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Australian graphite juniors show united front in wake of Syrah Resources' fall

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The current diamond drilling campaign at Comet Resources' Springdale graphite project in Western Australia
Source: Comet Resources


ASX-listed graphite juniors have shown a united front to placate investors that there is more to their market than the reportedly low commodity prices that Syrah Resources Ltd. partly blamed for its plans to drastically reduce output.

At least 15 other ASX-listed companies with graphite projects saw their stocks fall Sept. 10, albeit not as dramatically, while Syrah shed 33% upon announcing plans to cut production at its Balama graphite operation in Mozambique.

Several such companies, along with battery material specialists such as Benchmark Mineral Intelligence, are commonly asked what Syrah's decision and market commentary means more broadly. This was the key topic at the Perth leg of the Benchmark World Tour, which is now traversing Asia.

Addressing a graphite panel at the Sept. 20 Perth leg, Europe-focused Talga Resources Ltd. Managing Director Mark Thompson said "everyone was shocked and terrified because there was no way to win" when Syrah flagged in January 2018 that it would produce between 250,000 and 300,000 tonnes a year in 2019. Syrah's 2015 feasibility study pegged capacity at 380,000 tonnes per annum.

"If [Syrah] were successful, they keep prices down for everyone forever; if they're not [then] it looks like the industry is bad. The reality is somewhere in between," Thompson said.

Syrah ended up accounting for 75% of China's total graphite imports of 105,000 tonnes in the first half of 2019.

Thompson said Balama was different and not representative of competitors' projects, but the situation is not helped by the broader sentiment around battery minerals, with lithium prices down and cobalt prices just starting to recover.

The graphite market is complex not only because of varying flake size and total graphitic carbon content, as illustrated by the 11 different types of graphite pricing Benchmark covers as represented in the chart below, but also because the specifications of customers differ at varying points of the battery supply chain.

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Another panelist, Madagascar-focused BlackEarth Minerals NL Managing Director Tom Revy, said he first had detailed discussions with potential customers for the Maniry project, then built its flow sheet around "what would be robust enough to take into account any nuances within the ore body."

Revy said it is "probably incorrect" to blame production reductions on "a sudden and dramatic fall in graphite price across all graphite products," and urged investors to consider other aspects that constitute a viable project.

While Thompson said it was "a pity" Syrah's announcement came in a year that China became a net importer of graphite given the opportunity it gives hopeful producers, Benchmark Managing Director Simon Moores told the panel it also highlights Syrah's success in bringing China to that point.

Moores said Syrah needs to get production costs toward US$300 per tonne to generate a margin in China and compete with its many graphite producers.

Syrah said the weighted average price of graphite had fallen to an average of US$400/tonne in the third quarter from US$457/tonne in the prior quarter, while Balama's unit cost of production was US$567/tonne in the first half.

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Comet Resources CEO
Philippa Leggat
Source: Comet Resources

United front

Western Australia-focused Comet Resources Ltd. CEO Philippa Leggat said the key for graphite hopefuls is to understand the market and get the project's metallurgy right so the product meets the specification that customers want to buy before building the plant, "not the other way around."

Leggat, who attended the Benchmark World Tour's Perth leg, said in a Sept. 24 interview that it was "optimistic" to expect investors to cover the risk across the 12 to 13 stages involved in taking flake graphite through to end use such as batteries.

"As Australian projects, I'd like us to stand together to present an attractive option," Leggat said, particularly given Australia's developed-world standards fit well with consumers and investors' increasing demand for sustainably sourced material.

More such projects supplying that material from Australia allow end users to limit their risk and therefore make its producers "very attractive," Leggat said.

Though Moores said producers, developers and explorers alike are better off reaching as far down into the supply chain toward the end user so they are not competing with Chinese miners, Thompson said the key is to start small, which enables easier specification changes if needed, before potentially expanding.

Similarly, Leggat said Comet was seeking capacity of 40,000 tonnes per annum, keeping capital expenditure to about A$50 million, targeting around 2022 to go online when a supply shortage is expected, though those are early-stage, indicative figures only.