Syrah (ASX:SYR) share price higher after new Tesla update

Syrah's shares are rising after providing more colour on its deal with Tesla…

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The Syrah Resources Ltd (ASX: SYR) share price has returned from its trading halt and is pushing higher.

In morning trade, the graphite producer's shares are up 2% to $1.66.

Why was the Syrah share price in a trading halt?

The Syrah share price was placed in a trading halt last week after rising as much as 35% to a multi-year high of $1.80 in response to the release of an announcement.

That announcement related to its vertically integrated Active Anode Material (AAM) production facility in Vidalia, USA, which is aiming to be the first major integrated ex-China producer of natural graphite AAM that is battery ready for electric vehicles.

According to the release, the company has executed an offtake agreement with electric vehicle giant Tesla to supply natural graphite AAM from the production facility. Tesla will offtake the majority of the proposed initial expansion of AAM production capacity at Vidalia at a fixed price for an initial term of four years. This will commence from the achievement of a commercial production rate, subject to final qualification.

Today's update

This morning the Syrah share price is rising after it provided more colour on the agreement with Tesla.

Today's release explains that the offtake obligation is conditional on the parties agreeing the final specifications of AAM by no later than 31 December 2022 and achieving final qualification of AAM to Tesla's satisfaction by no later than 31 May 2025. The agreement may also be terminated if production has not started by 31 May 2024.

In addition, the company revealed that, subject to satisfaction of the above conditions, Tesla will offtake 8kt per annum of the proposed initial expansion of AAM production capacity at Vidalia. This compares to the initial planned production capacity of 10kt per annum.

Management also explained why this deal is so important to the company.

It explained: "The importance and materiality to Syrah of the agreement with Tesla is that it provides a foundation to proceed with the initial expansion of Vidalia's production capacity, as stated in the announcement of 23 December 2021. The terms of the Agreement including volume, pricing and term will assist Syrah in finalising its investment decision in relation to Vidalia. Syrah plans to make a final investment decision for construction of this expanded facility in January 2022, subject to financing commitments."

The Syrah share price is now up 70% in 2021.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns and recommends Tesla. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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