Analyst doubt quells frenzy over rumoured Glencore-Syrah deal

By Laura Syrett
Published: Tuesday, 29 July 2014

A$2bn offer for Syrah labelled “ridiculous”; ASX junior sees share price rocket on reports

The flurry of excitement caused by rumours reported on Thursday 10 July that commodities major Glencore had made an informal approach to buy graphite and vanadium junior Syrah Resources had begun to settle by the following Monday, after a number of analysts poured cold water on the reports.

Articles in Australian media claimed that the Swiss trading group may have offered Syrah Australian dollar (A) $2bn ($1.89bn*) for the company and its assets.

These include the Balama graphite-vanadium project in Mozambique, with a resource of 1.1bn tonnes graphite grading at 10% C and 0.23% vanadium pentoxide (V2O5).

Glencore rubbished the rumours when contacted by IM, while Syrah said in a statement to the ASX only that it was involved in “non-binding” takeover discussions with various parties “from time to time”.

Analysts cast doubts on takeover

Mining and business analysts were quick to cast doubt on the reports that Glencore would be interested in taking over an exploration stage vanadium project.

“The move would be inconsistent with its strategy,” Marc Elliott, mining analyst at Investec, told IM.

“Glencore has categorically stated that they do not like greenfield mine developments, due to risk of cost creep (...) I think you can be fairly confident [a takeover] won’t happen,” he added.

One New York based analyst, who preferred not to be named, said that A$2bn price tag discussed in media speculation was not credible.

“The price is ridiculous - it puts Syrah a $12/share price,” the source told IM. “Glencore already has a vanadium offtake with Largo Resources in Brazil, where they expect their first shipments [before the end of July]. Largo has a market cap of $250m, so Glencore could buy it for 15% of the price it has reputedly offered for Syrah,” they added.

Canada-headquartered Largo, which in 2008 agreed to supply all 11,400 tpa V2O5 production from its Maracas mine in Brazil to Glencore for six years from start-up, had provided a fan for the flames of speculation a day before the rumours appeared, by reporting that “minor technical adjustments” had “required intermittent interruptions to operations”.

Analysts said that Syrah had “probably” had discussions with Glencore, which had sparked the takeover conjectures, but that these were more likely to have related to offtake deals rather than a buy-out.

They also also had reservations about whether a mine could be operated to produce both vanadium and graphite commercially and suggested that the geology of Balama, which is composed principally of roscoelite, could cause problems for vanadium production.

Most commercially-produced vanadium is extracted from magnetite, which is typically treated in a process flow different from roscoelite, one analyst told IM.

“Roscoelite was [exploited for vanadium] back when there was uranium and vanadium mining in Colorado [which peaked around the middle of the 20th Century], but I’m not sure it’s done anymore,” they said.

Shares in Syrah shot up by almost 30% to peak at A$5.99/share on the Friday following the reports, before falling back to A$5.31/share the following Monday. This was still well above the A$4.29/share level they had been trading at prior to media reports on the Glencore takeover.

*Conversion made July 2014

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Triton Minerals rides high on Glencore-Syrah reports

ASX-traded junior Triton Minerals Ltd, which is developing the Balama North graphite-vanadium project in Mozambique adjacent to Syrah Resources’ Balama deposit, saw its shares leap 30% to A$0.69/share from A$0.49/share following reports that Glencore was in takeover talks with Syrah.

Triton’s managing director Brad Boyle acknowledged that the price spike was unquestionably linked to the rumours, but pointed out that Triton’s share price has been steadily rising since early June.

“There was a perfect storm of factors that led to a rerating of our shares,” Boyle told IM. “Pollution controls hitting Chinese production; the news about Tesla’s battery factory; Syrah’s offtakes [with Chalieco and Asmet] and the fact that there looks like there could be a dramatic shortfall in graphite production in the next few years has helped our valuation,” he said.

Like Syrah, Triton’s primary focus at Balama North is graphite, rather than vanadium - a mineral that Glencore trades as part of its ferroalloy business - but Boyle said it may consider giving its vanadium by-product plans greater exposure, now that the Glencore news has thrown the mineral back into the spotlight.

Flinders restarts Woxna

TSX-listed Flinders Resources Ltd said in mid-July that it was on track to restart production from its Woxna graphite mine in Sweden before the end of the month.

The mine, which has been on care and maintenance since 2001, will have the capacity to produce up to 155,000 tpa ore grading at 10% C, delivering around 16,600 tpa graphite concentrate, according to Flinders.

CEO Blair Way said that wet commissioning of the processing plant is proceeding on schedule and that the company is set to become one of the first to offer European graphite consumers an alternative to Chinese raw material.

Focus Graphite relinquish Brazilian interest

Canada-based Focus Graphite Inc. has relinquished its option to earn up to a 60% interest in Lara Exploration’s Caninde graphite project in Ceara State, Brazil, the company announced at the beginning of July.

Focus invested heavily in its fellow TSX-V junior in 2012, paying for a programme of mapping, surface sampling and trenching, but has decided to focus its efforts on its own projects in Quebec.

“Our decision to withdraw from the Caninde project was a ‘value’ decision,” Focus’ chief operating officer, Don Baxter, told IM.

“In short, we saw greater value in devoting our budgets and our focus at home, and on mine development at our Lac Knife property,” he added.

Uranex signs offtake with SINOMA

Australian junior Uranex Ltd has signed a memorandum of understanding with China’s state-owned National Materials Industry Import and Export Corp. (SINOMA) for 100,000 tpa graphite production for five years from start-up of Uranex’s Nachu project in Tanzania.

The company aims to enter production in 2016.