Are the Syrah shorters playing with fire, asks leading reporter Barry FitzGerald, page-2

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Syrah’s $1.3b poser
There is a strange stand-off in the market for graphite leader Syrah (ASX:SYR). Its current $2.65 a share market price is at odds with the much higher share price targets placed on the stock by a number of analysts - $5 at CanaccordGenuity, $6 at Deutsche, and an enthusiastic $7.80 a share at Credit Suisse.
The outlier is Morgan Stanley with its $2.75 price target, roughly where Syrah is sitting now. The big question from here is who has got it right? The difference between Morgan Stanley on the low side of things, and Credit Suisse on the high side, is a not inconsequential $1.33 billion, would you believe.
It was this space that tipped back in February that Syrah was about to sign a co-operation agreement with a Chinese producer of battery anode material (BAM) for lithium-ion batteries.
That was duly confirmed in late March, although it has to be said the agreement with China’s BTR New Energy was of the non-binding, memorandum of understanding type.
The MOU covered “sales and supply chain co-operation”. Clearly the shorts in Syrah will continue to hold sway in Syrah until the MOU becomes something concrete around an offtake agreement with Syrah’s Balama mine in Mozambique, and co-operation on its own BAM ambitions.
But given that $1.33bn valuation gap mentioned earlier, they had better be careful. BTR is the world’s biggest manufacturer of BAM for lithium-ion batteries. That the world’s biggest and best graphite deposit (Balama) and the world’s biggest BAM producer (BTR) would want to get in to bed together is a no-brainer.
It can be said that Syrah’s MOU announcement would have come after extensive testwork of Balama material by BTR. And given BTR’s parentage, it would have had to run the gauntlet of approvals in China. So converting the MOU into a binding agreement of impact might not be the leap of faith Syrah’s current share price suggests.
Back to that wide valuation difference for Syrah. Is it enough for Syrah to be considered vulnerable to a takeover by any number of groups looking to hitch themselves to the global energy storage and electric vehicles revolution? Maybe it is.
There has certainly been chatter about Rio Tinto taking a look on the basis that it could make sense to match up its monster Jadar lithium deposit in Serbia to the monster Balama graphite deposit.
But that is all it is, chatter, helped as it has been by recent comments by Rio, reported by Matt Chambers at The Australian newspaper, that its (new) Ventures business unit had a brief to look for projects consistent with trends towards renewable energy (batteries, electric cars and urbanisation trends), and not bulk commodities like iron ore.