https://www.copyright link/companies/mining/australiansuper-s-graphite-pet-syrah-defaults-on-us-government-debt-20241211-p5kxr7

AustralianSuper’s graphite pet Syrah defaults on US government debt

Peter KerResources reporter

Dec 12, 2024 – 10.57am

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AustralianSuper-backed graphite producer Syrah Resources is in crisis talks with US government agencies after civil unrest near its Mozambique mine halted production and triggered default clauses on crucial US government loans.

Syrah has been unable to make a profit from graphite mining at its Balama facility in Mozambique since 2017 and so has relied on AustralianSuper and US government agencies to either subscribe for shares or lend it money to stay in business.

Syrah Resources has been unable to enter the Balama mine site in Mozambique to produce graphite.

The US government has been willing to keep cash-burning Syrah afloat because of concerns over China’s dominance of global graphite supply, which is used in the anodes of modern batteries.

The US Department of Energy loaned $US102 million to Syrah in 2022 to help it build a graphite processing plant in Louisiana near customers such as Tesla, while the US International Development Finance Corporation last month pledged $US150 million ($235 million) to help fund works at the Balama mine.

But on Thursday, Syrah said those loans were now in doubt because of the company’s inability to enter the Balama mine site and produce graphite.

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The company declared “force majeure” on its contracts because it did not have enough graphite stockpiled to continue selling to customers.

“With conditions continuing to deteriorate across Mozambique and further national government opposition protest actions recently announced, Syrah is unable to undertake a production campaign at Balama in the December 2024 quarter that is required to replenish finished product inventory and for customer sales,” the company said on Thursday.

“The protest actions have triggered events of default in the company’s loans … Syrah is engaging with DFC and DOE regarding these events of default.”

Shares in Syrah slumped 27 per cent on Thursday to their lowest level since December 2011.

Uncertainty over the US government loans will instantly put a spotlight on liquidity at the company that has become known for regularly tapping its shareholders for capital.

Syrah had $US113 million of cash on hand as of November 11, after receiving a $US53 million loan from the US DFC.

But $US41 million of that $US113 million was restricted for use on the Vidalia processing plant in Louisiana, while a further $US33 million was restricted for Balama. If Syrah were forced to immediately repay the $US53 million it received on November 11, its finances could be stretched.

Unrest after Mozambique vote

Mozambique has been hampered by civil unrest since presidential elections in October elevated Daniel Chapo from the incumbent Frelimo party to power. The main opposition candidate, Venancio Mondlane, has disputed the legitimacy of the election results and there have been violent protests since the vote.

Earlier this week, South32 withdrew production guidance for its Mozambique aluminium smelter because it was having difficulties getting alumina from the port to the smelter.

Syrah disclosed on November 11 that it was struggling to get workers and supplies into its Balama mine site because of protests by farmers in the region who had grievances over the way they were resettled onto new properties when the mine was built.

Syrah said the broader civil unrest over the Mozambique election was making it harder to get regulatory assistance to stop the farmers protesting. Graphite has not been mined at Balama for more than five months.

But civil unrest is not Syrah’s only problem; the company has struggled under weak graphite prices since it started production at Balama in late 2017.

Graphite is essential to modern lithium-ion batteries, but the commodity has never enjoyed the sort of price booms seen in other battery minerals markets such as lithium and cobalt because of persistent over-production of graphite in China.

A surplus of graphite has weighed on prices for years, forcing Syrah to mostly mothball its Balama mine apart from short “campaign” stints where it makes enough to fulfil its contracted obligations.

The US government is keen to establish a non-Chinese supply chain for battery minerals and had originally told car makers they needed to source non-Chinese graphite starting from January 2025. But in a blow for miners such as Syrah, that schedule was this year delayed to January 2027 to give car makers extra time to adjust.

China has placed limits on graphite exports to the US, but the trade war tactics have not been enough to move graphite prices dramatically.

Peter Ker covers resource companies for The Australian Financial Review, based in Melbourne. Connect with Peter on Twitter. Email Peter at pker@copyright link