Syrah Resources returns

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Published: Wednesday, 14 April 2021

Graphite company Syrah Resources plans to ramp up its flake output with a flexible approach to production, chief executive officer Shaun Verner told Jon Stibbs in late-February

Australia-based Syrah Resources is restaffing in order to resume production at its Balama mine in Mozambique within the next two to three months.

"Once we have restarted, we are targeting a ramp-up to production of around 15,000 tonnes per month, subject to market conditions," Verner said. "We see a positive cash flow operational position at that level."

The company suspended output in March 2020 due to restrictions on activity stemming from the Covid-19 pandemic.

"We kept our plant ready to run – it was in temporary suspension rather than care and maintenance. The key focus is restaffing to restart production, with no significant capital requirement to do so," Verner said. "We are not planning to get there straight away as we manage our re-entry."

Syrah had already slowed its production rate in September 2019, prior to the suspension, in response to oversupply in the market, which had weighed heavily on prices. The company began commercial production at Balama, which predominantly makes fine flake, in early 2019.

The addition of material from Balama into the market at a time of slower than expected consumption from the anode battery sector weighed heavily on prices. Fastmarkets’ assessment for graphite flake 94% C, -100 mesh, cif Europe (-194), was at $600 per tonne on February 25. That price was at $475 per tonne in September 2019, when Syrah slowed its output, down by 26.92% ($175 per tonne) from $650 per tonne on February 28, 2019.

"If the market falls into surplus, then we will adjust our production accordingly. We have shown we are not afraid to take tough decisions on this and are aware of the size of the production we can bring to the market," Verner said.

Since Syrah's 2019 suspension of operations, the company has identified greater strength in the market from the battery sector. "Back then, 2 million electric vehicles were being built per year, but year-on-year growth was actually declining due to lower demand in China following subsidy reductions," Verner said. "EV production is at 3 million plus [units] now and growth is up by more than 100% year on year. So both the base-line demand and momentum is now much stronger," he added.

Syrah has also changed the way it operates to lower its costs and to be more reflective of market conditions. In 2019, it sought to quickly ramp up production to maximize sales and lower unit costs.

"We have also been through an in-depth restructure of the way we operate in order to lower costs. We will be able to really respond to the evolving market conditions between the mix of supply and demand through day-to-day market interaction," Verner said. "This means we have the flexibility to increase or moderate production," he explained.

The company will maintain a balance between spot versus contract agreements with its customers, but this is largely dependent on the market segment to which they belong.

"The industrial sector – for coarse flake material – is more geared towards long-term contracts, while the fines market, especially in China, relies much more on spot pricing indications," Verner said.

"So we have a combination of spot and contract pricing, as well as spot and fixed-term deals, and we are set up to have a process of constant price discovery," he added.

Increasing sources of material

Syrah’s return to the market comes at a time that several producers are either ramping up output or emerging in the market. From Mozambique's east coast, for example, there are three graphite flake producers developing on the Indian Ocean island of Madagascar. However, Syrah does not feel it is in a race with other producers despite the competition felt among some market participants to ramp up and come to market.

"Demand is expected to increase strongly for the material which makes up 80% of our production [-194 graphite flake]. By the time most of the emerging projects actually get to the market, that demand will have been realized and our 350,000-tonne-per-year capacity will be fully utilized and we will be at the bottom end of our cost curve," Verner said. "We focus on our own position and our customers – can we sell at the price the market balance dictates," he said.

There has been a rise in religious insurgent activity in Cabo Delgado, which is the same Mozambiquan province that includes Balama. But Syrah said the violence has had no impact on the safety of its operations or its ability to restart.

"There has been some increase in insurgent activity in the north of the province, but it has had no impact on our ability to move material or people, or our operations. We would not be restarting if we weren’t confident we could manage within the situation," Verner said.

The move to vehicle electrification can be expected to drive demand for fine graphite flake as a feedstock for lithium-ion batteries. And graphite is considered a critical mineral in Europe and the US, where there is concern about Chinese dominance over supply. "The development of the battery anode space in Europe and the US is going to be really important. However, we don’t see it as a China versus non-China situation, but as a diversification of risk," Verner said.

China remains the world’s biggest consumer, and producer, of flake graphite in the world. As a result, it is the most important market for Syrah. "We are driven by the consumption of natural graphite, and that is primarily in China. Battery anode pre-cursor production levels are almost zero outside of China, so China drives the upstream demand for fines," Verner said.

Downstream activity

Syrah achieved initial production of natural graphite active anode material (AAM) at its downstream plant in the US city of Vidalia, Louisiana, in the fourth quarter of 2020, using flake feedstock from Balama.

"We will decide in the second half of this year whether the commercial underpinning is there to go ahead with this," Verner said. "However, we think the market needs to be more diversified and we are excited about the evolution of opportunities for providing a fully integrated alternative source of supply," he added.

Syrah is one of a cluster of companies, including other flake producers, developing AAM capabilities.

"The key differentiator for us is that we can be the first fully integrated natural graphite AAM producer to the market outside China," Verner said.