Ann: Trading Halt-SYR.AX, page-315

Sharing few thoughts below –

1/ 60-70 support level

On Aug 16, when share price was sliding fast and touched 60’s (intra day low of 69c) for the first time, I mentioned that “60-70 cents” could be the next key level support zone
https://hotcopper.com.au/threads/ann-trading-halt-syr-ax.2791786/page-275?post_id=40022211

Also refer quoted comment above.

Also mentioned in last few comments that it is important to keep an eye on battery macro, overall macro, etc.

A quick look at approx. last 1 month chart has shown that SYR indeed seemed locked in the 60-70c zone. One of biggest falls to around 63 cents was on the day when whole market was hammered

Based on today’s announcement however, a lot could change.

2/ Motley Fool article

Please see below article on Motley Fool (please google if link does not work).

“Why the Syrah Resources share price is in a trading halt

This certainly doesn’t look good for the embattled miner. Whilst I can only speculate at this stage, I suspect that natural graphite market conditions have continued to deteriorate and management has decided to put its Balama operation on care and maintenance.

Care and maintenance is a term used in the mining industry to describe a situation where production at an operation is stopped but the site is managed and maintained to ensure it remains in a safe and stable condition.

…………………company was effectively losing US$110 for every tonne it was producing.” –few extracts from a longer article (please read entire one on Motley Fool)

https://www.********.au/2019/09/06/why-the-syrah-resources-share-price-is-in-a-trading-halt/

3/ AFR article

Please see below AFR article (please google if link does not work). Article talks of weak demand for several commodities like coking coal, thermal coal, copper, lithium, graphite, etc.

“Deferred commodity shipments point to fading demand

Foreign buyers of Australian coal have deferred shipments over the past two months, adding to evidence of fading demand for several export commodities…………….

Several Australian lithium miners have also dramatically scaled back exports or idled mine production in 2019 because customers were either unwilling or unable to receive the shipments they were contractually obliged to take.

There was also speculation on Friday that ASX-listed miner Syrah Resources, which mines graphite in Mozambique, was considering scaling back or temporarily closing its Balama mine amid very weak demand and sliding prices for the commodity…………….

Macquarie analysts said the "export orders'' category of the August US manufacturing survey was the worst since the global financial crisis.” –few extracts from a longer article (please read entire one on AFR)

https://www.copyright link/companie...pments-point-to-fading-demand-20190906-p52oox

4/ Scenario 1 – care and maintenance

There are a few different scenarios that could eventuate, and I’m just speculating on them based on the ones considered by AFR – scale back or care and maintenance. Speculating is the most important word here, and I need to emphasize that.

If SYR goes in for care and maintenance, IMHO SYR share price could take a very big hit. Some commenters have mentioned that SYR has offtake commitments and so, this might not be the case. This seemed like a valid reason but I’m not sure whether or not the agreements have some disclaimer clauses that does indeed allow SYR to back out. Eg. Read above article which talks of how “customers were either unwilling or unable to receive the shipments they were contractually obliged to take”

If I was a SYR shareholder, I think that “care and maintenance” might be the announcement I’d be more upset to see.

5/ Scenario 2 – production scaled back – Market reacts favourably

In a best case scenario, SYR would scale back production and market reacts favourably as reduced production would reduce the massive oversupply in the graphite market caused by Syrah in the first place. Then in time, graphite prices start moving upwards again and SYR investors live happily ever after.

Market is unpredictable and above could even be one of the possibilities.

However if one is realistic, one would still realize that even in this optimistic scenario, SYR could still face a fair bit of pain in immediate term. Markets generally hate production downgrades even if this comes in a terrible bear market. Markets often price in what is about to happen in coming year. Market is often even more pessimistic in an already existing bear market, and freaks out at reduced revenue.

So, if a company says that they are going to reduce production, it would mean less revenue and less profit. But here again is the strange scenario that SYR are facing. SYR is actually losing money for excess production (in a market actually flooded by Syrah itself) and so the market could even reward SYR for lower production.

I’m just putting this scenario out there as one of the possibilities but to be honest, it is not the most likely outcome IMHO, at least in the very near future.

6/ Scenario 3- production scaled back – Market does not react favourably

I’ve explained the logic above already. Market generally hates production downgrades. I think in the immediate term at least , some pain seems likely in all 3 scenarios mentioned above.

A key risk here is that SYR chart could get even more damaged than it already is

7/ Conclusions

Key levels mentioned earlier would obviously be completely superseded by this announcement to come.

As I mentioned above, most of what I mentioned was speculating on some possibilities and I think investors have already thought of some of these outcomes.

A small point what many commenters are not considering IMHO is general weak battery metal and commodity macro. So it is not just a case of SYR reducing graphite supply and all will be well. I’ve pointed out the importance of battery metal and overall macro in several comments since long. Above AFR article is on similar lines and is more from commodity macro point of view, and we can see that SYR is just one of the players facing what many are facing.

IMHO, there is not much existing SYR investors can do right now by worrying but just wait and watch, and hope for a very optimistic scenario that maybe the market is happy that lower production could lead to lower cash burn or something on those lines. Or maybe the whole announcement might be about something else..? Who knows.

Cash preservation is very important from longer term.
A reminder again that there is plenty of speculation above; so please DYOR
All the best.