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Syrah Resources Ltd (ASX:SYR) shares storm higher on sales agreement: Is now the time to invest?

In morning trade the Syrah Resources Ltd (ASX: SYR) share price has been one of the strongest performers on the Australian share market.

At the time of writing the graphite producer’s shares are up 5.5% to $$1.88.

Why are Syrah Resources’ shares storming higher?

This morning Syrah Resources announced a binding term sales agreement with Qingdao Taida-Huarun New Energy Technology Co. Ltd, better known as Taida.

Taida is a Shandong-based company focused on the research, development, and production of carbon materials including spherical graphite for battery anode materials.

According to the release, the agreement commences immediately and is for 20kt of natural graphite from Syrah’s Balama project in Mozambique by the end of August 2019. All other terms including pricing are confidential.

This works out to be approximately a fifth of Balama’s current production based on its FY 2018 target of 101kt to 106kt. Though it is just a fraction of its 350ktpa capacity.

CEO and managing director, Shaun Verner, appeared to be pleased with the sales agreement.

He said: “This contract is another demonstration of Syrah’s Balama graphite product penetration into China and the battery anode material market. It is also pleasing to see the significant volume of spot sales translating into this type of quality longer term commitment, as the sales book continues to evolve.”

Before adding that: “Syrah is establishing Balama product as a baseload for battery anode materials and other industrial specialty applications and we look forward to a successful relationship with Taida.”

Should you invest?

I think this is certainly a step in the right direction for Syrah, but it isn’t a game-changer.

Although I think Balama is a world class asset and has the potential to command a 40% share of the market at full capacity, I won’t be investing until I’ve seen the prices that Syrah is commanding and the free cash flows it is generating.

Until then, I think investors would be better off focusing on the likes of BHP Billiton Limited (ASX: BHP) and Rio Tinto Limited (ASX: RIO).

Alternatively, you could skip resources shares and look at these blue chip growth stars that have been tipped as potential market beaters.

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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.

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