Ann: Trading Halt-SYR.AX, page-318

Firstly sorry that many investors have been burnt so bad. Wish I could say that I was surprised to see an intra day low of 41.5 c and close of 47 cents but you’d just have to see my original warnings in this thread itself all the way down from $6.4 and plenty more since then to see that there is really not much to be all that surprised about as we went along. Market has given lots of hints all along.

Some thoughts below (warning – long comment) -

First, I’m linking 2 articles with very few extracts from each. Please read the entire article online on those sites and please google if links do not work

1/ AFR article - Battery bust prompts Syrah to cut output 66pc
“The production cuts suggest Syrah will produce about 152,000 tonnes of graphite in 2019; it expected to produce 250,000 to 300,000 tonnes in 2019 when it gave guidance in January 2018.

There is no guarantee the production cuts will be the last………..

Syrah said graphite prices had averaged $US400 per tonne since June 30; down from $US457 per tonne in the previous three months and $US469 per tonne in the early months of 2019.

Syrah's unit cost of production at Balama, excluding extra costs like freight and administration, was $US567 per tonne in the first half, meaning it is a long way from breaking even at current prices.

The graphite miner said on Tuesday its cash balance would likely be $US60 million at September 30; lower than the $US64 million it had promised.” –Few extracts from a much longer article on AFR

https://www.copyright link/companies/mining/battery-bust-prompts-syrah-to-cut-output-66pc-20190910-p52pqw

My comments – Very good article which explains many points why SYR is down big today. Cash position is not as strong as hoped. SYR is losing money for every tonne produced – (567-400) and this is even worse than it was sometime back. Also, we see that production is substantially less than what was originally intended.
2/ Motley Fool article- Syrah Resources share price crashes 41% lower on operational update

“…….Syrah has witnessed a sudden and material decrease in spot natural flake graphite prices in China recently. This has impacted price negotiations and contract renewals, with potential for further weakening of prices into the fourth quarter of 2019.

….In response to this, Syrah intends to cut its production materially in the fourth quarter to just ~5kt per month. This equates to 60kt on annualised basis, compared to its calendar year target of 200kt to 245kt.
–Few extracts from a longer article on Motley Fool

https://www.********.au/2019/09/10/syrah-resources-share-price-crashes-41-lower-on-operational-update/

3/ Miscellaneous points

a/ SYR share price hammering was expected for several reasons – Production downgrade was quite a bit. SYR was for years, expected to be producing heaps of graphite. Not anymore and now just 5k per month i.e. 60K per year. As mentioned some days back, market hates production downgrades

b/ Cash burn per tonne increased – (567-457)= $110 loss per tonne as mentioned few days ago.
Now this is 567-400= 167.. This is substantial

c/ Cash forecast as at 30 September 2019 has been revised to ~US$60 million (from ~US$64 million)- another reduced amount to freak the market

d/ Non-cash post tax impairment of property, plant and equipment and mining assets of approximately US$60-US$70 million and an inventory write down of approximately US$5 million. – pretty big impairment hit

e/ I mentioned in earlier comments that there was not much support in chart below 60 cents. Expectedly SYR got hammered once that level was broken.

f/ Mentioned several times in earlier comments that there could be tremendous risk in attempting to pick bottoms. We see that materialize now

g/ Mentioned several times from years that IMO shorters were never going to lose this war. Shorters were always in control of this and we see this ever so clearly now

h/ I mentioned a bearish descending channel since more than a year which seemed to have started clearly around March 2018. As I recently mentioned, the upper trendline was clearly rejected and there could be heaps of pain if the lower trendline is targetted once more as was the case since last year. I just drew some lines and the bottom trendline is still not hit.

i/ I mentioned several times that stocks often move from extreme overvaluation (2016) to extreme undervaluation (now or still to come – I don’t know)

j/ As I mentioned in just my previous comment, that in all scenarios (once trading halt was lifted), some immediate pain was quite likely

4/ Change in story over the years

As I’ve mentioned many times, SYR is just a small part of a bigger macro picture. It is not just about graphite, but SYR is a graphite stock, then a battery metal stock, then a commodity and then a part of a much bigger macro economic scene.

Several diverse factors influence the price. In 2016, euphoria was at its peak as graphite stocks were up. Battery metals were up like lithium stocks which were booming. Several commodities were up.

The situation is totally different in 2019 when a massive battery metals bust in general. Several commodities are down as I linked in an earlier article few days back. Macro scene is very shaky with US-China trade war.

SYR was going to change the world in 2016. Instead, now in 2019, SYR is rapidly burning cash and is loss making, and is now saying that it is going to produce only 5k per month or 60K per year. Of course this could change eventually but not now, at least

Investors can hence just a few reasons above see why the valuation is going to be so much different as compared to 2016.

5/ Conclusions

Several risks identified above. As I’ve mentioned all the way from $6.4 in this very thread, SYR has its fair share of risks. While there were several trading opportunities, I’ve developed cold feet from ever attempting even a trade lest I get caught on a day like today. I don’t think I’ve ever held SYR, although I have considered the possibility

I sympathise with many of the long term holders. I’ve copped a fair bit of abuse over the years for bearish warnings but it was mostly due to ignorance of the posters. There are some broader lessons to be learnt for investors IMO as in all sector (graphite and battery metal in this case) busts but I’ll save that post for another day as I’m sure investors are hurting bad and not interested in learning anything right now.

My personal observation has often been that on the first day of a huge fall, stocks might look cheap but sometimes get even cheaper. I'm not sure if SYR will be an exception.

I’ll end with some positives if someone wants to see any – low market cap, fair bit of cash for now, SYR seeming to take cash burn seriously, SYR probably not going to flood market with graphite, lot of support from Aus Super, long term battery / EV story probably still going to work out, SYR still dominant graphite player, etc.

Everything above IMHO. Please DYOR as share price can obviously be very volatile and we are all trying to come up with our best analysis which could of course be incorrect.
Hope things work out for you guys in time. Good luck.