Why I Think Syrah is the Best Investment in the ASX Graphite Sphere
There are about twenty ASX listed companies in the graphite space, Syrah is the only one currently producing any substantial quantity and I think the best prospective investment in graphite if and when the current market fundamentals finally turn for the better.
This Syrah produced graphic explains it all.
This graphic was put out in November 2022. Since then none of the 14 projects awaiting FID has announced they have succeeded in arranging financing, although Black Rock Mining Limited announced last week that they think they are getting close for their Mahenge mine (89ktpa) in Tanzania.
The three projects referred to as being in construction are I think :-
Nextsource Materals Inc - Molo mine in Madagascar - 17ktpa - Cost US$32m
This company did everything perfectly, starting out small (they intend to expand to 150ktpa) while proving themselves, adequate funding from their 47% shareholder Vision Blue Resources which is the private investment company of their chairman (and very experienced) Sir Mick Davis, binding off-take agreements, construction completed on time and on budget and moved into fully funded commissioning phase. Their BAM plant in Mauritius was ready to commence construction. What could go wrong?
In their latest quarterly report recently released they advise that the plant cannot be operated as designed due to severe bottlenecking issues and outside specialists have been called in to reassess the process engineering. The logistics of the operation are susceptible to adverse weather events and the wet season starts in November. Also the lease on their proposed BAM premises in Mauritius has fallen through, meaning a new property has to be located and permitting and FEED recommenced.
These two occurrences are almost identical to Syrah’s experiences in 2018.
Walkabout Resources Limited - Lindi Jumbo mine in Tanzania - 40ktpa - Cost US34m
This mine is nearing completion and is yet to move into commissioning phase. It seems to be on budget but not on schedule as construction was interrupted due to financing issues after which the main Chinese contractor agreed to be paid in shares rather than cash. Working capital availability while ramping up to production could be an issue.
Tiriputi Graphite PLC - Sahaminy mine in Madagascar - 18ktpa - Cost GDP13.5m
They also have the Vatomina mine in Madagascar - 12ktpa capacity.
Has been operating for several years at 2 - 3ktpa.. Their recent plant expansion suffered from bottlenecking issues which seem to have been overcome although ramp up progress has been slower than anticipated due to funding limitations. In the June Qtr they produced 2371kt. In Syrah’s quarterly report they allude to Madagascar sales being constrained by export tariffs but Tiriputi make no mention of this.
Also :-
South Star Battery Metals Inc - Santa Cruz mine in Brazil - 5ktpa - Cost US$10m
Starting small before increasing to 50ktpa. No announced off-take agreements although they could be relying on the local market in Brazil. Not much information available on progress or if into commissioning stage
The recent experience of a few of the already producing companies :-
Northern Graphite Corporation - Lac des Iles mine in Canada - 25ktpa capacity.
Has been operating for 30 years, is the only significant graphite producer in North America, and was recently producing up to 15ktpa but was placed on Care and Maintenance status at the same time and for the same reason as Balama - maximum inventory levels reached and no sales.
The company is also taking advantage of the current market downturn to pause production at its Okanjande mine (31ktpa) in Namibia while they move the production plant closer to the mine.
Volt Resources Limited (70%) - Zavalievski mine in Ukraine - 7.3ktpa currently
Had to close down for a period due to the war but has now recommenced operations in campaign mode. Not too sure about their logistics arrangements as the nearby port at Odessa is currently under some pressure.
Mineral Commodities Limited - Skaland mine in Norway - 16ktpa capacity
Recently stopped production for six weeks as the mine drill rig failed and due to the age of the unit could not be resuscitated. A new one of similar vintage has been rented. The ongoing equipment reliability problem has been acknowledged but there are currently no funds available to properly address the issue.
How Chinese companies are faring is hard to ascertain although if the experience of China Graphite Group Limited is any indication they are suffering as well.
The only profitable operating graphite company anywhere ex China is National de Grafite in Brazil. All Brazilian owned operations are private companies so there may be other minor ones. This company which has three mines has been operating since 1939 and sells into the local industrial market.
There is no shortage of natural graphite available, the ex China resources already defined are more than enough for the foreseeable future and Kazakhstan is virtually made out of the stuff but the graphite business is brutal, it takes at least 7-10 years from discovery to production (and that is if everything goes to plan and suitable financing can be arranged) and then as the Syrah graphic explains the real work begins.
All the 14 companies currently at DFS stage are operating in the dreamtime, everything that lies ahead for them the shareholders see as positive if only funding can be sourced but the enthusiasm / reality divide is huge and the problems of getting to this stage will pale compared to what lies ahead.
But Syrah has already been through every difficulty imaginable, they even had to rewrite their company risk profile as no-one saw covid coming. It’s still all doom and gloom at the moment but when the current market fundamentals finally change, as they surely soon must, Syrah with their resource size, TGC grade, plant capacity, and operating experience is sitting in the box seat to take advantage of everything that is happening in Europe and the USA. The fact that the USA government is currently backing the company with prospective conditional loan and grant offers totalling US$472 million, which is more than the entire book value or market capitalisation of the company, means they see the company’s profitable future as being in their national interest. At this moment, ignoring the past, I believe that Syrah has the best prospect of any graphite company of powering successfully into the future. That does not necessarily mean that I think Syrah is currently a good investment, just that it is the best available of those companies in the graphite sphere.
Disclaimer : Everything I think I know about graphite I found on the Google which as we all know is unreliable, plus I may have misunderstood what I read. Therefore no credence should be placed on anything I have written above as it all may be BS.
(20min delay)