The Motley Fool

Syrah share price crashes lower following disappointing update

In morning trade the Syrah Resources Ltd (ASX: SYR) share price has crashed lower following the release of its second quarter update.

At the time of writing the graphite producer’s shares are down 7% to 95.5 cents.

What happened in the second quarter?

During the second quarter Syrah produced 44kt natural flake graphite, which was 8% lower than its first quarter production. It was also lower than its downgraded production guidance of 45kt to 50kt (from 50kt to 55kt) given on June 7.

Management advised that this was due primarily to minor equipment issues during the period.

In light of this lower production, first half C1 operating cash costs increased to US$567 a tonne. This was notably higher than planned and a long way from its target of towards US$400 a tonne by the end of 2019.

Another negative was that the weighted average graphite price achieved during the second quarter was US$457 a tonne (CIF). This was down from US$469 a tonne in the first quarter and blamed on lower Chinese fines pricing and weaker than planned coarse flake production.

Both were way off Syrah’s guidance given at the end of FY 2018 for a “weighted average CIF price of US$500– US$600 per tonne trending upwards.”

During the quarter the company sold 53kt of product compared to 48kt in the first quarter. This was achieved through continued improvement in contract volume and logistics.

Looking ahead, Syrah is targeting full year production of 205kt to 245kt, but warned that this is dependent on the ongoing assessment of sales volume against price, production performance, and quality performance.

It also continues to expect C1 cash operating costs to trend towards US$400 a tonne by the end of FY 2019, subject to recovery and production volume outcomes.

And finally, management aims to increase its weighted average CIF price through improved product mix, higher product grade skewed towards 96% and 97% fixed carbon, and geographic placement of sales.

What now?

With C1 cash operating costs of US$567 a tonne and a weighted average graphite price achieved of US$457 a tonne (CIF), it isn’t hard to see why Syrah is the most shorted share on the Australian share market. It costs more for the company to pull graphite out of the ground than it receives when it sells it to customers.

Elsewhere in the battery materials industry, this update appears to have dented sentiment and sent Galaxy Resources Limited (ASX: GXY) and Orocobre Limited (ASX: ORE) shares tumbling lower.

Instead of graphite or lithium, I would invest in this hot stock in a rapidly growing industry.

One ASX Stock For An Estimated $US22 Billion Marijuana Market

A little-known ASX company just unlocked what some experts think could be the key to profiting off the coming marijuana boom.

And make no mistake – it is coming. To the tune of an estimated $US22 billion.

Cannabis legalisation is sweeping over North America, and full legalisation arrived in Canada in October 2018.

Here's the best part: we think there's one ASX stock that's uniquely positioned to profit immensely from this explosive new industry... taking savvy investors along for what could be one heck of a ride.

AND, this is the first time The Motley Fool Australia has EVER put a BUY recommendation on a marijuana stock.

Simply click below to learn more on how you can profit from the coming cannabis boom.

Click here to find out more

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.

FREE REPORT: Five Cheap and Good Stocks to Buy now…

Our Motley Fool experts have FREE report, detailing 5 dirt cheap shares that you can buy today.

One stock is an Australian internet darling with a rock solid reputation and an exciting new business line that promises years (or even decades) of growth… while trading at an ultra-low price…

Another is a diversified conglomerate trading near a 52-week low all while offering a 2.7% fully franked yield…

Plus 3 more cheap bets that could position you to profit over the next 12 months!

See for yourself now. Simply click the link below to scoop up your FREE copy and discover all 5 shares. But you will want to hurry – this free report is available for a brief time only.