EDITOR: | March 12th, 2014 | 8 Comments

Graphite straightens Syrah’s long and winding road to mineral stardom

| March 12, 2014 | 8 Comments
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Syrah Resources certainly occupied plenty of news space last week with its announcement of a graphite off-take deal with Chinalco, one of China’s largest state-owned metals operations. As we have found here on Investor Intel, this Australian exploration company has its detractors and critics. But there is one thing above all which makes Syrah stand out from the crowd: in just 2 years and 3 months, it has gone from the acquisition of a project to having a potential off-take agreement. Of course, there is a good part of the development process to go and, no doubt, problems will turn up; that said, by exploration to mining standards (and investors have had plenty of experiences with these scenarios that seem to drag on year after year with production dates pushed ever outwards), Syrah’s has been a welcome departure from what has become the norm.

It was only on November 2, 2011, that Syrah announced it had picked up the ground in Mozambique which now hosts the Balama graphite project. On that date the company said it had acquired a portfolio of 5,889 sq km of ground in Mozambique, Tanzania, Zambia and Botswana, ground which variously had potential for graphite, vanadium, rare earths, base metals, mineral sands, coal and uranium. While the publicity for the company has, rightly, revolved around Balama, it had other strings to its bow including graphite in Tanzania (more later) while its mineral sands prospects in that country were still being featured prominently in the most recent quarterly report so they are not on the back-burner (although the uranium target in Tanzania returned disappointing results and was dropped).

Before its graphite breakthrough, Syrah was just another exploration also-ran (its shares trading at 8c the day before the big announcement). The company was drilling in South Australia and had just failed to acquire a gold project in Ethiopia. The portents were not all that good before graphite and Balama came along.

Syrah floated on the Australian Securities Exchange in September 2007. It is a familiar story in Australian junior terms: it came to the market with one strategy, only to have to abandon that and find a new story. In Syrah’s short life that happened more than once. It began life drilling for copper in Queensland. By December that year it had opened negotiations to acquire 80% of a South Australian gold project; within three months, the company decided not to proceed with the latter. It continued drilling the original copper target until, in September 2008, Syrah signed a memorandum-of-understanding for another South Australia project. Then, a month later, it received nine mineral exploration licences from the Saudi Arabia government. Six months later, that plan fell apart.

As someone who has been reporting on the Australian junior exploration sector since the aftermath of the 1987 Wall Street crash, I wish I had a dollar for every time a junior has changed their strategy, ditched a project which sometimes just months previously had been billed as the company-maker. I make this point to stress the achievement of Syrah in picking itself up, dusting itself off and starting all over — and being in the small minority of such players who eventually come up trumps.

The African portfolio was purchased from an unlisted South African company. Only A$1 million (plus refund of some costs) changed hands, the bulk of the deal being done with 60 million Syrah shares and 15 million options. What may have been forgotten was that Syrah had another graphite project, Nachingwea in Tanzania, for which it paid A$1.5 million.

Despite its critics, Syrah has received a general thumbs-up from the resources analysts. As Melbourne-based PAC Partners equity researchers put it in their most recent report, Syrah “has emerged from the graphite boom as the market leader with the largest global graphite resource and with high grades to boot. They are spoiled for riches with potential value from the vanadium to add upside”.

Another analyst, Luke Smith at Canaccord Genuity, opined that “the truly unique combination of resource size, grade, graphite quality including flake size, geometry, available infrastructure and geographic location results in Balama having not only substantial value but is almost certainly of strategic importance on a global scale”.


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Comments

  • Islay

    An outstanding report from Robin Bromby, justifiably quoting the much-overused word from Luke Smith, of Cannacord Equities – “unique”.

    Balama, as far as anyone knows, really is unique. There simply is no peer on the planet in terms of size, grade and consistent quality. Which naturally leads us to ask how can this be so? Why should this one small place contain as much graphite as the rest of the world’s known deposits, combined? Maybe there is an answer.

    Graphite commonly occurs in rocks called schists or gneisses, produced by regional metamorphism, due to enormous pressures and high temperatures, which often extends for tens or hundreds of kilometres. That seems to have happened, in what is now Mozambique, about 700 million years ago.

    Then about 200 million years later, something else happened. A big blob of hot liquid rock, perhaps a couple of kilometres across, forced its way into a section of the graphitic schist, and very slowly cooled and solidified as granite, heating the nearby rocks, and causing local thermal metamorphism, probably extending for a few hundred to a few thousand metres around the granite. Millions of years of erosion have now exposed that granite, at Balama. These days, it’s called Mount Coronge.

    That much we know. The Syrah geologists theorise that it was this second burst of metamorphism that enhanced and enriched the graphite in the Balama deposit. If they are correct, it would go a long way towards explaining why we haven’t (so far, at least) found another Balama, anywhere in the world. It was, in all probability, a combination of two unusual events at the same place, which has produced something which genuinely earns the term, as Robin Bromby and Luke Smith have used it:

    It’s unique.

    March 12, 2014 - 8:37 AM

    • Dr. Copper

      In 200 million years time Syrah will still be looking for contaminated free source rocks which can be turned into
      a marketable product able to be used in the world which
      people live in.

      Perhaps you will spin off a Bitcoin account and trade
      solar dust via electronic hyper space ?

      In the absence of an announcement which stipulate
      its development (or absense of same) in terms of work
      progress on the metallurgy Syrah will be in breach of the
      Listing rules on the Australian Stock Exchange under the
      full discloure requirement.

      That is ofcourse if ever their latest MOU ever turns into
      a firm agreement. Judging from Mr. Bromby’s article
      Syrah has a long history of producing MOU’s which
      only ever fades into the halo of geological mappings.

      March 12, 2014 - 12:44 PM

    • bing

      I can recall a while back reading a sell recommendation SYR from Canaccord’s Chairman, Warwick Grigor, saying “Syrah share price is looking vulnerable at these dizzy heights”, that was when the price was around the AU$1.76 mark, and he suggested there was much better value in TON & TLG.

      Admittedly that was before Canaccord was appointed to undertake the last capital raising with Credit Suisse, who also have recently put a buy recommendation on SYR.

      So brokers do tend to use “unique”, and other adjectives, when their own wallets are involved.

      You use the word “unique” a lot as well. You’re not a broker, are you lol

      March 15, 2014 - 8:26 AM

      • bing

        The unlisted South African company Robin Bromby mentioned, who sold the tenements to SYR, is of course Jacana Resources Pty Ltd. The Directors of Jacana were Paul Kehoe, Mark Parker and Mike Chester. We know who Kehoe is. Mark Parker was African Eagle”s MD (the company who sold the tenements to Jacana) and Mike Chester, we all know who Chester is, resigned late last year. Tolga Kumova took his place.

        The 60mil shares, the bulk of the deal, were allocated to the directors & investors in Jacana. Kehoe and Kumova received the lions share. It’s made them very wealthy and both recently appeared on the BRW wealthy list.

        Yes, only $1mil changed hands between Jacana and SYR, but wow they sure turned that into a nice little profit.

        March 15, 2014 - 8:52 AM

        • Robin Bromby

          Well, should they have sold the Balama and the other projects for peanuts?

          March 16, 2014 - 4:35 PM

          • bing

            They bought them for peanuts, as your article stated.

            Your article gave the impression the deal with an unlisted South African company may have been an arms length deal. It wasn’t. The directors/biggest shareholders of Jacana are the same as SYR, minus Chester.

            Just clearing that up for you, Robin.

            March 16, 2014 - 6:58 PM

    • bing

      Today Dr. Andrew Conly is backing up Zenyatta’s claims their graphite is “unique” as well. ZEN’s graphite is a ‘breccia’ graphite deposit. Conly says “to the best of my knowledge there’s nothing else out there.” Sorry Islay, there’s that word again “unique”!

      What I like about ZEN is they have, as Conly points out, ” taken a very systematic approach to ensure what they’re saying is backed up by sound science…and investors in today’s climate still seem weary, but you have a company that is really doing its homework to ensure that this will go to development”.

      I don’t get the same sense that is happening at SYR. Most of SYR’s testing results seem to come from a “third party”, a “potential customer” in China or Japan. The feeling I get is they are not doing much in-house to understand their graphite, unlike ZEN.

      I also like the fact ZEN’s graphite appears not to need the acid washes that SYR will require to get to the 99.9% purity. We are reading the reports re China’s environmental problems with the high use of acid to get the purity needed for some applications, such as batteries.

      ZEN has not travelled as fast as SYR, but in this industry I sense it’s not about how fast you travel.

      March 15, 2014 - 9:30 AM

  • Sue Glover

    Fabulous article Robin and great commentary Islay, thanks for the additional info and your contribution.

    March 12, 2014 - 9:59 AM

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