what lies ahead, page-20

Doctor Fouad, could I suggest you read the announcement of the New York presentation, by James Askew and Christina Lampe-Onnured, which will update your knowledge of what is scheduled, and how it will be achieved. There have been material changes since the announcements on which you have based your analysis.

For example, standard concentrate grade is no longer to be 96%, but has been upgraded to 96.5-98.8%, across a range of flake sizes, by the addition of attrition cells to the Balama process flow sheet.

Mine and plant development are on schedule, and that schedule shows ramp-up to full production (360K t/y) by the end of Q2 2018, rather than in five years time, as you suggest. Exactly how fast that ramp-up will be is not stated, but it seems quite improbable that production in 2017 would be anything like as low as 10K tonnes. This is reinforced by the explicit statement from Jim Askew, to the effect that the first year of production is 90% covered with industrial demand. User qualification, which you mentioned as a barrier, has been going on for years.

On the other hand, I think you are quite right to question whether the current graphite market could possibly withstand an additional 300K+ tonnes of graphite per year. The market would undoubtedly collapse, and many current producers would go to the wall. I don't think that will happen, and, from what has been said at public meetings, I am sure that Syrah management is well aware of the exposure. I don't believe for a moment that they see the traditional market as a long-term growth area. Their focus is firmly on the battery market, which is not only much larger, but offers the opportunity for substantial value-add by the production of coated and uncoated spherical graphite.

Will the financing of the proposed SG plant in the US require additional equity funding? Hard to be definite, but, given Syrah's very clean balance sheet, currently debt-free, it seems much more likely that the relatively-low capex (US$80m) would be provided via debt. Maybe that depends on gaining US sales contracts - we'll just have to wait and see.

Simply being in the position of being able to guarantee volume supply gives a strong negotiating advantage, compared to competitors who do not now have a mine, and may find it hard to convince customers that they ever will have one. It's primarily for that reason that I think Syrah's market expectations are not unrealistic, that they are likely to assume a major role in the market, and that it will not take anything like five years!

Cheers,

Prime1