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Graphite producer Syrah sees stock prices surge after a US government loan

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2023-09-11

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News of a $US150 million US government loan saw shares in graphite producer, Syrah jump by more than 16% at one stage yesterday in what was a bit of welcome news for the under pressure stock.

The big early surge had run out of puff by the afternoon session and the gain more than halved to around 6%.

Syrah shares are down nearly 70% year to date on weak global prices for graphite and weak demand that saw the company rack up losses and put a stop to mining in May and June to allow global inventories to clear and weak Chinese demand to recover.

Its June 30 interim report on Monday confirmed the strained state of the company’s financials and why the US loan is something of a godsend.

Syrah revealed the $US150 million conditional loan commitment for approved by United States International Development Finance Corporation board and subject to due diligence and final approvals.

The conditional loan commitment is to the Company’s wholly-owned subsidiary, Twigg Exploration and Mining Ltd and if given the greenlight, will fund capital requirements of the Balama Graphite Operations in Mozambique including: Feasibility studies for the development of Balama’s vanadium resource; current and future expansion of Balama’s tailings storage facility; and working and sustaining capital in Balama operations.

Syrah applied to DFC for loan funding in June 2021 and due diligence by DFC on Syrah commenced three months later. DFC has subsequently undertaken technical, market, environmental, social and legal due diligence on Syrah, Twigg and Balama.

"The DFC loan is for a maximum principal amount of US$150 million and a term of up to 13 years. Interest on the DFC loan will be fixed at applicable long-dated US Treasury rates plus a margin.”

Syrah CEO Shaun Verner said, “The DFC Board’s approval of the DFC loan to Twigg demonstrates the importance of Balama, which is the largest integrated graphite mining and processing operation globally, to the critical minerals strategy of the US.

"Together with the US Department of Energy loan for the expansion of Syrah’s downstream business, DFC loan funding will position Syrah as a strategic partner in bolstering supply chain security for critical minerals required for the electric vehicle and energy transition in the US.”

So far as investors are concerned, the loan removes the immediate risk of a highly dilutive equity raising to help keep the graphite project running through the downturn and fund the vanadium ambitions of Syrah.

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Syrah’s interim financial report confirmed sales for the half slumped by 40% to $28.4 million (from 2022’s $49.7 million) and loss for the half blew out to $38.6 million from the loss of $9.9 million loss in the six months to June, 2022.

The company had cash and cash equivalents of $102.4 million at June 30, up from $90.4 million a year earlier.

Directors said that the half saw Balama's production and sales fall from a year earlier.

"Sales and shipments to Chinese anode customers were lower than the prior corresponding period due to unanticipated demand and supply imbalances through early 2023, driven by downstream spherical graphite demand, anode material inventory, and competing domestic natural graphite production.

The half saw Balama's production constrained by "finished product inventory positions and lower Chinese demand."

"Continuing volatile Chinese anode market conditions and excess availability of finished product inventory led to lower demand for natural graphite from Balama and a decision to pause Balama plant operations, resulting in no production in May and June 2023.

"This decision was made to allow for downstream inventory consumption to occur and natural graphite demand conditions to improve,” the company told the ASX.

In the half Balama produced approximately 56,300 tonnes (H1 2022: 89,800 tonnes) and sold and shipped approximately 44,700 tonnes (H1 2022: 79,300 tonnes) to 3rd party customers.

In addition, approximately 2,200 tonnes were shipped from Balama to Vidalia (in the US) through the interim financial period. Construction of a 11.25 megawatt solar installation combined with an 8.5 megawatt/megawatt hour battery energy storage system at Balama was completed.

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