One step forward but two steps back

UBS Global Research
30 January 2019
Syrah Resources
One step forward but two steps back

SYR delivers on revised 2018 guidance…
Graphite production of 33kt lowered 14% q/q impacted by fire damage to the Primary
Classifier Unit in Oct taking full year production to 104kt, in line with revised guidance.
Sales lifted to 37kt supported by inventory draw down and recoveries improved to 70%
(53% in Q3). SYR did not provide a specific basket price achieved however did note
that it lowered in Q4, impacted by higher fines sales. SYR's cash balance at 31 Dec 18
was US$77.1m (UBSe US$75.5m), down from US$100.3m as at 30 Sep 18.

But 2019 guidance on costs and price disappointed
We remain conservative on our production outlook forecasting 227kt compared with
guidance of 250kt. Ramping up production continues to be a balancing act of
minimising unit costs by operating at a certain capacity while not saturating the market
with product. Cost and pricing guidance are likely what disappointed the market and
we have lowered our 2019E EPS to –US5.6cps from US2.7cps as a result. Guidance
indicates costs will moderate from ~US$550/t to ~US$400/t by year end (prev. UBSe
US$373/t). Pricing is guided to be in the range of US$500-600/t in H1 19 (prev. UBSe
US$657/t). Other 2019 targets announced include lifting recoveries to 88% and
decreasing the fines:course flake ratio to approach 70:30. New binding sales
agreements into China are in place for a minimum of 74kt in 2019 (+12kt option). Roll
over contracts and new agreements are still being negotiated for remaining volumes.

Is there still value in SYR and what are the risks?
Today's share price move (-13%) in our view reflects a revision to pricing expectations
as the market tries to determine a sustainable long term price. The UBS LT basket price
is US$824/t and we see the market today pricing in