Why the Syrah Resources Ltd share price fell heavily today

The shares of lithium miners such as Kidman Resources Ltd (ASX: KDR) and Galaxy Resources Limited (ASX: GXY) may be pushing higher again today, but unfortunately the same cannot be said for the Syrah Resources Ltd (ASX: SYR) share price.

In afternoon trade the graphite miner’s shares are down 5% to $4.53.

Why are its shares sinking lower?

This morning Syrah provided the market with an update on its plan to build and operate a natural graphite processing facility in Louisiana to produce inert battery anode material (BAM), a precursor product for the lithium-ion battery.

After detailed design, site selection, permitting, and commercial supply negotiations were made, the company selected its preferred site at Port Manchac in the South Tangipahoa Parish of Louisiana.

Unfortunately for the company, at a meeting held overnight, the Parish Port Commission has determined that the proposed BAM Facility is no longer a suitable fit for their Port Manchac site. This is due to the community’s view that it is not an appropriate location for further growth in manufacturing activities.

This appears to have many in the market concerned that Syrah may not achieve its aim of delivering its first milled material in the second-quarter of 2018 and its first commercial material in the fourth-quarter of 2018.

However, management explained that it has received approaches from a number of alternative sites and believes it can still achieve its targets.

Should you buy the dip?

While this is a disappointment, the company could still meet its targets. So I wouldn’t panic just yet.

But having said that, although I think that Syrah could have a bright future ahead of it, I’m reluctant to invest until at least its next quarterly update. At that point investors should be able to see the prices that the company is commanding for its graphite and whether its current valuation is justified.

According to today’s release, that update is due to be released on January 30.

In the meantime I think investors should look at these exciting growth shares instead.

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Motley Fool contributor James Mickleboro owns shares of Galaxy Resources Limited. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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