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Syrah share price crashes lower following disappointing update

James Mickleboro

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.

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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.

The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. 2019