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