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
Balama Graphite Project on schedule for commissioning in the second quarter of CY2017: Syrah Resources Ltd.’s (ASX: SYR) core Balama Graphite Project is on schedule for commissioning in the second quarter of 2017, while ramp up would start in Q3 2017. During the fourth quarter of CY 2017 ending December 31, 2016, SYR has spent US$32.6 million on the Balama Graphite Project, leading to an overall project development expenditures of US$113.0 million as at the end of the December 2016 quarter. An additional US$37.6 million development expenditures got committed as at the end of the quarter, that brings the total actual and committed capital expenditures to US$150.6 million. However, the Balama Project capital costs were enhanced from US$185 million to US$193 million to incorporate growth in quantities of US$8.0 million arising from final detailed design. Moreover, an additional amount of US$7.0 million has been kept aside as contingency, bringing the total project capital budget to US$200 million. The increase in the project budget would be funded from SYR’s existing cash reserves.
 
Finalized Mineral Resource and Ore Reserve upgrade: SYR has finalized the Mineral Resource and Ore Reserve upgrade for the Mualia Zone, Balama West, in accordance with the guidelines of the JORC Code (2012). Moreover, the Probable Ore Reserve is estimated by The MSA Group Pty Ltd (MSA Group). Additionally, the updated Proved and Probable Ore Reserve for the overall Balama Project now totals 114.5 Mt at 16.6% TGC for 18.6 Mt of contained flake graphite. This includes a 40% increase in the Proven and Probable Reserves of 81.4Mt @ 16.2% TGC as previously reported. The resource is open in all directions, but due to the present long life ore reserve, no further graphite resource drilling is planned. On the other side, the group got no impact to date on construction from inclement weather since the starting of the wet season (which is from December 2016 to February 2017), majorly due to drainage that has been finished around the plant site.
 
Other Developments for the Balama Project in the December quarter: SYR has made a substantial progress with the mine development and some of the activities are nearing completion. The construction of the run-of-mine (ROM) pad which has a capacity of 360,000 tonnes has substantially progressed and the group intends to finish the same this month. Moreover, SYR’s Structural, Mechanical and Piping (SMP) Contractor has started erection of structural steel while the installation of equipment for key areas of the processing plant is progressing well. The Electrical and Instrumentation Contractor has mobilized while the installation work has started. Furthermore, all the major equipment has been delivered to site. Overall, the construction progress of the Balama project is 52.4% by the end of the December quarter. Additionally, Engineering and procurement is now completed. Concrete work is 100% complete. The primary crushing structural steel and mechanical equipment installation is nearing completion. The erection of crushed ore bin conveyor and crushed ore bin is underway. The erection of structural steel is well progressed while erection of the recycle crusher feed conveyor is well advanced. The Attrition cells (which do not utilize any chemical treatment processes) have been added in the September quarter to the Balama process flow sheet, and is based on significant pilot plant test work, which has demonstrated the potential for 96.5% to 98.8% TGC concentrate to be produced across a range of flake sizes in China. TGC can be achieved across all flake sizes for Balama graphite product. In addition, Bureau Veritas has been awarded the five-year contract for supply of on-site laboratory services. The onsite laboratory was said to be ready to start operations in the first quarter of 2017, ramping up to a 24/7 operation with more than 30 employees. At full production, nearly 1,700 assays of various types are expected to be analyzed daily.
 
Major Progress on Mine Support Infrastructure: The group’s 15.4 MW Power Station concrete works were reported to be well advanced and scheduled for completion by the end of January 2017.  The work for 700,000 liter Fuel Storage Facility has started. Moreover, the Main site Administration, Laboratory and Reagents store under construction is going as planned. The Accommodation camp is being constructed.
 
Development of Logistics: The group has made a major progress during the December quarter with a preferred provider (a leading logistics company in Africa) on the terms of a logistics and distribution contract for the transportation of product from Balama to Nacala Port. The award of this contract was expected to be announced in Q1 2017. Moreover, discussions with Nacala Port were expected to be continued during Q1 2017 regarding the movement of product through the port. Additionally, initial shipping agreements with international shipping lines who operate services to and from Nacala Port were to be finalized during Q2 2017. 

Overview of the logistics path (Source: Company Reports)
 
Downstream Strategy: The EV production is expected to drive significant near term demand for graphite anode material. More than 100,000 tonnes per annum of incremental natural graphite BAM is expected to be required by 2019. There is an opportunity for the group to participate in the entire supply chain, from mine to anode material and improving the product consistency for end customers. Moreover, the group has the potential to capture additional margins through downstream processing. The downstream strategy encompasses understanding the customer and to deliver qualified battery anode material during Q4 2018, BAM Manufacturing Process Qualification and the process development. Additionally, SYR will pursue a multi-channel sales strategy with a presence in flake and battery anode material markets. Balama is scheduled for commissioning in the second quarter of 2017 and the production ramp up in Q3 2017. The group develops a commercial plant to supply the battery anode market. In addition, Syrah is having commercial discussions with the customers regarding sales into the spherical graphite and by-product markets for Balama. SYR has medium term outlook to establish the additional commercial plant in Asia to meet the demand requirements and optimize the profitability. The strategy would enhance the cash flows and profitability from downstream processing while minimizing the risk.
 
Changed in Reporting Currency: SYR has changed its reporting currency from Australian dollars to US dollars, starting with the year ending December 31, 2016. The group intends to give better transparency to their company’s underlying performance and enhance comparability of SYR’s financial information. Moreover, SYR has started on arranging a debt facility of US$50 million for the Balama Project, and is in discussions with the Mozambique Government related to a Mining Agreement for the Balama Project. 

Balance of cash reserves and projected use of funds as at December 31, 2016 (Source: Company Reports)
 
Management Changes: SYR has appointed Shaun Verner as the Managing Director and Chief Executive Officer (CEO), effective from February 03, 2017. Shaun joined SYR as Executive General Manager - Sales and Marketing in October 2016. Before he joined SYR, Shaun was with BHP Billiton for 20 years in a variety of executive roles. He has the extensive international commercial and operational experience across a range of commodities including copper and base metals, uranium and thermal and metallurgical coal. This looks to be a positive for the group as Shaun appears to be well qualified when it comes to the business and alignment with the company’s strategy. Moreover, SYR has also appointed Rob Schaefer as Chief Commercial Officer. He would be accountable for sales and marketing strategy, outbound logistics, and strategic supply contracts. Rob would join the company in early March 2017, and Shaun will progressively hand over his accountabilities at that time.
 
Stock Performance: SYR stock has fallen 32.13% in the last six months (as of February 07, 2017) owing to some level of volatility and concerns over increasing capex at Balama, while the stock now trades at reasonable levels. On the other hand, the group’s construction progress of the Balama project was 52.4% complete while commissioning has been on schedule for the second quarter of 2017. Given the prospects and efforts related to negotiating working capital debt facility, project enhancements and downstream strategy development, we give a “Buy” recommendation on the stock at the current price of – $ 3.02

 
SYR Daily Chart (Source: Thomson Reuters)

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