Much to the dismay of its long-suffering shareholders, the Syrah Resources Ltd (ASX: SYR) share price returned to trade this morning and crashed almost 8% lower to a 52-week low of $2.15.
This latest decline means the graphite producer’s shares have now lost 52% of their value since the start of the year.
Why are Syrah Resources’ shares crashing lower again?
This morning the company’s shares returned from their trading halt following the release of a report on the damage caused by a fire at its Balama project in Mozambique.
According to the release, the fire occurred in the Primary Classifier section of the Balama process plant. The Primary Classifier distributes and classifies all milled material from the scrubber prior to flotation.
The initial investigation indicates that the fire originated during hot work activities below the unit during planned maintenance on piping.
The fire rendered the Primary Classifier inoperable, meaning the company has had to source a replacement from South Africa.
This is no easy feat and due to the time it takes for delivery, installation, and commissioning of the new unit, a return to production is not expected for five weeks. The repair bill has been estimated to be in the region of US$0.5 million.
Management has advised that options to by-pass the Primary Classifier are being reviewed, but they are not currently expected to deliver a material production result during the repair period. Mining and crushing activities will continue as normal.
What impact will this have on its operations and sales?
Syrah estimates a production loss of 30kt during the fourth quarter, meaning it has revised its production forecast down to 30kt to 35kt for the quarter. This will result in full year production of between 101kt and 106kt.
As a comparison, at the start of the year the company was targeting production of between 160kt and 180kt.
Syrah is quickly becoming known as a miner that over promises and under delivers.
So far in 2018 the company’s production has been negatively impacted by issues with its fines dryer, flotation level sensors, filter cloths, and now its Primary Classifier.
In light of this, I would suggest investors avoid Syrah’s shares at all costs until it has built up a track record of meeting its production targets.
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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. 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 Scott Phillips.