Company Overview - Syrah Resources Limited is an Australia-based resource company. The Company is engaged in the development and construction of the Balama Graphite Project in Mozambique; assessment of the use of graphite from the Balama Graphite Project as an input into the production of spherical graphite and recarburizer products, and exploration and evaluation studies, including technical investigations into the potential to extract and produce vanadium from the Balama Graphite Project ore body. The Company's segments include Australia and Mozambique. The Company's Australia segment is engaged in investing activities and corporate management. Its Mozambique segment is engaged in mining, mineral exploration, evaluation and development activities. The Balama Project is situated in the Cabo Delgado province of northern Mozambique, approximately 200 kilometers west of the port town of Pemba. It also operates Sasare North project.
 

SYR Details
 
Raising funds to boost capital position: Syrah Resources Ltd (ASX: SYR) has finished its fully underwritten A$194 million capital raising by issuing 32 million shares at A$6.05 to the institutional investors. The funds raised will be used to complete the funding of the Balama Project including the working capital requirements, fund SYR’s general and administrative costs, provide balance sheet flexibility and further accelerate the SYR’s spherical graphite strategy. The group spent over A$30.7 million or US$22.9 million in the second quarter of 2016 for the Balama Graphite Project, enhancing the overall project development expenditures to A$64.3 million (US$47.1 million) as of June 2016. The group incurred a further of US$60 million in development expenditures leading to overall actual and committed capital expenditures to US$107 million, as compared to a revised capital cost estimate of US$175 million for the Balama Project. As a result, Syrah resources enhanced its cash at end of quarter to $325.97 million as compared to the previous quarter cash position of over $166.15 million.
 

Sources and Uses of funds (Source: Company Reports)
 
Solid Balama Graphite Project prospects:SYR has a world class Balama Project which is a strategic asset that positions SYR to become a leading supplier of graphite to industrial and high growth, emerging technology markets. The project has a significant JORC Compliant (2012) Reserve in place to support over 40 years of mine life at projected mining rates. In addition, there is a high grade, low strip ratio ore body that can be mined with conventional truck and shovel techniques, resulting in an attractive and competitive operating cost profile. The graphite product is suited to high growth, emerging technology market applications.
 

Aerial View of the Project (Source: Company Reports)
 
Accordingly, the group is positioning itself to leverage this market opportunity while the detailed engineering and design is on schedule for completion during August 2016. The major procurement activities are complete with mechanical equipment and structural steel now being delivered to site. The SMP (Structural, mechanical and piping) and Mining Contractors, who have significant experience in Mozambique, have been engaged by SYR. There is a substantial ramp up of site personnel with approximately 830 direct staff and contractors, including significant ongoing recruitment of qualified Mozambican nationals. Additionally, the first ore and production ramp up is now scheduled for second quarter of 2017. The project cost estimates have been updated and decisions have been taken to enhance the project scope and the same are expected to deliver a more robust operation and consistent production of a range of high quality graphite products.
 

Balama Project schedule (Source: Company Reports)
 
Proposed Spherical Graphite Plant Update: SYR has indicated that further process engineering test work, optimization, and product sample preparation for customers is proceeding well at Syrah’s spherical graphite pilot plant in China. The test results from 600kg of feed concentrate have shown greater production yields, particularly using a blended feed material which contains a greater proportion of finer -325 mesh graphite.
 
Building client base by entering into Agreements:SYR has finalized an Offtake Agreement with Marubeni Corporation (Marubeni), a major Japanese integrated trading and investment conglomerate. The agreement is for a duration of five years and Marubeni will have the exclusive right to import and sell Balama coated and uncoated spherical graphite (Product) in Japan and Korea (Territory). Moreover, Marubeni will also have the exclusive right to sell the product to a subsidiary of a Japanese or Korean headquartered corporation (excluding certain specifically agreed customers), located outside the Territory. For this Marubeni will purchase a total of 50,000 tonnes of product per annum and will supply the product to its customers, which consists of the largest battery and anode producers in the world. This Offtake Agreement was finalized after an extensive due diligence and product evaluation by these customers. Additionally, the product prices will be negotiated on a quarterly basis between the parties with reference to the market prices prevailing in the Territory. On the other side, the group also signed the offtake and marketing agreement for 9,000 tpa with Morgan Hairong as well as there is a 20-year exclusive licensing agreement finalized with Morgan Hairong for its proprietary spherical graphite coating technology.
 

Syrah Resources Limited’s licenses (Source: Company Reports)
 
Market opportunity:SYR is developing its Balama project to become a leading supplier of superior quality, enhanced value graphite products. The emerging lithium ion batteries market continue to develop at a rapid pace and represents a key end market for Syrah’s fine flake graphite products. The demand for Li?ion batteries is increasing due to rapid market growth of electric vehicles and grid storage. The coated spherical graphite is used as anode material in Li?ion batteries. There is an increasing shift towards the natural graphite as a cost effective alternative to synthetic graphite in Li?ion battery production. In addition, Balama spherical graphite has characteristics making it suitable for use in technology applications. The significant near term forecast growth in anode consumption represents a key opportunity for SYR. There is a further significant opportunity for spherical graphite available in Chinese, North American and European markets. Moreover, SYR has built a high quality Board and management team with a diverse mix of mining, technology and African operating experience. Dr Christina Lampe?Onnerud has recently joined the Board, and has a solid experience of over 20 years in the Li?ion battery sector.
 
ASX Price Query:SYR stock was placed in Trading Halt Session State at the request of the company and resumed the normal trading from 20^th June 2016. Meanwhile, with reference to the letter of 19^th July 2016 by ASX regarding the price of the company's securities, SYR said that the company is not aware of any information that has not been announced which could be an explanation for the recent trading in its securities. Moreover, the group also reported that they are aware of unsubstantiated commentary of material civil unrest in Mozambique.
 
Stock Performance:The shares of Syrah Resources have been under pressure this month, wherein the stock fell over 11.48% in the last four weeks (as of August 23, 2016). This fall in the stock could be partly attributed to the earnings pressure from its peers coupled with volatility in the commodity prices. On the other hand, SYR stock rose over 10.13% during this year to date (as of August 23, 2016) as the group is making solid efforts to capitalize on its Balama project. The Balama Project is on track for the first ore and commercial production ramp up in Q2 2017. The proceeds of the capital raising program would enable the group to accelerate its spherical strategy in response to market demand. Moreover, SYR has been building a solid contract base and the recent 50ktpa offtake agreement with Marubeni validates the quality of Syrah’s product and positions Syrah to become a major non-Chinese supplier of spherical graphite. SYR is also saving costs for developing the project, which could be reflected in its second quarter performance wherein the group incurred only capital expenditures of US$107 million, against their cost estimate of US$175 million. We believe investor’s need to leverage the fall in the stock as an entry opportunity given its potential. We maintain our positive stance on the stock despite commodity prices volatility, and give a “Buy” recommendation on the stock at the current price of $4.12
 

SYR Daily Chart (Source: Thomson Reuters)

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