PUBLISHED: 0 hour 9 MINUTES AGO | UPDATE: 0 hour 4 MINUTES AGO PRINT EDITION: 11 Jul 2014 Amanda Saunders
Swiss commodities giant Glencore is understood to have made an informal approach to Syrah Resources that could value the graphite and vanadium junior at up to $2 billion.
Melbourne-based Syrah’s prized asset is the mammoth Balama graphite and vanadium deposit in northern Mozambique.
Sources say Ivan Glasenberg’s Glencore, one of the largest producers of primary vanadium in the world, is keen to exert control over the wider vanadium market. Pouncing on Syrah and securing its Balama project would be an early strategic play to shut out fresh competition.
The level of interest from Glencore and others is such that Syrah has also received multiple approaches from investment banks keen to lead a possible takeover defence strategy for the ASX group, which has seen its shares leap 29-fold in the space of three years.
Vanadium plays a critical role in rapidly growing battery markets, and is also an important ingredient in the new world of energy storage.
The Australian Financial Review understands Glencore approached Syrah to informally convey it would be willing to pay up to $2 billion for the company.
But the three men behind the company – chairman Tom Eadie, managing director Paul Kehoe and Tolga Kumova, an executive director – clearly think it could ultimately be worth a lot more than that.
While the company declined to comment, the end game for the directors is the potential of vanadium to make renewable energy economical.
The trio has about 22 per cent of the Syrah register between them, but Mr Kehoe, with 12 per cent, and Mr Kumova, with 9 per cent, are the company’s key shareholders.
Mr Kehoe’s stake is worth $86.4 million, while Mr Kumova, a member of BRW’s Young Rich list, has a stake worth $62.3 million.
Shares in Syrah have enjoyed a meteoric rise to $4.30 from about 15¢ in late 2011, with its market capitalisation rising to $715 million from $15 million in that time.
Syrah says Balama has an inferred vanadium resource of 1.15 billion tonnes, at a high concentrate level. It is about four times larger than Glencore’s Rhovan deposit in South Africa.
Part of Balama’s vanadium resource has been upgraded to make it suitable for steel hardening, while testwork is under way to upgrade part of it to a grade suitable for redox flow batteries.
Syrah’s offtake partner Chalieco, a subsidiary of Chinalco, has run a scoping study on the financial viability of the vanadium resources and Syrah is currently reviewing the results.
Graphite is also key to Syrah’s appeal.
Syrah says Balama contains 117 million tonnes of graphite, larger than the rest of the world’s reserves combined. It is tipped to be the lowest cost graphite producer in the world, with its asset set to come online in 2016 if all goes to plan.
High-quality graphite is also a crucial raw material for the production of lithium-ion batteries for smartphones, tablets and laptops and a fundamental component in the development of storage batteries able to power electric cars.
Graphite is an opaque market and dominated by Chinese suppliers; prices are usually set based on deals between companies and purity levels.
But the true potential of Balama, in Mozambique’s Cabo Delgado province continues to expand, is its large vanadium resource.
Analysts have been frothing over the company, with Deutsche Bank and Credit Suisse slapping high valuations on the stock over the past month.
Also in its favour is Syrah’s relatively small capital bill for its Balama project, with the spend on the mine and infrastructure earmarked to be about $US92 million ($98 million).
Later this year, Syrah expects to have permits and environment approvals in place for the project.
(20min delay)