Syrah’s Monster In The Making In Mozambique

By James Dunn | More Articles by James Dunn

The stage is set for a new graphite producer to grab first-mover advantage. Last month Syrah raised $211 million to finance the development of Balama, which it hopes will start producing next year – right at a time when electric car production will be lifting demand for lithium-ion batteries, and thus high-grade graphite, is set to surge.

Ever since electric-car maker Tesla Motors Inc. announced, early last year, its intention to build a “gigafactory” – a facility to manufacture lithium-ion batteries in large-enough quantities to meet the needs of the 500,000 electric vehicles that the company plans to produce by 2020 – interest in Australian minerals company Syrah Resources (SYR) has picked up.

That’s because Syrah is sitting on its giant Balama project in Mozambique in Africa, which hosts an estimated 117 million tonnes of graphite – which it says is larger than the rest of the world’s resources combined – as well as 1.15 billion tonnes of inferred vanadium resources.

It must be pointed out that Syrah is not the only company claiming the largest resource in Mozambique, let alone the world: fellow ASX-listed company Triton Minerals (TON) also claims the world’s largest graphite resource, at Nicanda Hill, which is just a few kilometres to the north-east of Balama. Even closer is Triton’s Cobra Plains deposit, which it says is the world’s fourth-largest graphite resource. (For good measure, Triton says Nicanda Hill contains 3.93 million tonnes of vanadium pentoxide [V2O5], at grades of up to 0.74% V2O5 – enough to make it the largest known vanadium resource in the world.)

Then there is a third ASX-listed graphite hopeful, Kibaran Resources (KNL), which is developing the Epanko graphite project in Tanzania.

All of these projects are talking large numbers in terms of resources, but as all mining punters should know, proving a reserve out of your resource, and getting to mining, is the pointy end.

Syrah, which is capitalised at $440 million, certainly has a big deposit of both graphite and vanadium. Both products are critical materials used in the production of lithium ion batteries, particularly graphite, of which the anodes used in those batteries are made. That graphite can be synthetic – which is derived from crude oil, via petroleum coke – or natural. But the synthetic form is twice the cost of natural-flake graphite.

Even more interestingly, natural-flake graphite is a much cleaner material than synthetic graphite, which needs to be purified using acids. Given that its whole business model is based around replacing petrol and diesel as car fuels, using natural-flake graphite would likely appeal to Tesla Motors more than the less-clean synthetic graphite.

Last year Syrah successfully produced uncoated battery-grade spherical graphite, using natural-flake graphite from Balama. (Spherical graphite is a physically and chemically altered form of natural graphite and is the best product for use in anodes for lithium‐ion battery applications.) Syrah says the mine could be the lowest-cost graphite producer in the world.

(Last month, Triton announced that it had also produced samples of battery-grade spherical graphite, from Nicanda Hill graphite concentrate.)

Earlier this year Syrah released the feasibility study for Balama, which stated that the JORC (Joint Ore Reserves Committee)-compliant graphite reserve would support more than 40 years of production at projected production rates, through a simple open-pit mining operation. The estimated average head grade would be about 19% total graphitic carbon (TGC) during the first ten years of operations, declining to 16.2% TGC for life-of-mine (LOM). The feasibility study estimated that the project would have a net present value of $US1.1 billion and an internal rate of return of 71%. 

Estimated average production during the first ten years of operations would be about 356,000 tonnes of graphite concentrate a year, at an estimated average mine-gate cost of about $US160 a tonne, and average overall cash cost of US$286 a tonne. The Balama project is expected to deliver a free cash flow of $US160 million a year.

Syrah says metallurgical testing has confirmed that Balama graphite could become a leading source of high-quality spherical graphite for lithium-ion battery applications. A three-year offtake agreement is in place with China Aluminium International and Engineering Corporation (Chalieco) to take up to 80,000 tonnes a year, with exclusive distribution rights in China and Hong Kong only. Syrah is in discussions with three other potential offtake agreement customers, two covering discrete territories and one global. The more sales agreement are signed, the less risk the project bears.

In terms of reserves, the project looks to have 20 million tonnes proven and 61.4 million tonnes probable, for about 13.1 million tonnes of contained graphite at about 17% TGC (19.2% for the proven reserve and 15.2% for the probable component.)

Syrah says there is strong support from key local stakeholders, community and government, with the project expected to employ more than 500 people. The initial capital spending estimate is US$144 million. The project would supply the traditional graphite uses – steelmaking, iron castings, foundries, automotive parts and lubricants – as well as the high-growth lithium-ion battery market, through a potential spherical graphite project, which would be located in the United States, close to Tesla’s manufacturing facilities. Syrah expects about 68% of estimated production from Balama to be suitable for use in lithium‐ion batteries.

Importantly, the JORC-compliant vanadium resource is put at 1.15 million tonnes at 0.24% V2O5, which makes extracting the vanadium viable. Vanadium is mainly used in speciality steel alloys for high-powered tools, in jet engine parts and gears for cars, but like graphite it is also used in a wide range of products that go into renewable energy projects, particularly in the energy storage area. The feasibility studies on vanadium will commence after Balama is successfully commissioned.

The International Energy Agency (IEA) has forecast annual sales of electric vehicles (EVs) of nearly six million units by 2020. If these forecasts are accurate, about 240,000 tonnes of spherical graphite would be required per year. Given that it takes about 2.5 tonnes of flake graphite on average to make one tonne of spherical graphite, that would mean demand of about 600,000 tonnes of natural graphite a year. In 2013, total global flake graphite production came in at about 375,000 tonnes. So electric-car production is going to require about a 60% increase in supply of natural graphite.

China produces about 71% of the world’s graphite, consumes about 35% and holds about 50% of the world’s current graphite reserves. But Chinese production is poised to decline, on the back of declining ore quality, rising labour costs and standards and political pressure to curb environmentally damaging mining activities.

The stage is set for a new graphite producer to grab first-mover advantage. Last month Syrah raised $211 million ($98 million in an institutional placement and $113 million in a non-renounceable rights issue, both at $3.25 a share) to finance the development of Balama, which it hopes will start producing next year – right at a time when electric car production will be lifting demand for lithium-ion batteries, and thus high-grade graphite, is set to surge.

Syrah is locked in this race with Triton and Kibaran. Triton has signed a deal with Chinese resources house Shenzhen Qianhai Zhongjin Group, which has agreed to kick in US$200 million to build and develop a graphite concentrate plant at Nicanda Hill (with initial capacity of up to 200,000 tonnes of graphite concentrate a year), as well as a ten-year offtake agreement for this production; Triton also has a 20-year offtake agreement with Chinese company Yichang Xincheng Graphite Company, one of the world’s major graphite players.

For its part Kibaran has signed a ten-year offtake agreement with German firm ThyssenKrupp to take an initial 20,000 tonnes a year of natural flake graphite, or half the company’s planned annual production. Epanko currently has a JORC indicated and inferred resource of 22.7 million tonnes at 9.8% TGC, giving 2.2 million tonnes of contained graphite.

The graphite field is one of big claims and large potential, but it is also a very risky area: not all of the hopefuls with impressive-sounding resources will get to production. And those that do will be locked in bitter competition.

James Dunn

About James Dunn

James Dunn was founding editor of Shares magazine and has also written for Business Review Weekly, Personal Investor, The Age and Management Today. He was subsequently personal investment editor at The Australian and editor of financial website,

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