The Syrah Resources Ltd (ASX: SYR) share price will be on watch on Monday following a late announcement on Friday.
What did Syrah announce?
This afternoon the graphite producer released its third quarter update and revealed its production plans for FY 2020.
According to the release, in the third quarter Syrah produced 45kt of graphite following a strategic reduction in production volume in September. This brought its year to date production to 137kt at a C1 operating cash cost of US$577 per tonne.
Unfortunately, the company was only able to command a price of US$391 per tonne during the quarter, bringing its year to data selling price to US441 per tonne. This means Syrah is losing money every time it pulls graphite out of the ground.
Obviously, this is not sustainable. So, management revealed plans to make a significant cut to its production in FY 2020.
In FY 2020 management is targeting production of 120kt to 150kt. The low end of the range is more than half its original production target for FY 2019 of 250kt.
One positive, though, is that management believes it can reduce its costs significantly. It revealed that it is aiming for Balama C1 operating cash cost reductions of ~20% to 25%. Drivers of these cost savings include an immediate head count reduction of ~30% at Balama, contract renegotiations, and mining and processing reconfigurations.
If it can achieve the high end of these savings and its selling price doesn't deteriorate further, this would reduce its losses materially.
Should you invest?
Whilst this update might be better than many expected, I still wouldn't be a buyer of its shares just yet. Given the tough market conditions, I suspect that prices will continue to slide and offset its cost savings.
In light of this, I would stay clear of Syrah and fellow battery ingredient producers Orocobre Limited (ASX: ORE) and Pilbara Minerals Ltd (ASX: PLS) until prices reach an inflection point.
