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Why the Syrah Resources share price surged 5% higher today

In morning trade the Syrah Resources Ltd (ASX: SYR) share price has surged higher following the release of an update on its Balama project.

At the time of writing the graphite producer’s shares are up over 5% to $1.81.

What was in Syrah’s update?

This morning Syrah announced the declaration of commercial production at the Balama graphite operation in Mozambique.

According to the release, the Syrah board determined that the criteria to achieve commercial production was met on January 1 following a review of its monthly operating metrics.

Management believes this represents a key milestone for the company, which reflects improvements in production consistency and recoveries.

Managing director and CEO, Shaun Verner, said: “This milestone has been reached through coordinated effort across the entire Syrah team, particularly through the dedication of the Balama operations team. We continue to implement further operational improvements in ongoing ramp up, to bring recoveries in line with our medium and longer term targets.”

In addition to this, the company provided an update on its performance during the fourth quarter of calendar year 2018.

In the fourth quarter the company achieve natural graphite production of 33kt, bringing its full year production to 104kt. This was in line with its updated guidance.

As alluded to above, there was also a major improvement in its recoveries. Syrah achieved an average graphite recovery of 70% during the fourth quarter, up from 53% in the previous quarter.

While this is still some way off its life of mine estimate of 92.5%, it certainly is a step in the right direction.

Syrah intends to provide further details of its performance in its quarterly activities report which will be released on January 30.

Should you invest?

I would suggest investors wait for its update on January 30 before considering an investment.

This update will reveal how much the company has been able to command for its graphite during the quarter.

I’m a touch concerned that it may be lower than expected after lithium miner Orocobre Limited (ASX: ORE) advised of weakness in its lithium sale prices during the December quarter due to softening demand.

As lithium and graphite prices have similarly drivers, I suspect that graphite demand could have been softer as well.

Overall, it might best to wait to see if demand strengthen for graphite and lithium before considering an investment in Syrah, Orocobre, Galaxy Resources Limited (ASX: GXY), and Pilbara Minerals Ltd (ASX: PLS).

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 Scott Phillips.

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