Syrah Resources Limited signed a binding offtake agreement with Posco Future M Co., Ltd for natural graphite fines from Syrah’s Balama Graphite Operations in Mozambique. The offtake agreement is an important development in the company’s sales strategy to transition Balama natural graphite sales to a more geographically diversified and commercially aligned customer base and highlights Syrah’s unique position in natural graphite and AAM supply outside of China.
Key terms of the offtake agreement include:
- Volume: Up to 2kt per month (24kt) in the year following commissioning, and from 2kt per month (24kt per annum) to 5kt per month (60kt per annum) at the option of Posco Future M with at least six months’ notice, from the second year to the end of the Term.
- Term: Six years commencing upon notification from Posco Future M.
- Price: Mutually negotiated on a quarterly basis over Term, referencing independently reported price indices for natural graphite fines, with adjustment for product grade and volume.
- Conditions: Notification of commencement from Posco Future M must occur on or before 31 December 2025.
- Delivery location: South Korea.
Posco Future M (previously Posco Chemical) is a major battery materials business, producing cathode active materials and AAM (Anode Active Material). Posco Future M is one of the largest AAM producers globally. Posco Future M is planning to grow its natural graphite AAM production capability significantly, principally from processing facilities in South Korea, from ~74kt per annum in 2023 to 154kt per annum and 182kt per annum in 2026 and 2030, respectively, for supply to tier 1 battery manufacturers globally.
Posco Future M currently consumes purified spherical graphite from China for production of AAM in South Korea.
Posco Future M target AAM production capacity.
Syrah’s natural graphite sales strategy. Syrah’s offtake agreement with Posco Future M, in addition to offtake agreements with Graphex Group Limited and Westwater Resources for Balama natural graphite supply fully align with Syrah’s medium-term natural graphite sales strategy to balance integrated consumption through its Vidalia AAM facility in the US, with an increasing proportion of sales volume ex-China, and residual sales volumes to China.
Besides the offtake agreements already executed, Syrah is currently engaged commercially with seven additional ex-China natural graphite anode projects for long-term natural graphite supply from Balama. AAM facility projects are in various stages of progress in the US, Canada, South Korea, Europe, South East Asia, and India.
Syrah has also concluded a spot contract for trial shipment for an AAM facility in Indonesia, which is under construction and expected to commence operations later this year. Furthermore, there is increasing interest from battery manufacturers and auto OEMs in directly contracting sustainable upstream supply of ex-China natural graphite for anode processing partners.
The Balama natural graphite offtake agreements with ex-China anode customers and Government policy developments highlight the strategic importance of Syrah to the global battery and anode supply chain, offering customers a large volume, reliable source of natural graphite supply outside of China, which is significantly differentiated in quality and ESG standards in production.
On 1 December 2023, China’s the Ministry of Commerce (MOFCOM) and General Administration of Customs (GACC) implemented export controls for designated “dual-use” graphite products used in commercial and defense applications, including for batteries, citing safeguarding of natural security and interests.
Export licensing controls apply to all consignments of natural graphite and its products, including uncoated spherical graphite, coated spherical graphite and expandable graphite, from China to all export destinations. Ex-China AAM and battery supply chains are currently largely reliant on Chinese natural graphite and AAM exports. These licensing controls introduce greater uncertainty, increased administrative barriers and delays in export supply of the designated graphite materials from China and heightens the criticality of ex-China supply of graphite materials for the lithium-ion battery chain in particular.
North American battery manufacturers and auto OEMs are focused on sourcing large volumes of AAM that do not contain any critical minerals, such as graphite, which are extracted, processed or recycled by Foreign Entities of Concern (FEOC).
This aims to maximize the number of batteries and EVs that can qualify for the critical mineral component of the Section 30D credit. FEOC includes entities incorporated, with headquarters or performing activities in covered nations, such as China, and entities outside of covered nations with a 25% or more Board respentation, voting rights or look through equity interests with Governments of FEOC covered nations (including the Chinese Government).
If any step in the production of natural graphite AAM, from extraction to final processing into high purity material in the cell, is completed by a FEOC, it is deemed to be non-complaint and any EVs that uses it in the battery will be disqualified for the Section 30D credit from 1 January 2025.
Accordingly, ex-China and non-FEOC incubent and new anode processing companies that are aiming to supply North American battery manufacturers and auto OEMs are highly focused on sourcing long-term ex-China natural graphite feedstock. Balama is the only major, independent source of high quality, large volume supply alternative to meet these requirements.