Five years in the making: CEO Shaun Verner says Tesla deal proves Syrah’s strategy

Syrah Resources (ASX: SYR) grabbed the market’s attention this morning with a four-year supply deal with Tesla, a mild-mannered maker of electric vehicles and inflammatory tweets.

Shares of the company jumped 23% in morning trading before stopping, following a request for information from ASX.

Syrah Tesla

The devil – and this isn’t a sneaky reference to Tesla CEO Elon Musk – is in the details, and the details at this point are pretty slim.

In an ASX update this morning, Syrah said it has come to an agreement with Tesla to supply a stack of natural graphite (AAM) active anode materials from its US production facility in Vidalia. .

The company said Tesla would withdraw the majority of the proposed initial expansion of AAM’s production capacity at Vidalia at a fixed price for an initial (and not insignificant) term of four years.

Tesla also has the option of taking an additional volume of Vidalia, depending on the exact amount of Syrah that can expand its capacity beyond 10kt per year from AAM.

“The agreement provides a compelling basis for proceeding with the initial expansion of Vidalia’s production capacity and Syrah expects to make a final investment decision for the construction of this expanded facility in January 2022,” Syrah told the ‘ASX.

Tesla – a fairly decent customer

Syrah also said it is advancing commercial and technical engagement with other target customers to develop Vidalia AAM for mass production and to secure additional long-term purchasing commitments.

Speaking to Stockhead, CEO Shaun Verner said customer support was a key requirement for Syrah to make a Final Investment Decision (FID) on the initial expansion of Vidalia’s production capacity.

“This Tesla contract provides a solid foundation for that,” Verner said. “It also provides a good basis for the external financing, which is necessary for the expansion.”

While the detailed terms of the direct debit contract are confidential, for Verner and his team, this morning’s announcement represents more than just a historic deal with a globally recognized name.

“For us, this is a key step in a five-year strategy that everyone at Syrah has patiently and persistently pursued,” he said.

What happens next, Shaun?

“We plan to submit the FID to the board of directors in January 2022,” he said.

“This core customer engagement is a key requirement for this decision, as we’ve always said. “

Following the decision, Verner puts an 18-month window on construction with the commissioning of the expanded facility scheduled for H2 2023.

The Vidalia proposal

Vidalia’s proposal looks very attractive compared to the existing supply chain for anode materials.

Whether it is ESG, the local reliability or the vertical reliability of an integrated operation, the growing attention to the development of local supply chains, the manufacture of batteries and electric vehicles for governments and companies. customers, more particularly in the United States, place Syrah in the lead.

Verner says battery manufacturing in the United States is set to grow exponentially with the rate of announcements for new installations increasing over the past 12 months.

“Just look at Toyota, Stellantis with LG / Samsung, SKI / Ford, LG / GM Ultium – Vidalia is the only advanced integrated facility of natural graphite active anode materials in the whole of the United States,” a- he declared.

SYR – on a sequence in Mozambique

Meanwhile, the upstream operation of Syrah in Balama, Mozambique is increasing production in line with market conditions.

Graphite prices have steadily increased this year following shipping and supply chain issues, with Syrah restarting the Balama operation in February which it put on hold at the start of the pandemic in 2020 amid prices falling.

The near-term natural graphite market will be supported by the disruption of supplies from China, Verner said.

“The long-term market environment is robust with demand for natural graphite expected to increase 4-fold through 2030, supported by strong end-market growth, such as a 5-to-6-fold increase in demand for natural graphite. ‘active anodes, as well as an increase in electric vehicle sales from 6 million units per year today to> 30 million units per year in 2030. “

But, as Elon Musk has just proven and as Stockhead’s Josh Chiat said earlier this week, it’s downstream that Syrah and companies like it turn money men on – positioning themselves to “capture the natural increase in income by moving up the value chain ”.

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