Syrah Resources Ltd (ASX: SYR) this week announced a solid 34% increase in its graphite production, with at least one analyst flagging that the company's shares likely have some decent upside from where they're trading at the moment.
Syrah this week announced that production from its Balama graphite mine was 34% higher than the previous quarter, coming in at 34,400 tonnes.
The company characterised the performance as "strong", with improved recovery and high product quality; however, Syrah actually sold its product at a loss, with production costs of US$535 per tonne exceeding the sale price of US$506.
Syrah said it was targeting "no less than 30,000 tonnes" of natural graphite in the March quarter, and that it had the ability to return to higher capacity utilisation as natural graphite demand increases.
The company said:
There is solid demand for Syrah's natural graphite products, particularly in the ex-China market, due to global supply disruptions and growing spherical graphite production capacity outside of China. Syrah expects to continue breakbulk shipments to ex-China destinations supplying active anode material production (AAM) through 2026, with ongoing container sales shipments to industrial customers outside China, primarily for coarse flake products where greater market shares is being pursued.
Image source: Getty Images
Value-added materials in focus
At the company's Vidalia AAM production facility in the US, testing continued, "incorporating feedback from multiple customers'' the company said.
Syrah has offtake agreements for AAM with Tesla Inc (NASDAQ: TSLA) and Lucid Group Inc (NASDAQ: LCID).
The company added:
Timing of sales commencement under these offtake agreements is being determined by customer qualification progress in testing, as well as very significant commercial and US policy considerations. The agreements with Tesla and Lucid underpin future sales approaching the 11.25ktpa AAM production capacity of the Vidalia AAM facility. The company is working towards achieving earliest possible AAM revenue from Vidalia.
Shares looking cheap
The analysts at Jarden have run the ruler over the Syrah quarterly and maintained their price target of 34 cents per share, which would be a 41.6% increase from current levels.
They said that despite the company currently mining at a loss, its ownership of key assets in the critical minerals supply chain put it in a good position.
They went on to say:
Our base case and 12-month target price is unchanged at $0.34 per share, and remains set in line with our most conservative valuation scenario outcome. SYR controls unique assets that are highly strategic within a critical mineral supply chain. We maintain our Overweight rating accordingly. Key risks to the downside include an extended period of depressed pricing for graphite products and the potential for further equity dilution to maintain liquidity.
The Jarden team said they continued to expect a final investment decision on the phase three expansion of Vidalia this calendar year, "with work to commence in CY27 and 45ktpa AAM production reached in CY31''.
They added that they expect to see margin improvement from Balama as production increases over the year.
