Graphite: Syrah increases its flake resource by 19%

Alongside its 2018 annual report, Syrah Resources announced an update to graphite mineral resources and ore reserves at the end of March. The company has increased graphite mineral resources at its Balama operation in Mozambique by 19% compared to previous estimates reported in December 2017. It now hosts 113.3Mt at 16.36% total graphitic carbon, equivalent to 18.5Mt of graphite (at a 7.2% cut-off) compared to 114.5Mt at 16.5% TGC (based on a 9% cut-off).  Total ore reserves have declined slightly as a result of mining activity.

Syrah Resources began production of flake graphite at its Balama operation in late-2017 and produced 104kt of concentrate during its first year of operation. Average fixed carbon grade was 95% (in a range of 94-98%) and the production ratio of fines to course flake graphite was around 80% to 20%.

Roskill view:

An increase in resources is one way in which Syrah Resources is trying to improve the outlook of its Mozambican project. It also continues to increase production, outputting 45kt of concentrate in Q1 this year. Despite these efforts, the company’s prices have so far fallen short of its target, with the Q1 average weighted price coming in at just US$460-470/t, 18% below the mid-point of its guidance range of US$500-600/t. Syrah Resources is now actively trying to reduce its production costs with an aim to bring them down to U$400/t in 2019. It hopes to diversify its product mix and to increase the proportion of higher value course flake in future shipments.

Questions also remain over the decision to continue with the high rate of production ramp-up. Although demand for small and medium size flake graphite in lithium-ion batteries is rising robustly, the current hiatus in upwards price movement suggests that current production is meeting demand. China has been in a state of overcapacity for flake and spherical graphite in recent years. Prices increased during periods of temporary plant closures in China during late 2017 and early 2018, following rounds of environmental inspections but have since remained fairly static and even seen some minor downwards readjustment.

With such large production levels (equivalent to 15% of global flake supply in 2018 and the possibility of more than doubling in 2019), Syrah Resources needs to time its production increases carefully so as not to oversaturate the graphite market and negatively affect prices.

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