to C Lampe-Onnerud's resignation.
(2) 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.
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
2019
US$
8,508
2018
US$
1,000
(K) ADDITIONAL INFORMATION
The Company aims to align executive remuneration to drive short, medium and long-term outcomes for the business which
creates shareholder value. The table below shows the Group’s performance over the past five 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$’000)
Closing share price (US$)
31-DEC
2019
136,156
0.33
31-DEC
2018
386,705
1.13
31-DEC
2017
1,045,520
3.52
31-DEC
2016
582,107
2.21
Loss after income tax for the period (US$’000)
(130,549)
(28,970)
(28,970)
(14,491)
Basic earnings per share (US cents)
(34.56)
(9.30)
(4.51)
(5.84)
31-DEC
2015
658,231
2.85
(2,356)
(1.09)
46
SYRAH RESOURCES > ANNUAL REPORT 2019
SHARE 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:
Table 21: Unissued Ordinary Shares under Options and Performance Rights
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
Long Term Incentive Plan ("LTIP")
26-May-17
26-May-18
26-May-20
A$4.27 (1)(2)
1,000,000
A$0.66
Equity Incentive Plan (“EIP”)
25-Jun-18
27-May-19
07-Oct-19
Total Options
Performance Rights
LTIP
14-Mar-18
18-May-18
EIP
25-Jun-18
7-Aug-18
21-Mar-19
27-May-19
30-Aug-19
12-Mar-20
12-Mar-20
Total Performance Rights
4-Jun-18
16-Jul-19
25-Jun-21
16-Jul-21
A$4.34
A$2.86
(2)
(2)
07-Oct-20
07-Oct-22
A$0.70
1-Jan-21
31-Dec-20
31-Dec-20
31-Dec-18
1-Jan-22
1-Jan-22
31-Dec-20
1-Jan-23
1-Jan-22
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
600,000
400,000
600,000
2,600,000
134,274
93,974
32,485
12,240
650,993
217,558
600,194
3,026,960(2)
67,287(3)
4,835,965
A$0.52
A$0.19
A$0.19
A$3.93
A$3.93
A$3.93
A$2.92
A$1.70
A$1.70
A$0.70
A$0.43
A$0.43
(1) Effective from 2 November 2017, the exercise price of options was 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.
Subsequently, effective from 30 July 2019, 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 5
pro-rata accelerated non-renounceable entitlement offer.
(2) The Board of Directors has also resolved to grant 100,000 performance rights to S Watts as part of her Director Contract, subject to shareholder
approval at the 2020 Annual General Meeting. 3,026,960 Performance Rights were issued to Key Management Personnel and other executives and
senior managers pursuant to the LTI program in respect of the period commencing 1 January 2020. In addition, the Board of Directors has also
resolved to grant 865,892 Performance Rights to S Verner as his LTI, subject to shareholder approval.
(3) 67,287 Performance Rights were issued to Key Management Personnel and other executives and senior managers pursuant to the LTI program
in respect of the period commencing 1 January 2019 as a pro-rata allocation to employees who started work with the Company part way through
2019.
47
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 LTIP provides that vested Performance Rights
will 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 (unless otherwise stated
in the relevant offer letter or certificate). The Equity Incentive
Plan provides that performance rights will lapse on the earlier
of the date so nominated in the offer letter (2018: two years
from the date of the vesting notice),15 years after allocation
(if no date is specified), in accordance with the rules of the
Equity Incentive Plan, upon failure to meet a Vesting Condition
(or any other applicable condition) or receipt of a notice from
the participant electing to surrender the Right.
No option holder has any right under the options to
participate in any share issue of the Company.
Shares issued on exercise of options
(ii)
No options were exercised during the year ended 31
December 2019 and up to the date of this report.
INDEMNIFICATION OF OFFICERS
During the year the Company paid a premium in respect of a
contract insuring the directors of the Company, the company
secretary 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. 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.
AUDITOR
PricewaterhouseCoopers continues in office in accordance
with section 327 of the Corporations Act.
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 and
Risk 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.
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 for the following reasons:
> All non-audit services have been reviewed by the Audit
and Risk 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.
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
PwC Australian firm
Tax compliance services
Tax consulting services
Network firms of PwC
Australian firm
Other consulting services
Total remuneration for non-
assurance services
Total remuneration paid to
PricewaterhouseCoopers
2019
US$’000
2018
US$’000
204
224
87
93
291
317
66
121
5
192
483
47
15
-
62
379
The Group’s policy allows the engagement of
PricewaterhouseCoopers on certain assignments additional
to their statutory audit duties where PricewaterhouseCoopers
expertise and experience with the Group are important,
subject to a cap in fees on individual assignments, and a
cap on aggregate fees over the course of a year. Certain
assignments, and assignments in excess of these caps,
require approval from the Audit and Risk Committee.
These assignments are principally tax consulting and advice
or where PricewaterhouseCoopers is awarded assignments
on a competitive basis. It is the Group’s policy to seek
competitive tenders for all major consulting assignments.
48
SYRAH RESOURCES > ANNUAL REPORT 2019
AUDITOR’S INDEPENDENCE
DECLARATION
A copy of the auditor’s independence declaration as required
under section 307C of the Corporations Act is
set out on page 50.
ROUNDING OF AMOUNTS
The amounts contained in this report and in the financial
report have been rounded off to the nearest US$’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.
The report is made in accordance with a resolution of
Directors.
Shaun Verner
Managing Director and Chief Executive Officer
Melbourne, Australia
31 March 2020
49
AUDITOR’S INDEPENDENCE DECLARATION
Auditor’s Independence Declaration
As lead auditor for the audit of Syrah Resources Limited for the year ended 31 December 2019, 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
31 March 2020
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.
50
SYRAH RESOURCES > ANNUAL REPORT 2019
CONSOLIDATED FINANCIAL STATEMENTS
For the financial year ended 31 December 2019
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 4 to
22, which is not part of these financial
statements.
The financial statements were
authorised for issue by the Directors
on 31 March 2020. 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
CONTENT
PAGE
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
CONSOLIDATED STATEMENT OF CASH FLOWS
NOTE HOW THE NUMBERS ARE CALCULATED
1
2
3
4
5
6
7
8
9
10
11
INTRODUCTION
SEGMENT INFORMATION
REVENUE
COST OF SALES
DISTRIBUTION COSTS
ADMINISTRATIVE EXPENSES
INCOME TAX EXPENSE
FINANCIAL ASSETS AND FINANCIAL LIABILITIES
NON-FINANCIAL ASSETS AND NON-FINANCIAL
LIABILITIES
EQUITY
RECONCILIATION OF LOSS AFTER INCOME TAX TO
NET CASH OUTFLOW FROM OPERATING ACTIVITIES
RISK
12
FINANCIAL RISK MANAGEMENT
UNRECOGNISED ITEMS
13
14
15
16
17
18
19
20
21
22
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
52
53
54
55
56
57
58
59
59
59
60
61
62
64
71
73
74
75
78
79
79
80
81
82
85
85
86
87
87
90
51
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2019
Revenue from continuing operations
Revenue
Cost of sales
Gross profit/(loss)
Distribution costs
Administrative expenses
Other income/(expenses)
Write-down of inventories
Total expenses
Impairment of assets
NOTES
3
4
5
6
9
2019
US$’000
72,186
(105,477)
(33,291)
(11,169)
(8,644)
(330)
(6,687)
(26,830)
(96,868)
2018
US$’000
-
-
-
-
(30,823)
(1,152)
-
(31,975)
-
Profit/(loss) before net finance income and income tax
(156,989)
(31,975)
Finance income
Finance expenses
Net finance income/(expenses)
Profit/(loss) before income tax
1,145
(2,006)
(861)
1,207
(69)
1,138
(157,850)
(30,837)
Income tax (expense)/benefit
7
27,301
1,867
Loss after income tax for the year attributable to the owners of
Syrah Resources Limited
(130,549)
(28,970)
Other comprehensive income
Items that may be reclassified subsequently to the profit or loss
Exchange differences on translation of foreign subsidiaries
10b
Other comprehensive income/(loss) for the year, net of tax
(924)
(924)
(1,128)
(1,128)
Total comprehensive income/(loss) for the year attributable to the
owners of Syrah Resources Limited
(131,473)
(30,098)
Loss per share attributable to the owners of Syrah Resources Limited
Basic loss per share
Diluted loss per share
18
18
Cents
(34.56)
(34.56)
Cents
(9.30)
(9.30)
The above consolidated statement of comprehensive income should be read in conjunction with the accompanying notes.
52
SYRAH RESOURCES > ANNUAL REPORT 2019
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 31 DECEMBER 2019
NOTES
2019
US$’000
2018
US$’000
Assets
Current assets
Cash and cash equivalents
Trade and other receivables
Inventories
Available-for-sale financial assets
Total current assets
Non-current assets
Trade and other receivables
Property, plant and equipment
Mining assets
Intangible assets
Deferred tax assets
Total non-current assets
Total assets
Liabilities
Current liabilities
Trade and other payables
Lease liabilities
Provisions
Total current liabilities
Non-current liabilities
Borrowings
Lease liabilities
Provisions
Total non-current liabilities
Total liabilities
Net assets
Equity
Issued capital
Reserves
Accumulated losses
Total equity
8a
8b
9a
8b
9c
9b
9d
8c
8d
9e
8e
8d
9e
10a
10b
80,577
4,471
18,023
162
77,149
12,446
-
82
103,233
89,677
19,593
160,671
120,731
151
27,753
328,899
432,132
11,464
1,837
481
13,782
39,688
16,794
10,007
66,489
80,271
20,771
31,442
331,202
225
452
384,092
473,769
15,926
1,490
451
17,867
-
4,102
6,590
10,692
28,559
351,861
445,210
563,694
(7,337)
(204,496)
525,085
(2,656)
(77,219)
351,861
445,210
The above consolidated statement of financial position should be read in conjunction with the accompanying notes.
53
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2019
Balance at 1 January 2019
Change in accounting policy (note 22(bb))
Restated total equity at 1 January 2019
Loss after income tax expense for the year
Other comprehensive income/(loss) for the year,
net of tax
Total comprehensive income/(loss) for the year
Transactions with owners in their capacity as
owners:
Contributions of equity, net of transaction costs
Share-based payments
Transfers from share-based payments reserve:
-
Issuance of shares
- Expired / lapsed options and performance rights
CONTRIBUTED
EQUITY
ACCUMULATED
LOSSES
RESERVES
US$’000
525,085
-
525,085
US$’000
(77,219)
(628)
(77,847)
US$’000
(2,656)
-
(2,656)
TOTAL
EQUITY
US$’000
445,210
(628)
444,582
-
-
-
37,507
-
1,102
-
38,609
(130,549)
-
(130,549)
-
(130,549)
(924)
(924)
(924)
(131,473)
-
-
-
3,900
3,900
-
1,245
(1,102)
(3,900)
(3,757)
37,507
1,245
-
-
38,752
Balance at 31 December 2019
563,694
(204,496)
(7,337)
351,861
Balance at 1 January 2018
452,601
Loss after income tax expense for the year
Other comprehensive income/(loss) for the year,
net of tax
Total comprehensive income/(loss) for the year
Transactions with owners in their capacity as
owners:
Contributions of equity, net of transaction costs
Share-based payments
Transfers from share-based payments reserve:
-
Issuance of shares
- Expired / lapsed options and performance rights
-
-
-
71,229
-
1,255
-
72,484
(50,676)
(28,970)
-
(28,970)
-
-
-
2,427
2,427
(9,289)
-
(1,128)
(1,128)
-
11,443
(1,255)
(2,427)
7,761
392,636
(28,970)
(1,128)
(30,098)
71,229
11,443
-
-
82,672
Balance at 31 December 2018
525,085
(77,219)
(2,656)
445,210
The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes.
54
SYRAH RESOURCES > ANNUAL REPORT 2019
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 DECEMBER 2019
Cash flows from operating activities
Receipts from customers
Payments to suppliers and employees (inclusive of goods
and services tax)
Interest received
Net cash inflow/(outflow) from operating activities
11
Cash flows from investing activities
Payments for property, plant and equipment
Payments for mining assets
Payments for intangibles
Payments for security deposits
Net cash inflow/(outflow) from investing activities
Cash flows from financing activities
Proceeds from issue of shares
Proceeds from issue of convertible note
Share issue transaction costs
Payment for interest on lease liabilities
Payments of lease liabilities
Net cash inflow/(outflow) from financing activities
Net (decrease)/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
8a
The above consolidated statement of cash flows should be read in conjunction with the accompanying notes.
NOTES
2019
US$’000
2018
US$’000
69,519
-
(104,417)
1,312
(33,586)
(29,930)
(5,412)
(20)
(1,248)
(36,610)
39,206
39,072
(1,699)
(1,272)
(1,682)
73,625
3,429
77,149
(1)
80,577
(11,128)
1,106
(10,022)
(16,733)
(76,608)
(7)
(1,243)
(94,591)
73,598
-
(2,369)
-
(693)
70,536
(34,077)
111,912
(686)
77,149
55
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.
b.
c.
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
analysis and sub-totals, including segment information
information about estimates and judgements made in relation to particular items.
NOTE HOW THE NUMBERS ARE CALCULATED
PAGE
INTRODUCTION
SEGMENT INFORMATION
REVENUE
COST OF SALES
DISTRIBUTION COSTS
ADMINISTRATIVE EXPENSES
INCOME TAX EXPENSE
FINANCIAL ASSETS AND FINANCIAL LIABILITIES
NON-FINANCIAL ASSETS AND NON-FINANCIAL LIABILITIES
EQUITY
RECONCILIATION OF LOSS AFTER INCOME TAX TO NET CASH OUTFLOW FROM
OPERATING ACTIVITIES
57
58
59
59
59
60
61
62
64
71
73
1
2
3
4
5
6
7
8
9
10
11
56
SYRAH RESOURCES > ANNUAL REPORT 2019 Parent entity information
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 19.
b)
Reporting currency
Functional and presentation currency
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 Statement
of Comprehensive Income 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 of (for net
investment hedges), at which time they are recognised in the
Statement of Comprehensive Income.
Translation
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 (31
December 2019: 0.7006) (31 December 2018: 0.7058) and
the Statement of Comprehensive Income is translated at the
average exchange rate for the financial year (2019: 0.6950)
(2018: 0.7478). On consolidation, exchange differences
arising from the translation of these subsidiaries are
recognised in other comprehensive income and accumulated
in the foreign currency translation reserve.
NOTE 1. INTRODUCTION
Basis of preparation
a)
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.
Estimate and assumptions which are material to the financial
report are found in the following notes:
> Impairment of non-current assets – assessment of
indicators of impairment and review of asset carrying
values – note 9(b)
> Close-down restoration and environmental obligations –
estimation costs and the timing of expenditure–note 9(e)
> Recoverability of deferred tax assets for carried forward
tax losses – note 9(d)
> Recoverability of input tax credits – note 8(b)
> Carry forward value of exploration and evaluation –
note 9(b)
> Liquidity – note 12(c)
The Balama Graphite Operation (“Balama”) transitioned to
operations on 1 January 2018 following the achievement
of first production of graphite in late 2017 and declared
commercial production from 1 January 2019.
Upon commencement of commercial production, the
capitalisation of certain mine construction and operation
costs net of sales receipts ceased. From this point, costs
have been attributed to inventory or expensed in the period
in which they are incurred, except for capitalised costs
related to property, plant and equipment that provide a future
economic benefit, and certain exploration and evaluation
expenditures. At this point depreciation and amortisation of
previously capitalised costs also commenced.
57
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
BAM
Production, distribution and sale of natural flake graphite from the Balama Graphite Operation (“Balama”)
in Mozambique.
Ongoing assessment and development of downstream Battery Anode Material ("BAM") opportunities for natural
flake graphite including the development of a processing facility in the USA.
Corporate Corporate administration and investing activities.
b)
Segment information
Year ended 31 December 2019
Total segment revenue
Inter-segment revenue
Revenue from external customers
BALAMA
US$’000
72,234
(48)
72,186
BAM CORPORATE
CONSOLIDATED
US$’000
US$’000
US$’000
-
-
-
-
-
-
72,234
(48)
72,186
Total segment result before income tax expense
(148,504)
(41)
(9,305)
(157,850)
Year ended 31 December 2018
Total segment revenue
Inter-segment revenue
Revenue from external customers
-
-
-
-
-
-
-
-
-
-
-
-
Total segment result before income tax expense
(20,572)
(169)
(10,096)
(30,837)
Total segment assets
31 December 2019
31 December 2018
Total segment liabilities
31 December 2019
31 December 2018
304,704
369,452
45,432
30,334
81,996
73,983
432,132
473,769
(38,381)
(24,430)
(531)
(2,851)
(41,359)
(1,278)
(80,271)
(28,559)
58
SYRAH RESOURCES > ANNUAL REPORT 2019
NOTE 3. REVENUE
Revenue from external customers
Timing of revenue recognition
- At a point in time – Product
- Over time – Freight
2019
US$’000
72,186
66,303
5,883
(a) Geographical information
Segment revenues from sales to external customers based on the geographical location of the port of discharge.
China
Europe
India
Asia (excl. China & India)
Americas
Africa
2019
US$’000
54,787
8,612
3,919
2,906
1,900
62
72,186
2018
US$’000
-
-
-
2018
US$’000
-
-
-
-
-
-
-
(b) Major customer information
Revenues from four major customers in China, which individually accounted for approximately 8% or greater of total segment
revenues, amounted to $41.2 million arising from the sale of natural graphite products on CIF basis.
NOTE 4. COST OF SALES
Mining and production costs
Logistics costs
Government royalties
Depreciation and amortisation expense
Changes in inventories
NOTE 5. DISTRIBUTION COSTS
Shipping costs
Depreciation and amortisation
Other selling costs
2019
US$’000
79,238
14,769
1,269
11,929
(1,728)
105,477
2019
US$’000
8,523
95
2,551
11,169
2018
US$’000
-
-
-
-
-
-
2018
US$’000
-
-
-
-
59
NOTE 6. ADMINISTRATIVE EXPENSES
Loss before income tax from continuing operations includes the following specific expenses:
Employee benefits:
Salaries and wages
Share-based payments
Employee entitlements
Defined contribution superannuation expense
Total employee benefits expense
Legal and consulting expenses:
Legal expenses
Consulting expenses
Total legal and consulting expenses
Other expenses:
Write-off of certain mining assets and pre-commercial production
operating costs(1)
Share based payments – non-controlling interest(2)
Other
Total other expenses
2019
US$’000
3,965
1,295
228
246
5,734
127
1,131
1,258
-
-
1,652
1,652
2018
US$’000
5,227
4,296
392
307
10,222
318
1,655
1,973
7,433
7,201
3,994
18,628
Total administrative expenses
8,644
30,823
(1) Represents the write-off of certain mining assets and a proportion of associated pre-commercial production operating costs due to major
equipment failures (fine dryer damage and primary classifier screen fire) during the year ended 31 December 2018.
(2) During the year ended 31 December 2018, Twigg Exploration and Mining Limitada (“Twigg”) entered into a Mining Agreement with the Ministry
of Mineral Resources and Energy of the Republic of Mozambique, creating a contractual obligation to provide a 5% non-controlling non-diluting
interest in Twigg to a Mozambique Government entity. As at 31 December 2019, the issuance of shares to the Mozambique Government entity
had not occurred. An expense and a corresponding increase in the share-based payment reserve has been recognised in the year ended
31 December 2018 to reflect the contractual obligation to provide an interest in Twigg to the Mozambique Government entity (refer note 16(d) for
further details).
60
SYRAH RESOURCES > ANNUAL REPORT 2019
NOTE 7. INCOME TAX EXPENSE
a)
Income tax expense
Current tax expense
Deferred tax expense
Total tax expense/(benefit)
Deferred income tax
(Increase)/decrease in deferred tax assets
Increase/(decrease) in deferred tax liabilities
Total deferred tax expense/(benefit)
2019
US$’000
-
(27,301)
(27,301)
(5,985)
(21,316)
(27,301)
b) Numerical reconciliation of income tax for the year to prima facie tax payable
Loss from continuing operations before income tax
Tax at the Australian tax rate of 30% (2018 – 30%)
Tax effect of amounts which are not deductible/(taxable) in calculating taxable
income:
- Share-based payments
- Other non-deductible expenses
- Difference in overseas tax rates
- Movement in unrecognised temporary differences
-
(Under)/over provision in the prior year
- Current year taxation losses not recognised as deferred tax assets
- Sundry items
Income tax expense/(benefit)
c)
Taxation losses and unrecognised temporary differences
Unused taxation losses for which no deferred tax asset has been recognised
Potential taxation benefit at 30%
2019
US$’000
(157,850)
(47,355)
388
215
(1,882)
(305)
(2,016)
22,663
991
(27,301)
2019
US$’000
105,811
31,743
2018
US$’000
-
(1,867)
(1,867)
(452)
(1,415)
(1,867)
2018
US$’000
(30,837)
(9,251)
3,450
2,212
578
(1,172)
1,341
410
565
(1,867)
2018
US$’000
33,001
9,900
Temporary differences for which no deferred tax asset (net) has been recognised
590
409
The taxation benefits of taxation losses and temporary differences not brought to account will only be obtained if:
> the consolidated entity derives future assessable income of a nature and of an amount sufficient to enable the benefit from the
deductions for the losses to be realised in the respective jurisdictions and within the allowed timeframes for tax loss utilisation;
> the consolidated entity continues to comply with the conditions for deductibility imposed by law; and
> no change in tax legislation adversely affects the consolidated entity in realising the benefits from deducting the losses.
61
NOTE 8. FINANCIAL ASSETS AND FINANCIAL LIABILITIES
a) Cash and cash equivalents
Cash at bank and in hand
Deposits at call
2019
US$’000
17,700
62,877
80,577
2018
US$’000
8,133
69,016
77,149
Total cash is held in current accounts or money market deposits with major financial institutions under normal terms and
conditions appropriate to the operation of the accounts. These deposits earn interest at rates set by these institutions. As at
31 December 2019 the weighted average interest rate on current accounts and term deposits was 1.28% (2018: 2.05%).
(i)
Risk exposure
The Group’s exposure to foreign exchange and interest rate risk is discussed in note 12. The maximum exposure to
credit risk at the reporting date is the carrying amount of each class of cash and cash equivalents mentioned above.
b)
Trade and other receivables
Current
Trade receivables
Prepayments
Other receivables
Input tax credits
Total current trade and other receivables
Non-current
Input tax credits
Security deposits(1)
Total non-current trade and other receivables
2019
US$’000
2,667
992
801
11
4,471
14,381
5,212
19,593
2018
US$’000
6,799
4,274
1,365
8
12,446
16,768
4,003
20,771
(1) Security deposits are restricted deposits that are used for monetary backing for performance guarantees
(i)
(ii)
Classification of Trade Receivables
Trade receivables are amounts due from customers from the sale of graphite. They are generally due for settlement
within 30 days and therefore are all classified as current.
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 12.
(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 12 for more information on the credit quality of the Group’s trade and other receivables.
Significant estimates and judgements
Input tax credits in Twigg amounting to $14.4 million (31 December 2018: $16.8 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. During the year ended 31 December 2019, cash refunds totaling $10.7 million (31 December 2018:
$5.6 million) for input tax credits were received. Should management determine that some of these input tax credits are not
recoverable in future, the Group will reclassify those amounts to the cost base of related assets, or recognise an expense in
the profit or loss in the period the determination is made. The outstanding balance for input tax credit is classified as non-
current due to uncertainties on the timing of receipts.
62
SYRAH RESOURCES > ANNUAL REPORT 2019
c)
Trade and other payables
Trade payables and accruals
Other payables
2019
US$’000
10,318
1,146
11,464
2018
US$’000
14,880
1,046
15,926
(i)
Risk exposure
Trade payables are non-interest bearing and are normally settled on repayment terms between 7 and 30 days.
Information about the Group’s exposure to foreign exchange risk is provided in note 12.
(ii)
Fair value measurement
Due to the short-term nature of these payables, their carrying amount is assumed to approximate their fair value.
d)
Lease Liabilities
Current
Non-current
2019
US$’000
1,837
16,794
18,631
2018
US$’000
1,490
4,102
5,592
The Lease Liabilities is measured at the present value of the fixed and variable lease payments, net of cash lease incentives,
that are not paid at the balance date. Lease payments are apportioned between finance charges and a reduction of the lease
liabilities using the incremental borrowing rate implicit in the lease where available, or an assumed Group incremental
borrowing rate, to achieve a constant rate of interest on the remaining balance of the liability. In 2018 prior to the adoption of
AASB16 Leases, the Group only recognised lease liabilities in relation to leases that were classified as ‘finance leases’ under
AASB 117 Leases.
e) Borrowings
Initial face value of Convertible Note issued
Capitalised to principal outstanding
- Interest expense
- Transaction costs
Deferred transaction costs
2019
US$’000
39,093
569
782
(756)
39,688
2018
US$’000
-
-
-
-
-
In October 2019, Syrah Resources Limited issued a 5-year unsecured Convertible Note to AustralianSuper Pty Ltd as Trustee
for AustralianSuper. Under the terms of the Convertible Note, the Group elected to accrue interest on the principal outstanding
at a rate of 8% per annum, capitalised quarterly in arrears. Syrah Resources Limited also incurred $0.8 million of transaction
costs related to the issuance of the Convertible Note which were capitalised when the Note was issued and are amortised to
Finance Expense over the term of the Convertible Note.
The initial conversion of the Convertible Note is A$1.0036 per ordinary share. The Noteholder may elect to fully convert
the Convertible Note into fully paid ordinary shares of Syrah Resources Limited at any time after 30 months from Date of
Completion and prior to maturity or earlier if: a third party makes a takeover offer for all the Shares in the Company; or, the
Company announces the execution of a scheme implementation agreement in respect of acquisition of all the Shares in the
Company by scheme of arrangement. In an Event of Default the Noteholder may give notice to the Company to: demand
payment of the principal outstanding on the Convertible Note by way of redemption of the Convertible Note, in which case the
principal outstanding shall become immediately due and payable; or, elect to convert the Convertible Note into Shares.
63
NOTE 9. NON-FINANCIAL ASSETS AND NON-FINANCIAL LIABILITIES
a)
Inventories
Stores and materials
Finished goods
2019
US$’000
12,928
5,095
18,023
2018
US$’000
-
-
-
Inventory write-down
Write-down of inventories to net realisable value totaled $6.7 million in 2019 (2018: nil) and were recognized as an expense in
the income statement.
b) Mining assets
Exploration and evaluation
Mine properties and development
Mines under construction
Total mining assets
2019
US$’000
1,306
119,425
-
120,731
2018
US$’000
1,306
33,297
296,599
331,202
Movements in Mine Properties and Development are set out below:
EXPLORATION
AND EVALUATION
MINE
PROPERTIES AND
DEVELOPMENT
MINES UNDER
CONSTRUCTION
TOTAL
US$’000
US$’000
US$’000
US$’000
For the financial year ended 31 December 2019
Balance at beginning of the year
1,306
Current year expenditure capitalised (net)
Change in rehabilitation estimate
Transfers(1)
Amortisation expenses
Impairment losses
Balance at end of the year
For the financial year ended 31 December 2018
Balance at beginning of the year
Current year expenditure capitalised (net)
Change in rehabilitation estimate
Exchange differences
Balance at end of the year
-
-
-
-
-
1,306
988
321
-
(3)
33,297
626
3,253
141,747
(3,274)
(56,224)
119,425
296,599
331,202
-
-
626
3,253
(296,599)
(154,852)
-
-
-
(3,274)
(56,224)
120,731
33,297
239,255
273,540
-
-
-
59,692
(1,795)
(553)
60,013
(1,795)
(556)
1,306
33,297
296,599
331,202
(1) Following the declaration of commercial production on 1 January 2019, $137.2 million was transferred to Property, Plant and Equipment and
$17.7 million to Inventories.
Exploration and evaluation
The balance of exploration and evaluation relates to the Vanadium project at Balama and continues to be carried forward in
accordance with the exploration and evaluation accounting policy. The ultimate recoupment of exploration and evaluation
expenditure is dependent upon successful development and commercial exploitation or alternatively the sale of the respective
interests at an amount at least equal to book value.
64
SYRAH RESOURCES > ANNUAL REPORT 2019
Mines Properties and Development and Mines Under Construction
Mines Properties and Development and Mines Under Construction mainly relate to the development, construction and pre-
commercial production costs of Balama in Mozambique. Inventories and separately identifiable property, plant and equipment
were transferred to these categories on achievement of commercial production.
c)
Property, plant and equipment
LAND AND
BUILDINGS
PLANT AND
EQUIPMENT
COMPUTER
EQUIPMENT
ASSETS UNDER
CONSTRUCTION
RIGHT
OF USE
ASSETS
TOTAL
US$’000
US$’000
US$’000
US$’000
US$’000
US$’000
797
7,753
At 1 January 2019
Cost
Accumulated depreciation
and impairment
Net book amount
- Change in accounting policy (note 22(bb))
Restated net book amount
(158)
639
-
639
For the financial year ended 31 December 2019
Balance at beginning of period
Additions
Disposals (at net book value)
Transfers from Mines Under Construction
Depreciation charge
Impairment losses
Exchange differences
Balance at end of the year
639
-
-
13,599
(452)
(4,474)
-
9,312
(2,091)
5,662
(5,393)
269
269
7
(9)
115,963
(5,596)
(36,170)
60
74,524
At 31 December 2019
Cost
Accumulated depreciation
and impairment
Net book amount
At 1 January 2018
Cost
Accumulated depreciation
and impairment
Net book amount
14,396
116,676
(5,084)
9,312
(42,152)
74,524
797
3,056
(112)
685
(1,374)
1,682
For the financial year ended 31 December 2018
Balance at beginning of period
Additions
Disposals (at net book value)
Depreciation charge
Exchange differences
Balance at end of the year
685
-
-
(46)
-
639
1,682
4,719
(21)
(739)
21
5,662
At 31 December 2018
Cost
Accumulated depreciation
and impairment
Net book amount
797
7,753
(158)
639
(2,091)
5,662
214
(155)
59
-
59
59
13
-
680
(154)
-
-
598
905
(307)
598
214
(121)
93
93
12
-
(42)
(4)
59
214
(155)
59
25,082
-
33,846
-
25,082
-
25,082
25,082
27,543
-
6,949
-
-
(41)
59,533
-
-
12,595
12,595
12,595
8,084
(1,085)
-
(2,889)
-
(1)
16,704
(2,404)
31,442
7,202
38,644
38,644
35,647
(1,094)
137,191
(9,091)
(40,644)
18
160,671
59,533
19,599
211,109
-
59,533
(2,895)
16,704
(50,438)
160,671
6,553
-
6,553
6,553
18,715
-
-
(186)
25,082
25,082
-
25,082
-
-
-
-
-
-
-
-
-
-
-
-
10,620
(1,607)
9,013
9,013
23,446
(21)
(827)
(169)
31,442
33,846
(2,404)
31,442
65
Assets Under Construction
Assets Under Construction at 31 December 2019 consists of capitalised project and product development costs for the
downstream BAM project of $52.8 million and sustaining capital costs for Balama of $6.7 million.
Depreciation charge
For the financial year ended 31 December 2019, $9.1 million of Depreciation expense was recognised in the Statement of
Comprehensive Income (2018: $0.5 million), and recognised in Mine Properties and Development (2018: $0.3 million).
Leased assets
In the previous year, the Group only recognised lease assets and lease liabilities in relation to leases that were classified
as ‘finance leases’ under AASB 117 Leases. The assets were presented in plant and equipment and the liabilities as part of
the Group’s borrowings. For adjustments recognised on adoption of AASB 16 Leases on 1 January 2019, please refer to
note 22(bb).
SIGNIFICANT ESTIMATES AND JUDGEMENTS
Impairment of non-financial assets
At each reporting date, the Group assesses whether there is any indication that an asset may be impaired. The Group
conducts a review of the key drivers of the recoverable amount of cash generating units (‘CGUs’) annually, which is used
as a source of information to determine whether there is an indication of impairment. Other factors, such as changes in
assumptions in future commodity prices, exchange rates, production rates and input costs, are also monitored to assess
for indications of impairment. Where an indicator of impairment exists, a detailed estimate of the recoverable amount is
determined. An impairment loss is recognised for a CGU when the recoverable amount is less than the carrying amount. As at
31 December 2019, the market capitalisation of the Company was below the book value of net assets which is considered an
indicator of a potential trigger for the impairment of assets.
CGUs represent a grouping of assets at the lowest level for which there are separately identifiable cash flows that are largely
independent of the cash inflows from other assets or groups of assets. The Group has identified Balama and BAM Project as
CGUs for which impairment testing is undertaken.
As reported at 30 June 2019, Syrah had determined the recoverable amount of Balama was less than the carrying value and
a post-tax impairment of US$65.9 million was recognised at 30 June 2019. The circumstances that led to recognition of an
impairment at 30 June 2019 was primarily due to slower than previously foreshadowed ramp-up of production at Balama,
driven predominately by market demand factors (sales volume and selling prices).
Following the 30 June 2019 impairment relating to Balama, the Group has conducted carrying value analysis to determine the
recoverable amount of Balama and BAM Project CGUs and has not identified any additional impairment to the carrying values
of non-current assets as at 31 December 2019.
Balama Graphite Operation CGU
(i) Methodology
An impairment loss is recognised for a CGU when the recoverable amount is less than the carrying amount. The recoverable
amount of Balama CGU was determined by assessing the fair value less costs of disposal (FVLCOD) of the underlying assets.
FVLCOD is estimated based on the net present value of estimated future cash flows (the valuation is classified as level 3 in the
fair value hierarchy due to unobservable inputs in the valuation).
The Fair Value estimates are considered to be level 3 fair value measurements (as defined by accounting standard AASB 13)
as they are derived from valuation techniques that include inputs that are not based on observable market data.
Future cash flows and recoverable amount are based on a number of assumptions, including commodity price expectations,
foreign exchange rates, discount rates, reserves and resources and expectations regarding future operating performance
and capital requirements which are subject to risk and uncertainty. An adverse change in one or more of the assumptions
used to estimate fair value could result in a reduction of the CGU’s fair value. The costs of disposal have been estimated by
management based on standard industry practice.
(ii) Key Assumptions
The net present value of estimated future cash flows for Balama CGU as at 31 December 2019 is based on a number of
assumptions. Those key assumptions that the recoverable amount is most sensitive to include:
> Commodity prices – future weighted average product prices are estimated with reference to the Group’s assessment of
short and long-term prices for each key flake and fines graphite product and also based on an estimate of the flake to
fines size distribution ratio that improves to a long-term assumption over a period of 6 years. The short-term prices take
account of existing sales contracts and increases to the Group’s assessment of long-term price over a period of 6 years in
line with industry supply and demand forecasts for the lithium-ion battery industry. The long-term prices for each graphite
product are derived from a combination of management assessments of the marginal costs of current producers and of
the incentive price for future potential producers which management estimates to be consistent with the assumptions that a
market participant would be expected to use on a FVLCOD basis based on available published analyst information. Short
and long-term prices were updated for 31 December 2019 reporting purposes and are reviewed at least annually.
66
SYRAH RESOURCES > ANNUAL REPORT 2019 > Foreign exchange rates – future exchange rates for the Mozambique Metical (MZN) compared to the US dollar are forecast
based on external information and are kept constant in real terms after five years.
> Reserves and resources – life of mine production is based on Ore Reserves and a portion of the Mineral Resources
(totaling approximately 1% of the total mineral resources excluding ore reserves) as compiled by a Competent Person
in accordance with the Australian code for Reporting of Exploration Results, Mineral Resources and Ore Reserves of
December 2012 (the JORC 2012 code). The extraction, processing and sale of Mineral Resources that do not qualify
for inclusion as Ore Reserves is only included when there is a high degree of confidence that they are economically
recoverable. The additional evaluation required to achieve Ore Reserves status for Mineral Resources has not yet been
performed as this would involve incurring evaluation costs earlier than is required for efficient planning and operation of the
mine. 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.
> Operating performance (production, operating costs and capital costs) – life of mine production, operating cost and capital
cost assumptions are based on the Group’s most recent life of mine plan with consideration of near-term supply and
demand market considerations in relation to progressive ramp-up to name-plate production. Operating costs are based
on existing fixed and variable cost base, capturing both completed and in-progress reductions to the cost base since the
last asset carrying value assessment period at 30 June 2019. As production ramp-up remains in progress, the production
capability of the plant at design capacity is informed by the as built design, review of physical parameters by independent
technical experts and production improvement plans and assessments by the operations team at Balama.
> Discount rate - estimated future cash flows have been discounted to their present value using a capital asset pricing model
to estimate a post-tax real discount rate that reflects a current market assessment of the time value of money and risks
specific to the CGU. Discount rate of 12.3% (real post-tax) has been applied to 30 June 2019 and 31 December 2019
impairment testing.
(iii) Future changes in assumptions
It is estimated that reasonably possible changes in the following key assumptions within the next financial year would have the
following approximate impact on the recoverable amount of Balama CGU as at 31 December 2019 of US$358 million:
US$10 per tonne decrease in graphite price (CIF Nacala)
1 MZN increase in the USD:MZN exchange rate
5% increase in estimated operating costs
10% increase in the discount rate (from 12.30% to 13.53%)
$16 million
$3 million
$30 million
$46 million
A reasonably possible change in circumstances may affect these key assumptions, the fair value and potentially result in a
material adjustment to the carrying value of Balama. Action is usually taken to respond to adverse changes in assumptions to
mitigate the impact of any such change. If the carrying amount is assessed to be impaired as a result of any such changes,
the impairment charge is recognised in the profit or loss in the period in which the changes arise.
Battery Anode Material ("BAM") CGU
(i) Methodology
Future cash flows and recoverable amount of the CGU are based on a number of assumptions, including product selling price
expectations, discount rates and expectations regarding future operating performance and capital requirements which are
subject to risk and uncertainty. An adverse change in one or more of the assumptions used to estimate fair value could result
in a reduction of the CGU’s fair value. The costs of disposal have been estimated by management based on standard industry
practice.
The accumulated investment of the Group’s BAM investment is presented as an Asset Under Construction and is recorded at
a cost of US$45.4 million as at 31 December 2019. There are no indicators of any adverse changes to the key assumptions
underlying the strategic investment decision which indicate that the accumulated investment in BAM will not be recovered.
(ii) Key Assumptions
The Group’s BAM strategy is evolving as the lithium-ion battery market and associated supply chains develop and is premised
upon maintaining strategic optionality to accelerate the Group’s entry into the final BAM product market by:
1. Rapid development of a qualification plant and production of BAM products (5kt per annum milling capacity, batch scale
purification capability) from a purpose-built facility in Vidalia, Louisiana, USA to capture first mover advantage and establish
a core ex-Asia supply chain position for BAM products
2. Progression of strategic relationship discussions; and
3. Finalisation of studies for a commercial scale BAM development
Future assumptions regarding selling prices of finished product from BAM are informed by current observed market prices
for equivalent existing products produced by incumbent supply chain participants. Operating costs are informed by studies
undertaken to date and from operating data from the plant at Vidalia as at 31 December 2019.
67
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
resources, 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.
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.
d) Deferred tax balances
The balance comprises temporary differences attributable to:
Deferred tax assets
Financial liabilities(1)
Taxation losses(2)
Mining assets
Total deferred tax assets
Deferred tax liabilities:
Mining assets
Financial liabilities(1)
Total deferred tax liabilities
Net deferred tax assets/(liabilities)
2019
US$’000
2018
US$’000
-
2,302
25,451
27,753
-
-
-
27,753
333
21,435
-
21,768
(21,316)
-
(21,316)
452
(1) Relates to unrealized foreign exchange loss/(gains) on revaluation of financial liabilities held by Twigg Exploration and Mining Limitada
(2) Relates to tax losses held by Twigg Limitada in Mozambique. Twigg will have 5 years to utilize these losses in accordance with Mozambique tax
laws
68
SYRAH RESOURCES > ANNUAL REPORT 2019
Movements in deferred tax balances - 31 December 2019
Deferred tax assets
Financial liabilities
Taxation losses
Mining assets
Deferred tax liabilities
Mining assets
Net deferred tax assets
BALANCE AT
1 JANUARY 2019
(CHARGED) /
CREDITED TO
PROFIT OR LOSS
BALANCE AT
31 DECEMBER 2019
333
21,435
-
21,768
(21,316)
(21,316)
452
(333)
(19,133)
25,451
5,985
21,316
21,316
27,301
-
2,302
25,451
27,753
-
-
27,753
Movements in deferred tax balances - 31 December 2018
Deferred tax assets
Financial liabilities
Taxation losses
Deferred tax liabilities
Mining assets
Financial liabilities
Net deferred tax assets
BALANCE AT
1 JANUARY 2018
(CHARGED) /
CREDITED TO
PROFIT OR LOSS
BALANCE AT
31 DECEMBER 2018
-
-
-
-
(1,415)
(1,415)
(1,415)
333
21,435
21,768
(21,316)
1,415
(19,901)
1,867
333
21,435
21,768
(21,316)
-
(21,316)
452
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.
For the year ended 31 December 2019, Syrah has assessed whether the carried forward tax losses generating the deferred
tax assets currently recognised on balance sheet will be utilised within the time periods required under Mozambique tax law.
Syrah has determined that there is a sufficient degree of uncertainty in relation to certain tax losses which may not be used
within the required time period and as a result have resolved to write off the Deferred Tax Assets relating to those carried
forward tax losses, while retaining others where there is more certainty around usage of the tax losses.
69
e)
Provisions
Current
Employee benefits
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 9b)
- Unwind of discount
Balance at end of the year
2019
US$’000
2018
US$’000
481
481
50
9,957
10,007
2019
US$’000
6,561
3,253
143
9,957
451
451
29
6,561
6,590
2018
US$’000
8,285
(1,795)
71
6,561
Employee benefits
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.
70
SYRAH RESOURCES > ANNUAL REPORT 2019
NOTE 10. EQUITY
a)
Issued capital
Issued and fully paid ordinary shares
2019
SHARES
413,493,062
413,493,062
2018
SHARES
343,603,692
343,603,692
2019
US$’000
563,694
563,694
2018
US$’000
525,085
525,085
(i) Movements in ordinary share capital
31 December 2019
Balance at beginning of the year
Issue of new shares:
- Institutional placement
- Entitlement offer
- Equity-settled remuneration
Transfers from share-based payment reserve(2)
Capital raising costs
Balance at end of the year
31 December 2018
Balance at beginning of the year
Issue of new shares:
- Institutional placement
- Share purchase plan
- Equity-settled remuneration
Transfers from share-based payment reserve(2)
Capital raising costs
Balance at end of the year
NUMBER OF
SHARES
WEIGHTED
AVERAGE ISSUE
PRICE (A$)
TOTAL
US$’000
343,603,692
-
525,085
31,042,087
37,852,622
994,661
-
-
413,493,062
297,022,766
42,152,467
4,017,010
411,449
-
-
343,603,692
A$0.81
A$0.81
-(1)
-
-
-
-
A$2.23
A$2.23
-(1)
-
-
-
17,634
21,573
-
1,102
(1,700)
563,694
452,601
67,219
6,379
-
1,255
(2,369)
525,085
(1) The cost associated with issuance of these shares is included in the transfers share-based payments reserve line item.
(2) Represents transfers from the share-based payment reserves on issuance of shares under the Group Short Term Incentive (STI) and Long Term
Incentive (LTI) plans.
(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 16.
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.
71
(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 contractual obligation exists to issue a non-controlling non-diluting 5% interest in Twigg to the Mozambique
Government entity. As at 31 December 2019, the issuance of shares to the Mozambique Government entity has not
occurred. A non-controlling interest in Twigg will be recognised after the issuance of shares to the Mozambique
Government entity.
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 2019
Balance at beginning of the year
Foreign currency translation
Share-based payments
Issuance of shares
Transfer of expired/lapsed options and performance rights
Balance at end of the year
31 December 2018
Balance at beginning of the year
Foreign currency translation
Share-based payments
Issuance of shares
Transfer of expired/lapsed options and performance rights
Balance at end of the year
2019
US$’000
(17,563)
10,226
(7,337)
FOREIGN
CURRENCY
RESERVE
SHARE-BASED
PAYMENTS
RESERVE
US$’000
US$’000
(16,639)
(924)
-
-
-
(17,563)
(15,511)
(1,128)
-
-
-
(16,639)
13,983
-
1,245
(1,102)
(3,900)
10,226
6,222
-
11,443
(1,255)
(2,427)
13,983
2018
US$’000
(16,639)
13,983
(2,656)
TOTAL
US$’000
(2,656)
(924)
1,245
(1,102)
(3,900)
(7,337)
(9,289)
(1,128)
11,443
(1,255)
(2,427)
(2,656)
72
SYRAH RESOURCES > ANNUAL REPORT 2019
(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 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 and equity-settled contractual
obligations issued by the Company (refer note 16(b) for further details).
NOTE 11. RECONCILIATION OF LOSS AFTER INCOME TAX TO NET CASH
OUTFLOW FROM OPERATING ACTIVITIES
Loss after income tax expense for the year
Adjustments for:
Depreciation and amortisation expense
Impairment of mining assets
Write-down of inventories
Share-based payments
Write-off of mining assets and production ramp-up costs
Interest expense
Gain on fixed assets disposal
Net foreign exchange (gain)/loss
Changes in operating assets and liabilities:
(Increase)/decrease in trade and other receivables
(Increase)/decrease in deferred tax assets
Increase/(decrease) in trade and other payables
Increase/(decrease) in provisions
Increase/(decrease) in deferred tax liabilities
Net cash outflow from operating activities
2019
US$’000
(130,549)
12,212
96,868
6,687
1,295
-
2,006
(188)
355
(2,107)
(27,301)
7,086
50
-
(33,586)
2018
US$’000
(28,970)
513
-
-
11,443
7,415
71
(3)
693
748
(21,768)
(437)
372
19,901
(10,022)
73
RISK
This section of the notes discusses the group’s exposure to various risk and shows how
these could affect the group’s financial position and performance.
NOTE RISK
12
FINANCIAL RISK MANAGEMENT
PAGE
75
74
SYRAH RESOURCES > ANNUAL REPORT 2019 NOTE 12. 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.
The Group continues to assess the impacts on its business broadly, and Financial Risk Management specifically, from
COVID 19. These impacts include demand for its products, supply chain and people movement disruptions, and financial
market volatility (including currency markets). Syrah is particularly focused on managing its Liquidity Risk and assessing a
range of production and demand scenarios over the next 12 months.
Financial risk management is carried out by the Audit and Risk Committee under guidelines established by the Board. 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
Borrowings
Lease liabilities
a) Market risk
2019
US$’000
80,577
4,471
162
85,210
11,464
39,688
18,631
69,783
2018
US$’000
77,149
33,217
82
110,448
15,926
-
5,592
21,518
(i)
Foreign exchange risk
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), Mozambican Meticals (MZN) and Australian Dollars (AUD).
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
- Other
Liabilities
- US Dollars
- Mozambique Meticals
- South African Rand
- Australian Dollars
Net surplus/(deficit) position
2019
US$’000
2018
US$’000
23,677
20,515
25
44,217
363
3,746
837
126
5,072
39,145
1,059
21,735
25
22,819
443
5,350
401
283
6,477
16,342
(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.
75
Group sensitivity
Based on the financial instruments held at 31 December 2019 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)
2019
US$'000
(1,865)
2,061
2018
US$'000
(779)
861
2019
US$'000
(23,855)
26,402
2018
US$'000
(19,126)
23,057
USD +5%
USD -5%
(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. A reasonably possible movement in interest
rates would not have a material impact on the consolidated results or equity for the year.
Under the terms of the Convertible Note, the Group can elect each quarter to capitalise interest and add the amount to the
Principal Outstanding at a rate of 8.0% or pay interest in cash at a rate of 7.5%. These interest rates are fixed for the term of
the Convertible Note.
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 as well as amounts owing from the sale of graphite to customers.
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 policies in place to manage exposures to customers from the sale of graphite including credit coverage by the
issuance of letters of credit from high credit quality financial institutions and limits on credit exposures to individual customers
where there is no letter of credit by setting maximum credit exposures for individual customers and not releasing bills of lading
until receipt of the amount outstanding. Credit exposure limits are approved by the Audit and Risk Committee.
As at 31 December 2019, the Trade Receivables balance was US$ 2.7 million (2018: US$ 6.8 million) which are mostly covered
within the maximum credit exposures for individual customers and by the non-release of the bill of lading pending the receipt
of the amount owing. There were US$ 0.7 million of trade receivables overdue as at 31 December 2019 which were fully
recovered in early 2020.
Liquidity risk
c)
Prudent liquidity risk management implies maintaining sufficient cash and marketable securities, the availability of funding 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 Group has announced commercial production of natural graphite products from Balama but is not yet cashflow positive.
The Company may require additional financing, in addition to cash reserves, to meet operating and capital expenditure
requirements for Balama, general and administrative expenditures and BAM Project activities. In addition, the effects of the
COVID 19 virus on our business and the markets in which we operate could have an impact on the Group’s Liquidity risk, and
we continue to assess possible scenarios representing a broad range of factors.
76
SYRAH RESOURCES > ANNUAL REPORT 2019
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.
AS AT
31 DECEMBER 2019
LESS THAN
6 MONTHS
BETWEEN
6-12
MONTHS
BETWEEN
1-2 YEARS
BETWEEN
2-5 YEARS
OVER
5 YEARS
TOTAL
CONTRACTUAL
CASH FLOWS
CARRYING
AMOUNT
LIABILITIES
US$’000
US$’000
US$’000
US$’000
US$’000
US$’000
US$’000
Non-derivatives
Non-interest bearing
- Trade and other
payables
Interest bearing
- Lease liabilities
- Non-current
borrowings(1)
Total non-derivative
liabilities
11,464
-
-
-
-
11,464
11,464
1,243
1,878
3,199
7,802
10,424
24,546
18,631
-
-
-
59,281
-
59,281
39,688
12,707
1,878
3,199
67,083
10,424
95,291
69,783
(1) Non-current borrowings represent the Convertible Note issued by the Group during the period. The Convertible Note has a 5 year term however the
Noteholder may elect to convert into fully paid ordinary shares of Syrah Resources Limited any time after 30 months from Date of Completion and
prior to maturity or earlier if: a third party makes a takeover offer for all the Shares in the Company; or, the Company announces the execution of a
scheme implementation agreement in respect of acquisition of all the Shares in the Company by scheme of arrangement. In an Event of Default the
Noteholder may give notice to the Company to: demand payment of the Principal Outstanding on the Convertible Note by way of redemption of the
Convertible Note, in which case the Principal Outstanding shall become immediately due and payable; or, elect to Convert the Convertible Note into
Shares.
AS AT
31 DECEMBER 2018
LESS THAN
6 MONTHS
BETWEEN
6-12
MONTHS
BETWEEN
1-2 YEARS
BETWEEN
2-5 YEARS
TOTAL
CONTRACTUAL
CASH FLOWS
CARRYING
AMOUNT
LIABILITIES
US$’000
US$’000
US$’000
US$’000
US$’000
US$’000
Non-derivatives
Non-interest bearing
- Trade and other payables
15,926
Interest bearing
- Finance lease liabilities
745
Total non-derivative
liabilities
16,671
-
745
745
-
-
15,926
15,926
1,582
1,582
4,092
4,092
7,164
5,592
23,090
21,518
d) Capital risk management
When managing capital, the Group’s objective is to safeguard the ability to continue as a going concern so that the Group
continues to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure
to reduce the cost of capital.
Management is constantly reviewing and adjusting, where necessary, the capital structure. This involves the use of corporate
forecasting models which enable analysis of the Group’s financial position including cash flow forecasts to determine
future capital management requirements. To ensure sufficient funding, a range of assumptions are modelled to determine
sensitivities of the Group’s financial position and capital requirements under different circumstances and/or potential
outcomes.
77
UNRECOGNISED ITEMS
This section of the notes provides information about items that are not recognised in the
financial statements as they do not (yet) satisfy the recognition criteria.
NOTE UNRECOGNISED ITEMS
13
14
COMMITMENTS, CONTINGENCIES AND GUARANTEES
EVENTS OCCURRING AFTER THE REPORTING DATE
PAGE
79
79
78
SYRAH RESOURCES > ANNUAL REPORT 2019 NOTE 13. COMMITMENTS, CONTINGENCIES AND GUARANTEES
a) Capital expenditure commitments
Significant capital expenditure contracted for at the end of the reporting period but not recognised as liabilities is as follows:
Property, plant and equipment
Total capital commitments
2019
US$’000
1,628
1,628
2018
US$’000
3,010
3,010
The above capital expenditure commitments are in relation to the development and construction of Balama in Mozambique
and the development of the downstream BAM project.
b) Operating lease expenditure commitments
Commitments for minimum lease payments in relation to non-cancellable operating leases are payable as follows:
Within one year
After one year but not more than five years
Minimum lease payments
2019
US$’000
-
-
-
2018
US$’000
5,333
24,114
29,447
c) Contingencies
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, 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 MZN316 million (US$5.0 million) as at 31 December 2019 (2018: US$3.7 million) 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. This
guarantee is required to remain in place for a period of two years after the signing of the Mining Agreement.
NOTE 14. EVENTS OCCURRING AFTER THE REPORTING PERIOD
The impacts of COVID 19 are being felt globally, impacting direct customers and suppliers, the EV supply chain including
battery manufacturing, consumer demand for electric vehicles, people movement, and logistics. Syrah continues to assess the
impact of the COVID 19 virus on our business, noting that the Group had already planned for lower production during much of
this period in order to restore balance between supply and demand and had taken steps to reduce its cost base accordingly.
On 27 March 2020, Syrah released a statement to the ASX announcing a temporary suspension of production at Balama from
28 March 2020 as a result of restrictions on domestic and international travel in Mozambique, also noting that sales would
continue to be dispatched from product inventory through the Port of Nacala, although this may also change. The level of
liquidity and the recently implemented companywide cost restructure positions the company well to manage an extended
period of uncertainty. Nevertheless these events could have a negative impact on the business, including the Group’s Liquidity
Risk Management, and we continue to assess those potential impacts. At this stage, no estimate of its financial effect can be
made.
No other events have occurred subsequent to 31 December 2019 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.
79
ADDITIONAL OTHER INFORMATION
This section of the notes includes additional 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.
NOTE ADDITIONAL OTHER INFORMATION
PAGE
15
16
17
18
19
20
21
22
RELATED PARTY TRANSACTIONS
SHARE-BASED PAYMENTS
REMUNERATION OF AUDITORS
EARNINGS PER SHARE
PARENT ENTITY FINANCIAL STATEMENTS
SUBSIDIARIES
DEED OF CROSS GUARANTEE
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
81
82
85
85
86
87
87
90
80
SYRAH RESOURCES > ANNUAL REPORT 2019 NOTE 15. 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 20.
c) Key management personnel compensation
Short-term employee benefits
Post-employment benefits
Other benefits
Share-based payments
2019
US$
2,545,404
144,948
151,720
351,189
3,193,261
Detailed remuneration disclosures are provided in the Remuneration Report on pages 23 to 48 of the Annual Report.
Transactions with related parties
d)
Transactions with related parties are set out below:
Purchases of goods and services
Technology and Product Development services provided by Cadenza Innovation Inc.(1)
Legal services provided by Sal & Caldeira Advogados, Lda(2)
2019
US$
301,119
195,343
496,462
2018
US$
1,985,980
134,396
47,328
2,600,635
4,768,339
2018
US$
1,990,282
125,950
2,116,232
(1) C Lampe-Onnerud who is a Non-Executive Director of the Company is also Founder and Chief Executive Officer of Cadenza Innovation Inc. During
the year, the Company had 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 and support the BAM processing plant in Louisiana. C Lampe-Onnerud ceased as a
Non-Executive Director effective 24 March 2019. The contract with Cadenza has continued subsequent to C Lampe-Onnerud’s resignation.
(2) 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.
e) Outstanding balances arising from purchases of goods and services
Trade and other payables
Related parties
2019
US$
8,508
8,508
2018
US$
1,000
1,000
81
NOTE 16. SHARE-BASED PAYMENTS
Types of share based payment plans
a)
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)
(ii)
Equity Incentive Plan (“EIP”)
The EIP was established and approved by shareholders at an Annual General Meeting held on 17 May 2018, and
applies to all shares, performance rights and options offered for grant from 17 May 2018 onwards. Under the EIP,
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 the Board of Directors. Any performance rights, options and shares granted under the EIP may be subject to such
vesting conditions (if any) as determined by the Board of Directors.
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. No further options, performance rights or shares will
be issued under this plan.
(iii) 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.
Measurement
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.
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:
2019
2018
WEIGHTED
AVERAGE
EXERCISE PRICE
PER SHARE
OPTION
A$4.62
A$1.56
-
A$4.75
A$3.25
A$4.01
NUMBER OF
OPTIONS
4,800,000
1,000,000
-
(3,200,000)
2,600,000
2,000,000
WEIGHTED
AVERAGE
EXERCISE PRICE
PER SHARE
OPTION
A$4.70
A$4.37
-
A$4.78
A$4.62
A$4.05
NUMBER OF
OPTIONS
6,750,000
600,000
-
(2,550,000)
4,800,000
4,200,000
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
(1) There were no options exercised during the year ended 31 December 2019 and 2018.
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.
82
SYRAH RESOURCES > ANNUAL REPORT 2019
The outstanding balance of options as at 31 December 2019 is represented by:
Options issued as part of the EIP
Options issued as part of the LTIP
Options issued as part of the SOP
2019
2018
NUMBER OF
OPTIONS
1,600,000
EXERCISE PRICE
RANGE
A$0.70 to A$4.34
NUMBER OF
OPTIONS
600,000
EXERCISE PRICE
RANGE
A$4.37
1,000,000
-
A$4.27
-
3,300,000
A$3.85 to A$5.04
900,000
A$5.38 to A$6.23
Share options outstanding at the end of the financial year have the following expiry dates and exercise prices:
GRANT DATE
19-May-14
EXPIRY DATE
19-May-19
EXERCISE PRICE
A$5.38
02-Oct-14
24-May-16
01-Mar-17
26-May-17
20-Oct-17
20-Oct-17
20-Oct-17
25-Jun-18
28-May-19
07-Oct-19
Total Options
02-Oct-19
24-May-19
01-Mar-20
26-May-20
20-Oct-20
20-Oct-20
20-Oct-20
25-Jun-21
16-Jul-21
07-Oct-22
A$6.23
A$5.04
A$4.11
A$4.27
A$4.13
A$4.64
A$3.85
A$4.34
A$2.86
A$0.70
Weighted average remaining contractual life of options outstanding
at the end of the year
2019
NUMBER
-
-
-
-
2018
NUMBER
500,000
400,000
400,000
600,000
1,000,000
1,000,000
-
-
-
600,000
400,000
600,000
300,000
600,000
400,000
600,000
-
-
2,600,000
4,800,000
1.37 years
1.37 years
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
28-May-19
07-Oct-19
EXPIRY
DATE
16-Jul-21
SHARE
PRICE AT
GRANT DATE
A$1.15
EXERCISE
PRICE
A$2.86
EXPECTED
VOLATILITY(1)
60.33%
DIVIDEND
YIELD
-
RISK-FREE
INTEREST
RATE
1.13%
FAIR VALUE
AT GRANT
DATE
A$0.19
07-Oct-22
A$0.48
A$0.70
76.09%
-
0.60%
A$0.19
(1) Expected volatility was calculated based on the historical market share price for the 12-month period prior to the Grant Date.
83
Summary and movement of performance rights on issue
c)
The table below summarises the number and movements in Performance Rights issued during the financial year:
Balance at the beginning of the year
Granted during the year
Exercised during the period
Lapsed during the year
Forfeited during the year
Balance at the end of the year
At 31 December 2019:
- Vested
- Unvested
Performance testing dates for unvested Performance Rights above are as follows:
- 31 December 2018
- 31 December 2019
- 31 December 2020
- 31 December 2021
2019
NUMBER
1,090,031
1,862,733
(143,143)
(782,647)
-
2018
NUMBER
710,783
632,716
(78,255)
(175,213)
-
2,026,974
1,090,031
12,240
2,014,734
2,026,974
-
1,090,031
1,090,031
-
285,256
860,926
868,552
265,390
395,567
429,074
-
2,014,734
1,090,031
Performance rights on issue as part of the LTIP have a nil exercise price.
d) Non-controlling interests
A contractual obligation exists to issue a non-controlling non-diluting 5% interest in Twigg to the Mozambique Government
entity. As at 31 December 2019, the issuance of shares to the Mozambique Government entity has not occurred however an
expense recognised in the previous year with a corresponding increase in the share-based payment reserve to reflect the fair
value of the equity instruments to be granted. The fair value was determined based on the net present value of asset level
estimated future cash flows and discounted for the lack of control and lack of marketability.
Expenses arising from share-based payment transactions
e)
Total expenses arising from share-based payment transactions recognised during the financial year were as follows:
2019
2018
US$’000
US$’000
163
673
459
-
1,295
-
1,295
1,380
1,121
1,795
7,201
11,497
(54)
11,443
Recognised in profit and loss:
Employee benefits
- Options issued under the EIP
- Performance rights issued under the EIP
- Equity settled remuneration
Non-controlling interests
Capitalised as mining assets
84
SYRAH RESOURCES > ANNUAL REPORT 2019
NOTE 17. REMUNERATION OF AUDITORS
During the financial year the following fees were paid or payable for services provided by the auditor of the parent entity, its
related practices and non-related audit firms.
Assurance services:
PwC Australian firm
Network firms of PwC Australian firm
Total remuneration for audit services
Non-assurance services:
PwC Australian firm
Tax compliance services
Tax consulting services
Network firms of PwC Australian firm
Other consulting services
Total remuneration for non-assurance services
Total remuneration paid to PricewaterhouseCoopers
NOTE 18. EARNINGS PER SHARE
Earnings/(losses) per share
Basic loss per share
Diluted loss per share
a) Reconciliations of earnings used in calculating earnings per share
2019
US$’000
2018
US$’000
204
87
291
66
121
5
192
483
224
93
317
47
15
-
62
379
2019
US Cents
(34.56)
(34.56)
2018
US Cents
(9.30)
(9.30)
2019
US$’000
2018
US$’000
Basic loss
Total profit/(loss) attributable to the ordinary equity holders of the Company used in
calculating basic loss per share
(130,549)
(28,970)
Diluted loss
Total profit/(loss) attributable to the ordinary equity holders of the Company used in
calculating diluted loss per share
(130,549)
(28,970)
b) Weighted average number of shares used as the denominator
Weighted average number of ordinary shares used as the denominator in
calculating basic loss per share
Weighted average number of ordinary shares used as the denominator in
calculating diluted loss per share
2019
NUMBER
2018
NUMBER
377,700,757
311,589,011
377,700,757
311,589,011
85
Options
The rights to options held by option holders have not been included in the weighted average number of ordinary shares for the
purposes of calculating diluted EPS as they do not meet the requirements for inclusion in AASB 133 Earnings per Share. The
rights to options are non-dilutive as the group is loss making.
NOTE 19. PARENT ENTITY FINANCIAL INFORMATION
Summary financial information
a)
The individual financial statements for the parent entity show the following aggregate amounts::
Balance sheet
Current assets
Total assets
Current liabilities
Total liabilities
Shareholders’ equity
Issued capital
Reserves
Accumulated losses
Total equity
Loss after income tax for the year
Other comprehensive income/ (loss)
Total comprehensive income/ (loss) for the year
2019
US$’000
44,866
510,251
1,820
42,467
563,694
(34,309)
(61,600)
467,785
(9,039)
(3,377)
(12,416)
2018
US$’000
21,950
442,660
1,141
1,170
525,085
(27,175)
(56,421)
441,489
(11,207)
(40,190)
(51,397)
b) Contingent liabilities of the parent entity
The parent entity has no contingent liabilities as at 31 December 2019 and 31 December 2018.
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. This guarantee is
required to remain in place for a period of two years after the signing of the Mining Agreement.
86
SYRAH RESOURCES > ANNUAL REPORT 2019
NOTE 20. SUBSIDIARIES
The consolidated financial statements incorporate the assets, liabilities and results of the following subsidiaries in accordance
with the accounting policy described in note 22.
NAME
Jacana Resources Proprietary Limited(1)
PRINCIPAL PLACE OF BUSINESS /
COUNTRY OF INCORPORATION
Australia
Syrah Resources (KSA) Pty Ltd
Australia
Twigg Exploration and Mining, Limitada
Mozambique
Jacana Resources (Zambia) Ltd
Zambia
Syrah Resources Saudi Arabia LLC
Saudi Arabia
Syrah Resources Group Holdings Pty Ltd
Australia
Syrah Resources and Trading DMCC
United Arab Emirates
Syrah Global DMCC
United Arab Emirates
Syrah US Holdings Pty Ltd(3)
Australia
Syrah Technologies LLC(4)
United States of America
PERCENTAGE OF EQUITY
INTEREST HELD BY THE GROUP
2019 (%)
100
100
100(2)
2018 (%)
100
100
100(2)
100
100
100
100
100
100
100
100
100
100
100
100
100
100
(1) Jacana Resources Proprietary Limited (formerly Jacana Resources Limited) changed from company limited by shares to proprietary limited
company effective from 6 April 2018. This entity is part to a deed of cross guarantee (Deed) as disclosed in note 21.
(2) Twigg entered into a Mining Agreement with the Ministry of Mineral Resources and Energy of the Republic of Mozambique creating a contractual
obligation to provide a 5% non-controlling non-diluting interest in Twigg to the Mozambique Government entity. As at 31 December 2019, the
issuance of shares to the Mozambique Government entity had not occurred. A non-controlling interest in Twigg will be recognised after the
issuance of shares to the Mozambique Government entity.
(3) Syrah US Holdings Pty Ltd was incorporated on 15 February 2017.
(4) Syrah Technologies LLC was incorporated on 23 February 2017.
NOTE 21. DEED OF CROSS GUARANTEE
The following entities are party to a deed of cross guarantee (Deed), as defined in ASIC Corporations (Wholly-owned
Companies) Instrument 2016/785 (ASIC Instrument):
Syrah Resources Limited
Jacana Resources Proprietary Limited (formerly Jacana Resources Limited)
The above companies represent a ‘Closed Group’ for the purposes of the ASIC Instrument, and as there are no other parties
to the Deed that are controlled by Syrah Resources Limited, they also represent the ‘Extended Closed Group’. The effect of the
Deed is that each party to the Deed guarantees the debts of the other entities in the Closed Group in the event of winding up.
Pursuant to the ASIC Instrument, the eligible wholly-owned entities within the Closed Group have been relieved from the
requirement to prepare financial statements and a directors’ report under the ASIC Instrument issued by the Australian Securities
and Investments Commission (ASIC).
87
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
Expenses:
Employee benefits expense
Legal and consulting expense
Depreciation and amortisation expense
Foreign exchange loss – net
Other expenses
Finance expenses
Loss for the year before income tax expense
Income tax expense
Loss after income tax expense for the year
Other comprehensive income/ (loss)
Exchange differences on translation of foreign subsidiaries
Total comprehensive income/ (loss) 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
2019
US$’000
2018
US$’000
288
194
(5,689)
(1,192)
(206)
(355)
(1,315)
(587)
(9,056)
-
(9,056)
(3,325)
(12,381)
(57,439)
(9,056)
3,900
(62,595)
(8,209)
(1,064)
(87)
(97)
(1,944)
-
(11,207)
-
(11,207)
(39,320)
(50,527)
(48,659)
(11,207)
2,427
(57,439)
88
SYRAH RESOURCES > ANNUAL REPORT 2019
b) Consolidated statement of financial position
Set out below is a consolidated statement of financial position as at the end of the current and previous financial year for the
‘Closed Group’.
Current assets
Cash and cash equivalents
Trade and other receivables
Available-for-sale financial assets
Total current assets
Non-current assets
Property, plant and equipment
Right of use assets
Mine properties and development
Exploration and evaluation
Investments in subsidiaries
Intangibles
Other receivables
Total non-current assets
Total assets
Current liabilities
Trade and other payables
Lease liabilities
Provisions
Total current liabilities
Non-current liabilities
Borrowings
Lease liabilities
Provisions
Total non-current liabilities
Total liabilities
Net assets
Equity
Issued capital
Reserves
Accumulated losses
Total equity
2019
US$’000
36,457
194
162
36,813
7,562
263
11,526
53
455,290
13
320
2018
US$’000
13,552
124
82
13,758
2,167
-
16,793
53
411,853
21
283
475,027
431,170
511,840
444,928
1,446
152
222
1,820
39,688
153
50
39,891
41,711
929
-
212
1,141
-
-
29
29
1,170
470,129
443,758
563,694
(30,970)
(62,595)
470,129
525,085
(23,888)
(57,439)
443,758
89
NOTE 22. 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’.
Principles of consolidation
a)
The consolidated financial statements incorporate the assets
and liabilities of all subsidiaries of Syrah Resources Limited
(‘Company’ or ‘parent entity’) as at 31 December 2019 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 20.
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.
90
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.
SYRAH RESOURCES > ANNUAL REPORT 2019 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 is treated as pre-
commercial production income and recognised as a credit
against capitalised project development costs (refer to
note 9).
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.
Income tax
e)
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.
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.
91
Leases
f)
Until 31 December 2018, leases of property, plant and
equipment where the Group, as lessee, had substantially
all the risks and rewards of ownership were classified as
finance leases. Finance leases were 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,
were included in Current Liabilities and Non-current
Liabilities. Each lease payment was allocated between the
liability and finance cost. The finance cost was 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 was 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 were not transferred to the Group as lessee
were classified as operating leases. Payments made under
operating leases (net of any incentives received from the
lessor) were charged to profit or loss on a straight-line basis
over the period of the lease.
The Group leases property, warehouses and equipment.
Rental contracts are typically made for fixed periods of 2 to
10 years but may have extension options. Lease terms are
negotiated on an individual basis and contain a wide range
of different terms and conditions. The lease agreements
do not impose any covenants, but leased assets may not
be used as security for borrowing purposes. Until the 2018
financial year, leases of property, plant and equipment were
classified as either finance or operating leases. Payments
made under operating leases (net of any incentives received
from the lessor) were charged to profit or loss on a straight-
line basis over the period of the lease.
From 1 January 2019, the Group has changed its accounting
policy for leases following adoption of AASB 16 Leases. The
impact of changes in accounting policy is disclosed in note
22(bb).
Assets and liabilities arising from a lease are initially
measured on a present value basis. Lease Liabilities include
the net present value of the following lease payments:
> Fixed payments (including in-substance fixed payments),
less any lease incentives receivable
> The lease payments are discounted using the Group’s
incremental borrowing rate, being the rate that the Group
would have to pay to borrow the funds necessary to
obtain an asset of similar value in a similar economic
environment with similar terms and conditions
Each lease payment is allocated between the liability and
finance cost. The finance cost is charged to profit or loss
over the lease period to produce a constant periodic rate
of interest on the remaining balance of the liability for each
period.
92
Right-of-use assets are measured at cost comprising the
following:
> the amount of the initial measurement of lease liability
> any lease payments made at or before the
commencement date less any lease incentives received
> any initial direct costs, and
> restoration costs
The Right-of-use Asset is depreciated over the shorter of the
asset's useful life and the lease term on a straight-line basis.
Payments associated with short-term leases and leases of
low-value assets are recognised on a straight-line basis as an
expense in profit or loss. Short-term leases are leases with a
lease term of 12 months or less. Low-value assets comprise
of office equipment.
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.
Trade and other receivables
i)
Other receivables are recognised at amortised cost, less any
provision for impairment.
Inventories
j)
Inventories are valued at the lower of weighted average
cost and estimated net realisable 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
SYRAH RESOURCES > ANNUAL REPORT 2019 > 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, was included in Mining Assets up
to 31 December 2018. Since declaration of commercial
production on 1 January 2019, inventory is now recognised
as Inventories at the lower of cost and net realisable value
(refer to note 9).
Property, plant and equipment
k)
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
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.
Intangible assets
l)
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 estimated
life of mine on a straight-line basis.
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 9.
93
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 9).
Impairment of assets
o)
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
94
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
(i)
The Group classifies its financial assets in the following
measurement categories:
> those to be measured subsequently at fair value (either
through OCI or through profit or loss); and
> those to be measured at amortised cost.
The classification depends on the Group’s business model
for managing the financial assets and the contractual terms
of the cash flows.
For assets measured at fair value, gains and losses will either
be recorded in the Statement of Comprehensive Income or
Other Comprehensive Income.
The Group reclassify debt investments when and only when
its business model for managing those assets changes.
Recognition and derecognition
(ii)
Regular way purchases and sales of financial assets are
recognised on trade-date, the date on which the Group
commit to purchase or sell the asset. Financial assets are
derecognised when the rights to receive cash flows from the
financial assets have expired or have been transferred and
the Group have transferred substantially all the risks and
rewards of ownership.
(iii) Measurement
At initial recognition, the Group measures financial assets at
its fair value plus, in the case of a financial assets not at fair
value through profit or loss (FVPL), transaction costs that are
directly attributable to the acquisition of the financial assets.
Transaction costs of financial assets carried at FVPL are
expensed in the Statement of Comprehensive Income.
Financial assets with embedded derivatives are considered
in their entirety when determining whether their cash flows
are solely payment of principal and interest.
SYRAH RESOURCES > ANNUAL REPORT 2019 Debt instruments
Subsequent measurement of debt instruments depends
on the Group’s business model for managing the asset and
the cash flow characteristics of the asset. There are three
measurement categories into which the Group classify its
debt instruments:
Amortised cost: Assets that are held for collection of
contractual cash flows where those cash flows represent
solely payments of principal and interest are measured at
amortised cost. Interest income from these financial assets
is included in Finance Income using the effective interest
rate method. Any gain or loss arising on derecognition is
recognised directly in the Statement of Comprehensive
Income and presented in other gains/(losses) together with
foreign exchange gains and losses. Impairment losses
are presented as separate line item in the Statement of
Comprehensive Income.
Fair value through other comprehensive income (FVOCI):
Assets that are held for collection of contractual cash flows
and for selling the financial assets, where the assets’ cash
flows represent solely payments of principal and interest, are
measured at FVOCI. Movements in the carrying amount are
taken through other comprehensive income (OCI), except
for the recognition of impairment gains or losses, interest
income and foreign exchange gains and losses which are
recognised in the Statement of Comprehensive Income.
When the financial asset is derecognised, the cumulative
gain or loss previously recognised in OCI is reclassified
from equity to the Statement of Comprehensive Income
and recognised in other gains/(losses). Interest income
from these financial assets is included in finance income
using the effective interest rate method. Foreign exchange
gains and losses are presented in other gains/(losses) and
impairment expenses are presented as separate line item in
the Statement of Comprehensive Income.
FVPL: Assets that do not meet the criteria for amortised
cost or FVOCI are measured at FVPL. A gain or loss on a
debt investment that is subsequently measured at FVPL is
recognised in Statement of Comprehensive Income and
presented net within other gains/(losses) in the period in
which it arises.
Equity instruments
The Group subsequently measures all equity investments
at fair value. Where the Group’s management has elected
to present fair value gains and losses on equity investments
in OCI, there is no subsequent reclassification of fair value
gains and losses to Statement of Comprehensive Income
following the derecognition of the investment. Dividends from
such investments continue to be recognised in Statement of
Comprehensive Income as other income when the group’s
right to receive payments is established.
Changes in the fair value of financial assets at FVPL are
recognised in other gains/(losses) in the Statement of
Comprehensive Income as applicable. Impairment losses
(and reversal of impairment losses) on equity investments
measured at FVOCI are not reported separately from other
changes in fair value.
(iv) Impairment
From 1 January 2018, the Group assess on a forward-
looking basis the expected credit losses associated with its
debt instruments carried at amortised cost and FVOCI. The
impairment methodology applied depends on whether there
has been a significant increase in credit risk.
Expected credit losses for the Group’s trade receivables are
reviewed on an ongoing basis. The Group has policies in
place to manage exposures to customers from the sale of
graphite. These include credit coverage by the issuance of
letters of credit from high credit quality financial institutions
and limits on credit exposures to individual customers where
there is no letter of credit.
Trade and other payables
r)
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) Borrowings
Borrowings are recognised initially at fair value. Borrowings
are subsequently measured at amortised costs, representing
the applicable interest rate on the borrowings, and any value
attributed to the option to convert the Note. The fee paid on
the establishment of loan facilities was capitalised into the
value of the loan, along with interest which can be paid to the
Noteholder at a rate of 7.5% or capitalised at a rate of 8.0%.
Borrowings are removed from the balance sheet when the
obligation specified in the contract is discharged, cancelled
or expired. Borrowings are classified as current liabilities
unless the Group has an unconditional right to defer
settlement of the liability for at least 12 months after the
reporting period.
Provisions
t)
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.
95
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.
u) 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.
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.
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.
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.
96
SYRAH RESOURCES > ANNUAL REPORT 2019 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.
v) 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.
w) 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.
x)
Earnings per share
Basic earnings per share
Basic earnings per share is calculated by dividing:
> 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:
> 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.
y) 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.
z) Comparative figures
Where necessary, comparative figures have been adjusted to
conform to changes in the presentation in the current period.
aa) 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.
bb) New accounting standards and
interpretations
A number of new or amended standards became applicable
for the current reporting period and the group had to change
its accounting policies and make retrospective adjustments
as a result of adopting AASB 16 Leases. The impact of the
adoption of the leasing standard and the new accounting
policies are disclosed below. The other standards did not
have any impact on the group’s accounting policies and did
not require retrospective adjustments.
Changes in accounting policies
AASB 16 Leases
(i)
This note explains the impact of the adoption of AASB 16
Leases on the Group’s financial statements and discloses
the new accounting policies that have been applied from
1 January 2019.
The Group has adopted AASB 16 Leases retrospectively
from 1 January 2019 but has not restated comparatives for
the 2018 reporting period, as permitted under the specific
transitional provisions in the standard. The reclassifications
and the adjustments arising from the new leasing rules are
therefore recognised in the opening balance sheet on 1
January 2019.
On adoption of AASB 16 Leases, the Group recognised
Lease Liabilities in relation to leases which had previously
been classified as ‘operating leases’ under the principles
of AASB 117 Leases. These liabilities were measured at the
97
present value of the remaining lease payments, discounted using an estimate of the Group’s incremental borrowing rate as
of 1 January 2019. The weighted average Group’s incremental borrowing rate applied to the Lease Liabilities on 1 January 2019
was 6%.
For leases previously classified as finance leases the group recognised the carrying amount of the lease asset and lease
liability immediately before transition as the carrying amount of the right-of-use asset and the lease liability at the date of initial
application. There were no changes to the carrying amount of right-of-use asset and the liability at the date of initial application.
Practical expedients applied
In applying AASB 16 for the first time, the Group has used the following practical expedients permitted by the standard:
> applying a single discount rate to a portfolio of leases with reasonably similar characteristics;
> relying on previous assessments on whether leases are onerous as an alternative to performing an impairment review –
there were no onerous contracts as at 1 January 2019;
> accounting for operating leases with a remaining lease term of less than 12 months as at 1 January 2019 as short-term
leases;
> excluding initial direct costs for the measurement of the right-of-use asset at the date of initial application; and
> using hindsight in determining the lease term where the contract contains options to extend or terminate the lease.
The Group has also elected not to reassess whether a contract is or contains a lease at the date of initial application. Instead, for
contracts entered into before the transition date the group relied on its assessment made applying AASB 117 and Interpretation
4 Determining whether an Arrangement contains a Lease.
Measurement of Lease Liabilities
The Right-of-use Assets were measured at the amount equal to the Lease Liabilities, adjusted by the amount of any prepaid or
accrued lease payments relating to that lease recognised in the balance sheet as at 31 December 2018. There were no
onerous lease contracts that would have required an adjustment to the Right-of-use Assets at the date of initial application.
The recognised Right-of-use Assets relate to the following type of assets:
Operating lease commitments disclosed as at 31 December 2018
(Less): short-term leases recognised on a straight-line basis as expense
(Less): low value leases recognised on a straight-line basis as expense
(Less): operating lease reassessment
Discounted using the Group’s incremental borrowing rate of 6%
Lease liabilities recognised on applying AASB 16 Leases
Add: finance lease liabilities recognised as at 31 December 2018
Lease liabilities recognised as at 1 January 2019
2019
$’000
29,447
(17)
(4)
(19,598)
(1,998)
7,830
5,592
13,422
Properties
Equipment
Total right-of-use assets
31 DECEMBER 2019
1 JANUARY 2019
$’000
13,523
3,181
16,704
$’000
7,202
5,393
12,595
The change in accounting policy affected the following items in the balance sheet on 1 January 2019:
Increase/(decrease) in property, plant and equipment
Increase/(decrease) in right-of-use assets
(Increase)/decrease in lease liabilities
(Increase)/decrease in accumulated losses
98
1 JANUARY 2019
$’000
(5,393)
12,595
(7,830)
(628)
SYRAH RESOURCES > ANNUAL REPORT 2019
Impact on segment disclosure and earnings per share
Adoption of AASB 16 impacted the Balama and Corporate segments (but not BAM) with segment loss, segment assets and
segment liabilities for the interim period ended 31 December 2019 all increasing as a result of the change in accounting policy,
as follows:
Balama
Corporate
Total
ADJUSTED
SEGMENT LOSS
USD$’000
(4,025)
(159)
(4,184)
SEGMENT
ASSETS
USD$’000
16,442
262
16,704
SEGMENT
LIABILITIES
USD$’000
(18,326)
(305)
(18,631)
Earnings per share decreased by $1.11 per share for the 12 months to 31 December 2019 as a result of the adoption of
AASB 16 Leases.
99
DIRECTORS’ DECLARATION
SYRAH RESOURCES LIMITED
ABN 77 125 242 284
Level 28, 360 Collins Street
Melbourne Victoria 3000
t: +61 3 9670 7264
e: enquiries@syrahresources.com.au
w: www.syrahresources.com.au
In the Directors’ opinion:
(a) the financial statements and notes set out on pages 51 to 99 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 2019
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 21 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 21.
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
31 March 2020
100
SYRAH RESOURCES > ANNUAL REPORT 2019 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 2019 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 2019
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 (including Independence
Standards) (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.
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
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.
101
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 Operation located in Mozambique, as
well as the downstream strategy to produce spherical graphite (Battery Anode Material Project).
Materiality
Audit scope
Key audit matters
● Amongst other relevant topics,
we communicated the
following key audit matters to
the Audit and Risk Committee:
-
-
Liquidity and capital
management
Carrying value of assets
● 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$4.5 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.
● We chose the Group's total
assets because, in our view, it is
the benchmark against which
the performance of the Group
is most commonly measured,
given the current lower levels
of production at the Balama
Graphite Operation.
● We utilised a 1% threshold
based on our professional
judgement, noting it is within
● Our audit focused on where the
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
Graphite Operation.
● We, the Australian Group
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 opinion on the
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SYRAH RESOURCES > ANNUAL REPORT 2019
the range of commonly
acceptable thresholds.
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, and the
engagement leader visited
Mozambique.
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. We communicated the key audit matters to the Audit and Risk
Committee.
Key audit matter
How our audit addressed the key audit matter
Liquidity and capital management
(Refer to note 12(c))
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
about the ramp-up of the Balama Graphite Operation
during 2020, following the planned production
reductions during 2019. These include production
volume, mix and grades, expected revenues from
production, and operating and capital costs.
There are risks associated with the ramp-up, cash flow
conservation and the ability to obtain a debt facility or
alternative sources of financing if required. As a result,
the basis of preparation of the financial statements is
considered a key audit matter.
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 used in the forecast against available
information
• We evaluated the risks surrounding the ramp-up of
production and timing and volume of sales forecasts.
• We compared a sample of significant operational and
capital cash outflows in the model to the budget
approved by the Board, and where appropriate to
relevant contracts
• We compared actual revenue and cost outcomes for
the prior period and the current year to date to Group
forecasts to assess the historical accuracy of the
budgeting processes
We evaluated the Group’s potential opportunities for
cash conservation as well as options for raising
additional funds.
We also considered the appropriateness of the liquidity
risk disclosures included within the financial
statements, in light of the requirements of Australian
Accounting Standards.
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Carrying value of assets
(Refer to note 9(c))
The financial report of the Group includes mining
assets of $120.7 million and property, plant and
equipment of $160.7 million as at 31 December 2019
across the Balama Graphite Operation and BAM cash
generating units (CGUs).
Having identified an impairment indicator, in order to
assess the recoverable amount of these assets, the
Group prepared financial models (hereafter, the
models) at 30 June 2019 and again at 31 December
2019 to determine if the carrying values of mining
assets and property, plant and equipment were in
excess of recoverable amounts.
The Group recognised a pre-tax impairment charge of
$96.9 million for the half-year ended 30 June 2019 in
the Balama Graphite Operation. The assessment at 31
December 2019 identified no impairment, and no
indicators of reversal of impairment. No impairment
was identified for BAM.
The models require a number of assumptions as
described in note 9(c). The recoverability of these
assets was a key audit matter given the financial
significance of the impairment charge recognised
during the year ended 31 December 2019, the
significance of the Group’s mining assets and property,
plant and equipment balances to the financial position
of the Group, and the judgements and assumptions
required in assessing the assets’ recoverable amount.
We evaluated the cash flow forecasts in the models and
developed our understanding of the process by which
they were prepared. In order to assess the Group’s
historical ability to make reliable forecasts, we
compared current year (2019) actual results with the
figures included in the original budget.
For the Balama Graphite Operation we assessed:
● The total production profile and the mix between
flake and fines production in the models by comparing
them to the latest published mineral reserves and
resources statement and other technical reports.
● The reasonableness of the continuing production
ramp up schedule and discussed the schedule with
operational management as part of our evaluation of
the risks involved;
● The short term graphite price in the models by
comparing it to current prices being achieved by the
Group and by developing an understanding of and
evaluating the transition path between the short and
long term price;
● The long term graphite price in the models by
developing an understanding of and evaluating the
Group’s supply/demand analysis including involving
PwC valuations experts and also by comparing it to
industry and broker forecasts;
● Whether the operating and capital expenditure
forecasts were consistent with the latest approved Life
of Mine plan and budget;
● The discount rate used in the models by assessing the
cost of capital for the Group, including involving PwC
valuations experts, and comparing it to market data
and industry research;
● The logical integrity and mathematical accuracy of
the model’s calculations
● The adequacy of the disclosures made in note 9(c),
including those regarding the key
estimates/assumptions and sensitivities to changes in
such assumptions, in light of the requirements of
Australian Accounting Standards.
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SYRAH RESOURCES > ANNUAL REPORT 2019
For BAM, we checked the mathematical accuracy of the
models, and the reasonableness of the assumptions,
including:
● Comparing long term price forecasts to
industry and market data
● Comparing operating and capital expenditure
assumptions to technical reports.
● Considering the progress of the project to
date, and developments in the industry and
markets.
Other information
The directors are responsible for the other information. The other information comprises the information
included in the annual report for the year ended 31 December 2019, 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
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 on the other information that we obtained prior to the date of
this auditor’s report, 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 the 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
105
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.
Report on the remuneration report
Our opinion on the remuneration report
We have audited the remuneration report included in pages 23 to 48 of the directors’ report for the year
ended 31 December 2019.
In our opinion, the remuneration report of Syrah Resources Limited for the year ended 31 December 2019
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
31 March 2020
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SYRAH RESOURCES > ANNUAL REPORT 2019
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 20 March 2020 except where otherwise indicated.
EQUITY SECURITY HOLDERS
TOP 20 LARGEST QUOTED SECURITY HOLDERS AS AT 20 MARCH 2020
The names of the twenty largest security holders of quoted equity securities are listed below:
RANK NAME
1.
2.
3.
4.
5.
6.
7.
8.
9.
J P MORGAN NOMINEES AUSTRALIA PTY LIMITED
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
CITICORP NOMINEES PTY LIMITED
COPPER STRIKE
UBS NOMINEES PTY LTD
WARBONT NOMINEES PTY LTD
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