Disclaimer

This report has been prepared for educational purposes only. This report and any statements made in
connection with it are the authors opinions, which have been based upon publicly available facts,
field research, information, and analysis through our due diligence process, and are not statements of
fact. This document or any information herein should not be interpreted as an offer, a solicitation of
an offer, invitation, marketing of services or products, advertisement, inducement, or representation
of any kind, nor as investment advice or a recommendation to buy or sell any investment products or
to make any type of investment, or as an opinion on the merits or otherwise of any particular
investment or investment strategy.
Any examples or interpretations of investments and investment strategies or trade ideas are intended
for illustrative and educational purposes only and are not indicative of the historical or future
performance or the chances of success of any particular investment and/or strategy.
As of the publication date of this report, you should assume that the authors have a direct or indirect
interest/position in all stocks (and/or options, swaps, and other derivative securities related to the
stock) and bonds covered herein, and therefore stand to realize monetary gains in the event that the
price of either declines.
The authors intend to continue transacting directly and/or indirectly in the securities of issuers
covered on this report for an indefinite period and may be long, short, or neutral at any time hereafter
regardless of their initial recommendation.

2. The Graphite Market

Before we start, wed like to note how incredibly ambiguous the graphite market is. Its a niche
industry, and as such it has been difficult to source reliable sources for spot prices, demand
distribution, etc. Please do your own research.
The graphite industry has displayed strong growth in the capital markets, not reflecting currently poor
trade-level performance. Industrial Minerals, which Syrah cite on several marketing materials, has
reported weakened transaction volumes, excessive inventories and slowing industrial activity in steel
refineries which constitute a vast majority of the graphite market. These factors have significantly
negatively impacted the price of the commodity. Despite this, China has continued to ramp up steel
production as exports remain falling.
Graphite Production Correlation with Steel3

China Steel Production4

3
4

http://www.csaglobal.com/wp-content/uploads/2016/03/Paydirt-Media-14-March-2016.pdf
http://marketrealist.com/2016/09/what-does-chinas-surging-steel-production-mean-for-u-s-steel/

Graphite Pricing Index5

Another look for completeness, from a different source

Readers can see from the above graphs that while production is increasing, demand is decreasing
resulting in a fall in benchmark prices. Opening the worlds largest graphite mine seems badly timed
given these weak trends.

Spherical Graphite
Syrah has indicated its intention that it will target the growing battery market through production of
high-grade spherical graphite.

In order to produce spherical graphite, the raw product must first be pressed into microscopic spheres,
which are then coated with a magic solution we call this the magic sauce. Note this the barrier of

http://www.vanadiumcorp.com/images/Benchmark%20Mineral%20World%20Tour%20%20The%20battery%20Supply%20Chain%20in%20a%20lithium-ion%20revolution.pdf

entry into this market is not that the coating technology is highly proprietary, but there is significant
waste by-product, efficiency and cost concerns.
The pressing of the graphite into spheres is entirely dominated by China. We think this may be because
China tends to have more leeway on the environmental side, and this process produces significant
quantities of by product (60-70% of input)6.
This coating market is currently dominated by Japan and South Korea, as low cost productions in China
have restrained the development of this fine art.
Syrah has announced that it will develop a downstream spherical graphite processing plant in the USA.
Spherical graphite is primarily used in battery production.
Investors looking for a similar boom to the lithium markets are in for a rough awakening. The graphite
market hasnt reacted in the same way as the booming lithium market, as prices are still totally
dominated by the steel industry. Low steel prices have thus brought the price down further as refinery
margins are pushed downwards7:

Syrah has other ideas8:

http://www.indmin.com/Article/3238613/Spherical-graphite-how-is-it-made.html
http://northerngraphite.com/wp-content/uploads/2014/11/Sept-2016.pdf
8
http://www.asx.com.au/asxpdf/20161213/pdf/43dpgqz6xjmxz5.pdf
7

Chinese spherical graphite production accounts for over 70% of the spherical graphite market based
on 2015 figures. Chinese suppliers are logistically better suited to supply key customers which are
heavily concentrated in Japan and Korea:
Chinese Spherical Graphite Exports9

Although higher revenues can be achieved from spherical graphite, the process has costs and
inefficiencies which eliminate the majority of the benefit. We see competitors venturing into this area
instead forgoing downstream production or pulling out of investments altogether, including Triton
Minerals (ASX:TON) which operated a similar sized mine in Balama and is now insolvent, and Northern
Graphite10:

http://northerngraphite.com/wp-content/uploads/2014/11/Sept-2016.pdf
http://northerngraphite.com/wp-content/uploads/2014/03/SPG-Summary.pdf

10

In its presentation to investors in May 2016, Syrah indicates Benchmark Mineral, another independent
journal, estimated 50kt of spherical graphite was supplied in 201511. Roughly a 3:1 ratio is needed to
turn flake graphite into spherical graphite. Syrahs anticipated annualized production of small flake
graphite will flood the market with 1.5x current supply. As Syrah will more than double the current
market supply whilst competitors are also ramping production, basic economic principles suggest that
even low spot prices are too high for Syrahs NPV. Syrah must brace itself for large inventory build
ups or be willing to take a BIG hit on margins.

11

http://www.syrahresources.com.au/application/third party/ckfinder/userfiles/files/02%20Macquarie%20Au
stralia%20Conference%20Presentation(1).pdf

3. Basket Prices, CAPEX, OPEX

Basket Prices
As discussed in Section 2, several sources and data support weakened transaction volumes, excessive
inventories and slowing industrial activities in iron refineries. These factors have significantly
negatively impacted the price of the graphite commodity.12
High mesh grade supply has not been resilient to the market slump, with +80 mesh (94-97% graphitic
carbon) currently traded at ~$800/t a 35% discount to August 2009. Fine grade, -100 mesh (94-97%
graphitic carbon) currently trades at $620-$650 per ton13.
These current market prices indicate Syrahs graphite flake and quality mix will yield an average basket
price of $655-$701 per ton.
SYR Basket profile:

Basket profile Weighted Price Per Mesh Size Per Ton14:

Basket Price for Syrah August 2016
+50
+80
+100
-100

Expected
Price (high) Price (low) Weighted
Weighted
production Weight
(Aug 2016) (Aug 2016) Price (high) Price (low)
30
8.2%
850
750
170
150
43
11.8%
41
11.2%
750
700
84
79
251
68.8%
650
620
447
426
701
655

We note that prices have not fluctuated significantly since August, or (at least) 3 months prior to
August, however we do acknowledge the difficulty of obtaining market data for a surprisingly
economically ambiguous industry.
This data surprised us because Syrahs Financial Forecasts actually use a basket price assumption of
$1,000 a per ton, 42-52% above the current spot prices. As noted in Section 2, even the current spot
price will be too low for Syrahs NPV assumptions, as its Balama production will more than double
the current market supply and likely cause graphite prices to collapse.

12

http://www.csaglobal.com/wp-content/uploads/2016/03/Paydirt-Media-14-March-2016.pdf
http://www.indmin.com/Article/3576236/Graphite/Slowgraphitemarketstuntspricerecovery.html?Print=true
14
http://www.indmin.com/Article/3576236/Graphite/Slowgraphitemarketstuntspricerecovery.html?Print=true
13

Another key takeaway from the above table is how little Syrah expects to spend on their initial CAPEX
outlay, ongoing CAPEX requirements, and OPEX.
Theoretically, we would expect:

Greater initial CAPEX for larger mines. With Syrah and Triton being by-far the biggest mines,
they should have the largest CAPEX. They do not. It is noteworthy at this point to note Triton
and Syrah both operated near the same geographical region in Mozambique. Triton (ASX:TON)
realised they screwed up their model, entered into administration19.
Ongoing CAPEX costs are significantly below competitors. Economies of scale would definitely
play a factor, however 7.1m appears to be overly optimistic against comps.
We would have thought greater CAPEX should theoretically reduce OPEX (i.e. you have better,
more efficient equipment). This is sort of hard to test with the data we compiled because,
again, factors such as economies of scale through to logistics to mine strip-ratios are not linear.
Syrah assumes the lowest OPEX figures amongst its comps. Note that these mines are all
extremely large, and we do not believe economies of scale can account for these saving. As
described above, Syrah is also very poorly placed logistically.
Weve used the bottom end of all feasibly study shipping costs. Syrahs best case scenario
would only play out if all its graphite was sent to China. We were quoted prices of $105-130
for Japan and the USA. Also, its worth noting that China has a 3% import tax for graphite. We
find it highly unlikely that Syrah will find economic value in selling to China after duties and
shipping costs due to the presumably competitively priced, overstocked local market.

Take your pick from any of the above arguments. Any of them will significantly reduce Syrahs NPV
assumptions.

19

https://www.ferrierhodgson.com/au/creditors/triton-minerals-limited

4. The History of the Business

Soil Contamination
The prior owner of the Balama site, Helios Resource, reported airborne data which showed a large
Uranium anomaly:

The presence of Uranium was further verified in a technical report for Jacana Resourced Limited,
which was acquired, then spun off by Syrah. The report is no longer available on Syrahs website. Why?
Its super important!20:

It also shows, embarrassingly, that Balama was acquired to initially be a Uranium deposit, but a
mediocre one at that. Management can spin it whatever way they want.
A waste management report conducted by Coast and Environmental Services also identified Uranium
in the site, and noted that the radiation was a potential health and environmental risk which must be
mitigated21:

20

http://web.archive.org/web/20120320171518/http://www.syrahresources.com.au/J2151 Jacana Mozambi

que Technical%20Report.pdf
21
http://www.cesnet.co.za/pubdocs/Syrah%20Balama%20Graphite%20Mine%20Eng%20CB290814/Executive
%20Summary.pdf

For number reference; the Earths crust is about 1.8ppm uranium22, a low-grade uranium mine is
about 100 ppm23, and Syrahs site ranges from 37-86ppm uranium24.
Tech Metals Research25 notes that battery grade graphite requires high purity for effective operation.
Samples should be tested frequently, with a full spectrum analysis showing all contaminants, Syrah
has never released these tests. Further industry sources we spoke to acknowledge Uranium as a
serious contaminant.
Syrah claim to have an advantage in making spherical graphite because the small flake size requires
less energy to transform, however, in light of these hush-hush contamination reports, we are skeptical
that Syrah will be as economic as they claim in their graphite purifying process. Given these
contaminants, we believe Syrah will incur further costs in refining its output.

The Jacana Spin-Off

Dont let them fool you this was a disaster.
On 17 July 2014, Syrah stated their intention to offload a number of small Tanzanian assets, a longstanding chairman, and its managing director through the listing of Jacana Minerals. The proxy form
sent to shareholders on 1 September 2014 confirmed that, once demerged, the board would seek to
list Jacana on the ASX through an IPO26.
The Jacana prospectus proposed the issue of $10m equity raise for roughly 50% of equity of the
recycled venture, giving it a value of ~$20m27. It would also throw in Tom Eadie and John Kehoe, long
standing Syrah directors and large shareholders.
The venture was managed by Shaw Stockbrokers, who pride themselves on being privately owned and
values independence. It therefore curious why their longstanding relationship with Tolga Kumova, the
incoming Managing Director replacing Paul Kehoe, was undisclosed.
Tolga heroically shared how he was robbed, bashed and infected in Africa simultaneously losing his
clients money during his 7-year stint with Shaw Stockbrokers. Tolga was apparently an average
student, who eventually found himself at Shaw Stockbrokers because he described himself as a poker
player despite knowing little about the game. We find this ironically reminiscent of the current
situation Tolga has found himself in at Syrah. Weve read this article many times over and are baffled
as to why this should instill confidence in the minds of shareholders.
http://www.afr.com/business/how-tolga-kumova-was-robbed-bashed-and-infected-before-hestruck-it-rich-in-africa-20130918-jyiem
The company failed to raise funds for the IPO. The business was then reverse merged with Strandline
Resources in July 2015. Jacana funded the acquisition costs through essentially a non-recourse $250k
loan made to Strandline, who offered $5m worth of $0.01 shares to Jacana shareholders. Jacana was
$900k net cash. Paul Kehoe promptly sold a significant portion of his stake in Syrah for $57m28

22

https://en.wikipedia.org/wiki/Abundance of elements in Earth's crust

http://www.aheadoftheherd.com/Newsletter/High%20Grade%20v%20Low%20Grade.pdf
24
http://www.cesnet.co.za/pubdocs/Syrah%20Balama%20Graphite%20Mine%20Eng%20CB290814/Syrah%20
Draft%20ESHIAR Part2.pdf
25
http://www.techmetalsresearch.com/2016/06/alabama-graphites-coated-spherical-purified-graphite-forthe-lithium-ion-battery-industry/
26
http://www.asx.com.au/asxpdf/20140901/pdf/42rxzpjs2glfj9.pdf
27
http://www.asx.com.au/asxpdf/20141126/pdf/42v11vkd79rj5w.pdf
28
http://www.asx.com.au/asxpdf/20141125/pdf/42tz1ck4fgrlml.pdf
23

5. Mozambique
The Government
Syrah will need to be prepared for increased State control in their operations in Balama. The 2014
which introduces the following new requirements29:

29

The right for the State to acquire mineral products to the government in the public
interest.

The state must consent transfers of shares in the mining title holder either direct or indirect.

http://www.eisourcebook.org/cms/February%202016/Mozambique%20Mining%20Law%202014.pdf

Operators will need to acquire a Mineral Processing License

Limited investment protection. The 2014 Mining Act no longer includes undertakings that the
State would not change the tax regime applicable to the operator at the time of granting the
mining concession. The 2014 Mining Act will no longer provide indemnity from adverse
financial consequences of changes in mining legislation.

The Rebels
The Renamo Militia has become increasingly active in Mozambique, attacking government, resident
and commercial vehicles in many of the areas where Syrah plans establish its logistics route. The
commerciality of this incident should be second to the security of the drivers. There have been no
mentions on how Syrah plan to mitigate this enormous risk.
Global Rescue have summarized the issue well on their website:
https://www.globalrescue.com/landingPages/Member-Advisory/

The Weather
The Balama region experiences severe monsoons every year30:

30

https://weather-and-climate.com/average-monthly-Rainfall-Temperature-Sunshine,marrupa,Mozambique

Here is the rainfall distribution. Note that Balama and the route to the Pemba port is severely
affected31:

This obviously affects the quality of infrastructure in the area.

See below videos to see what we mean:
https://www.youtube.com/watch?v=1Cq7d8peYuY
https://www.youtube.com/watch?v=Y1vi5MmGADw
https://www.youtube.com/watch?v=TQs7tZRQEx0
31

http://floodlist.com/africa/poor-distribution-rainfall-leads-floods-droughts-southern-africa

6. Morgan Hairong & The Magic Sauce

Morgan Hairong
Syrah announced on 11 November 2015 to be in partnership with Morgan AM&T Hairong Co., Ltd. for
use of its proprietary spherical graphite coating technology outside of China, and agreement to supply
graphite to China:

We note the following:

The graphite coating industry (especially high end) is dominated by Japan and Korea.
Morgan Hairong was offloaded by Morgan Crucible for an implied value of US$640k on 20
June 2014 due to incurring large trading losses. Morgan Crucible completed the purchase of
the business in Jan 2011 for approx. US$10m, expecting US$7.5m revenues and ~30%
operating margins32.
Syrah obtained the rights to use this apparently spectacular technology for an even more
spectacular price $1m in shares.

The Louisiana Plant

The graphite will be coated in the magic sauce in Louisiana as advised by the company on numerous
occasions33:

Naturally, we followed up on this. Our public records request to the Louisiana DEQ returned no plans,
permits, or even a Louisiana DEQ Agency Interest Number, which you would need in order to lodge
said plans and permits.

32
33

http://www.marketwatch.com/story/morgan-crucible-co-plc-acquisition-2011-01-14
http://www.asx.com.au/asxpdf/20161213/pdf/43dpgqz6xjmxz5.pdf

The only record with reference to Syrah that was found was a meeting attendance register with two
Syrah representatives, one of which is the study manager for the proposed plant.

The listed study manager, Peter Barnes, no longer works for Syrah directly according to his Linkedin
Profile34:

Peters firm, Lateral Solutions Engineering, lists Syrah as their client. We believe then, that either:
a. The Study Engineer Manager for the Balama Site has left Syrah; or
b. the Leading Engineering Firm cited on Syrahs presentation is in fact, Lateral Solutions
Engineering, aka. Peter and a friend. LSE or any abbreviation of the name also does not have
any plans listed with the Louisiana DEQ to the extent of our searches. The whole firm website
is on the next page

34

https://www.linkedin.com/in/peter-barnes-7641b840

http://www.lsegroup.net/

7. The Marketing Gimmicks

Tesla
Syrahs marketing material is riddled with the premise that the commencement of Teslas mass
production will significantly boost graphite demand. They are not wrong, but this is also not the whole
truth. As discussed in Section 2 of this report, most graphite demand comes from metallurgical and
refractory applications35:

Even with exponential growth in the battery market, the increment as a whole would not
accommodate demand for Syrah, let alone all of the junior graphite miners.
We also see evidence in AGMs and interviews of Tesla actively moving away from and generally
avoiding natural Graphite:
There are some things that are sort of a tricky or that matter, like for example the anode, the
structure of the carbon in the anode is important. I mean we use a very high percentage of
synthetic graphite, because that gets sort of a more precise microstructure. And, yes, so there is
some potential trade-offs there as to how much work effort you put into creating the synthetic
graphite. I think generally we want to probably aim for highly precise microstructures, which is a
little trickier to do. You dont want to just have random microstructures, stuff that came out of
the ground. Elon Musk, Tesla Q1 2014 earnings call36

35

http://www.vanadiumcorp.com/images/Benchmark%20Mineral%20World%20Tour%20%20The%20battery%20Supply%20Chain%20in%20a%20lithium-ion%20revolution.pdf
36
http://seekingalpha.com/article/2201363-tesla-motors-tsla-ceo-elon-musk-on-q1-2014-results-earningscall-transcript?page=2&p=qanda&l=last

Even more Ludicrous: Elon Musk says Tesla now has the world's fastest production car - LA times37:

Benchmark Minerals & Industrial Minerals Group

These are the two journals which publish on tech metals such as graphite. Graphite, as we mentioned
earlier, is a Niche market. Information is not readily available.
We respectfully question why are these two perceived as a legitimate source of industry information?
Their news sucks!
For example38:

There is one quote from Elon Musk in the article:

Somehow, Benchmark spin this information into this!

There is a fine line between being editorial and putting words in someones mouth - Benchmark
went flying over it in an electric four-wheeler at 160mph.
37
38

http://www.latimes.com/business/autos/la-fi-hy-elon-musk-fastest-car-20160823-snap-story.html
http://benchmarkminerals.com/Blog/elon-musk-our-lithium-ion-batteries-should-be-called-nickel-graphite/

We get a much different feel from Marubenis market announcement, which indicates that coated
graphite is a new venture for the business44:

Another significant omission from the Marubeni disclosure is its alleged obligation to buy the product.
Marubeni only states that it has exclusive right to market up to 50,000 tons of the Balama product per
year, not that it has agreed to buy 50,000 tons of product every year. Someone has got it wrong.

Pricing and Excess

Syrah has released a forecast schedule for its Chalieco sales as follows45:

Chalieco has also provided a summary of the offtake agreement, however it differs significantly from
that of Syrah. Chalieco is under the impression that it is buying 80,000 tons of quality flake graphite
only, for an expected amount of US$750 per ton46.

44

http://www.marubeni.com/news/2016/release/00033.html
http://www.asx.com.au/asxpdf/20150210/pdf/42whqdz86xp0x2.pdf
46
http://www.csrc.gov.cn/pub/zjhpublic/G00306202/201606/P020160624529688475881.pdf
45

Given our analysis in Section 2, we think the market oversupply and increasingly competitive industry
will result in spot prices that fall well below Syrahs optimistic expectations.
In reality, the offtake agreement has no pre-established price47:

How can the offtake be binding if it is still contingent on a pricing negotiation? This may be an industry
thing (we dont know), but it seems like either Chalieco or Marubeni can pull out of the deal if they
cannot agree with Syrah on an acceptable price.
Hypothetically, if these offtake agreements worked out perfectly, there is still going to be a huge
production gap! The Chalieco deal secures only 80,000 tons of 350,000 tons of annualized production.
The Marubeni deal does not even take off until around 2019.
Despite managements enlightening confidence, we think there is too much excess graphite to be
rectally consumed by the board. On the plus-side, we believe there may be significant growth in the
graphite fire retardant market moving forward driven by the need to put out fires at Credit Suisse and
Deutsche Bank offices.

47

http://www.syrahresources.com.au/investors/downloads/80

9. Sell-side Cheerleading
Credit Suisse and Deutsche Bank have, frankly, made a mockery of their investors intelligence through
their adjective-riddled, factually inaccurate, poetic praise of Syrahs operations.
It is worth noting that CS were lead managers in Syrahs 2013, 2014 and 2016 share issues.
Here is an extract from the latest CS report on 5 October 2016:

However, we note the following:

According to Syrahs most recent equity raising roadshow presentation, Syrah outlines it is
expected to require further funding in order to commence operation of the Balama mine48.
CS should know this, they were lead managers for this equity raising. Maybe CS didnt spot it
within the 10 full slides (out of 40) highlighting key risks:

We have no doubt that the reserve is large, however no independent reports (or any reports)
on the quality of the graphite have been made available to the market.
As highlighted within the Logistics, CAPEX, OPEX section of this report, CSA Global
comparatively rates Syrah amongst the worst placed mines logistically. The same graph also
shows the quality mix of the graphite is no better or worse than any of its competitors. As a
general observation, larger flake graphite yields significantly higher prices than small flake
graphite present at Syrahs mine.
As highlighted previously, we are sceptical that Morgan Hairong have the technical capacity
to extensively test Syrahs products.

Here is an extract from Deutsche Banks report, also on 5 October 2016:

48

http://www.syrahresources.com.au/application/third party/ckfinder/userfiles/files/Equity%20Capital%20Rai
sing%20Presentation-16Jun16(2).pdf

And here is a picture of Syrah blasting its quarry in September 201649, found in Syrahs Gallery (maybe
it was just for fun?):

The AU$194m equity raise

On 20 June 2016, Syrah announced it had successfully completed an underwritten institutional
placement to sophisticated investors to the value of AU$194m. Credit Suisse (Australia) Limited
acted as Sole Lead Manager and Underwriter, and Gilbert + Tobin acted as legal advisers, to the
Offer50.
We thought it would be prudent to examine Credit Suisses NPV model to determine how they were
able to sell this investment and unsurprisingly came across some major issues in the financial model.
We note that the model we used was dated 21 June 2016, a day after the share placement news was
made available to the market. The target price per the below summary was $7.80/share:
Michael Slifirski
michael slifirski@credit-suisse.com
Nick Herbert
nick herbert@credit-suisse.com

DCF
A$/sh
3.02
1.48
4.64
9.13

Risk Weighting
100%
25%
70%

Attributable NPV
A$mn
A$/sh
794
3.02
97
0.37
856
3.25
1747
6.63

A$mn
380
-75
305

A$/sh
1.44
-0.28
1.16

Risk Weighting
100%
100%

Attributable NPV
A$mn
A$/sh
380
1.44
-75
-0.28
305
1.16

2711

10.29

Operational
Balama - Graphite
Balama - Vanadium
Spherical Plant
Sub-Total

A$mn
794
389
1222
2406

Non - opera ional

Net cash (31 Dec adj. for Cap. raise)
Corporate
Sub-Total
Net Present Value

DCF

49
50

2052

http://www.syrahresources.com.au/development-activities
http://www.asx.com.au/asxpdf/20160620/pdf/437zr27wr6yqfm.pdf

7.79

We note the following which appear to be errors or Credit Suisses financial model:

Syrahs post placement cash balance is included as part of the NPV of the project, despite the
cash being sunk into CAPEX and initial OPEX over the next two years.
There appears to be an intra-division discount which is not properly consolidated. The raw
graphite basket price/ton from the Balama Graphite Mine is $850/t. The raw material cost of
the graphite at the mine is $800/ton. We could not locate a consolidating entry to remove the
discount from the group profits.
Similar to the above, the Balama Graphite Mine NPV analysis shows the graphite is sold FOB,
therefore meaning the purchaser is liable for shipping costs. Shipping costs are not included
in the spherical plants input costs.
The efficiency (recovery) rate of the spherical graphite process is noted in the model at 37.5%,
however the input-output quantities appear to be incorrectly calculated to output at 50%
efficiency.
Syrah believes they can sell the by-product of the spherical plant. The income from these sales
are included as a revenue item and then double counted as a negative cost item. Industry
sources we spoke to advised that spherical graphite producers typically had to pay someone
to take this waste product.

An adjustment for these errors bring the target price down from $7.80/share to $2.43/share. The new
shares were issued at $6.05c. If it were us that bought into Syrahs share placement, managed by
Credit Suisse, and also rated outperform by Credit Suisse, wed be pretty pissed off.
Michael Slifirski
michael.slifirski@credit-suisse.com
Nick Herbert
nick herbert@credit-suisse.com

DCF
A$/sh
3 02
1.48
-0 96
3.54

Risk Weighting
100%
25%
70%

Attributable NPV
A$mn
A$/sh
794
3.02
97
0.37
-176
-0.67
715
2.72

A$mn
380
-75
305

A$/sh
1.44
-0 28
1.16

Risk Weighting
0%
100%

Attributable NPV
A$mn
A$/sh
0
0.00
-75
-0.28
-75
-0.28

1237

4.70

Operational
Balama - Graphite
Balama - Vanadium
Spherical Plant
Sub-Total

A$mn
794
389
-252
932

Non - operational
Net cash (31 Dec adj. for Cap. raise)
Corporate
Sub-Total
Net Present Value

DCF

641

2.43

As previously mentioned, the NPV analysis, which draws largely from Syrah management assumptions,
is riddled with extremely optimistic assumptions:

Inflated Graphite basket price;

Low corporate costs, which appear even more unrealistic given Tolgas retirement;
Low logistic expenses;

Its not Credit Suisses fault, I would assume they also do not have the feasibility analysis of the Balama
mine which would provide greater costing detail. On the flip side, if they did have it, it would probably
be insider trading.

Mr Kumova pushed for a revised contract to bump his base salary to $450k per year in January
2016. The contract provisions clearly state Mr Kumova must give 6 months notice:

We think its pretty obvious there is more to Mr Kumovas retirement than him suddenly deciding he
is not qualified.

11.

Target Price

We have toyed with company assumptions and derived a target price of around $0.70/share,
representing an 76% downside to the current price of $2.95 at the time of writing.
The major points of difference between our NPV and sell-side NPVs are:

Use of current graphite spot prices;

More realistic shipping freight costs obtained through brokers. It does not appear SYR or sellside have appropriately weighted shipping and logistics costs between Balama and the USA
spherical plant.
More realistic maintenance CAPEX requirements, in line with regional competitors;
Sell-side have priced in ~$325m cash on hand into the price target. This cash will be sunk into
the production of the mine? We have not priced this cash into our assumptions.

There are several important factors not considered which would drive the price down even further:

Our model assumes SYR will actually be able to sell all of its product. Realistically, we dont
think they will.
Our model assumes that, as SYR floods the market with supply, graphite prices will remain
constant.
The lack of binding offtake agreements at its commencement are of particular concern to
short term liquidity and may further drive down the price target.
Presume management fees will increase in search for new CEO talent and more enticing,
talent worthy salaries.

The end.

12.

Annexure A

Co.
Syrah
Ticker
SYR
Annualised production ('0
Initial CAPEX ($m)
Annual Capex Req. ($m)
Capex/Ton ($/t)
OPEX FOB ($/t)
Shipping cost ($/t)
Basket Price Target Assum
Unlevered FCF ($/t)
Total unlevered FCF ($m)

Triton
TRI
355
137.8
7.1
20.0
286
35
1,000
659
234

Sovereign
Kibaran
Mason
Energiser
SVM
KNL
LLG
EGZ
Average
223
111
100
52
53
149
120

138

78

161

188

137

29
26
35
46
129.9
233.0
350.0
892.1
338
498
570
376
315 Unknown
Unknown
Unknown

1.5
27.9
535
182

24
275
434
177

1,689
944
50

1,463
660
98

1,436
624
139

1,303
572
64

1,446
526
53

1,905
637
33

Resources:
http://www.syrahresources.com.au/application/third party/ckfinder/userfiles/files/02%20Macquari
e%20Australia%20Conference%20Presentation(1).pdf
http://www.asx.com.au/asxpdf/20150529/pdf/42yw8p7cjz0gvf.pdf
http://www.tritonmineralsltd.com.au/triton-projects/balama-north/nicanda-hill/
http://www.sovereignmetals.com.au/uploads/3/9/7/8/39784071/160615 svm presentation june 2016 final.pdf
http://www.kibaranresources.com.au/irm/PDF/1661/EpankoBankableFeasibilityStudyCorporateUpd
ate
http://s1.q4cdn.com/722223210/files/doc downloads/Mar2016/Mason-Graphite-43-101-TechnicalReport-Resources-Update-and-Feasibility-Study-Re-issued-29-February-2016-v2-(Title-corrected).pdf
http://www.energizerresources.com/images/stories/pdf/(v5)C8375-TRPT-001%20Rev%206%20NI43-101%20Technical%20Report.pdf