Company Overview - Syrah Resources Limited is a resource company with an exploration portfolio located in southeast Africa. The Company is engaged in the commencement of construction and development of the Balama Graphite Project in Mozambique; continued assessment of the use of high quality graphite from the Balama Graphite Project as an input into the production of spherical graphite and recarburizer products, and ongoing exploration and evaluation studies, including further technical investigations into the potential to extract and produce vanadium from the Balama Graphite Project ore body. Its segments include Australia, which is engaged in investing activities and corporate management, and Mozambique, which is engaged in mining, mineral exploration, evaluation and development activities. Its Balama Project is hosted on over 110 square kilometers mining concession located within the Cabo Delgado province. Its other projects include Mount Lyndhurst, Sasare North and Spherical Graphite Project.

 

SYR Details
 
Ongoing pipeline development for Balama Project: Syrah Resources Ltd (ASX: SYR) continued to build its traditional flake graphite market client base via its Balama Project and recently entered into a three year Offtake Agreement with Marubeni Corporation to buy 20,000 tonnes of flake graphite per annum for its applications in Japan and Korea. The group had been negotiating with Marubeni since fourteen months and underwent product qualification and due diligence. Marubeni Corporation would use these products for customers in multiple segments like refractory, powder metallurgy, foundry, carbon brushes, lubricants, construction, crucibles, conductive additives, sealing and expandable graphite. The Product prices would be finalized based on the market prices. On the other side, the group slightly improved its Net Operating Cash Flows to a negative $13.41 million during the December quarter as compared to minus $20.068 for its year to date of 2016 financial year (six months). But, the group maintained its Cash at end of quarter at $191.594 million as of December 2015.
 


Uncoated Balama spherical graphite sample for major battery producers (Source: Company Reports)
 
Building partnerships for exclusive coating technology: The group is strengthening its spherical graphite supply chain by entering into a proprietary Technology Licensing Agreement with Morgan AM&T Hairong Co., Ltd (Morgan Hairong), which is the second major coated spherical graphite producer in China with solid technical expertise. Syrah Resources made Technology Licensing Agreement for the next twenty years enabling the group to use Morgan Hairong’s proprietary spherical graphite coating technology (excluding China) for Spherical Graphite Project forecasts. The group would issue US$968,000 of fully paid ordinary shares to Morgan Hairong while Morgan Hairong would even get a royalty from the potential gross sales of coated spherical graphite developed by the group. The group is evaluating the intellectual property received from Morgan Hairong for proprietary spherical graphite coating technology. Meanwhile, the group’s marketing activities for Balama spherical graphite were also paid off as Morgan Hairong entered into a three year Product Sales agreement for 2,000 tpa of uncoated spherical graphite. The group also made a three year marketing agreement for 5,000 tpa of uncoated spherical graphite and 2,000 tpa of coated spherical graphite. Management reported that its Balama spherical graphite is also gaining interest in China, positioning the group to leverage the booming lithium ion battery market in China and worldwide. Accordingly, Morgan Hairong’s is targeting to enhance its production capability to place itself to capture the potential growing demand for coated spherical graphite via is present customers who are among the top Chinese battery producers. Consequently, the group is also directing towards product qualification for several battery and anode producers globally for building more spherical graphite offtake agreements.
 


Licenses held by SYR as at December 31, 2015 (Source: Company Reports)
 
Balama Project development highlights: The Balama Project has been progressing well and is expected to start commissioning of the processing plant by this year-end while the production would enhance from the first quarter of 2017. The Engineering and procurement activities in the project are on track and are progressing as per the schedule and budget limits. The pre-stripping of the Balama West orebody has started while the Electrical equipment and major mechanical equipment purchasing has been done for various stages of production. The bulk earth works in the site were finished and lay stage for concrete works, with the initial major concrete pour being for crushed run-of-mine (ROM) ore silo foundations. The seven kilometers total sealed access road construction is almost getting finished. Even the final accommodation camp construction have started and forecasted to finish by the second quarter of 2016. The Power station contract of a 10 MW facility for offering power to the processing plant and other infrastructure is also allotted. Most part of the group’s relocation program is finished, while the recruitment process is ongoing.
 


Balama Project (Source: Company Reports)
 
Winning contracts for its high quality recarburiser: Syrah Resources’ aggressive marketing activities enabled them to win a Statement of Sales Intent (SSI) with Hiller Carbon LLC (Hiller Carbon), who are among the major provider of raw materials for North American electric arc furnace (EAF) steel producers and other industrial customers. This contract win indicates that the group ‘s recarburiser is of very high quality, which is being the key additive for the downstream ladle refining furnace (LRF) process, that is used during steelmaking. In fact, Hiller Carbon reported that the group’s Balama recarburiser is complying with the present rigorous carbon addition requirements, given its consistent solution rate, steady sizing and high purity. As a result, Hiller Carbon reported that they would be buying Balama recarburiser for resale in the range of 25,000 tpa to 35,000 tpa. Hiller Carbon already won exclusive rights for marketing Balama recarburiser products across the United States, Canada and Mexico. This move by Hiller Carbon is on track with the group’s projected Spherical Graphite Facility in the United States which leverages the graphite shavings from the sphericisation process as input material for Balama recarburiser. Subsequently, the group believes that this SSI is a positive milestone as it would open the opportunity to access the North American market which would lead to further revenue generation for the Proposed Spherical Graphite Facility.  
 


High quality, low impurity Balama natural graphite recarburiser (Source: Company Reports)
 
Stock performance: Syrah Resources is heavily focusing on its marketing activities for its prestigious Balama project, and recently hired Mr Antonio Assis as General Manager of Sales and Marketing, who comes with 28 years of international sales and marketing experience across several industries including graphite sector. The group also built exclusive licenses under its portfolio. Meanwhile, the shares of Syrah Resources delivered outstanding performance with about 51% surge in the last six months (as of March 22, 2016) driven by its strong contract wins for its Balama project. SYR entered into a ten year SSI with major refractory producers for up to 15,000 tonnes per annum (tpa). The group also made a three year Product Sales Agreement with Morgan Hairong for 2,000 tpa of uncoated spherical graphite supply as well as entered into a three year Marketing Agreement with Morgan Hairong to offer 5,000 tpa of uncoated spherical graphite and 2,000 tpa of coated spherical graphite. The group’s five year SSI signed with Hiller Carbon which has right to resale its products in the United States, Canada and Mexico, would open up an opportunity for Syrah Resources to further penetrate across these markets. The group’s Balama spherical graphite also got qualified to be used by a major global battery material manufacturer for automotive clients and even made a Memorandum of Understanding with Marubeni to get spherical graphite offtake agreements with anode and battery producers by June of this year. Syrah Resources stock generated over 4.4% (as of March 22, 2016) during this year to date and rallied over 17.5% in the last three months. But, the stock has been consolidating this month and slightly fell by 0.7% (as of March 22, 2016) in the last four weeks and declined by 1.47% (as of March 22, 2016) in the last five days. On the other hand, given the promising potential for the group’s Balama project coupled with its ongoing contract wins, we remain bullish in the stock. Based on the foregoing, we give a “BUY” recommendation on the stock at the current price of  $4.06
 
 
SYR Daily Chart (Source: Thomson Reuters)

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