PERTH (miningweekly.com) – ASX-listed Syrah Resources on Tuesday said that production from the Balama graphite project, in Mozambique, had been constrained by maximum finished product inventory as Chinese demand declined.

The company paused production from Balama in both May and June, with the project producing 15 000 t during April at a C1 cost of $565/t, which was impacted by lower production and fixed costs through the month, as well as increases in the diesel price since March of last year.

Syrah told shareholders that the decision to pause production was made to allow for downstream inventory consumption to occur and natural graphite demand conditions to improve. A production restart decision will be dependent on increasing sales from inventory, and new sales orders at prices above unit operating costs at production volumes averaging at least 10 000 t a month, in line with the Balama operating mode review.

Sales orders and price bids for Balama natural graphite products have not yet reached this level.

While production has been paused, Syrah completed inspections and brought forward planned processing plant equipment maintenance, with reduced operating personnel onsite. The company is now focused on strengthening plant reliability and identifying and implementing operational efficiencies during the production pause.

Meanwhile, the company has also completed a review of more dynamic operating scenarios at lower production volumes to better position the company to match periods of volatile customer demand, with more sustainable operating costs and cash flow outcomes.

The company on Tuesday said it has progressively implemented measures identified in this review, and that these would be fully available in the September quarter.

A key driver has been the implementation of fixed 30-day high-capacity-utilisation production campaigns followed by shutdown periods determined by inventory levels to improve cost efficiency.

Other initiatives include renegotiating key operating contracts, freezing hiring, optimising workforce rostering for campaign operations, and maximising the use of solar energy to reduce diesel consumption and costs.

Syrah told shareholders that the implementation of these cost-saving initiatives were expected to improve Balama C1 cost guidance to between $580/t and $620/t at a 10 000 t per month average production rate, with the lower end of the range assuming a lower than current diesel price.

During the 30-day production campaigns, Balama C1 costs guidance were expected to be between $378/t and $426/t at a 20 000 t a month production rate, with the lower end of the range again assuming the lower diesel price.

During the shutdown periods, Balama C1 costs are expected to be around $4-million a month.

Implementation of this operating mode will have no impact on employment levels beyond the hiring freeze, the company said.

Syrah has also reviewed an operating mode where sales and inventory constraints on production extend beyond the end of 2023 to further conserve cash if required.

In the medium term, Syrah is targeting a C1 of between $430/t and $480/t at a 20 000 t a month production rate, with the lower end of the range assuming a normalisation of diesel price to historical levels and the solar and battery system operating at full capacity. Balama’s operating costs are expected to reduce as the production rate increases with maximum capacity utilisation targeting C1 costs of $350/t to $390/t.

Meanwhile, at its Vidalia active anode material (AAM) facility, in Louisiana, Syrah is hoping to be ready for a final investment decision (FID) on its expansion plans by the second half of 2023.

An April definitive feasibility study estimated that the project would require a capital investment of $539-million to increase the project’s production capacity to 45 000 t/y AAM, from the initial capacity of 11 250 t/y AAM.

The project is expected to generate earnings before interest, taxes, depreciation and amortisation of between $103-million and $192-million, with all-in operating costs estimated at $3 023/t, assuming a natural graphite cost of $425/t from the Balama operation, in Mozambique.

Syrah said on Tuesday that the timing of the FID would be determined by customer and financing commitments, as well as consideration of equity market conditions.