Australia’s Syrah Resources (ASX:SYR) ended last week on a high note with the announcement that it has signed a memorandum of understanding (MOU) for an offtake agreement with China Aluminum International Engineering (Chalieco) (HKEX:2068), an affiliate of Aluminum Corporation of China (HKEX:2600), better known as Chinalco.

The MOU will see Chalieco purchase between 80,000 and 100,000 tonnes of flake graphite from Syrah’s Mozambique-based Balama project, as well as a to-be-determined amount of >98-percent V2O5 or flake products. It also stipulates that a legally binding offtake agreement be negotiated within three months of the MOU being signed; that agreement will “firm up V2O5 volume requirements and also both graphite and V2O5 pricing.”

Syrah notes in Friday’s press release that there are three key reasons behind Chalieco’s interest in an offtake agreement. Those include:

  • China’s graphite shortage: As Industrial Minerals reported back in December, as many as 55 graphite miners and processors in the Chinese town of Pingdu have been ordered to stop producing flake graphite on environmental grounds. The result, states Syrah, is that at the moment there is a shortage of high-quality graphite in China. That means companies are being forced to look elsewhere for the material.
  • Anode blocks: Chinalco intends to use graphite from Syrah in the anode blocks at its aluminum smelters. Though it’s usually green petroleum coke that is used in such blocks, graphite “has two qualities that make it preferable.” For one, it has “superior electrical conductive properties relative to petroleum coke,” and for another, it is “heat resistant and deteriorates slower when in the presence of extreme heat.”
  • Cathode blocks: Chinalco also plans to use Syrah’s graphite as cathode blocks in its aluminum smelters. That’s more expensive than making them out of the usual “carbon materials.” However, according to Syrah, cathode blocks made of graphite are “more resistant to wear and tear” and allow for energy savings.

For Syrah, the MOU is significant for different reasons, chief among them being the fact that it is now one of the few graphite companies with an offtake agreement in the works. Indeed, the first was signed not even three months ago, when Focus Graphite (TSXV:FMS,OTCQX:FCSMF) entered into an offtake agreement with a China-based industrial conglomerate.

Also important, according to The Australian, is that Balama’s planned initial production is 220,000 tonnes, meaning that if the offtake agreement goes through as planned, Syrah will have dealt with over a third of that amount. In terms of what will happen with the rest, the company anticipates being able to announce more offtake developments in the coming months.

At close of day on Monday, shares of Syrah were selling for $3.15 each.

 

Securities Disclosure: I, Charlotte McLeod, hold no direct investment interest in any company mentioned in this article. 

Editorial Disclosure: Syrah Resources is a client of the Investing News Network. This article is not paid-for content.