Syrah with BHP Billiton Management, page-23

First, let me correct a mistake from an earlier post. First year output should be 270,000 tons from memory ramping up to 355,000 tons in the second year (not 355,000 in the first year).

Now addressing your points:

(1) I can choose to believe you that: "... Syrah will [not] sell anywhere close to the 83,884/mt in [the first] year ..." ,or, the new CEO today: "We are about 90 per cent covered for our initial year's production and obviously the work I've been doing in the last three months is about placing the balance of that production, and commercial negotiations are progressing very well,". I'm running with Shaun Verner and 270,000 tons * 90% = 243,000 tons, which will likely be upgraded in the next few months.

(2) You said that "I believe Syrah should be targeting a basket price of 500/mt. Still realistic?" If Syrah doubled output to 700,000+ tons then a basket price of $300-500 (for non-spherical) would be inevitable in my opinion. It's possible that the basket price at current output will surprise to the upside because we can displace existing 94-97% C with ~98% C (Source, page 14); i.e. we can potentially displace existing producer's graphite with a higher quality product for the same price:


But for a stress test, let's look at what happens if Syrah sells its first year graphite for a weighted average basket price of $500:


As you can see, there's a USD$25 million buffer to pay for all those costs you're worrying about in a worst case scenario. All the doom an gloom about Syrah procuring a USD$50 million revolver is nonsense, as we transition from commissioning to initial production and then full production, cash flow will be stronger at the end than at the beginning so it makes sense to be prudent and have a revolver in place. I wouldn't be bullish on Syrah if its sole asset was Balama but it's not; spherical and the much-ignored vanadium will be larger free cash flow drivers.

(3) "Do you trust Syrah projections of Processing Cost?" As stated previously, I think that with the massive depreciation of the Metical, there's a high probability that operating costs will be significantly lower than the forecast opex. This should balance any concerns that you have to the upside.

(4) "I like your question about what will the market do if Syrah sells all their graphite at 300 to 500/mt. I believe they will be forced to do so so in 1 year from now we will start to find out what the results are." I'm an investor not a trader so I'm going to look out three years from now with a $500 a ton graphite price (for non-spherical graphite), Lousiana selling 60,000 tons and vanadium being processed pro-rata (using free cash flow from Lousiana):


In this scenario, with a P/E of 13 for a tier-one asset, a share price of $13.96 seems feasible to me and this is with the $500 flake graphite basket price and no expansion in graphite output (which makes sense for the vanadium). Constant comments around the forums about Syrah reaching it's share price peak seem ridiculous to me.

(5) "The money is made on discovery ... SYR highlights just how difficult it is to make money investing in mining companies with a buy and hold strategy if you come in late." Modeling future scenarios, I take issue with this; to imply that Syrah's share price has peaked seems quite premature looking at the future fundamentals over the next 5-7 years. At a minimum, in 5-7 years I expect Syrah to be producing at least 60,000 tons of spherical at Louisiana and 700,000 tons of graphite (selling at $300-500 for non-spherical flake) for the additional vanadium (again it makes sense to expand graphite production further for more vanadium):


I read all of your posts, as I've read all the bearish theses on Syrah; I haven't been convinced by any of them to date.

Regarding the Quants, it's clear that they herd with momentum and Syrah has been the target recently; whether this presents opportunity is in the eye of the beholder. I went all-in with my main account around $3.57 and have been purchasing more shares in my other accounts (all without leverage) taking the average buy price down to $3.22 currently. I plan on holding Syrah shares for a long long time so this volatility is an opportunity for me. I don't think I can convince you of Syrah's merits though, nor do I think that I should; you're just as entitled to feel bearish as I am bullish. Syrah is complex and opaque, the market will require evidence before getting too bullish which will come in the next few years.

All in my opinion, cheers.