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Syrah share price charges higher on Q4 update

The Syrah Resources Ltd (ASX: SYR) share price is charging higher on Wednesday following the release of its fourth quarter update.

The graphite producer’s shares are up 4.5% to 60 cents at the time of writing.

How did Syrah perform in the fourth quarter?

During the December quarter Syrah reported production of 15kt flake graphite, which was a reduction of 67% on September’s production of 45kt.

This was due to management’s decision to moderate production in the fourth quarter in response to a sudden and material reduction in graphite flake prices.

Syrah also provided an update on its restructure progress. It advised that this is on track to achieve its target of a 20% to 25% reduction in costs. This is based on a 15kt per month production rate.

As of January 1, cost reductions of approximately 15% were implemented and realised.

Positively, the company has the ability to increase its production in a prompt manner if market conditions improve.

Speaking of which, management notes that there were signs of inventory drawdown and price stabilisation late in the fourth quarter. It has put this down to a reduction in its production and seasonal Chinese production closures.

During the December quarter the company reported a weighted average selling price (CIF) of US$458 per tonne.

Whilst this was an improvement from US$391 per tonne in the September quarter, the increase was predominately due to a favourable product and geographic mix, rather than a recovery in prices.

Outlook.

Trading conditions are expected to remain tough during the first quarter of FY 2020.

Syrah is forecasting quarterly net cash outflows of ~US$16 million. This comprises Balama net operating expenditure and sustaining capital outflows of US$12.3 million, BAM cash outflows of US$2.2 million, and cash outflows from general corporate and administration activities of US$1.5 million.

Based on this, the company expects to have a cash balance of ~US$64.6 million at the end of the period. Shareholders will no doubt be hoping this is sufficient to ride out the storm over the medium term.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. 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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