Here’s why Syrah Resources (ASX:SYR) climbed higher on Monday and why its an over-reaction

Syrah Resources (ASX:SYR) shares had a good morning on Monday after the US International Development Finance Corporation (DFC) approved a $150m loan for its Balama graphite project in Mozambique. But we think as good news as it is, the share price rise was an over-reaction.

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Why Syrah Resources (ASX:SYR) rose

As noted above Syrah Resources had the DCF approve a US$150m conditional loan for Balama. This is an important step for the company because it has been trying to get it off the ground for so long.  But it is also big news for the graphite industry because it is the first DFC loan to a graphite operation.

There could well be more to come given America’s desire to secure its own supply chain for critical minerals such as graphite, rather than rely on China. But this loan will fund capital requirements for feasibility studies, working and sustaining capital as well as current and future expansion of Balama’s tailings storage facility.

With Syrah having first applied in June 2021, this news was a long time coming and good nonetheless.

Why shareholders might be getting ahead of themselves

We think nonetheless Syrah Resources shareholders need to remember that this is a conditional commitment. It is subject to further due diligence, negotiation of detailed terms and legal documentation. We’re no experts on due diligence on resources projects, but we are not sure what more would need to be done after over 2 years.

Shareholders also need to remember that the project does not even have a DFS and the offtake agreement with Tesla is conditional on final product qualification. So, although the news was good, investors might be too optimistic on Syrah Resources at the moment.

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