Syrah Resources Limited (OTCPK:SYAAF) March Quarterly Sales and Marketing Update Conference Call April 28, 2017 8:30 PM ET
Shaun Verner – CEO
David Corr – CFO
Rob Schaefer – CCO
Luke McFadyen – Market Analysis Manager
John Knowles – GM
Peter Lee – Manager of Investor Relations
Michael Slifirski – Credit Suisse
Rahul Anand – Morgan Stanley
Reg Spencer – Canaccord
Matthew Hocking – Deutsche Bank
Jeffrey Shaw – Bell Potters
Larry Hill – Canaccord
Michael Slifirski – Credit Suisse
Ladies and gentlemen, thank you for standing by, and welcome to March Quarterly Sales and Marketing Update Conference Call. At this time, all participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. [Operator Instructions] I must advise you that this conference is being recorded today Friday the 28th of April, 2017.
I’d now like to hand the conference over to your speaker today Mr. Shaun Verner. Thank you. Please go ahead.
Thank you. Good morning everyone. Thank you for your time this morning. It’s a quite pleasure to be delivering my first quarterly update as a CEO combined with an update of this sales and marketing activity that’s been underway in the Company since I joined, October. I have joined here in Melbourne this morning by David Corr, our Chief Financial Officer; Rob Schaefer, Chief Commercial Officer; Luke McFadyen, Market Analysis Manager; and John Knowles, Peter Lee, GM and Manager of Investor Relations respectively. I should note upfront that we’ll work through the commentary on the quarterly in the sales and marketing presentation and then we’ll open up for questions.
So, I wanted to begin with some initial observations on our team and our strategic objectives. We’ve got an outstanding team of dedicated people across the business and we’ve filled out executive ranks during the quarter welcoming Rob Schaefer as a Chief Commercial Officer and also more recently Paul Jahn, in the Louisiana who’s joined us as Chief Operations Officer for the BAM Project. Given now presidents across Australia, Mozambique, the USA soon to be starting as we buy marketing office and various marketing offices globally, our leadership bench — leadership team strength is critical.
To us also mentioning at this point the Balama project and operation team working on the downstream — upstream COO who is doing an outstanding job, Darren is on the site full time at Balama at the moment for the completion and commissioning in the project. I’d also like to acknowledge the assets that we wouldn’t be in the position that we’re in without the dedication and effort of Tolga Kumova, the previous MD and CEO. We announced today the Tolga’s consolidating agreement with the Company will conclude as of the 16th of May.
We probably have him transitioned knowledge and relationships in the sales and marketing and also having provided really strong input into the downstream battery anode material strategy. So, I’m personally really grateful to Tolga for him time and enthusiasm and the effort he gave to my transition into the Company firstly in the sales and marketing role and later as I became CEO. And I know almost everyone else in the Company feels exactly the same way, so we wish everybody best.
Moving onto our strategic objectives, about all of us obviously safety and health of people is our core priority, it’s our first and last task each day to assess success on this front, is really our license to operate. In addition, our core business objectives are firstly construction, completion, commissioning and ramp up at the BAM. Secondly, continue to execute proprietary market analysis and importantly implementing the sales and marketing plan on back to back. Third, further developing and executing the battery anode material strategy. Fourth, maintaining balance sheet strength. And fifth, making sure we have the right people in the right roles at the right time.
So moving to today’s releases, you’ll note that the material we released this morning provides significant amount more details with previously related to the quarterly. Some info remains particularly regarding sales and marketing commercially sensitive and I acknowledge upfront, but this might be frustrating in some cases but I’ll explain a little more of that in the industrial mineral sales processes shortly. Overall, I hope that the increased transparency across the business is good. Our project progress, production timing and volume as well as our views around the industry structure are now at a point where we can provide much more granularity.
So, the first quarter 2017 has seen a major advance in the Balama project at sales and marketing efforts, our battery anode materials project and our corporate activities. Firstly in health and safety, we’ve got over 200,000 people engaged in the project and related activities across the Company. We saw 1.5 million man hours work to the end of the first quarter without a reportable injury or significant incidence in the quarter which is just a fantastic effort, something that we’ve been very proud of. It’s something that they have to work incredibly hard to maintain. We also completed the quarter with no significant environment incidence. And from a community perceptive, we’re currently more than 90% local Mozambican employees with 70% from the local host communities and 23% of those of Pemba. And that’s a great indicator very important to the local community.
Other highlights regarding Balama. Regarding Balama, this project remains on schedule with commissioning starting in May 2017, we’re very close now. And the first production planned in August 2017. We have seeing some minor slippage with the completion of parking and electrical work at the backend of the plant. So we’ve adjusted that commissioning plant to work around it and we see — we’ll see some overlap in construction completion and commissioning in July. Importantly, there will be no change to the goal of first production, first commercial production in August. We’ve actually been able to advance first ore to the ROM pad to June as mining is ahead of schedule.
The project capital cost remains unchanged at a $192 million plus the project contingency of $7 million. The production ramp up volume is expected to be between 140,000 and 160,000 tons of flake graphite concentrates in the first full year of production, and 250,000 to 300,000 tons in the second full year. This is a volume that we believe optimal for both sales and operational requirements and for the entry into the market. In the mining agreement with the Mozambican government continues to progress through the governmental approval channels. It is slow but we are not seeing any issues or changes identified. We’re confident that the mining agreement will be delivered shortly.
In our downstream battery anode materials project, the initial BAM team has mobilized through Louisiana and under the Chief Operating Officer, Paul Jahn. The late on our qualification front site in Louisiana is in final stages of negotiation with basically all major negotiations pieces complete and with the environmental permitting progressing well at the same time.
Front end engineering design is complete and the transition to the detailed engineering with the U.S. firm is underway and production is on target through the first quarter 2018 out of the Qualification Plant. Our Commercial Plant planning for 2019 is on schedule albeit with some additional commercial opportunities which we’ve described in fact today that we’re developing before we’ve embarked on the daily basis. The Chinese pilot plant in Guangzhou will be relocated to Perth in mid 2017, and we’re wrapping up the end of sample production from there.
And importantly today, we’re really pleased to announce the strategic Memorandum of Understanding that’s been finalized with Cadenza Innovation in the U.S. for a long-term product testing and development partnership, which is focused on the development of advanced battery anode material products. This is incredibly important for us to extend our downstream strategy from producing just a standard uncoated or standard coated material and moving into advanced materials specific for customer needs.
In the sales and marketing area very strong progress has been made. We’ve been engaged in market analysis, segmentation, value and use analysis, and product placement plans, and we’ve provided an overview of a lot of that in the fact that we relate this morning and we’re go into summary of that in short term. But we really pleased to finalize a five year about two five year option comprehensive mine to port logistics contact with Grindrod and major African logistics provider covering the full domestic logistics requirements.
We’ve got multiples large scale sales initiatives and negotiation being progressed including our memorandum of understanding with BTR New Energy Materials, the world’s largest battery anode manufacturer, and announcing today as well the finalization of the Statement of Sales Intent with all major elements of the contract negotiations played with the consortium of the European traders headed by Minerals GmbH for a minimum of 15,000 tons of flake concentrating the first year a minimum of 25,000 tons in the third year of flake graphite and the SSI in place for five years certainly some potential to grow from there.
I’ll touch on the progress we’ve made in the commercial discussion with BTR when we move into the marketing place. Thus in an exciting event, we’ve also developed total processing option to move to produce flake of graphite using Syrah flake in China targeting earlier entry into this market than they would have achieved through the Qualification and Commercial Plants in the USA without sacrificing anything that we’re moving towards in those plants. This is an additional piece of work that we have underway.
And last but certainly not least, we have a new conditional SSI, Statement of Sales Intent signed with a major anode producer, the battery grade spherical graphite. The turns of this SSI is completely confidential, but it’s an important indicator of end user intent beyond the offside which we sign with Marubeni and Morgan Hairong as it really replaced the end user engagement and testing process, is having completed for sample material. So, I’ll come back to sales and marketing shortly, but I wanted to hand over to David Corr, our CFO to comment on the financials at this point. David?
Thanks, Shaun, and good morning everyone. As of 30th March, 2017, the Group held cash reserves of a 135 million, which represented a net decrease of $28 million during the March quarter. The Group continued to hold the majority of its cash in U.S. dollars which is the principal currency of the Balama project expenditure and also the Group reporting currency. As of 31 March, we held a $123 million and 12 million in Australian dollars.
In relation to the development of the Balama project, the Group spent $24.5 million during the March quarter bringing total project to-date cash spent to a 137.5 million. Key items of project expenditures for the March quarter included progressive payments for long lead items of 5.5 million. These spends are significantly lower in previous quarters and is reflective of the advanced status of our procurement activities for the project.
Prepayments included structural steel work and plate work fabrication of 1.8 million and items for our electrical and instrumentation contract including MV switchgear and cables of 2.4 million. There was ongoing development of the mine including whole rate construction, some solid removable and post drilling activities as well as the establishment of great controlled systems and processes in anticipation of the commencement of the mining of ore and the commissioning of the primary crusher.
In total, we’ve spent 1.1 million on mine development activities during the quarter. Ongoing site construction activities were $15.2 million during the quarter with key areas of expenditure in the areas of concrete and civil work, which are now completed and where we spent 2.1 million, structural, mechanical and piping works like Ken where we spent 4.1 million, tiling and construction activities where we spent $2.2 million, plant site buildings where we spent 1.7 million and the completion of our accommodation in upgrades where we spent $0.8 million.
Existing costs for the quarter were $5.2 million and these costs were incurred to support construction, commissioning and operational readiness activities. Total commitments for the Balama project as of 31, March 2017 were $168 million. With all major construction contracts now underway and commissioning an operational readiness activities intensifying with the eminent commencement of commissioning and production ramp up activities.
There would be no change in the forecast, capital cost for the project during the quarter with the project capital cost remaining at 193 million plus the project contingency of 7 million. Balama project development costs for the forthcoming quarter including staff cost to forecast to be 33 million. The majority of the expenditure will relate to site construction activities however an increasing level of expenditure on commissioning and operational readiness activities will occur.
Key areas of expenditures for the fourth coming quarter include structural, mechanical piping, electrical and instrumentation and various services construction activities. The completion of our tiling storage facility construction, the completion of our mine development activities with the mining of ore schedule to commence. The completion of our major infrastructure works including the power station, fuel facility, laboratories and plant site buildings and the commitment of commissioning activities. All these things cost comprising of the team managing the various construction packages and the ongoing mobilization and training of commissioning and operations teams.
Total project capital costs at the end of June 2017 are forecasted to be approximately 174 million. The remaining project capital cost at this time are forecasted to be 26 million, which is expected to be incurred the second half of 2017. This reflects the concurrent completion of construction, commissioning and production ramp up activities. The final payments of our various long laid items where payments are withheld until the successful satisfaction of performance warrantees from equipment vendors and the extinguishment of our construction related trade payables.
Development expenditures for the quarter included 2.1 million for VIP payments in Mozambique and 0.6 million in relation to the progression of the Group’s battery anode material commercial strategies in Lusitania. The Group’s administration and corporate cash cost for the quarter were $2.5 million and are expected to remain at similar levels for the forthcoming quarter. Progress has been made during the quarter and putting in place of working capital facility at $50 million to maintain a strong under our wide range of scenario during the project commissioning and production ramp up phase.
Discussions with potential debt financiers are well progressed with presentations given and data in excess provided to a number of shortlisted parties during the quarter. Several event proposals for funding options have been received and are presently under assessment by the Company. It is important to mention that the Company has only appropriated debt financiers and has not entertained approaches from financiers proposing equity funding solutions that contain equity features.
In terms of the management of our working capital, we continue to run our model across the rains of reasonable assumptions with input from our variety of internal and external sources. We remain focused on building out our commercial arrangements as evidenced by the award of Pete’s support logistics contract to Grindrod and issuing strategic initiatives that will deliver revenues and cash inflows earlier and align our customer build up with our ramp up dry fall and put in place sustainable structural cost base with the fixed and variable cost ratio that allows are to quickly establish a position in the first quarter of the global graphite cost curve.
It is important to note the business remains fully funded and that we remain comfortable with the level of available cash reserves and the progress in which we have made in putting in place the working capital facility. Proprietary work has also now concurrently commenced to identify funding options with the brand strategy beyond the construction of the qualification plant in the Lusitania.
I’ll now hand back to Shaun.
Okay. Thanks, David. So overall, I think it showed an outstanding position and I continue to take a very positive view and seeking to develop shareholder value now and in the longer term. And this will be achieved by us focusing on our strategic objectives and delivering reliably against them. So, we fully jump into sales and marketing materials, I just want to summarize where I believe this level.
Firstly, Syrah is the only major natural graphite development project in construction globally and is fully funded to production of graphite concentrate from the operation. Construction and commencing will peak in the short turn and commercial production is imminent with target of August of this year. The size, quality, life and cost base of the Balama asset positioned Syrah perfectly to satisfy growing the global graphite demand in the battery industry in particular.
The sales and marketing activity is underway and is building long-term base load customer relationships and these relationships have based on the value we used provided by Syrah materials. Demand to that material is extensive. The ability of the customers to diversify those sourcing with the high quality base load provided is highly attractive to the customer base across all segment and all geographies. Syrah is positioned well cash with the flow from Balama and is developing multiple downstream battery anode material opportunities to maximize value as early as we possibly can.
So, now, I’m going to move in now to the sales and marketing slide there. Some more detail on the mechanic market structure Syrah placed within that and our sales and marketing progress. And I wanted to bring Luke and Rob into the discussion now and as we work greatly through slide deck that released alongside with the quarterly update this morning. Rob?
Thanks John. In sales and marketing, we’re focused on a number of work streams in the past six months including our market research and technical understanding of value in use, market segmentation and product pricing and optimization, customer engagement and our integrated sales and operations planning. And the last of this point is important to touch on briefly, it is critical that the research and market segmentation work our end customer engagements are reflected in the development of the production ramp up plan and ongoing production planning. And in some instances, there is a final qualification fit from commercial production, and we’ll obviously prioritize production to make sure that they declare as quickly as possible. In the stable production environment, we look to optimize pricing opportunities through adjusting the production focus where necessary.
So, I’ll hand back to Shaun now to work through the next couple of slides.
Okay. So, moving to Slide 2 the bottom chart I mean I think we’ve showed the slide number of times. What we have tried to illustrate here it again is particularly the funding position and the scale of the Balama and the economies scale advantage that gives us. So, the deposit means of Balama gives us around 60-year mine life as a world-class Tier 1 asset and grade advantage there is really significant.
Moving on to the next slide, Slide 3, on major project assessment metrics Balama is outstanding. The capital spend on the project has been allocated efficiently and our significant economy of the scale advance over potential future competitors and our expandability provides a really strong base position. And why do we focus on growth, well grade reduces capital intensity first time in graphite.
Our mine has the lowest capital intensity in the world, grade reduces our operating cost and high head grade generate an operating cost of data relative to our peer as mining and beneficiation processes is simplifying and we have a very low strip ratio. And grade aids beneficiation to high carbon concentrate, we’re creating value needs. So, our ability to move from 95% PTC to 98% once we’ve installed the attrition, so it is very important, less work is require to produce the high carbon content concentrate that will attract premium pricing.
So, move across to our own material characteristics and some work on the market structure and I’ll hand the call to Luke.
Thanks, Shaun. So, first I want to discuss some of the technical specifications and aspects of Syrah graphite. Syrah’s natural graphite is slide from the highest degree of crystallization with an exceptionally order of structure. The deposit is tremendously large and at surface and as Shaun mentioned remained, the means our capital reinvested has been the most efficiently allocated relative to what other greenfield mine could achieve. The abundance of high quality organic carbon has resulted in unusually but very beneficial flake graphite which converts efficiently into spherical graphite. The flake morphology, the finest thickness density and purity enables efficient processing to form high density spherical, which is about average grade here, and this is what I will discuss in the following slide.
We’ll move to Slide 5, what the chart highlights is the conversion benefits using Syrah flake versus our current global supply to produce specific spherical graphite product. Syrah flake graphite price is roughly to reduce an equivalent product. The graphite itself is thick and is easy process to from high density spherical with high yields on existing global supply. After two years of techniques hundreds of samples from the industrial and battery sector by potential customers, they can close in very consistent. So, we pleased at the high value and use that specific characteristic of Syrah slide in visible processing. And secondly, there is a second value-in-use benefit associated with the high carbon content previously of 98% from Syrah’s material post implementation of attrition services.
So what are these services make to value engine. They benefit to translate to lower power and capital input and lower assets of thermal purification requirements acquiring to what we believe and research fine expand around 5% to 10% of selling products the onside purified spherical material. We’re moving to the next slide of today. Net charge does remain dominant source of supply with approximately 500,000 tons and 30% market share. This is due to significant, but fast leading natural resources abundance. However, we believe the supply in China will not increase any further and in fact peak close to 600,000 to 700,000 tons seven years ago in 2011 and 2012. Since then, there has — it has been on a steady decline due to quality degradation, lower level of profitability from the small sales line and more recently due to increasing environmental controls.
China’s domestic supply has been in the period of consolidation in the last few years as a result of the issue and we believe this trend will continue to supply China reached around 400,000 tons in 2020. In addition to this, we believe export total China will not materially change even given the rate of export tax changes. Exports of natural graphite from China were around 100,000 tons last year and have been rounded for the last four years. We believe China does not have a quality of supply to increase exports and these profits line we have not explained why we have not seen significant rise in exports from China this year following exports of tax changes to January.
The supply in China still relatively fragmented and this also partly explained why there is an inconsistency of quality issue. The lines mine no line is in 70,000 tons and many much more in smaller lines of 1,000 to 5,000 tons have closed down in recent years through the consolidation process, it doesn’t remain from smaller mines of less than 10,000 tons in the system. That’s why the China, Brazil has six operational mines with total production around 90,000 tons last year. And also this is a long time supply from smaller sources, but no one country about 30,000 tons a year. As we move into our supply use of 2020 on Slide 7. Syrah will — by then Syrah will be a full production whole around 30,000 tons the global market share. In the period between now and 2020, we believe the in-house development of the third as a graphite market cost curves which we will be showed next beneficial to answering the question will Syrah oversupply of the market and we will get to that in a minute.
We believe the highest costs and lowest quality suppler in the world today will not exist by 2020. Although, it could be known from our experienced some another commodities that these supply will remain in the market for the short term once we do come online. We believe China’s best quality flake is from Heilongjiang Province in Northeast China, but not only but there and also elsewhere in China the smaller operations are under this continued pressure for industry consideration and new and more astringent environmental growth.
So, as we think about cost curves, as we’ve said there was no detailed cost curves information that we could access from existing industry analysts, so we have tried to work across a multiple data providers and utilized on the ground information to build up the picture of what those curves look like. We’re presenting here another overview version and given the proprietary nature of what we’ve had developed, we want to keep some of that detail for ourselves and obviously we have the details and note and some work. It gives you rights to emphasize that will be the largest first quarter producers as we ramp up and as we achieved targeted capacity over next few years. Luke?
Thanks, Shaun. So I just want to provide a brief overview of the cost curves and now developed using a method consistent with other commodity cost curves and marginal cost forecasting where a lot of products are varying specification and quality. For these cost curves, we desists 87 individuals operating flake graphite mines around the world which we will believe cover around 95% of all the level of supply today. The production cost of each mine has a high correlation to the grade of their mining and ask rate of around 0.75, and as shown this cost earlier grade determined a lot of things. The mining and processing had cost us especially. This was mentioned during the investment metrics slide earlier and it also what drives the cost curves.
As we move onto Slide 9 and our demand views, we only comment on two key sectors here. The ongoing graphite demand is in the steel sector and the incremental demand from the battery sector and especially from the electric vehicles. We forecast flake demand from the steel sector products in the short term this takes into account for 18, little steel production growth in ex-China and flat steel production growth in China as steel capacity is closed in mines with the government target, but remained from supply increases its utilization rates.
Secondly, we think there is an increased efficiency in steel production in general and increased efficiency over factory produce. And thirdly, as there is more natural graphite used in the electric op furnace production process versus the blaster in process, we’ve believed that there as most spread comes on line and that’s bigger push to use more efficient — use energy more efficiently, electric op furnace each production will increase from around 25% today to around 30% in 2020.
As we move onto our view for electric vehicles and here we call them new energy vehicles, which is consistent with what the sectors called in China. New registrations of electric vehicles increased by around a 1 million last year doubling the global stock in a year and that’s an important point as of beginning of the period of rapid transformation of the order industry. Now, it’s also important to note that the 55% CAGR against that new energy vehicle sector is not the easy goal for line, but the three key drivers. These drives are obviously increased sales of electric vehicles, but also increased natural graphite use in the battery from today and into the future and increased battery size of overall as cars get more powerful and can go longer distances. In order to assure that we are not finally optimistic, we do have — we have retained the conservative view of the overall electric vehicle both relative to our industry forecast.
I’ll now pass over to Rob to talk about prior season.
Thanks Luke. So, we’re up to Slide 10 now. And I think the message from this slide is really is the heading of the slide suggests which is the Syrah’s premium product will command a premium price. Essentially, the large of the flakes and the higher the TGC combined with lower impurities remains at higher price. Historically, this is proved to be the case and the data published by the industry analysts confirm this. Syrah will be in the sweet spot in particular from our higher TGC especially once the attrition sales are installed. We expect to start at around 95% carbon content, but this will move rapidly to 98% with the interruption of those industry sales.
Moving on to Slide 11, the point we’re making in this slide is that they have the moments in time historically with certain events have had a significant influence in shaping price largely related to steel and we believe the battery demand driven by the electrical vehicles and energy self service will the next to place. To exactly what extent, we can’t be sure, but the potential was there for another price ore or aging industry relation to outline in to the clear again in the case of batteries and it could be material. Essentially, the market is in transition and cost drives are changing accordingly.
Moving on to Slide 12, a key feature from a supply perspective for China is that increasing environmental regulations and therefore closure and cost, and this should not be understated. We’re very confident that ore production is coming on stream at the right time as the industry transitions to the less few ores and more driven by batteries. As Luke has mentioned previously, we are quite sure that the top quartile of the cost curve is already underwater and Syrah’s premium product will provide a better product outcome.
I’ll now hand back to Shaun to close out the last of these slides.
So moving on the Slide 12 and question is. Where is all of this latest in terms contract and negotiation? Now we have a nice asset position, we know that the demand profile is exciting, but where are we in terms of contracts and negotiations. So, it moves well beyond the initial to flake off-take agreements into Statement of Sales Intent that we’re in place. We’re done extensive sample testing and technical mastering work globally over the few years. But over the past six months, we have become far more fully engaged commercial with the vast majority of major consumers across segments and across the geographies.
Renegotiations and permanent contractual terms across China, South East Asia and Taiwan, India, South America, Europe and the U.S., this is in addition to the arrangements we have in place already to China and Japan and Korea under the Marubeni and Morgan Hairong that’s our Marubeni and Chalieco agreements. So the combination of our off-take contracts already in place in the extensive development undertaken more recently will see comfortably placing full production plant in Balama’s first three years. As I’ve pointed out in my note today, sales and pricing mechanisms in both flake and spherical market of the part they’re nontransparent and they’re bilateral.
Customers are really protective of their supply information and their existing commercial relationships and a lot of agreements contain confidentiality clause. We need to respect those parameters and prepare the contractual arrangements within this. So, this brings us to be the VPI and I know there is a lot of interest in progress under our MoU with basically on new energy materials. Discussions are continuing weekly with BTR in a very positive — the specific terms of MoU, you were not public at this point, but as we’ve said we’re talking about sales and supply chain options across 29 commercial areas.
Of course, this covers both the flake production initially from Balama and spherical graphite opportunities. BCI tested both of their products extensively. Now, these should be noted that effected BCI are engaged with Syrah indicates something significant that the quality of Balama materials itself, and that quality compared to the quality and consistency of material will not be available in China in the long term. I mentioned earlier that we’re also pursuing positive treatment options to produce spherical graphite from Balama material in China to advance their market entry and obviously this is something we’re discussing with BCI amongst other potential providers.
I know there is some view out there that the deal should have been in it. We play here in developments but I’ll reinforce few things. BCI is the world’s largest battery anode manufacturer by volume and they are engaged with us as the world’s largest potential volume graphite line and processing operation. The need for each of this take a long term view and develop option accordingly should be understandable. Secondly, some points I made earlier about marketing discussion overall are important. The timing of commercial arrangements should be picked by what’s right for the parties negotiating and the condition placed into finalizing those contracts. And if that takes time prior to the commitment of commercial production or even after that and that time will be allowed.
And thirdly, the discussion we’re involved with BCI our multifaceted some value elements are relatively flat to finalize other than more complex, but if you can comment on it on us from a shareholder value perspective to look at the holistic value in a coordinated manner of the three elements that we’re talking about. So, whether it’s BCI or anyone else, we’re focused on getting right arrangements in place with customers that will deliver the best pricing outcomes and the strong relationships.
We under entirely the table 10c contracts to make assessment from price, on volume, on placement and various other elements as the sales process, but we will not sacrifice the timing of negotiations provide upside such as this. In the end, we’re going to be judged by operating revenue and by margin and nothing that the timing of these contracts being released, both finalized impact that at this point. We’re also going to keep in mind that we ensure competitive tension in the market and we maintain opportunities, and that sometimes means that we need to take relevant commercial outcomes confidential.
So, if I move to Slide 14, I won’t go into all of the items here, but I did want to reemphasis obviously the BCI in our view and the new minerals GmbH traded consortium SSI for the year and the extensive rates of their commercial negotiations held underway elsewhere around the world. Now, first again the timing of these arrangements is not a concern to me this point as in every case, there is significant demand based on our quality and on the ability to customer to diversify their supply.
Looking at Slide 15, the downstream progress has also been significant. Most importantly, we’re engaged with BCI that we hope I completed the SSI that we mentioned with the major battery anode manufacturer the period, which will allow conditional indicates to the extended grades where achieve commercially beyond the sample testing process. Those are very exciting to the potential total processing like concentrates to produce spherical graphite products in China. We expect combination of this move and the strong progress of the qualification plant will be value enhancing
We provide more information in their processes items as being developed. So moving to the last Slide 16 and to summarize, we remain on track to deliver first concentrate in Q3 targeting all of this. The matching ramp up production to the demand profile using our integrated sales and operations planning process and we have additional capacity available once we ramp up to build any supply both nine gap that the insurance.
So, Syrah will one of the lowest cost and highest quality producers in the world. And our downstream strategy it’s being implemented and commercial opportunities will enhance the value preposition around that. Demand for Syrah material in both the battery and the industrial markets are strong and even with that growth in the steel and industrial sectors we see strong demand for our material as a diversification of sales and also due to the quality of a material.
And lastly our marketing strategy insures that we’ve diversified by geography and by segment and that’s incredibly important given the size of the operation we are bringing on in order to manage a risk profile in the sales and not getting particular.
So it brings us to the end of the sales and marketing update. Thanks for bearing with us on the call and I would cover our favorite brands. And our certainly hike transparency around this and around other elements of operational ramp-up variable.
And with that, operator, we are now we are now happy to open the lines for questions.
Thank you, ladies and gentlemen. We now begin the question-and-answer session. [Operator Instructions] Our first question comes from Michael Slifirski from Credit Suisse. Please ask your question, Michael.
I’ll try and constrain myself little bit, but also I could ask. But first of all with respect to your volume projections, the 140 to 160 and you are while on 250 to 300 in year two. Can you define what those years is actually are? Is that suggesting something year one is from August to August? Is that the period you are talking about?
I’m talking about full years of production. So, from the time we commence in the month we commence and the target at the moment is August obviously 2017, the first 12 months through the July is 140 to 160 and then the following 12 months 250 to 300.
And then with respect to that volume, my understanding historically was that the Hiller Carbon of tight was for the shavings from circle manufacture, but I think today you are indicating as that market expand into more traditional volume. So, can we expect within those couple of years forecast which before their material is available? Is some Hiller Carbon material included in those volume projections? Or is that over and above that? And what might that look like? Is that an expansion to the 25,000 to 30,000 tons that was anticipated or within that 25 to 30?
Yes, it is certainly an element of additional market development, we’re still looking at the traditional market with material direct Balama of the full the implementation of the spherical graphite plant. At the point, I would say that the 140 million to 160 million and 260 to 300 includes these around bits initial development a bit, but I would say is there is some potential to develop that condition from there.
Okay. Thank you. And then with respect to that volume that you’re talking about that’s sort of absolutely clear that the constraint is market driven, not market capacity, so it’s pretty much market pull strategy rather than mine push strategy given that you’ve commented about where the costs curve is and clearly within that business potential to not payable high end of the costs curve, but that’s not your attention. Your attention is marketable pull rather than a mine push opportunity?
Yes, that’s correct Michael. I mean, I think we’ve been clear that we have implemented over the last six months in integrated sales and operations claim process. That look at both side of the production forecast, obviously what the mine can produce and product profile. But we want to have in place. But more importantly, I think we have refined and done a lot of work both in customer engagement and in technical market analysis to understand what we think market today and enable us to enter the market in a sustainable way.
As I mentioned, we’re very focused on putting in place long-term customer relationships and having those relationships based on the value on use of raw material. I’d say not benefit whatsoever having a market strategy which goes for maximum volume upfront at the expensive developing those relationships and would require discounts all other incentives in order to place that partnership. In addition, I think it’s absolutely critical to recognize that a significant portion of supply today comes from China and significant portion of the market today comes from China. And then very easy to deserve the join industry I get to hear a lot of discussions about people positioning results.
As the alternative to Chinese graphite supple, I think it’s absolutely critical for us even outside and given the license of these assets to work collaboratively with the Chinese graphite industry through the channel and build an appropriate position both in sales and flake and as we put this spherical position together. So, ultimately and answer to your question, Michael, it is primarily market driven, but there is some — this is obviously very early in the ramp up around product profile, which is driven from a production perspective.
And with internal more than a less everyone else champion, but your chart on types 10 the premium per percentage change in 3GC to be while to fully appreciate what that means and I want to check that I’m understanding it correctly. The premium for each grade for each show product than you can measure for grade changes. Is that over and above the range that specified? Or is that within that range that specified? So, if you’re talking about the 87 to 90 is that you’re saying that there is a 7% — sorry, yes, 7% premium between the low end or the top end or is that 7% over and above the top end?
It’s Luke here Mike. No, so that 7% will represent moving from the 85 to 87, 100 mine of 80-ish to a 90%, so it’s the difference between those products of the same place.
Okay so then in the context of your aspiration to produce 98. How do you predict what the premium up be or is implicit and this is at the maximum premium you get is for sort of low quality program. So I’m trying to understand what the upside is for what the attrition sale can do? And so more broadly then in terms of where each of those lines lie, I guess my previous understanding was that your battery anode material which is I think sort of green line on the chart. I would have thought that that would have a largest premium because that’s a product that seems to leave or improve the brightest cost to get a grade upgrade that’s essential for the battery anode materials? So couple of questions there, what was that battery anode material premium for grade higher than what simplest in that chart or maybe I misreading it, so let your answer?
Okay Michael, it’s Shaun again here. I guess what we’re trying to say in the chart is given closet processes and bearing it mind that there is no closet or reported 98% material at this point. We’re just saying that given the prices that have been reported over a period of time think we there is an observation to show that changes in grade, there is a clear increase in prices achieved for an increase in grades. And what we’re saying is that if you apply that logic to an increasing grade from what is currently being used in battery anode materials, which is primarily 94%, 95% material to 98% that we will see some type of equivalence increased or premium in pricing.
And I think you can support that view by looking at some of the value in used analysis that we’ve presented here showing that the milling process is simplest and require less energy and then obviously purification would require less asset consumption for a 98% material than a 95% material. So, we trying to use those two things to give comfort and understanding that there is a grade differential between 95% and 98% material. Now what that is and have much of that value is extracted by supply versus customers is part of the negotiations that are underway.
Okay, understood. And then finally before I let someone else jumping. You see when cost curve work I think is really really interesting. But if you were to recast that in terms of a total cost, are there and FOB costs so fully allocated, what does that chart look like and what does that tell you about the sustainability of the upper end in that already the upper end seems to be give or take at the lower end of processing ranges that’s out there? But, presumably see one is only about half of the cost that’s the most these guys are actually incorrect?
Unidentified Company Representative
It’s Luke here Michael. So I just refer back to the early point I made that these curves, the shape is driven the grade. Transfer costs are getting company’s FOB change that doesn’t materially change because or certainly to shape seems pretty shift up and it doesn’t change our position. Now, remember even though Chinese supply is also in China, if we said to report whether it’s [Indiscernible] or Shanghai. The mines in Heilongjiang 1,500 kilometers away from that so you would have to factor in significant transport cost to transport Chinese suppliers as well. So, as compared to our freight cost to get to China there is not a huge cost advantage and it would have change where we are in the cost curve.
Thank you. And then the next question will comes from Rahul Anand from Morgan Stanley. Please ask your question, Rahul.
Good morning, all. Thank you for the presentation guys. Couple of quick ones from me. Firstly around the costs were flag today, the initial target being U.S. 400 a ton. Just wanted to understand the couple of things there, firstly what’s your intended target to get it back down below the U.S. dollar $300 a ton, just because that wasn’t flagged in the quarterly? And then the second one to follow on for that was that, if you look at the feasibility study and the lots of mine cost of 286 and the compare the 400. I mean the first 10 years have a great uplift of 19% versus the 15% in the second half that would have suggested to me that the cost in the first 10 years were actually even lower than the 283 life of mine cost. So the uplift in the cost has been flagged seems quite significant to me. So, I’ll just try to understand that a bit more and also the timing around when we can get them closer to feasibility study estimate or stop at that? Thanks.
Yes. Rahul, David Corr here. Good question, so let me answer it accordingly. We’ve published tonight that our first target as we ramp up our production is to achieve that cost see our cash cost of production of FOB Mozambique of $400 a ton. As we continue to ramp up our production into year two and into year three towards nameplate capacity, we would expect that either cost to revert that towards $300 per ton. You ask the question in relation to the 286, the 286 per ton was a life of mine average for the project over its initial line. There was an assumption in that 286 that after five years the energy supply would transition to a lower cost grid solution.
And so embedded within that number was a higher cost in the initial use given that we are on diesel generation. We’d expect to be able to reduce our cost to that $300 per ton overtime as our operations stabilize and our production approaches nameplate. However, it’s move materially below that $300 per ton we would have to and we have advice previously that we would have to and we would be looking to put in place a lower cost non-diesel source of electricity generation for the site.
This is Shaun. Here is just couple of additional points there I would say that in that first 12 months, we do and we move significantly below 400 before the end of the 12 months period. And it’s really is the factor how the state the ramp up is from the first three to four months into the backend of the next eight months. So, we expect if that will come down very quickly, but obviously the initial order – the previously the previous cost guidance sort of being given around this were overall about nine place cost of ton would be. What we are trying to do here is to give some granularity around that cost level in the first year and I think it’s actually very positive thing as that have quickly that cost of ton comes down. And how much work has been done to make sure that our exposure to a fixed cost side is a small as positive.
Sure, that fair. And sort of moving on into I guess the downstream strategy and if you look at the historical plant. Now you are moving to closer and closer to that Qualification Plant as you’ve flagged. I was wondering, if there is any incremental data points that you might have available firstly around the CapEx side of things that we can expect obviously for the first trend for the 20,000 tons and then marginally building from there? And if there is any sort of understanding or feasibility work and that you might have incrementally available that you can tell us today?
I mean not today, Rahul. As I said we were assisting additional and commercial opportunities around the Commercial Plant, and they will be built into their base. We’ve obviously said previously that we intend to build the Qualification Plant for the amount it’s being allocated, in the existing budget we’ve stated refreshing of these I think $800 million. Now a couple of elements of long lead items on air classifying mills, drying equipment et cetera, which we are going through a process around at the moment, but we don’t expect the Qualification Plant with capital cost to be much different from that guidance that we’ve given.
Okay, Shaun, and just the last one from me. The mining contracts and to a lesser extent the pipeline, I mean we are very not very far from production now. Could you help me understand how I should be thinking about, you’re staring to produce if these two items are not in place I mean you’ve talked about the pipeline that during the ramp, you can completely support operations through the bore water. But what about the mining contract and how should we be thinking around that about?
So you are correct. I mean the water pipeline construction license is at the final hit now. And I guess, I’ll just give a little bit of context around that having that in each of these set of discussions we have federal government discussions for mutual government discussions and local community discussions, and one of the reasons as thought being embraced strongly in Cabo Delgado province and same in Mozambique more widely because of its commitment to make sure that the appropriate discussions held all three of those levels and our support is very strong.
What I would say on the construction pipeline is the water license. The way we have announce it was extended from 5 years to 10 years is the overarching requirements around access to water and the water construction — water pipeline construction license is actually serving to that license. However, there is a more involved or there is more involvement at provincial and local levels obviously around the construction to work on them.
We have been and we continue to be very positively engaged on the pipeline license basis. And we will continue to make sure that those relationships at the provincial and local level managed in a positive way because we’ve been so diligent in that all the way through this point, the last thing we want trying to do is pull through a water pipeline license when it’s not necessary and it’s not in the path of course in the short term. As we look at the mining agreement, we know that is the last stage.
Now when that is finalized, we’re not sure. But I think it’s very, very happening through that whole process is that in every stage of review and approval was there being question that was clarify uncertainty that’s the agreement. There has been absolutely no discussion of any change to the key components of that mining impairment. And we’re t the final stage now which requires approval from council ministers in Mozambique and that process will continue and we expect the mining agreement to be finalized before reach that production.
Okay. So then if I understand it correctly if that is yet to be approved. Does that mean you have to delay ramp up or does that main that you can ramp up and produce despite in the final stages is what I’m trying to understand, if there is a potential for delay year or not?
We can ramp up and under the existing components of their agreement, we can start.
Thank you. Next question comes from Reg Spencer from Canaccord. Please ask your question, Reg.
A lot of information to digest there, I have a few questions, so hardly bare with me I am trying to keep them to minimum. Number one, can I just be reminded as to when you expect the sales to commence, i.e. when is your first shipment and when can we sort of expect first revenue and cash flow?
So, whether it’s reminded on top for the first time, Reg, but we have the out of discussions today. There is some or there are some customers, who will require a commercial example, commercial labor examples. So my case is that one container material in order to finalize, the element of the contract in the last testing. Now obviously, our intent is wherever possible to produce material required for those samples as early as possible. So first production is in August and then you would expect the production in August and perhaps in part of September is allocated to that sampling process. Now in cases there are examples helpful and in some cases they paid for inclosing and in some, they’ve actually paid for and in some cases they not paid for at all. But we would expect that within the first month and half of production or two months of production we will be at a point where we have salable material going out.
From a payment perspective, we’re targeting and deliberating debt FOB Nacala plus 30 days as the target, whether or not that’s achievable in all cases is as I mentioned this is a good bilateral non-transparent market. So each customer has a very different profile around their requirements on timing and with this respect. What I would say is that we expect the revenue before the end of the year at the end of the calendar year that is assuming that ramp up going to plan.
Second question is in the license to the line item revolving around the logistics and the cost input assumption as for the feasibility study recall there approximately $125 a ton product. You mentioned that the actual what we might expect once you expect that to be below that. And then it position to it’s a quantum of that reduction or way how much that unit cost might actually be?
Thanks Reg. It’s Rob Schaefer here. I think the $125 that you put as the feasibility study is correct. We have mentioned that they will be low. I think the best way to describe is that they will not materially lower.
Right okay, understand. Secondly or thirdly I should say I am quite intrigued with that your total treatment concept. I get the impression that you’re in the relatively early stages of all the development of that concept. Are you in position at all to give us an indication of what volumes might be how titrated and what costs that might be associated with that?
I mean I would say that we’re beyond the early stage I guess. We are well into negotiation and assessment around that. And obviously the outcomes of those negotiations and assessments will determine what sort of volumes, are logical. So as soon as we have more clarity around that and we’re in a position to provide more detail we will do so.
Okay, but two last question, I’ll try to be as quick as I can. The one thing I’m very come to your views is we’ve all talked about price. We’ve all talked cost and then volumes. What do you budget in terms of an average basket price. I’m aware that all yourself and off-take agreements have certainly words of confidentiality embedded in them. And you’re not at liberty to reveal the specific data around price. How do where you think about some kind of guidance on average price over the next couple of years because that will obviously determine, one how much or what you capitalize like it to be? What’s your requirement for capital will likely to be over that time? And also two, earnings estimations and valuations, so we will you provide guidance on some kind of basket pricing scenario or what’s the best way that we should be approaching this aspect?
Reg, the short answer is no, we won’t. And I’m not trying to be on helpful with regard to that. I think where we are or where we will be in a couple of years time is a producer – it’s a world supply. And it is just — it is not appropriate for producers that size to be providing forward price fees. What I would suggest and I think very clear that this was in all discussion is where have been asked the same thing is to look at the profile, all size fractions and grade and that’s why we’re trying to give you some feel for grade differential in terms of bringing. There are spot prices budget for minus 100, plus 100, plus 80 and in some cases plus 50 interior.
All I can suggest is that you look at the basket of our breakdown of material which is 68% minus 100 and then roughly 12% plus 100, 12% plus 80 and 8% plus 50. If you look at those spot prices and then the assessment from there that where things go is something that you guys will have to — have a look at yourselves. I mean I’m trying to give you as much structure and how to formulate the basket is I possible can, but I can’t be in a position of giving you a view on the basket price or in particular the forward basket price.
That’s helpful. Thanks, Shaun. And just for the record what we have attempted to forecast their own process by supply and demand modeling. I was hoping to compare how they might see versus your internal budgets. I suppose in last question and this is more a micro one, nudging your, it looks to be internal model demand forecast. Just a couple of questions if you willing giving the answers on them revolver and some of the underlying assumptions for those. What might you assume your great penetration raise to be for that aspect of your demand? And what do you assume, you assume nitro versus flake graphite in those demand forecast. Just to sort of curious as to where you think things might land over the next five years or six years?
It’s Luke here. I’ll talk about that and we’ll have to provide that information. So from a penetration rate, we’re look at the three major markets being China, USA and Europe. We expect China, China today is that around 1% penetration rate. We expect that to be achieving the government target of around 10% by 2020. And all is break in Shanghai for auto show and there is absolute desire to hit that target from all the Chinese market. In the USA and Europe that will be slightly behind but increasing penetration rose from today’s levels. We don’t expect them in Europe for example sort of hit a Norwegian number of 24% which was hit last year thought, it will be significantly lower than that.
And the second question was on penetration of natural, again we split it between China and non-China, because non China is a dominant make obviously being tends and [Indiscernible] has a preference for synthetic over natural at the moment and that’s the case. In China however there is a preference in natural over synthetic, and again that’s the case. So we see China moving from around 65% to today to around 75% in the next few years, and we see the U.S.A. moving from around 30% today closer to 40% to 50% in the short-term.
I think it’s important to Reg as well to understand that you can’t apply those rates across the batteries. You need to look at the nations of the different vehicle parts and battery sizes obviously when you look adding to the three key market for computers and chips etcetera the preference of the material is very strong and then as the energy storage system market develops there is still a lot of work to do to understand what preferences will look like in that market as it evolves.
And just strongly in addition to that the final slide in the past we’ve delivered a supplementary slide walk you through how to get from 1 gigawatt of power to kind of flake, so hopefully that calculation is helpful.
Just for the record we’ve actually done pretty similar work here is so it was always just curious as to what your underlying assumptions were select to compare up with that to look. Thanks very much for that information guys that is much appreciated.
Now better move on Reg. Thank you.
And the next question comes from Matthew Hocking from Deutsche Bank. Please ask your question, Matthew.
Firstly, I just wanted to ask you question around some of the new developments to sales and marketing and touching out for an entire processing options. Is a fair statement with that is separate from the BTI negotiations there is other Chinese parties [Indiscernible] your concentrate?
As I said during the session Matthew, we are looking at multiple options for total processing and obviously we are discussing processing total processing with BTI as part of our overall set of discussions in China.
And the other date point you have around new SSI with major anode producer for battery grade spherical graphite. With those discussions you engage them on the premise side that the products would come from your own downstream facilities or they potentially sales arrangements contingent on some of titrating options?
Our own downstream facility.
And just final question. With the debt facility as what’s required from here to get that signed and delivered them. Is it just the matter of getting preferred debt provider or are they construction milestones? What’s required for you can set the market?
Yes, Matt. David Corr Here. Look we have receive details proposals from a number of finance used by remind under consideration by the Company today will continue with the merit bank proposals with the view to flowing a view as to what our preferred product use and at that timing which the business is selected as a preferred option and finalize the nature of the funding agreements I’m sure we will come back to market and provide all the relevant details in relation to indicate the potential facility for the business.
Yes. Is it continued on construction, do you need to get to deep milestone for the debt facility?
We have with the working through the key terms the conditions that might underlie ay funding agreement for the business, Matt. What we would say, the business is fully funded, the working capital facility, they put in place as a contingency measure loss money in. So thereby in terms of accessing that site that facility that we do work through the finances to where and what the timing, but look the project is extremely advanced at the moment. We don’t see any major issues into demonstrating our capability to demonstrate the requirements of the bank in that regard.
And the next question comes from Jeffrey Shaw from Bell Potters. Please ask your question Jeffery.
Thanks very much for the update so far. I have two questions basically around developing shareholders for you. Shaun, you’ve said you are in an outstanding position, which I totally agree. You’re looking at all production going out in the first two years placed into the market. How is that lead to come in position in revenue and payments? Is there a dividend targeted at all and I’ll appreciate answer on that, if possible?
Jeff, I mean, we’re focused at this point in delivering again going project up and running making sure the sales and marketing strategy is in place, making sure that the downstream commercial plan is funded et cetera, et cetera. So I think we’re wide-off making comment on that at this point. We focused on keeping those core objectives under the strategy is going.
I appreciate that. And then look just one from a very concerned client, you one point me to pass this one. Has the Board consulted with [ASX], as if to see if they can get belief and then usual positions burned out to be in the stock?
I don’t know, I have been contact with [ASX]. Like I said, I should refer to [ASX] I have spoken to [ASX] twice. And their responses being, if we can demonstrate that short — sorry hedge funds have been using matters which basically lines to the market to suite their need to short of the Company. We’ve been demonstrate that provide to the evidence to [ASX] they will take actions, but unfortunately if we can’t. They can matter hedge activity in the Company and we are continuing to dialogue with [ASX].
Next question comes from Larry Hill from Canaccord. Please ask your question, Larry.
Yes. Thanks guys. Good presentation. Shaun just a very quick one, I may have not heard you correctly. But you mentioned as the attrition sales come online. I am just thinking of you were commissioning the plant, will you actually be producing product for the samples to go for commercial samples and that will be samples that will have gone through the attrition sales. Just my concern is that with that those attrition sales you would not – you won’t have product grades about 95%. So that might be representing ultimately what these produced at Balama? Thanks.
Okay. Just a couple of clarification there, I think the characteristic of the material will be the same. Obviously, there is the grade will change and depending on that differential, the attrition sales were added through the process flow sheet later in the design, so they will never plan to in place for upfront commissioning. They are expected to be in place October, November at this point. So the first few months of production will be targeting 95%, there will be a little bit of a low-grade material at the very first part of the ramp up. But the characteristics of that flake graphite at 95% are broadly the same as they will be obviously it’s 98 except with the changes in that. So we don’t see any issues with a second requirement for qualifications to higher grade material.
Okay thanks for that. The system trying to balance that up against the sliding the information went through earlier with Michael about the price premium for high purity product. So, yes, thank you for that.
And the final question for today comes from Michael Slifirski from Credit Suisse. Please ask your question, Michael.
So, thanks for the opportunity to come back in. I have two very small ones from me. Your bubble chart leave Page 2 which includes some of the — some of the other aspirational one, East African, what are they produces and clearly there is a lot more of them. But any or engagement with potential customers, I mean there is whole after these 47% aspirant out there promoting their future production. In your engagement with customers what are they said about? Is there the expectation that there will be this final production come into market from all these guys will that be flattered or they not take them seriously? I’m really interested in the context of what we’ve seen with the graphite process. Anytime there is basically a market overhang of supply you see prices depressed. So I’m just interested in when you engage with customers the extent to which they believe that they don’t need to commit because production will come regardless?
Look Michael, I’m not going to talk about competitions directly. What I would say is that there is a very high level of engagement with us because we are funded because we are closed to commissioning and because the product has been extensively tested and customers wish to purchase that material. Obviously in discussions, customers note exactly what we lay out on that chart that there are no other funded listed projects of note. And they also would talk about the potential lead time in achieving funding and getting the project up and running. So what matters to us Michael is that, we are fully engaged, we are very close to production, we have commercial negotiations underway. And from that perspective, none of those negotiations are impacted by other possible supply. They’re only impacted by existing supplier.
Okay, thank you. And with respect to every penetration rates that we’ve discussed earlier, there is some pretty simple maths we have that the outcomes in terms of graphite demand whether it’s natural or synthetic are enormous I mean just obscenely large number. So how do you seek and plan around that eventuality, if where is in that 25 right in some of those projects? Then you later double and double and double again. How do you start to think about that and then what are the economics of a doubling production in terms of capital intensity at in terms of future production cost?
I mean obviously the grade I’ve known about the market is how fast and how fast will be the demand go and I guess we have somehow deliberately through this process maintained a I wouldn’t say conservative but very realistic view about the short term potential of that growth. And making sure that we’re actually ensuring the business is ready any potential for slower growth than past suggesting by any names that is going to be, slow growth. I am just saying that as we can get this business up and running, we need to make sure that there is profitable standalone concentrate producer as well as all of the work that we’re doing in the downstream. And what I would say is my personal view is obviously very positive around easy penetration and the view or the impact to that that into flake demand. I am not in a position to give any concrete numbers round capital intensity or cost per ton, but I would say is that the ability for us to expand this plant is significant and should that demand profile evolved the way that we’ve fixed its will. Then I would absolutely expect that expansion is on cost and expansion could be relatively quick and it would be as a valid capital cost I would expect then starting the whole operation.
Alright, I think that’s…
Sorry, I just checked with the operation I think that is the last of the questions.
There is no more further questions. Please continue.
Thank you very much for your participation and attention for today. We really appreciate the time and obviously we look forward to engaging in a continuing manger over the coming months and thank you very much for your questions as well. Thanks.
Ladies and Gentlemen, that does conclude our conference for today. Thank you for all participating. You may all disconnect. Good bye.
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