An upbeat quarterly report with a solid rise in sales from Syrah Resources which earlier this month moved closer to a $US107 million loan from the US government to help build a key graphite processing plant in America.
The company said in its March quarterly report that its first-quarter graphite sales were almost double the level of the first quarter of 2021, but it did sound a note of caution about demand and activity levels in the huge Chinese processing and consuming market (lots of battery and EV companies there).
Production, prices and costs were under control and while there was little movement in prices over the year to March, the company boosted output sharply which, if it continues, should see a very solid second half result.
Its Balama operation in Mozambique produced 46,000 tonnes of natural graphite at 76% recovery (around 15,000 tonnes a month and 9 times the 5,000 tonnes produced in the same quarter of 2021) with 35,000 tonnes (just 2,000 tonnes in the first quarter of 2021) sold and shipped during quarter
Syrah said its product quality was “consistent with previous quarters with stable grade, and higher recovery relative to historical quarters with an equivalent production rate.
Balama’s C1 cash costs (FOB Nacala/Pemba) of $US464 a tonne while the weighted average sales price increased to $US573 per tonne (on a CIF basis and up from $US567 a tonne in the March 2021 quarter), “with very strong incremental demand and higher new contract prices.”
On the costs, the company said in the report that the latest cash costs reflected “the benefit of fixed costs being spread over an increased production rate, and were within C1 cash costs (FOB Nacala/Pemba) guidance of US$430–470 per tonne at a 15,000 tonnes per month production rate.
“Balama C1 cash costs are expected to continue to reduce as production rate increases beyond 15kt per month with improved shipping options and availability and as improvement initiatives are embedded.”
And there was also a noticeable improvement in its Covid problems in the three months to March.
“During the quarter, there was a significant reduction in the number of employees and contractors at Balama that tested positive for COVID-19. There are currently no COVID-19 positive cases detected at Balama. Syrah completed a vaccination program in the Balama community to increase vaccination rates within host communities. COVID-19 protocols remain in place at Balama and Syrah is fully compliant with Government protocols in relation to COVID-19.”
Looking at the graphite market, Syrah said the “Very strong forward demand for Balama’s high quality products has continued through the March 2022 quarter with the order book continuing to strengthen despite the seasonal restart of Chinese natural graphite production.
“Demand is consistent with strong growth in Chinese and global EV demand and continuing increases in Chinese anode production. Robust forward contracting with end user customers is underpinning more than 90,000 tons of natural graphite sales orders for the June 2022 quarter and into the second half of 2022 at higher prices for new contracts.”
On those prices, the company was also “The weighted average sales price of natural graphite sales for the quarter was US$573 per ton (CIF). New contracts in the quarter were at prices materially higher than the average basket price. Fines sales accounted for approximately 79% of overall product sales.
“Fines market pricing increased through the quarter off a strong base in the December 2021 quarter with robust downstream anode demand and continued Chinese natural graphite supply disruptions. Coarse flake prices ex-China remained strong, with prices increasing through the quarter due to strong industrial demand and ongoing supply disruption, including from Ukraine and Russia.
“The weighted average sales price of natural graphite sales was US$590 per ton (CIF) in March 2022.”
On sales, the company said “Natural graphite sales for the quarter were 35,000 tons with all 30,000 tons finished product inventory contracted to customers. Unprecedented container shipping market disruption caused by continuing China Covid-19 port and logistics restrictions and global trade imbalances is impacting the company’s ability to secure desired container capacity for Balama shipments from Nacala, and to match product sales to very strong underlying customer demand. Breakbulk shipments from Pemba will continue to be utilised to supplement container shipments.”
But the Chinese market and processing industry is not travelling well.
“Natural graphite production from several major processing facilities in China were negatively impacted by environmental issues prior to the seasonal winter outage and ongoing Covid-19 related interruptions.,
“Chinese natural graphite inventory positions have been rapidly drawn down during the seasonal winter outage due to the disruption in Chinese production and the challenges in the shipping market hindering imports into China. The extent of ongoing disruption and environmental constraints on Chinese natural graphite production is currently unclear.
“However, Syrah’s forward sales orders indicate customer concern regarding Chinese natural graphite production availability and market balance.”
Syrah said it ended the quarter with 30,000 tonnes of stocks (or two months of planned shipments).
Investors liked the news and sent the shares up more than 11% to $1.84.
