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Syrah Resources share price higher despite downgrading its pricing guidance

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The Syrah Resources Ltd (ASX: SYR) share price has been one of the worst performers on the All Ordinaries this year.

The release of a quarterly update which included guidance for higher than expected costs and lower than anticipated prices for its graphite has largely been to blame.

Luckily for shareholders the graphite miner’s shares are heading in the right direction this morning despite the release of a disappointing update. At the time of writing the Syrah share price is up 1.5% to $1.08.

What was announced?

This morning Syrah advised that its production in the first quarter is on track to hit 45,000 tonnes, which is in line with the lower end of its guidance range of 45,000 tonnes to 50,000 tonnes.

In respect to pricing, management expects a weighted average graphite price of between US$460 and US$470 per tonne during the quarter.

This is lower than its guidance range of US$500 to US$600 per tonne and has been caused by an unfavourable shift in its product mix and the faster than anticipated progress towards the close out of lower priced contract volumes from 2018 in order to extinguish them from the sales book.

However, management remains optimistic that improved prices are achievable on the basis of the forward contract and product mix.

Syrah is expected to finish the period with a cash balance of US$55 million to US$57 million, compared to guidance of ~US$57 million. But management has reaffirmed its belief that its second quarter group net cash draw will be lower than the first quarter.

Should you buy the dip?

Whilst Syrah’s shares look reasonably good value after their sharp decline over the last 12 months, I’m not convinced they have bottomed yet and would suggest investors stay clear for the time being.

The same applies for lithium miners Galaxy Resources Limited (ASX: GXY) and Orocobre Limited (ASX: ORE). Until demand for battery making ingredients improves and prices reach an inflection point, I would avoid them and focus on opportunities elsewhere in the resources sector.

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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 Scott Phillips.

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