Hi Unicrumba,
Thanks for your considered approach, and for being prepared to state the premises underlying your investment approach. All too few of us are willing to do that!
Could I respond to your bullet points?
First, targeted growth is always a function of risk. Syrah may not be your cup of tea, precisely because it is in a different league to the KNLs, MNSs, and others in the graphite space. Alone, it has a developed mine, adequate funding, and solid markets for its products. If (and only if), one of the small graphite hopefuls were to achieve that same position, then that company could, indeed, show a greater percentage share price growth than is likely with SYR. Yes, long shots do come in, sometimes, but Syrah is currently a vastly lower-risk proposition.
Second, do shorters really have a "firm grip"? The steady price rise that we are currently seeing looks to be making their position decidedly perilous. Obviously, it will take a couple of months of deliveries to really resolve the position, but there is a strong case for suggesting that they could be running for cover quite soon.
Next, the Opex position. Production is expected to be well past a 250K tonnes per year rate by the end of the first year, meaning that the planned economies of scale for Balama will come into play way before 2020. Announced offtakes appear adequate for that time, and costs should be low enough to be highly price-competitive. Chinese producers, most of whom are far smaller than Balama, maybe able to cover volume, but probably at much higher cost, and, in many cases, at poorer quality levels. Very uncomfortable position to be in!
Finally, Sovereign Risk. Yes, it exists. Always has, which is a major reason why the SP is far lower than it would be if Balama was in, say, southern Queensland. But the civil war in Mozambique ended nearly 30 years ago. The government is taking a positive, balanced attitude to foreign investment, and is actively encouraging resource development. Amongst the 54+ countries in Africa today, it's fair to say that Mozambique is one of that small minority where Sovereign Risk is towards the low end. Mozambique is very different to Tanzania.
You also speculated on the possibility of commissioning difficulties. And it's true, nobody can say they could not arise. But the standard of project management to date has been just outstanding. Development has proceeded on-schedule, and on-budget, for many months - in Mozambique. I don't expect them to stumble at this late stage.
With nearly every forecast of demand for battery-grade graphite coming out higher than the previous one, all these positives suggest to me that Syrah remains a Buy - and at low risk, in graphite industry terms.
Cheers, Prime1
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