2018 production downgrade: Syrah Resources Ltd.’s (ASX: SYR) stock is under pressure as it fell about 6% on July 30, 2018 after the company revised the 2018 production target downwards to 135,000 to 145,000 tonnes from 160,000 tonnes. As a result, by the end of 2018 C1 cash operating costs are now expected to be in the range of US$430 to US$450 per tonne from previous guidance of US$400 per tonne. This is after the review of the June quarter, where for Balama Graphite Project, the second quarter production is of 21,200 tonnes, against first half figure of 32,400 tonnes. The second quarter production is primarily impacted due to inconsistent flotation and process control. However, post June quarter end to July 28th, the average daily production has already increased by 39% versus second quarter. The new COO’s review has identified graphite recovery performance improvement actions focused on stable plant flows, increased plant utilisation, and governance of operating practices for improved process control. Moreover, in the first half, the company has sold and shipped of 16kt with a further 7kt sold and the company is awaiting shipment at Nacala. The price realisation remains is lower than basket price due to external price reporters, but the company is expecting improved prices in second half versus first half due to new sales and Balama product mix changes. The 2018 natural flake graphite demand is expected to rise 10% YoY to 780kt, and balance is expected to move to deficit by 2019/2020 as global electric vehicle penetration increases. Additionally, for Battery Anode Material (BAM) Project, the BAM site purchase is expected to complete in August as per schedule. The company is targeting initial qualification production by year-end, however it is subject to installation timeline and capital allocation. On the other hand, the company’s cash on hand is of US$56.7 million as at 30 June 2018, which is better than projected, versus US$80.5 million as at 31 March 2018. Third quarter net cash outflow is projected to be of US$17 million. The company is targeting positive cash flows from operations at Balama from late 2018 (previously mid second half 2018). However, the timing of BAM major capital expenditure post site finalisation will be made in conjunction with the Balama cash flow profile. Meanwhile, SYR stock has risen 15.99% in one month as on July 27, 2018.
1H 18 Financial Performance (Source: Company Reports)
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