Ann: Syrah Sales and Marketing Update, page-34

From Aussie Market
The positive newsflow continues post their commencement of production in November of last year. Despite having their 1^st year of production fully spoken for with offtake agreements, Syrah continues to build out their sales and marketing strategy with further product and geographic diversification. Last week Syrah announced the signing of their first spot sales agreement with Yichang Xincheng of China, a producer of specialty expandable graphite (jumbo flake sizes used in mobile phones and achieving significant premium pricing) and a binding three-year agreement with CS Additive of Germany, a producer of specialty carbon and sulphur products, for a minimum of 6,000 tonnes in 2018, with volume increasing to 2020. Also the company confirmed an agency appointment in India with Magus Marketing, where orders have already been received and scheduled for shipment. To accommodate this growing demand Syrah is restricting activation of certain elements of their earlier Chalieco offtake agreement. Given their 2018 production guidance of 160-180kt remains unchanged, the additional contracts along with a scale back of Chalieco gives evidence for the strong market position they now hold. The positive move in global graphite pricing into their production commencement, the growing line up of customers entering into contracts and the Syrah’s ability to scale back less economic offtake agreements suggest the negative thesis that they will flood the market with product as they ramp up production, destroying global graphite pricing, should be retired. The other arguments behind the shorts have been the presumption that Syrah will be unable to produce the quantity and quality of graphite targeted and that a competing technology will render graphite redundant for use in EV batteries. To the former argument all I would say is that it is inconsistent with the argument that they will flood the market, and either way we will find out in a matter of months whether Syrah can ramp their production to target levels and whether qualification meets customer expectations. Given the extensive testing already carried out by their (world leading) offtake partners the bet that final qualification fails at this stage seems an extremely risky one. Finally on the question of a competing technology I would simply note that the decision by global auto manufacturers to invest billions of dollars in plant and equipment now to dramatically ramp EV production is unlikely to employ a technology for these purposes that does not currently exist within the scope of economic reality. See below for my summary investment thesis on Syrah.

The positive newsflow continues post their commencement of production in November of last year. Despite having their 1^st year of production fully spoken for with offtake agreements, Syrah continues to build out their sales and marketing strategy with further product and geographic diversification. Last week Syrah announced the signing of their first spot sales agreement with Yichang Xincheng of China, a producer of specialty expandable graphite (jumbo flake sizes used in mobile phones and achieving significant premium pricing) and a binding three-year agreement with CS Additive of Germany, a producer of specialty carbon and sulphur products, for a minimum of 6,000 tonnes in 2018, with volume increasing to 2020. Also the company confirmed an agency appointment in India with Magus Marketing, where orders have already been received and scheduled for shipment. To accommodate this growing demand Syrah is restricting activation of certain elements of their earlier Chalieco offtake agreement. Given their 2018 production guidance of 160-180kt remains unchanged, the additional contracts along with a scale back of Chalieco gives evidence for the strong market position they now hold. The positive move in global graphite pricing into their production commencement, the growing line up of customers entering into contracts and the Syrah’s ability to scale back less economic offtake agreements suggest the negative thesis that they will flood the market with product as they ramp up production, destroying global graphite pricing, should be retired. The other arguments behind the shorts have been the presumption that Syrah will be unable to produce the quantity and quality of graphite targeted and that a competing technology will render graphite redundant for use in EV batteries. To the former argument all I would say is that it is inconsistent with the argument that they will flood the market, and either way we will find out in a matter of months whether Syrah can ramp their production to target levels and whether qualification meets customer expectations. Given the extensive testing already carried out by their (world leading) offtake partners the bet that final qualification fails at this stage seems an extremely risky one. Finally on the question of a competing technology I would simply note that the decision by global auto manufacturers to invest billions of dollars in plant and equipment now to dramatically ramp EV production is unlikely to employ a technology for these purposes that does not currently exist within the scope of economic reality. See below for my summary investment thesis on Syrah.