The firm said on Tuesday (September 19) that it is looking to raise a total of AU$110 million, with AU$25 million coming from the institutional placement and AU$85 million coming from the entitlement offer. The entitlement offer consists of institutional and retail components, and the institutional portion was completed on Thursday (September 22).
Syrah said in Tuesday’s release that the money will primarily be used for working capital requirements associated with the ramp up of production at its Mozambique-based Balama graphite project; funds will also be used for the development of its battery anode materials strategy.
The company decided on debt funding and not equity funding in part due to cost. Using funds from debt financiers would also “limit Syrah’s flexibility to accelerate its value-adding strategic options,” Syrah said on Tuesday. In a note released Wednesday (September 20), Canaccord Genuity (TSX:CF) says that “[t]he raising should now remove uncertainty over SYR’s funding position.”
Construction at Balama is now over 90 percent complete, and commissioning is underway, according to Syrah’s interim report for the half-year ended June 30. Balama is expected to produce 140,000 to 160,000 tonnes of flake graphite concentrate in its first year of production, and 250,000 to 300,000 tonnes in its second year. The mine was originally scheduled to begin production in August 2017, but Syrah now expects to start production in late October. Balama will have a mine life of 42 years, a 2015 feasibility study on the project states.
Syrah is also looking to break into downstream processing for graphite concentrate. It is looking to develop a commercial battery anode materials plant in Louisiana to supply the battery anode market, and recently entered into a research and development agreement with Cadenza Innovation; as part of the deal, Cadenza will engage in the development and testing of battery anode materials.
Earlier this month, Syrah signed an offtake agreement with Jixi BTR Graphite Industrial, a subsidiary of Chinese battery anode manufacturer BTR New Energy Materials; Syrah will supply the company with 30,000 tonnes of graphite from Balama in the mine’s first year of production. Syrah also has sales agreements confirmed with Hiller Carbon, Marubeni (TSE:8002) and MINERALS GmbH.
With its institutional placement and the institutional portion of the entitlement offer now complete, only the retail component of Syrah’s entitlement offer remains. Syrah plans to hold that offering on Monday (September 25). Shares for the retail component of the 1-for-10.5 pro rata accelerated non-renounceable entitlement offer will be priced at AU$3.38, the same pricing used for institutional shareholders. The offering is expected to close on October 5.
Canaccord Genuity is maintaining a “speculative buy” rating for Syrah, and said that the money raised “should now provide sufficient capital for the mine and most of Stage 1 of the BAM project.” That said, the firm notes that “some uncertainty remains over the longer-term BAM ramp up and product mix, making it difficult to accurately value at this point.”
In light of the capital raising efforts, Canaccord Genuity has reduced its target price for Syrah Resources to AU$4.05 from AU$4.65. Syrah’s share price closed down 7.63 percent, at AU$3.51, on Thursday; it is up 15.08 percent year-to-date.
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Securities Disclosure: I, Melissa Shaw, hold no direct investment interest in any company mentioned in this article.