short term price action, page-167

UBS Global Research
21 October 2019
Syrah Resources
When will the cash run out?

What are the results of the operational review?
In Sep 19 SYR announced an operational review driven by a sudden and material drop
in graphite prices. The average price SYR received in Q3 19 for its graphite was down
14% q/q to US$391/t. In addition to the production cut from ~15kt/m down to ~5kt/m
in Q4 19, management have now also outlined measures aimed at reducing C1 costs
by 20-25% from US$577/t to ~US$461/t (assuming the scale benefits of returning to
~15kt/m, annualised 180ktpa). This will be achieved through a 30% reduction to head
count at Balama, streamlining of senior management in Australia, contract
renegotiations and mining/processing reconfiguration, and should be realised by end of
Q4 19. SYR are guiding to 120-150kt of production in 2020 subject to market demand
(UBSe 85kt).

Cash burn remains our key concern
The move by SYR to reduce production to 5kt/m is designed to support a market that
has been overwhelmed by new supply as evidenced by the collapsing price, however,
this is not sustainable long term for a plant designed to run at much higher rates
(~30kt/m). SYR have guided to US$17m of net outflows from Balama in Q4 19
(additional US$6m to be spent on BAM, which is nearing completion). This will place
cash at year end at ~US$78m, with outflows more than offset by proceeds from the
US$38m Convertible Note. While management will not provide an indication of spot
pricing, at a run rate of 5kt/m we forecast prices in the range of