In morning trade the Syrah Resources Ltd (ASX: SYR) share price has crashed lower following the release of its fourth quarter update.
At the time of writing the graphite producer's shares are down 8% to $1.85.
What happened?
This morning Syrah Resources released its fourth quarter update covering the three months ended December 31.
According to the release, fourth quarter graphite production came in at 33,000 tonnes, bringing its production to 104,000 tonnes for FY 2018. The latter was in line with its updated guidance and was made up of 80% fines and 20% coarse flake graphite.
Another positive was its improvement in average graphite recovery levels. Recoveries rose to 70% during the final quarter, up from 53% in the third quarter. This was the result of its ongoing production improvement plan.
Graphite sales.
During the fourth quarter the company sold and shipped 37,000 tonnes, which brought its full year sales volumes to 73,000 tonnes. An additional 20,000 tonnes were awaiting shipment at the end of the quarter.
Disappointingly, the product weighted realised price in the fourth quarter was slightly lower than the previous quarter due to higher sales of fines graphite.
This ultimately meant that Syrah recorded a net cash outflow of US$23.2 million during the fourth quarter, reducing its cash on hand to US$77.1 million.
What's expected in FY 2019?
In the first quarter Syrah is targeting production of 45,000 tonnes to 50,000 tonnes and for the full year its target is 250,000 tonnes. The latter will be more than double FY 2018's production.
It expects C1 cash operating costs to trend from US$550 per tonne down towards US$400 per tonne during 2019.
In respect to prices, in the first quarter it expects a weighted average CIF price of US$500 to US$600 per tonne trending upwards.
Should you invest?
I was reasonably pleased with Syrah's operational performance in the fourth quarter after an incredibly shaky start to the year.
If it can continue this positive form in FY 2019, deliver fully on its cost and production guidance, and prices trend higher, then I think it has the potential to be a good investment along with the likes of BHP Group Ltd (ASX: BHP) and Rio Tinto Limited (ASX: RIO).
However, there's no guarantee that prices will rise. As a result, I think it might be best to wait and see if it can pull its C1 costs down towards US$400 per tonne before making a move.
