Is Graphite Set To Take A Leap With Battery Boom; While ASX: SYR Under Investors’ Lens

Syrah Resources Limited (ASX: SYR), a company engaged in the development of the Balama Graphite Project in Mozambique, considered as a world’s largest graphite resource, presented an interim update of the second quarter of the year today. The company also owns Battery Anode Material Project in USA.

General Outlook:

SYR’s vision is to become the world’s leading supplier of superior quality graphite products, and this should offer the company some advantage in the coming years as graphite is usually used as an anode in lithium-ion batteries, which contains lithium cathode along with various other applications.

With the battery demand picking up in the international market amid electric vehicle drive, many miners are mainly focused on lithium, which in turn, has oversupplied the lithium industry; however, resources companies such as Syrah are eyeing to take advantage of lesser competition in the graphite market, which is equally vital in the battery construction, as compared to the lithium industry.

Second Quarter Interim Update:

SYR devised a production improvement plan during the quarter; however with the results expected to be later than initially planned the company is expecting the production for the second quarter of the year 2019 to be in the range of 45-kilotonnes to 50-kilotonnes, less than the previous expectation of 50-kilotonnes to 55-kilotonnes.

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The production of the first quarter of the year 2019 stood at 48-kilotonnes.

SYR further expects graphite recovery and product split to be similar to the first quarter, which stood at 69 per cent and 86 per cent fines to 14 per cent coarse flake respectively, and the results of the production improvement plan are expected to inch up the production in the third quarter of the year 2019.

Depending upon the final shipment completion in June, Syrah forecasts the sales volume to be around 50-kilotonnes, which is slightly higher than the previous quarter sales volume of 48-kilotonnes.

The company received a weighted average price of $469 per tonne of graphite sold during the first quarter and received a weighted average price of $466 on sales proceed till date. The cash position is forecasted to remain unchanged near US$43 million at the end of the current quarter.

The sales volume of the company is increasing gradually over time.

 Source: Company’s Quarterly Report

Electric Vehicle and Graphite Trend:

Syrah produced over 100,000 tonnes of natural graphite in 2018 and is the largest and first major new natural graphite operation developed outside of China. In the previous quarter, the company relatively enjoyed the seasonal shutdowns and environmental restrictions in China, which kept the Chinese natural graphite supply in a check; however, the seasonal shutdown is expected by the company to end in the second quarter. The stakeholders should therefore keep a close eye on the natural graphite production and supply dynamics in China.

On the demand front, graphite still stands as a potential source of anode construction in the lithium-ion batteries, and as per the company, considering the EV trend, the demand of the natural flake graphite for the year 2019 should reach the range of 70-kilotonnes to 100-kilotonnes.

The electric vehicle segment sales are progressing successfully:

Source: Company’s Quarterly Report

Balama Graphite Operations:

The project which is in Cabo Delgado province of northern Mozambique hosts 113.29 million tonnes of Ore Reserves with 16.36 per cent of total graphite carbon, which accounts for 18.5 million tonnes of contained graphite.

Balama also hosts 1,423 million tonnes of Mineral Resources with 10.0 per cent of total graphite carbon, which accounts for 147 million tonnes of contained graphite; and the current life of mine is 50 years.

The processing plant capacity of the operation is at 2 million tonnes per annum.

Syrah last updated its Maiden Mineral Resources in May 2015 post a Feasibility Study, and the total Measure Resources of Balama is at 75.0 million tonnes with 11.0 per cent total graphite carbon, which would account for 8.4 million tonnes of contained graphite.

The total Indicated Resources of the project is at 186.0 million tonnes with 11.0 per cent of total graphite carbon, which would account for 20.1 million tonnes of contained graphite, while the total Inferred Resources of the project is at 930.0 million tonnes with 11.0 per cent total graphite carbon, which would account for 100.0 million tonnes of contained graphite.

The break-up of deposit across the Balama project tenement is as:

Source: Company’s Website

Battery Anode Material Project

Syrah is also progressing on its Battery Anode Material Project from its plant in Louisiana, USA; first production of spherical graphite achieved in the last month of 2018.

Source: Company’s Quarterly Report

Share Price Actions:

SYR’s shares have de-rallied from the level of A$4.950 (high in January 2018); the oversupplied battery market could be a possible explanation of the fall in the value of the company’s shares, to the level of A$0.975 (low in March 2019).

The shares of the company previously fell from the level of A$6.596 (high in June 2016) to the level of A$2.209 (low in April 2017) from where the prices rose and reached the level of A$4.950.

Performance Metrics:

SYR has delivered a return of -28.34 per cent (as on 6th June closing price) on a YTD basis and a negative return of 64.40 per cent on a yearly basis. The six-month rate of return stands at -30.82 per cent, while the last month’s return is at 0.46 per cent.

A common observation among the battery component related players is that they all traded downwards since 2018 given the oversupplied market; however, in the current scenario the share prices of many battery component related players are showing slight recovery, and the investors should keep a close eye over the developing counter.

SYR on Charts:

SYR Daily Chart (Source: Thomson Reuters)

On a daily chart, the shares are in a free fall mode from the level of A$4.950; however, the share prices recently broke the downward sloping trendline and retraced back below it. On the volume counter, the volume broke the declining trend as can be seen on the chart shown above.

SYR Daily Chart (Source: Thomson Reuters)

On further analysing the chart, we can see that the share prices are currently trading below 50,100, and 200-days exponential moving averages which are presently at A$1.6474, A$1.3121, and A$1.900.

The prices are currently moving in the 20-days simple moving average Bollinger band and are currently taking the support of the lower band on the daily chart.


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