It’s been less than two months since Syrah Resources (ASX:SYR) signed its first memorandum of understanding (MOU) for an offtake agreement, but already the Australian company has signed a second. 

The new MOU is with Asmet (UK), a global supplier of metallurgical consumables and specialist products to the iron, steel and aluminum industries. It will see Syrah provide Asmet with 2 to 3 tonnes worth of samples so that it can “undertake the testing of products.” From there, if the two parties are able to negotiate a formal offtake agreement, Asmet will purchase 100,000 to 150,000 tonnes of graphite per year from the Mozambique-based Balama project at a price of about US$1,000 per tonne over an initial period of five years.

While China Aluminum International Engineering (Chalieco), the company with which Syrah signed its first MOU, plans to use Syrah’s graphite for anode and cathode blocks, Asmet has other plans. Specifically, it will use Syrah’s graphite as a carbon additive, or recarburiser, mainly in foundry applications, but also in high-quality steel production.

What does that mean exactly? Syrah explains in its press release that steel is an alloy whose two main components are iron and carbon, the latter of which is included as a hardening agent. Though many types of steel use anthracite, metallurgical coal, calcined petroleum coke or amorphous graphite as carbon sources, those lower-quality additives don’t work well to make cast iron due their “high degree of impurities.” That’s where Syrah comes in. Balama graphite, which “contains low harmful impurities” is thought to be ideal for making that type of iron.

Syrah’s decision to enter the recarburiser industry is an interesting one. The company admits as much with the statement that it’s not common to use flake graphite for that purpose because “most flake graphite produced from China has high impurities” and “most quality flake graphite can be sold in refractory applications at a higher price than recarburiser.”

That may not sound promising, but Syrah is hopeful that by selling recarburiser for an initial price of US$1,000 per tonne — compared to the usual $1,200 to $1,500 price range for high-quality carburiser — it will be able to quickly secure market share in the industry.

What’s next?

Moving forward, investors should expect to see Syrah make further progress on its MOU with Chalieco. Indeed, Chalieco has already completed field due diligence and received Balama graphite samples for testwork from Syrah. Once that testwork is finished, Chalieco should be in a position to negotiate a final offtake agreement; the companies have until June 7, 2014 to do so.

Another offtake agreement MOU may also be in the works for Syrah. The company notes that it is in “advanced discussions with a large European graphite trader for graphite offtake in to Europe,” and expects to be able to provide further details next month. No word yet on how much the European trader may buy from Syrah, but if the past two MOUs are anything to judge by, it’s reasonable to assume it will be a sizeable amount.

At close of day Friday, shares of Syrah were selling for $3.74 each, up fairly significantly from $3.15, where they sat just after the announcement of the company’s initial MOU.

 

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. 

Related reading: 

Syrah Resources, Chalieco Sign MOU for Graphite Offtake Agreement