Then things started going off the rails.

China, which provides more than 90% of the world’s battery-grade graphite supply, jacked up its production, flooding the market and driving prices so low that Syrah couldn’t mine profitably. Last May, the Biden administration delayed new rules that would have penalized U.S. users from buying Chinese graphite. In Mozambique, farmers resettled Syrah’s mine staged protests, shutting down the mining.

Syrah’s Louisiana plant, now open for a year, has yet to make its first commercial sale. Syrah’s stock has plunged by around 90% since the start of 2023.

The company’s challenges help show why, in the David-versus-Goliath battle for the world’s critical minerals, China, the Goliath, keeps winning.

The U.S.’s desperate need for critical minerals—which includes resources such as nickel, lithium and cobalt in addition to graphite—has been underscored by the Trump administration’s aggressive push for greater access in Ukraine and Greenland, rattling allies. In December, Beijing said it would ban certain mineral exports to the U.S. and conduct stricter reviews of graphite sales, in response to U.S. restrictions on semiconductor exports to China.

Yet with its thumb on many of the best resources, China can dictate prices. Washington’s policy flip-flops keep blowing up miners’ plans. And many Western mining companies struggle to navigate higher-risk countries where critical minerals—all needed for green technologies and national defense—are prevalent, leaving them flat-footed when unrest erupts.

Jervois Global, the only dedicated cobalt miner in the U.S., suspended operations in 2023, five months after local dignitaries attended the opening of its Idaho mine. The company, which received Pentagon funding, blamed surging Chinese cobalt production for pummeling prices. In January, Jervois declared bankruptcy.

BHP, one of the world’s top miners, shut down its Australian nickel operations last year, amid a deluge of Chinese production from Indonesia. Albemarle, the largest U.S. lithium producer, is cutting its workforce and delaying new processing facilities after a surge in Chinese lithium supply cratered prices.

There is considerable debate in mining circles over whether China is intentionally overproducing to put Western companies out of business. It is also possible Chinese companies are just trying to maximize production and earnings, since they can be profitable at lower prices than Western competitors.

China’s Foreign Ministry didn’t respond to a request for comment.

Either way, China’s control over certain metals is proving hard to break.

The share of the world’s refined lithium produced in China or by Chinese owners abroad hit 71% last year, up from 49% in 2017. Over the same span, the country’s control of refined nickel rose to 55% from 38%, according to Benchmark Mineral Intelligence. Most of the world’s graphite mining takes place in China or in Africa.

Graphite customers “have ultimately made the economically rational, but strategically dangerous decision to essentially go all in on China’s supply,” said Verner.

Showered with money

Syrah, a small Australian firm, broke into the big leagues in 2011 when it purchased a company that owned mineral rights throughout East Africa, including the Balama graphite deposit in northern Mozambique. Verner, who had spent 20 years at BHP, became Syrah’s chief executive in 2017.

The company seemed destined for success. Decades of heavy mining in northern China had depleted some of the country’s graphite, and new alternatives were needed.

A Credit Suisse analyst predicted that Syrah’s mine, dug out of a forested area, was a global standout that could “provide 100% of the world’s current requirements for natural graphite for about 1,000 years.”

Syrah wanted to do more than just mine the stuff. Company leaders also wanted to process the graphite they mined to unlock more profit, even though such work is expensive and complicated, with much of the world’s expertise in China.

Undeterred, Syrah licensed processing technology from a Chinese producer and began working out the kinks of “spheroidization,” a complex process that turns graphite into tight balls, which are jam-packed into the anodes of EV batteries to boost energy density and performance.

Syrah’s ambitions dovetailed with the goals of the Biden administration, which wanted to use EV manufacturing to rebuild U.S. industrial strength.

In July 2022, Syrah was awarded a $102 million Energy Department loan to build up the Louisiana graphite-processing facility, creating nearly 100 high-skilled operations jobs. That August, Congress established a $7,500 subsidy for EV purchases to boost demand. A couple of months later, the Energy Department announced a $220 million grant to Syrah to quadruple output in Louisiana.

“Congrats on getting showered with the money,” an analyst said on a call with Syrah company leadership.

Sleeping giant

China wasn’t sitting still. Hoping to cash in on an EV boom and revive fading industrial regions, Chinese companies cranked up their graphite production.

State-owned mining giant China Minmetals began pumping out enormous quantities in 2022 from a huge new mine in northeast China. Chinese companies also built new factories to make synthetic graphite, an industrially-produced alternative for natural graphite that is also used in EV batteries.

The surge in Chinese graphite production sent spherical graphite prices plummeting from $3,650 dollars a metric ton in April 2022 to $2,400 a year later.

Competition among Chinese producers was so intense that many companies sold at prices below their costs, said Verner.

In response, Syrah halted mining in Mozambique for four months in 2023. It later restarted, but at reduced levels. Verner said the company wouldn’t produce at a loss.

The company still had one significant thing going for it: A 2022 law signed by then-President Biden that penalized the use of Chinese graphite. The idea was to push carmakers to buy graphite from U.S. or allied sources such as Syrah, even if it was costlier.

But in May 2024, the Biden administration said it would waive the planned penalties for two years. More work needed to be done to set up a reliable mechanism for tracing graphite’s origins, it said.

Sen. Joe Manchin, chairman of the Senate energy committee, and other critics said the Biden administration was more concerned with keeping EVs cheap than with supporting upstream manufacturers in the U.S. such as Syrah. One company that had been considering buying Syrah’s graphite decided it wasn’t interested, Verner said.

Last October, the U.S. government lent Syrah $150 million more, this time to support the Mozambique mine. But things weren’t rosy there, either.

During a chaotic election season in Mozambique, farmers who had been resettled from their lands near the mine held protests, forcing Syrah to halt operations. The protests came amid a wave of unrest after Mozambique’s longtime ruling party declared a victory that was questioned by the opposition and European Union election observers.

In December, Syrah announced that protests at its mine had put it in default on its loan agreements with the U.S., because of the prolonged operations interruptions. The company said it spent $18 million more than it earned in the last three months of 2024.

Hanging on

Despite the challenges, Verner says Syrah’s best days are ahead. He hopes that once Mozambique’s government is settled, it will be able to resolve the protests and the company will restart mining, though when that will happen remains uncertain.

Automakers are currently “qualifying” its products to confirm they meet quality standards, and the company expects to make its first graphite-anode sales from the Louisiana plant later this year. The $200 million plant now sprawls over nearly 40 acres on the Louisiana-Mississippi border, where technicians work out the kinks of grinding down graphite spheres and coating them with carbon.

Syrah says the Trump administration is a wild card: It could help the company’s prospects by hiking tariffs on Chinese graphite imports, or hurt its prospects by removing subsidies for people to switch to EVs.

In January, the Department of Commerce said it would go ahead with an investigation into Chinese trade practices after Syrah and other North American graphite producers petitioned the U.S. government to investigate Chinese graphite prices.

Tesla opposed the industry’s antidumping petition. A Tesla employee said in a legal filing that it relies on high-purity graphite materials that are predominantly produced in China. It can exit its agreement with Syrah if it doesn’t “qualify” their materials in 2026.

“To most U.S. automakers, their economic incentives are to say the product doesn’t qualify so they don’t have to buy them,” said Jigar Shah, director of the U.S. Department of Energy loans office under former President Biden that approved the initial $102 million loan to Syrah.

Shah said that Syrah remained an important project, despite its challenges.

In February, Syrah announced a small-scale offtake agreement with carmaker Lucid, which is also subject to product qualification. Syrah is waiting to tap its $220 million federal grant and expand its facility until production contracts are settled.

“They are a critical project by all means, it has just proven more challenging than people thought,” said Georgi Georgiev, a battery raw materials analyst for Fastmarkets, a data provider.

Write to Jon Emont at jonathan.emont@wsj.com