There seems to be some sentiment that the kick up in the share price on Friday might have been caused by reaction to the UBS report. UBS don’t advise how they arrived at their fair value figure of $1.10 but when I read the report I couldn’t reconcile that with the information they provided. Rather than cause for jubilation my reaction was one of despair.
They are forecasting accumulated losses of US$206 million in years 2023, 2024 and 2025 then a ramp up to full nameplate production and sales at both Balama and Vidalia in years 2026 and 2027 and sales pricing that has never been previously achieved. Even at that level the company will apparently only break even in those years. Given that picture you would have to ask if this company is even a viable concern. The only way to profitability it seems is if sales pricing increases to levels not supported by UBS’s “deep dive” research.
The second concerning statement is :-“We continue to see increased western governmental support for upstream industries to support the global energy transition while western end-users continue to scramble for supply agreements with non-China players to be able to support their growing ambitions in the EV space”That statement is certainly true, many companies are inking offtake agreements.
But Syrah is not on that list. Besides two recent minor agreements with Graphex and Westwater for unknown quantities at unknown prices for some time in the future the company has not announced an offtake agreement in four years. Why are these deals being done with companies that may not even get off the ground and not with Syrah who are a proven operation. Surely after operating for six years you would think that some customer relationships have developed to the point that there is some ongoing trust.
*Is Syrah’s product not up to the spec that these companies require
*After all the difficulties of the past, not being able to fulfil orders, failing to activate a binding contract, covid shutdown, shipping disruption, industrial action, operational difficulties etc, is the company seen as an unreliable supplier.
*Is Syrah purposely holding out for the availability of better deals in the future when market conditions improve?
I don’t know the answer to any of those questions but the situation doesn’t engender much confidence that all will come good in due course.
The third concerning statement is :-“SYR is down ~70% YTD off the back of declining natural graphite prices (-30% YTD) which in turn is down to 1) ample anode inventories, 2) seasonal strength in domestic mine supply, and 3) the tentative China EV growth story. While we anticipate a pick-up in pricing due to our constructive view of the market, we are cognisant that prices could stay lower for longer with respect to the global/ China macro.”
No mention there of the huge elephant in the room - the ongoing synthetic / natural debate or any suggestion as to how that may play out in the future
OK, so l’m playing devils advocate here, I actually think the UBS report is BS and they wouldn’t have any more clue than me how things are going to pan out or what a genuine fair price is, but I would welcome any feedback to put me in my place regarding the points raised above. I don’t own any Syrah shares yet but I have been looking at the whole graphite story trying to understand it and think I have progressed from knowing nothing at all to at least understanding what the factors are that I don’t understand, I suppose that is an advancement of sorts. The shareholders of every graphite company anywhere are feeling the same world of pain as those of Syrah and of them all I think Syrah is probably the best placed to prosper when the market finally turns.
The company definitely has a bright future but by definition the future is not today.
(20min delay)