There’s no better way to spell confidence than having a world-leading miner becoming a strategic investor, which is exactly what Rio Tinto has done with a $40.4m investment in Sovereign.

Further highlighting the company’s value, Rio acquired the 83.1 million shares at 48.6c per share – a 10% premium to the 45-day volume weighted average price.

This investment represents a 15% interest in Sovereign Metals (ASX:SVM) and cements the position of its Kasiya project in Malawi as a potential future significant supplier of low emissions natural rutile and flake graphite.

Rio could increase its stake in Sovereign by exercising the 34.55 million options that it was also issued with within 12 months.

These options are exercisable at 53.5c each – a 21% premium to the 45-day VWAP to 14 July 2023 – and will deliver a further $18.5m to Sovereign if fully exercised.

Proceeds from the investment will be used to advance Kasiya by completing the Definitive Feasibility Study, product qualification and other expenditures agreed to with Rio Tinto such as permitting costs.

Adding further interest, Rio Tinto will provide assistance and advice on technical and marketing aspects of Kasiya with a primary focus on spherical purified graphite for the lithium-ion battery anode market.

“This landmark agreement with Rio Tinto, one of the world’s largest and most accomplished global mining companies, is confirmation of Kasiya’s place as one of the most significant critical mineral discoveries in recent times,” chairman Ben Stoikovich.

“The experience and expertise that Rio Tinto brings will truly set Kasiya apart as a potentially globally significant supply of two critical minerals and take us all a step closer to supply chain decarbonisation and achieving net-zero.

“Furthermore, this is yet another step towards unlocking significant benefits from development of the Kasiya project for Malawi.”

Investment agreement

If that wasn’t enough, should Sovereign seek to raise debt finance to develop Kasiya, it will negotiate under their investment agreement financing arrangements to put in place an acceptable mine construction funding package.

Both companies will work together to qualify Kasiya’s graphite product with a particular focus on supplying the spherical purified graphite segment of the lithium-ion battery anode market.

Rio Tinto also has the option to become the operator of Kasiya on commercial arm’s-length terms.

Should it choose to do so, it will also have the exclusive rights to market 40% of the annual production of all products from the project as identified in the DFS on arm’s-length terms.

The option to become operator ends 90 days after the release of the DFS results, or 180 days after the announcement of the DFS if Rio Tinto advises it needs additional time to consider the exercise of the Rio Tinto’s Option, or if Rio Tinto’s stake in the company drops below 10%.

Kasiya rutile-graphite project

The Kasiya project in central Malawi is the largest natural rutile deposit and one of the largest flake graphite deposits in the world.

It is the subject of an Expanded Scoping Study released in June 2022 that indicated the project is potentially one of the world’s largest and lowest cost producers of natural rutile and natural graphite with a global warming potential substantially lower than other existing and planned operations.

Key takeaways from this study include after-tax net present value (an indicator of profitability) of US$1.54bn, average earnings before interest, taxes, depreciation, and amortisation (EBITDA) of US$323m, and life of mine revenue of US$12bn.

Capex is estimated at US$372m, which is relatively low for a project of this scale, while operating costs are expected to be about US$320/t.

The project will also deliver steady state output of 265,000t of rutile and 170,000t of graphite per annum over a 25-year mine.

Initial characterisation testwork on Kasiya’s graphite has already indicated excellent suitability for use in lithium-ion batteries.

Rutile offtake MOUs have already been reached with major blue chip partners including Japan’s Mitsui and US-listed Chemours.

Sovereign is currently in the advanced stages of a Pre-Feasibility Study that will build on the ESS.

 

 

 

This article was developed in collaboration with Sovereign Metals, a Stockhead advertiser at the time of publishing.

 

This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.

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