Post navigation Lessons From Syrah Resources’ Graphite Off-Take Agreement, page-2

Another broker update below. This one from BaillieuHolst with a target of $8.02.

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	Column 1
0	Syrah Resources (SYR)
1	COMPANY REPORT
2	Demand and quality endorsed by very large spherical contract
3	■ SYR has announced a very material, surprise offtake deal with Marubeni for 50ktpa of spherical graphite for five years, significantly exceeding our expectation of a more modest volume (~30ktpa) to be contracted to the Tesla supply chain. Marubeni expects demand to expand "significantly" near term. ■ This deal from a conservative Japanese company provides exclusivity to Marubeni as the market aggregator to supply to Japanese and Korean anode and battery companies. This could conceptually include major players such as LG, Hitachi, Panasonic, NEC, and Mitsubishi Chem. ■ The tonnage is material, exceeding the 43kt 2015 estimate of global ex China spherical demand, despite being to a narrow geographic segment (Japan and Korea) that excludes other material and fast growing markets such as the US and China. The scale exceeds our expectation of an inevitable supply contract with Tesla where their requirement is clear but supply is undefined. ■ Marubeni has endorsed the product as superior quality to Chinese supply (100% of world natural spherical), confirming extensive test work on and pre-marketing (to battery and anode customers) over 18 months. ■ The announcement addresses scepticism over demand for spherical graphite and SYR's ability to prove via a contract market acceptance of their product. ■ We have revised our target price to $8.02 from $6.35 reflecting an increase in NPV from assumed spherical graphite production growth to 60ktpa from 25ktpa and first time attribution of this at 70%. We have reduced our vanadium attribution to 25% to reflect a likely de-rating of this project as management focusses on the higher return spherical opportunities. The Marubeni contact suggests that SYR will be revisiting its US spherical plan scale and capital requirement.