Sovereign to demerge standalone graphite projects as NGX emerges to capture the battery boom
Link copied to
Sovereign Metals has worked extremely fast to progress the Kasiya mineral sands and graphite project since confirming what is now the world’s largest rutile discovery in March 2020.
The titanium feedstock ore body is now on a clear development pathway, with offtakes beginning to slide into place and a pre-feasibility study on the 18Mt Malawian monster due in the first half of 2023.
That has created the opportunity for Sovereign (ASX:SVM) to capture value for its collection of standalone graphite projects in Malawi, which will be demerged into a new ASX-listed graphite company called NGX.
Sovereign says shareholders in the $207 million capped developer will be able to retain exposure to the graphite assets as NGX looks to repeat the success of its parent.
The spin off will see 1 NGX share issued for every 11 owned by SVM shareholders in an in-specie distribution, with an $8.6 million priority offer expected to follow for SVM investors to pick up 1 NGX share for each unit they pick up in the distribution.
A general offer of $1 million will help NGX satisfy its ASX listing requirements.
Importantly Sovereign will retain its rights to all graphite co-product at the Kasiya mine, which an expanded scoping study in June showed would produce 265,000t of rutile and 170,000t of graphite over a 25-year mine life.
As part of the demerger, which will be completed at 20c a share through a capital reduction, NGX will take control of four graphite dominant projects which have fallen behind Kasiya in SVM’s list of priorities.
NGX holders will take full ownership of the advanced Malingunde project, which already boasts a measured, indicated and inferred resource of 65Mt at 7.2% total graphitic carbon for 4.68Mt of contained graphite, more than half of that in the higher measured and indicated categories.
They will also pick up the Duwi project, just 15km east of the Malawian capital of Lilongwe, which has a mineral resource estimate of 85.9M at 7.1% TGC, the Nanzeka project 60 klicks north of Lilongwe, where limited drilling in 2013 identified high grade flake graphite over a 3km strike length and 10m width, and Mabuwa, 60km south of Blantyre, which has a mafic-ultramafic intrusion with the potential to host nickel and PGE sulphides.
While graphite prices have not moved to the same extent as other battery metals so far in the electric vehicle boom, a major gap is emerging between supply of battery graphite and demand.
That is only set to rise with EV penetration, given graphite anode material makes up significantly more of the metal content of the battery than lithium.
Given it will become harder to justify investment in the 54 new coal or oil refineries to satisfy synthetic graphite demand in a net zero world, new sources of natural graphite will be even more important.
Sovereign plans to host a meeting to approve the demerger in January, with a distribution date for NGX shares in February if it gets the green light.
NGX will boast an experienced team of existing Sovereign directors and new appointments, including a non-executive director with technical expertise.
It will be headed by executive director Matthew Syme, a chartered accountant and mining executive with over 30 years in the game, including stints as a manager as a major international chartered accounting firm, three years as an equity analyst at a large stockbroker and a career as a CEO and director across a broad range of commodities and jurisdictions.
Familiar with graphite, Syme was a director of SVM between 2014 and 2016.
Chartered accountant Lib Matthews will take on the role of company secretary, a position she previously filled with ASX-listed Peregrine Gold.
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.