The Syrah Resources (ASX:SYR) share price has fallen a long way from peak of around $6.50 just over 2 years ago, back down to $2.90 today.
As often happens with mining companies, share prices peak pre-production as investors get excited about the size of its resource, and the potential profitability of the mine.
But then comes actual production. And that’s where things can start going wrong, certainly in the early months.
Graphite mining company Syrah Resources is no exception.
In June, the miner advised it would miss its production forecast for the first half of 2018. This week Syrah reduced its 2018 production forecast from 160,000 tonnes to around 140,000, at the same time as increasing its forecast cash operating costs.
Along with production set backs at its Mozambique processing plant, Syrah has been getting weaker than expected prices for its graphite.
Analysts are now questioning whether Syrah will need another equity raising, given the company has burned through $75 million, or roughly half its cash balance in the past six months.
Short sellers typically target companies that are at risk of heavily discounted equity raisings. Syrah is consistently amongst the most shorted stocks on the ASX, along with fellow “electric vehicle” themed companies, lithium miners Galaxy Resources (ASX:GXY) and Orocobre Limited (ASX:ORE).
Why Syrah Resources is under valued
Writing on Livewire, Rob Tucker, Portfolio Manager of Chester High Conviction Fund, said Syrah Resources remains one for the patient.
The fund has been attracted to Syrah as the world’s largest graphite deposit, which it expects will extract high quality graphite flake at (eventually) one of the lowest costs globally.
Mr Tucker says graphite is a structural beneficiary of the rise in Lithium Ion batteries used in electric vehicles, where demand should rise 10 fold over the next 10 years.
His contention remains that combining this back drop with a fall in Chinese graphite production due to environmental permitting issues will leave Syrah with an asset with global significance (35% of global graphite production) that he considers under valued given the reserve life.