Glencore / Syrah Resources research note 10 July 2014

Simon Moores, Independent Consultant Niche, critical & industrial minerals and metals

This research note has no affiliation with the companies discussed and is to provide independent analysis on the

companies and industries mentioned. The author/authors hold no financial interests or shares in any companies mentioned.

All content is free for public use and quotable providing original source is cited.

Simon Moores, Independent Consultant Niche, critical & industrial minerals and metals

Story: Rumours that Glencore have approached Syrah Resources for a possible takeover

Based: Switzerland HQ: UK Business: Commodity

Trading & Mining Producer and trader of

vanadium

Based: Australia Business: Resource

Exploration & Mine Development

Owns the world’s largest vanadium and graphite deposit in Mozambique

Vanadium

Glencore strategy brief:

As a producer of vanadium, Glencore is seeking supply security and market dominance with the few new suppliers that are coming on-stream . The market is presently dominated by one Russian and two major Chinese producers.

Glencore has secured an offtake agreement with Largo Resources which expects first production from its Maracas Vanadium Project in Brazil imminently.

Part or full ownership of Syrah Resources for its vanadium production would be the rationale. The significant volumes of flake graphite produced would be a bonus but could also be sold as a recarburizer to Glencore’s customers.

Supply security is an issue that is rising to prominence, particularly in the vanadium industry which has one of the most fragile supply structures of all niche minerals and metals.

Vanadium is part of Glencore’s larger commodities business which is focused on steel raw materials, oil, coal and agricultural commodities such as grain, cotton and sugar.

• Vanadium - driver behind the rumour• Syrah plans to produce 5,000 tpa of vanadium a year at initial capacity• Glencore is one of the world’s largest producers of vanadium

Syrah Resources brief:

Syrah Resources owns the world’s largest flake graphite deposit which also hosts significant volumes of vanadium.

The Balama Deposit in north Mozambique hosts 1.15bn tonnes of vanadium (grade: 0.23% V2O5) flake graphite (grade: 10.2% C) to JORC regulations; contained 117m tonnes.

Syrah plans to initially produce 5,000 tpa ramping up to 10,000 tpa. It will look to produce 98.5% V2O5 for steel markets and 99.9% V2O5 for batteries.

Its flake graphite output, seen as a by-product by the company, will exceed 200,000 tpa should vanadium production total 5,000 tpa. The company is targeting steel refractory, steel recarburzier and battery markets with its flake product.

Expected start up is 2016.

• Vanadium expected output: 5,000 tpa• Flake graphite expected output: 200,000 tpa• Steel and battery markets targeted for both products

Syrah Resources | Production comparison

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

Vanadium (tonnes)

Global Output in 2013 Syrah expected output in 2016

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

Flake graphite (tonnes)

Global output in 2013 Syrah expected output in 2016

• Syrah’s output will equate to 7% of the world’s raw material output of vanadium in 2013

• Syrah’s output will equate to 53% of the world’s supply in 2013

What is vanadium?

Vanadium is a metal used as a strengthening agent in steel production and to produce a vast array of alloys and chemicals.

Vanadium is finding solid growth in the steel sector due to the increased demand for stronger, lighter advanced steel materials in anything from construction rebar to automobiles and airplanes.

Vanadium is also finding new markets in batteries. The vanadium flow battery is widely seen as the best technology for stationary or off-grid storage. This battery technology could provide back up power for cities or make renewable energy more manageable with the ability to store energy from the intermittent power sources.

• Metal used as a steel strengthen• New emerging markets: Large, stationary batteries • Possible upside for renewable energy storage

Where is vanadium produced?

China, 53%

Russia , 10%

South Africa , 18%

Europe , 8%

North America,

6%

Other, 5%

Source: TTP Squared

Where is vanadium used?

Steel , 90%

Titanium / super alloys,

4%

Chemicals, 3%

Other, 3%

Source: TTP Squared

What is flake graphite?

Flake graphite is the most commonly mined form of natural graphite.

It is predominately mined in China with Brazil being the second largest producer. In 2013, China produced 60% of the world’s 375,000 tonnes of flake graphite output but in 2014 the major producing areas of Heilongjiang and Shandong provinces started consolidation.

There have been no flake graphite mines established outside of China since the mid-1980s.

The primary use for flake graphite is in steel refractories which accounts for over half of consumption. Battery demand has risen to prominence since 2009 with the increased production of electric vehicles and a ramp up in portable batteries for smart phones, tablets and laptops. Lithium-ion battery technology is driving interest the space and new flake graphite demand, while refractories remain the staple market.

• One of three natural, mined graphite products• Production dominated by China; consolidation occurring • Like vanadium, used in steel and batteries

Where is flake graphite produced?

China59%

Brazil 23%

India 7%

Canada4%

Other 7%

Source: Simon Moores

Where is flake graphite used?

Source: Simon Moores

Refractories , 52%

Batteries, 22%

Further processed products ,

20%

Other , 6%

Profile | Simon Moores• Independent consultant and analyst

• Specialising in niche, critical and industrial minerals and metals

• Graphite, lithium, vanadium, cobalt, fluorspar, mineral sands

• Tracking supply, demand and prices in the industry since 2006 when he joined Industrial Minerals

Email: sdmoores@yahoo.co.ukTwitter: www.twitter.com/sdmoores (@sdmoores) Linked In: uk.linkedin.com/pub/simon-moores/18/614/b06/

• Visited numerous mines incl: SQM (Lithium in Chile), Black Dragon Graphite (Graphite, China), American Vanadium (Vanadium, USA), Western Lithium (Lithium, USA), Rockwood Lithium (Lithium, USA), Ashapura (Bauxite, Kaolin, Bentonite, India), Tata Chemicals (Soda Ash, India & UK)

• Interviewed by international press incl: The New York Times with regards to rare-earths after he broke the story that China blocked exports to Japan in 2009, London’s The Times, The Australian, Reuters, Bloomberg, Italy’s La Stampa