PERTH (miningweekly.com) – Graphite miner Syrah Resources will raise some A$111.6-million though a convertible note and underwritten entitlement offer to ramp up production at its Balama project, in Mozambique.

Syrah has struck an agreement with its largest shareholder AustralianSuper to issue a five-year unsecured convertible note in order to raise an initial A$55.8-million.

Interest on the principal amount outstanding under the convertible note will be accrued at a rate of 8% a year, unless Syrah elects to make the interest payments in cash, in which case the interest payments will be calculated at a rate of 7.5% a year.

AustralianSuper could at any time after 30 months from issue, and prior to the maturity date, elect to convert the note at a conversion price of A$1.0036, which is a 5% premium to the theoretical ex-rights price on June 18.

If the conversion would result in AustralianSuper holding an interest of more than 20% in Syrah, the ASX-listed company would only convert a portion of the note that would result in AustralianSuper holding a 19.9% interest in the company, and will redeem the balance of the note for a cash payment, unless Syrah considered it to be in the best interest of the company to convert the whole note.

Under the one-for-five pro rata accelerated non-renounceable entitlement offer, shareholders will be able to subscribe for new shares at an offer price of 81c each, to raise a further A$55.8-million.

The entitlement offer price represents a 15.3% discount to the theoretical ex-rights price on June 18, and a 17.8% discount to Syrah’s last closing price on June 18.

The entitlement offer is fully underwritten and will not be conditional on the convertible note issue.

Syrah this week told shareholders that the production ramp-up at its Balama project is continuing, and is nearing the production volumes that are expected to generate positive operating cash flows.

The company noted that production at Balama was approaching a point where the trade-off between unit cash operating costs benefits versus the pricing impact of incremental supply into the market was more balanced, and that increasing production too rapidly in the short-term in order to target market penetration may not be optimal for pricing outcomes.

The proceeds from the capital raising will provide Syrah with additional liquidity and greater flexibility to tailor the production ramp-up in accordance with global demand, enabling orderly price negotiations, the company said.

A portion of the proceeds will also be used to progress the qualification of Syrah’s battery anode material and will inform the company’s market entry and commercialisation approach.

For the 2019 calendar year, Syrah’s production at Balama has been adjusted from the previous estimate of 250 000 t, to between 205 000 t and 245 000 t.

Meanwhile, Syrah this week announced the execution of a binding agreement with Asia-focused trading company Gredmann for the sale of some 9 000 t/m of graphite for sales into China.

Starting in June and running until December 2021, a total of 279 000 t of graphite product, across a range of fixed carbon grades, will be delivered under the offtake agreement under more attractive payment terms than Syrah’s previous sales contracts.

“We are pleased to have entered into this long-term large volume contracts with Gredmann. Syrah sees Gredmann’s extensive experience and strong presence in China as an excellent platform through which to increase sales volumes and further demonstrate consistency and reliability of supply to this high growth market,” said Syrah MD and CEO Shaun Verner.