Syrah Resources Ltd

Down over 5.4% on March 02, 2018, Syrah Resources Ltd (ASX: SYR) has been witnessing a stock price hammering at the back of a not so encouraging update at its Balama Graphite Project at Mozambique. Syrah Resources has been ramping up production of flake and fines graphite at its Balama Project with increased recoveries and production achieved in February 2018.
The group has now cited an issue regarding the dryer of the fines graphite circuit (Fines Dryer) at the Balama Operations that has caused damage to the Fines Dryer refractory bricks and the flame tube. The coarse flake graphite circuit dryer (Flake Dryer) is independent of the Fines Dryer and continues to operate, and thus the group stated that the fines graphite can be re-routed to the Flake Dryer to prevent any disruption to the production whilst the Fines Dryer is being repaired. The Company is currently investigating the cause of the issue and planning repairs to mitigate production impacts with the assistance of the Fines Dryer vendor.

The crucial aspect is that the time for repair has been estimated to be 8 weeks while the cost of the repair is not expected to be significant. Looking at the situation, Syrah expects to produce about 65% of the volume planned for ramp up during this period given the issue at Fines Dryer. On the other hand, the group intends to mitigate or eliminate the production volume impact relating to the Fines Dryer by maximising Flake Dryer throughput during the period of repair, and subsequently increasing production once the Fines Dryer repair is complete.

Meanwhile, the group produced its first saleable flake graphite product in November 2017 and commenced operations in January 2018. The group has also completed extensive product certification test work with several major battery producers for the use of Balama spherical graphite in the anode of lithium ion batteries.

While the production decline and cost impact owing to Fines Dryer do not look significant in terms of impacting the group’s performance, we maintain a “Hold” at the current price of $3.18
 

Balama’s Operations and Group’s Potential (Source: Company Reports)

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