SYR was the first mover in the space and in my experience the first mover generally survives, primarily because they get all the funding and institutional support in place. As the sector matures they are also the first to face the realities of building a business in a new market. This is particularly true of the graphite sector because the commodity is highly specialised, pricing is opaque and it's currently a small market.
The recent Macquarie report on SYR has put an axe through the valuation of Balama, even though it's fully funded and part way through construction. It's also important to remember that SYR could not find any debt financing for Balama and this demonstrates how hard it is to bank a large scale graphite project. The majority of the valuation for SYR is now attributed to the downstream spherical business which is conceptual for Syrah and controlled by the Chinese. IMO this gives you a very important glimpse into the analyst mind.
By the way, I am extremely impressed by Tolga, no one has been able to replicate what he achieved.
Basket prices are materially lower than first forecast, SYR somewhere in the order of $1,200 per tonne. So we have declining consensus on pricing and production profiles, higher costs and more equity financing required. This all leads to smaller NPV's and hence my comment about project valuations ratcheting down. MNS will be next IMO.
Perhaps the Macquarie analyst has realised that margins in graphite mining are much lower than previously forecast and the real money is made downstream. Unfortunately that space is principally controlled by the Chinese.
What does this mean for VRC? Timing is everything and Volt has a lot of drilling and metallurgical testing ahead to prove up the deposit, equating to time and capital. IMO there is no shortcut and you will not get a binding offtake without it. This is not a criticism, simply the commercial reality of progressing from explorer to developer.
Then we arrive at the production strategy and Vorster used the term "regret capital" which I interpreted to imply he is contemplating the value of starting with a small scale operation. Again, this is simply my interpretation and could be wrong. Unfortunately the dichotomy for management is that small scale operations are inherently bad for share prices.
IMO the momentum money is leaving the sector and shareholders are facing the challenge of investing in real markets without the speculative "tail winds".
And consequently I am happy to sit and watch for now...
VRC Price at posting:
7.0¢ Sentiment: Sell Disclosure: Not Held
(20min delay)