Syrah Resources (SYR) - Largest Ex China Graphite Mine in Production

We recently caught up with Shaun Verner, MD and CEO of Syrah Resources. He updated us on the company’s progress, how they will approach the market as it currently stands and their plans for the rest of the year. 

Company Overview

Syrah Resources is an Australian based company with their main projects based in Balama in Mozambique; the largest Graphite projects in the world. The main asset holds a capacity of 350,000t a year, with a 50 year reserve life and a very high grade at 16% Carbon. Production began at the end of 2017 but due to market conditions and COVID restrictions, Balama had to undergo a temporary suspension in 2020. However, production recently restarted and is ahead of schedule.

Another major key for Syrah Resources is their Vidalia downstream Active Anode Material facility in Louisiana, USA. It is differentiated from anything else occurring outside of China at the moment. In recent months, production of the first integrated Active Anode Material used Balama material at Vidalia. This is already in the hands of potential customers who are testing the qualification. 

Turbulent Years & Lessons Learned: What Was Mishandled? 

Balama was very new for the industry. It was an enormous operation and at the time of market entry, the market size was between 750 and 800,000t globally.

Through 2018/19, production ramped to 18,000t a month against a capacity of 30,000t a month. In the second half of 2019, subsidies for electric vehicles (EV) in China were reduced and Chinese EV demand fell unexpectedly. The market hit a surplus point around this time. To combat this change, production was moderated.

Due to market conditions and the impact of COVID from the start of 2020, it was necessary for Balama to undergo a temporary suspension in production. There was still a lot of work during the suspension; the plant still ran and restrictions were monitored closely. As the market improved towards the end of 2020 into 2021, production began again from March.

There were hard won lessons with Balama:

China is a major player in the market from a production and consumption perspective. Due to the opaqueness of the market from the supply-demand and pricing perspectives, meant that they were actually on a learning curve when bringing products to the funds market in China for battery anode materials, as well as the coarse flake markets.

As a publicly listed company, there’s visibility around pricing, cost structures and production plants. With the restart, the focus lies on listening to customer feedback; watching pricing and gradually bringing back production to maintain market balance.

Syrah Resources had to ensure they were producing the right product, which meant it took longer to hit the levels of recoveries and quality than initially targeted. At the same time, the market did not grow as quickly as anticipated. In 2019/20, global EV sales were around 2.2M units per year. In contrast, since production has started in the last couple months, the global EV market may hit 5M units this year. The Anode production and natural Graphite consumption has doubled in this period. Shaun highlights it is important that they run the plant as efficiently as possible to meet market conditions.

Work was done throughout the suspension, which focused on cost restructuring, enabling the reduction of Syrah Resources cost base by 20-25%.

Vidalia Project: Progress, Studies, & Commerciality

In the US, Syrah Resources produced their first Active Anode Material with the Vidalia project. They’ve been in the US for 4 years and the plant has undergone a number of phases.

In terms of process, they looked at the milling and shaping of Graphite files into spherical graphite. Purification was added, taking the material from 95% up to 99.95%, followed by the coating and carbonisation of that material through to an Active Anode Material production, which is ready to use in the battery. This is done at an industrial scale.

Last year, a Feasibility Study for Vidalia was released to ensure Syrah Resources could have something competitive with China. Differentiation has focused on alternative sources of supply or ESG, however it is product quality and pricing that ultimately determine market position. This has been a big focus from the start of the Vidalia Feasibility Study planning and trials.   

Market Dependency & Situation in the US

Overdependence on one market has been a key lesson, with the Balama China case in particular. Biden’s 100 Day Review showed a good understanding on the reliance challenges, the geo-political overlay, funding requirements and projects available to pursue in a short space of time that can make a fundamental difference to localised supply.

For the US and Europe there are critical minerals and processing challenges, with the heavy reliance on China for the supply of battery materials. This is the case for both the cathode side and anode side. In the Graphite and anode space, the global supply chain is 100% reliant on China for natural Graphite pre-cursor. 

Contracts, Partnerships, & Conversations: Where's the Focus?

The focus in the US is working on the right product from a facility that will deliver material into the market within the time required. The aim is to get the products to both automakers and lithium-ion battery manufacturers that are testing in qualification.

Syrah Resources has also been interacting with Government departmental and commercial funding opportunities. However, they’re tied very closely with the ability to get offtakes in place as final investment decisions with the Vidalia commercial expansion won’t be taken to the board without commercial underpinning. 

Securing the Future of Production at Balama: Selling to All an Option?

Running the Balama operation at a global standard is critical underpinning for success. Having the right environmental, Health and Safety standards and the support of the local, alongside possessing high proportions of local employment and strong Government support in Mozambique is viewed as the core to this success.  

Balama must sell into China and are doing so primarily for battery anode material. Over the decade, battery consumption will increase from 20% of the natural Graphite market globally to 60%. Balama will switch to the lithium-ion battery market and be a consistent, high quality producer. Vidalia is believed to be welcomed in the US and Europe as a localised alternative to the Chinese material requirement.

Money Matters: Recent Raise & Views on Shorting

Raising significant capital came down to market unpredictability, as seen with the 2019 Chinese EV sales fall and COVID. Ensuring a funding position that prepares for growth through multiple scenarios is important for success.

Shaun emphasises they don’t spend time on what short sellers think about Syrah Resources. What ultimately drives value is getting the right product into the right markets at the right price and generating margin to provide value to shareholders. 

Expectations for 2021

Momentum in market growth in the EV space – production for Balama is aiming to reach 15,000t a month at 50% capacity utilisation. Syrah Resources is contracting strongly in Europe, US and increasingly in China, with end user demand in China just as strong as the advent of Syrah Resources’ participation in this market.

Anode Production – Qualification and testing in the development at Vidalia where they’re in commercial and funding discussions to have the project ready for the final investment decision during the second half of 2021. Syrah Resources will be driven by their customer offtake and funding position. With more positive conditions and good progress, Vidalia is set to achieve very good momentum.

To find out more, go to the Syrah Resources Website