Hi Binbin, That's a great question, and there are really two...

Hi Binbin,
That's a great question, and there are really two answers.

The first is the obvious one, that, as things stand, there is no need at all for SYR to drop the price below the marginal production cost of most of its competitors (which, according to the PEA issued by Focus Graphite, is around $800 to $1000 per tonne). Focus claim they will be the lowest-cost Canadian producer, at around $458 per tonne. They have a much smaller, lower-grade resource than SYR, have a strip ratio of about 1.1:1, higher energy costs, and Canadian labour costs. Balama has a huge high-grade resource, an essentially zero strip ratio, low power costs and Mozambique labour costs. I can't see their production costs hitting $200 per tonne - quite probably less than $150. Throw in $100 per tonne to truck the concentrate to the coast and load it on ships, and the total is $250 per tonne or less.

So a selling price of $800 to $1000 per tonne - well below recent prices - would leave Balama as a "nice little earner", with a major share of the world market!

But that's only half the story. The sheer size of Balama, and its low costs, opens the door to an opportunity which has simply not existed on the world graphite stage previously. There is a current market - not blue sky, but here and now - for carbon as calcined petroleum coke, and as anodes for the aluminium industry. These two markets are worth $12 billion per year. Previously, nobody in the graphite producers could look at them, because they had neither the volume possibilities, nor the chance of providing product at the required price - something like $600 - $800 per tonne (for a relatively low-grade product).

Enter Balama.

SYR have announced, at least twice, that they are looking closely at this possibility. Why? Clearly, they think there is money to be made, but also because of the huge plus we haven't mentioned so far - vanadium.

The petroleum coke market means very large volumes of graphite, at relatively low prices, but all the vanadium produced would still sell at the full world price.

Try running your model with these alternatives thrown in. The NPV goes up by a multiple.

Nobody has yet directly committed to this happening. But SYR have said:

"Syrah will pursue market share so that it can dominate both the traditional graphite markets and also replace carbon forms in higher volume markets" (Sept 4, 2013)

Sounds to me like they are serious!

Cheers, Prime1