Client News

PFS HIGHLIGHTS

·    “Market Leader” Position in Two Critical Minerals:

o Positioned to become the world’s largest rutile producer at 222kt per annum for an initial 25 year life-of-mine (LOM)

o Potentially one of the world’s largest natural graphite producers outside of China at 244kt per annum

o Natural rutile facing significant global supply deficit forecast to widen further considerably in the next 5 years¹

o Natural graphite market moving into deficit as demand rapidly grows in the lithium-ion battery and electric vehicle (EV) sectors

o Initial Probable Ore Reserves declared of 538Mt, representing conversion of only 30% of the total Mineral Resource

o Substantial production rate and mine life upside exists as the PFS modelling was limited to only 25 years

·    Highly Compelling Cost Profile:  

o Cash operating costs of US$404/t of product will position Kasiya as the lowest cost producer of rutile and graphite globally

o Increased capital to first production from the Expanded Scoping Study, is primarily due to bringing forward capital items previously planned for Stage 2 including a rail spur, full-scale water dam, integrated power and optimised graphite production, as well as generally enhanced engineering and global cost inflation

·    Industry-Redefining Environmental and Social Advantages:

o Extremely low CO₂-footprint operation incorporating climate-smart attributes including hydro-mining with renewables power solution

o CO₂ emissions expected to be lowest in class versus existing and planned operations and versus alternative synthetic products

o Low-impact operation with mineralisation at surface, zero-strip ratio, low reagent usage, simple process flowsheet and progressive land rehabilitation

·    Strong Support from the Government of Malawi:

o Government of Malawi has applauded the timely investment by Rio Tinto and marked it as a milestone towards realising the country’s aspirations of growing the mining sector as a priority industry

o PFS demonstrates Kasiya’s potential to provide significant socio-economic benefits for Malawi including fiscal returns, job creation, skills transfer and sustainable community development initiatives

o With mining being one of the key pillars for growth under Malawi’s economic development strategy (Agriculture, Tourism, Mining – ATM Policy) and the potential for Kasiya to be a project of national significance, the Government has constituted an Inter-ministerial Project Development Committee to work alongside the Company to assist in the permitting processes  

·    Optimisation with Strategic Investor Rio Tinto to Commence:

o Advancing into an optimisation phase prior to moving to the Definitive Feasibility Study (DFS) with support from the Company’s strategic investor, Rio Tinto

o Formal establishment of the Technical Committee with Rio Tinto  

Managing Director, Dr Julian Stephens commented: “The release of the Kasiya PFS marks another important step towards unlocking a major source of two critical minerals required to decarbonise global supply chains and to achieve Net-Zero.

The Project benefits from existing high-quality infrastructure and inherent ESG advantages. Natural rutile has a far lower carbon footprint compared to other titanium feedstocks used in the pigment industry, and natural graphite is a key component in lithium-ion batteries – crucial to de-carbonising the global economy.

The high-quality of work completed and the results of the PFS demonstrates that Kasiya is a globally significant project that has the potential to deliver a valuable long-term source of low-CO₂ products and generate substantial economic returns with a forecast average EBITDA of US$415 Million per annum for the initial 25 years modelled. The Project is well positioned to be a large scale, multi-generational asset with significant opportunity for further upside as only 30% of the current mineral resource (MRE) is utilised in the PFS model.

Kasiya’s compelling economics demonstrate the potential for industry-leading returns, even against the backdrop of global cost inflation.

The Company is looking forward to conducting an optimisation review in collaboration with new strategic investor, Rio Tinto and progressing to the Definitive Feasibility Study.”

 

ENQUIRIES

Dr Julian Stephens (Perth) Managing Director +61(8) 9322 6322

Sam Cordin (Perth) +61(8) 9322 6322

Sapan Ghai (London) +44 207 478 3900

 

Nominated Adviser on AIM and Joint Broker
SP Angel Corporate Finance LLP
Ewan Leggat Charlie Bouverat Harry Davies-Ball	+44 20 3470 0470
Joint Brokers
Berenberg	+44 20 3207 7800
Matthew Armitt
Jennifer Lee
Tavistock PR	+44 20 7920 3150

 

To view the announcement in full, please refer to the announcement at http://sovereignmetals.com.au/announcements/.

 

The information contained within this announcement is deemed by the Company to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014 as it forms part of UK domestic law by virtue of the European Union (Withdrawal) Act 2018 (‘MAR’). Upon the publication of this announcement via Regulatory Information Service (‘RIS’), this inside information is now considered to be in the public domain.

Source:

 1. TZ Minerals International Pty Ltd (TZMI)

 

KASIYA PFS OUTCOMES

Sovereign Metals Limited (the Company or Sovereign) is pleased to announce the results of the Pre-Feasibility Study (PFS or Study) for the Company’s Kasiya Rutile-Graphite Project (Kasiya or the Project) in Malawi.

The PFS confirmed Kasiya as potentially a major critical minerals project with an extremely low CO₂-footprint delivering major volumes of natural rutile and graphite while generating significant economic returns.   

The PFS is an Association for the Advancement of Cost Engineering International (AACEI) Class 3 estimate with an accuracy of -20% and +25%.

Table 1: Key Outcomes
Outcome			Unit	Kasiya
NPV8 (real post-tax)			US$	US$1,605M
NPV10 (real post-tax)			US$	US$1,205M
IRR (post-tax)			%	28%
Capital Costs to First Production (Stage 1)			US$	US$597M
Expansion Capital (Stage 2)			US$	US$287M
Plant relocation			US$	US$366M
Operating Costs			US$/t mined	US$8.74
Operating Costs			US$/t product	US$404
Revenue to Cost Ratio			X	2.8
NPV8 / Capital Costs to First Production			X	2.7
Throughput (Average LOM)			Mtpa	21.5
Modelled Life			years	25
Annual Production (Average LOM) – rutile			ktpa	222
Annual Production (Average LOM) – graphite			ktpa	244
Total Revenue (LOM)			US$	US$16,121M
Annual Revenue (Average LOM)			US$	US$645M
Annual EBITDA (Average LOM)			US$/year	US$415M
Payback – from start of production			years	4.3 years

 

LARGE-SCALE, LONG-LIFE AND HIGH-MARGIN OPERATION

Kasiya, located in central Malawi, is the largest natural rutile deposit and second largest flake graphite deposit in the world. Sovereign is aiming to develop a low-CO₂ and sustainable operation to supply highly sought-after natural rutile and graphite to global markets.

Kasiya has a geological benefit with both natural graphite and rutile hosted in soft, friable saprolite material at surface that can be mined, beneficiated, and purified with a considerably lower carbon footprint than hard-rock operations or synthetic graphite and synthetic rutile production.

Figure 1: High-level schematic of the planned Kasiya Rutile-Graphite Project

The proposed large-scale operation will process 24 million tonnes of ore per annum to produce approximately 245kt of natural rutile and 288kt of natural graphite per annum once at steady state.

The rutile-graphite rich mineralisation will be extracted from surface utilising cost-effective hydro-mining to depths averaging 15m. Ore is transported as slurry via a pumping network to a Wet Concentration Plant (WCP) where a low-energy requirement, chemical-free process produces a Heavy Mineral Concentrate (HMC). The HMC is transferred to the dry Mineral Separation Plant (MSP) where premium quality rutile (+95% TiO₂) is produced via electrostatic and magnetic separation.

Graphite rich concentrate is collected from the gravity spirals and processed in a separate graphite flotation plant, producing a high purity, high crystallinity and high value coarse-flake graphite product.

The Project has excellent surrounding infrastructure including sealed roads, a high-quality rail line connecting to the deep-water port of Nacala on the Indian Ocean and hydro-sourced grid power. For the duration of the operation, rutile and graphite products will be railed directly from a purpose-built rail dry port at the mine site eastward via the Nacala Logistics Corridor (NLC) to the port of Nacala.

Based on the build-out strategy, the operation will commence in the southern section of the Ore Reserve with a 12Mtpa throughput plant which will be expanded from Year 6 to increase the throughput to 24Mtpa. As the southern mineralisation is exhausted, a new plant will be constructed in the north and the second stage WCP moved in order to continue to support 24Mtpa throughput.

CRITICAL RAW MATERIALS

Both rutile and graphite are critical to the world economy as well as crucial to decarbonisation solutions required to meet “Net-Zero” and other targets set by policymakers. Titanium and natural graphite have been classified as critical raw materials by the US and EU due to a combination of their scarceness and China-controlled supply chains.

Current sources of natural rutile are in decline as several operations’ reserves are depleting concurrently with declining ore grades. These include Sierra Rutile’s (SRL) Mine Area 1 in Sierra Leone and Base Resources’ Kwale operations in Kenya.

Global rutile supply is projected to decline sharply beyond 2023, following the scheduled closures of Base Resource’s Kwale and SRL operations unless mine life extension is approved (Source: TZ Minerals International Pty Ltd (TZMI). There are limited new deposits forecast to come online, and hence supply of natural rutile is likely to remain in structural deficit for the long term, even with Kasiya at full production.

Figure 2: Previous and forecast global natural rutile supply 2018-2033
*Supply profile only reflects existing operations
 (source: TZMI)

Demand for high quality flake graphite and natural rutile is growing due to global decarbonisation requirements and current and future predicted supply deficits. Per Benchmark Mineral Intelligence, the demand for anodes grew by 46% in 2022 compared to only 14% growth in natural flake graphite supply.

Figure 3: Graphite demand / supply showing market deficit beginning 2024E

Source: Macquarie Research (March 2023)

LOW-COST OPERATION

Kasiya’s low operating costs are achieved through deposit size and grade, zero strip ratio from surface, location and excellent existing operational infrastructure. Kasiya is strategically located in close proximity to Malawi’s capital city Lilongwe, providing access to a skilled workforce and industrial services.

Products will be exported to global markets via the deep water port of Nacala along the existing Nacala Logistics Rail Corridor (NLC). This existing infrastructure provides significant capital cost savings for Kasiya compared to many other undeveloped minerals projects.

Kasiya has an average life-of-mine FOB (Nacala) operating cost of US$404 per tonne of product produced (rutile plus graphite).

One of the highest Revenue : Cost of Sales Ratios in the Mineral Sands Industry

The revenue-to-cash cost ratio of 2.8x positions Kasiya in the first quartile compared to other undeveloped mineral sands operations. The production of high value natural rutile and graphite delivers strong cashflows with a cash margin of over 64% for the life of the operation.

The Study has applied conservative pricing assumptions for both products which still results in a strong position on the revenue to cost ratio metric. This supports the robustness of the Kasiya operation and its strong profitability during different pricing environments and the revenue stability of two different products with different demand drivers.

 

Figure 4: Revenue to cost ratio of Kasiya and other selected mineral sands projects

Lowest Cost Flake Graphite Project in the World

Graphite is produced at Kasiya via obtaining a graphite rich concentrate from the gravity spirals as part of the rutile processing. The graphite rich concentrate is then processed in a separate standard graphite flotation plant, producing a high purity, high crystallinity and high value coarse-flake graphite product.

On an incremental cost basis reflecting graphite production as a co-product to primary rutile production, the operating cost is US$182 per tonne of graphite produced (FOB Nacala).

 

Figure 5: Actual and forecast graphite production (non-Chinese)

 

LOW CO₂ ADVANTAGE

Kasiya has the potential to provide two products that both have very favourable low carbon in-use advantages. Benchmark Life Cycle Assessment (LCA) studies for natural rutile and natural graphite produced from Kasiya* have the potential for a substantially reduced carbon footprint compared to other titanium feedstocks and natural graphite products in the market.

Natural rutile (~95% TiO₂) is the cleanest, purest natural mineral form of TiO₂ with the other major source being ilmenite (~50% TiO₂). The genuine scarcity of natural rutile prompted the titanium industry to develop upgraded titanium feedstock products from ilmenite that can be used as substitutes for natural rutile (i.e. synthetic rutile and titania slag).

Two energy and carbon intensive processes are used by major market participants to produce the upgraded synthetic rutile and titania slag. Both methods use ilmenite (~FeTiO₃) as the raw feedstock and are essentially processes for the removal of iron oxide. The downstream pigment production process relies heavily on the use of these upgraded titanium feedstocks, each having an associated substantial environmental impact.

Figure 6: Natural rutile versus synthetic rutile and titania slag flowchart

Natural rutile produced at Kasiya has a fraction of the GWP of the alternative feedstocks. The Global Warming Potential (GWP) for natural rutile concentrate from Kasiya (0.1 t CO₂e per tonne) is significantly lower than producing titania slag in South Africa (2.0 t CO₂e per tonne) and producing synthetic rutile via the Becher process in Australia (3.3 t CO₂e per tonne).

The Scope 1 and 2 emissions comparing the carbon footprint of these three production routes are shown in Figure 6. The higher GWP for synthetic rutile is mainly due to the use of coal and other reagents for the upgrading of lower grade ilmenite to the final synthetic rutile feedstock product.

* LCA conducted on inputs from the Expanded Scoping Study released July 2022.

 

Figure 7:  GWP impact of natural rutile production from Kasiya as a titanium feedstock vs. alternatives
(Source: Minviro)

Kasiya has the lowest GWP compared with currently known and planned future natural graphite projects:

·      Up to 60% lower than currently reported GWP of graphite producers and developers, including suppliers to Tesla Inc.

·      3x less polluting than proposed Tanzanian natural graphite production from hard rock sources

·      6x less polluting than current Chinese natural graphite production which accounts for up to 80% of current global graphite supply

Figure 8: Global Warming Potential per tonne of graphite product (CO₂e/t)

(Note: All figures are cradle-to-gate except for Syrah Resources which includes transportation to the port of Nacala; transportation of Kasiya’s graphite to the port of Nacala would add an estimated incremental 0.04CO₂e to its GWP)

Industry’s interaction with supply chain participants indicates the progression towards higher proportions of natural graphite used in battery anodes will be supported by its lower cost and superior environmental credentials. The environmental footprint of EVs will become an increasingly important market consideration as EV penetration accelerates, noting that synthetic graphite has a carbon footprint orders of magnitude higher than flake graphite because it is made from needle coke produced from oil and coal refining via energy intensive processes.

Leading EV producer Tesla Inc.’s (Tesla) “Master Plan 3” outlines its proposed path to reach a sustainable global energy economy through end-use electrification and sustainable electricity generation and storage.  In the plan, Tesla suggests that the world would need to produce 10.5Mt of graphite per year and estimates US$104 Billion of new graphite mining investment is required to achieve its target (source: Tesla Master Plan 3 (April 2023)).

STRONG GOVERNMENT SUPPORT

The Malawian government identifies mining as one of the sectors that could potentially generate economic growth for the country. The country has several significant mineral resources that could be sustainably mined to contribute to Malawi’s economic goals.

Kasiya has the potential to deliver significant social and economic benefits for Malawi including fiscal returns, job creation, skills transfer and sustainable community development initiatives.

The Government of Malawi strongly supports Sovereign and its development of the Kasiya project. Malawi’s Minister of Mines and Minerals, The Honourable Monica Chang’anamuno, recently publicly applauded the timely investment by Rio Tinto and marked it as a milestone towards realising the country’s aspirations of growing the mining industry as promoted in the Malawi Vision 2063, which isolates mining as a priority industry.

With mining being one of the key pillars for growth under Malawi’s economic development strategy (Agriculture, Tourism, Mining – ATM Policy) and the potential for Kasiya to be a project of national significance, the Government has constituted an Inter-ministerial Project Development Committee to work alongside the Company to assist in the permitting processes.

INVESTMENT BY RIO TINTO

In July 2023, Rio Tinto made an investment in Sovereign resulting in an initial 15% shareholding and options expiring within 12 months of initial investment to increase their position to 19.99%. Under the Investment Agreement, Rio Tinto will provide assistance and advice on technical and marketing aspects of Kasiya including with respect to Sovereign’s graphite co-product, with a primary focus on spherical purified graphite for the lithium-ion battery anode market.   

The Company is planning to commence optimisation phase prior to advancing to the DFS. Sovereign is soon to establish a Technical Committee and commence the working relationship with Rio Tinto after the publication of this Study.

DISCLOSURES, DISCLAIMERS, MODIFYING FACTORS & SOURCES

 

DISCLOSURES & DISCLAIMERS

 

Competent Person Statements

The information in this announcement that relates to Production Targets and Ore Reserves is based on and fairly represents information provided by Mr Ross Cheyne, a Competent Person, who is a Fellow Member of The Australasian Institute of Mining and Metallurgy. Mr Cheyne is employed by Orelogy Consulting Pty Ltd, an independent consulting company. Mr Cheyne has sufficient experience, which is relevant to the style of mineralisation and type of deposit under consideration, and to the activity he is undertaking, to qualify as a Competent Person as defined in the 2012 Edition of the ‘Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves’. Mr Cheyne consents to the inclusion in the Announcement of the matters based on his information in the form and context in which it appears.

The information in this announcement that relates to Processing, Infrastructure and Capital and Operating Costs is based on and fairly represents information compiled or reviewed by Mr Tomasz Tomicki, a Competent Person, who is a Fellow Member of The Australasian Institute of Mining and Metallurgy. Mr Tomicki is employed by DRA Pacific Pty Ltd, an independent consulting company. Mr Tomicki has sufficient experience that is relevant to the style of mineralisation and type of deposit under consideration and to the activities undertaken. Mr Tomicki, consents to the inclusion in the Announcement of the matters based on his information in the form and context in which it appears.

The information in this announcement that relates to Metallurgy – rutile is based on and fairly represents information compiled or reviewed by Mr Tomasz Tomicki, a Competent Person, who is a Fellow Member of The Australasian Institute of Mining and Metallurgy. Mr Tomicki is employed by DRA Pacific Pty Ltd, an independent consulting company. Mr Tomicki has sufficient experience that is relevant to the style of mineralisation and type of deposit under consideration and to the activities undertaken. Mr Tomicki, consents to the inclusion in the Announcement of the matters based on his information in the form and context in which it appears.

The information in this announcement that relates to Metallurgy – graphite is based on and fairly represents information compiled or reviewed by Mr John Fleay, a Competent Person, who is a Fellow Member of The Australasian Institute of Mining and Metallurgy. Mr Fleay is employed by DRA Pacific Pty Ltd, an independent consulting company. Mr Fleay has sufficient experience that is relevant to the style of mineralisation and type of deposit under consideration and to the activities undertaken. Mr Fleay, consents to the inclusion in the Announcement of the matters based on his information in the form and context in which it appears.

The information in this announcement that relates to the Mineral Resource Estimate is extracted from the announcement entitled ‘Kasiya Indicated Resource Increased by over 80%’ dated 5 April 2023 and is based on, and fairly represents information compiled by Mr Richard Stockwell, a Competent Person, who is a fellow of the Australian Institute of Geoscientists (AIG). Mr Stockwell is a principal of Placer Consulting Pty Ltd, an independent consulting company. The original announcement is available to view on www.sovereignmetals.com.au. Sovereign confirms that a) it is not aware of any new information or data that materially affects the information included in the original announcement; b) all material assumptions included in the original announcement continue to apply and have not materially changed; and c) the form and context in which the relevant Competent Persons’ findings are presented in this announcement have not been materially changed from the original announcement.

Forward Looking Statement

 

This release may include forward-looking statements, which may be identified by words such as “expects”, “anticipates”, “believes”, “projects”, “plans”, and similar expressions. These forward-looking statements are based on Sovereign’s expectations and beliefs concerning future events. Forward looking statements are necessarily subject to risks, uncertainties and other factors, many of which are outside the control of Sovereign, which could cause actual results to differ materially from such statements. There can be no assurance that forward-looking statements will prove to be correct. Sovereign makes no undertaking to subsequently update or revise the forward-looking statements made in this release, to reflect the circumstances or events after the date of that release.

 

Qualified Person

 

Information disclosed in this announcement has been reviewed by Dr Julian Stephens (B.Sc (Hons), PhD, MAIG), Managing Director, a Qualified Person for the purposes of the AIM Rules for Companies.

 

SUMMARY OF MATERIAL ASSUMPTIONS

Material assumptions used in the estimation of the production target and associated financial information are set out in the following table.

Table 2: Assumptions
Assumption	Input
Maximum accuracy variation – Capital costs	-20%/+25%
Maximum accuracy variation – Operating costs	-20%/+25%
Minimum LoM	25 years
Annual average throughput (tonnes) – Stage 1	12,000,000
Annual average throughput (tonnes) – Stage 2	24,000,000
Annual throughput (tonnes) – LoM average	21,600,000
Head grade – rutile	1.03%
Recovery – rutile	100%
Product grade (TiO2) – rutile	96%
Head grade – graphite	1.66%
Recovery – graphite	67.5%
Product grade (TGC) – graphite	96%
Annual production (average LoM) – rutile (tonnes)	222,000
Annual production (average LoM) – graphite (tonnes)	244,000
USD:AUD	0.67
USD:MWK	0.0010
USD:ZAR	0.0549
Sales Price – rutile (average LoM)	US$1,484/t
Sales Price – graphite (average LoM)	US$1,290/t
Government Royalty	5% of gross revenue
Vendor Royalty	2% of gross profit
Community Development Fund	0.45% of gross revenue
Stage 1 Capital	US$572m
Stage 2 Capital (expansion to 24Mtpa)	US$287m
Plant Relocation	US$366m
Sustaining Capital	US$470m
Operating Costs including royalties (LoM) – FOB Nacala	US$404/t
Corporate Tax Rate	30%
Rent Resource Tax (RRT)	15% after-profits
Discount Rate	8%

 

ORE RESERVE STATEMENT

 

Orelogy Consulting Pty Ltd (Orelogy) was responsible for the mine planning component of the PFS for Kasiya. As such Orelogy have developed an Ore Reserve estimate for Kasiya in accordance with the guidelines of the JORC Code 2012.

The Kasiya MRE released by Sovereign in on 5 April 2023 was used as the basis for the PFS Ore Reserve estimate. Mineral Resources were converted to Ore Reserves in line with the material classifications which reflect the level of confidence within the resource estimate. The Ore Reserve reflects that portion of the Mineral Resource which can be economically extracted by open pits utilising a combination of hydro mining and bulldozer methodologies. The Ore Reserve considers the modifying factors and other parameters detailed in the relevant sections of the PFS report, including but not limited to the mining, metallurgical, social, environmental, approvals, tenure, statutory and financial aspects of the project.

In line with the JORC 2012 guidelines, the Kasiya Probable Ore Reserve is based on Indicated classified Mineral Resources. There is no Measured classified Mineral Resource at Kasiya and consequently no Proved Ore Reserve.

The reported MRE is inclusive of the Ore Reserve.

The Ore Reserve includes an allowance for mining dilution and ore loss on the basis that all material within the shell is classified and extracted as ore.

The open pit geometries developed for the purposes of mine planning, and which define the subsequent Ore Reserve, are based on Whittle pit shells edited to comply with practical mining requirements and identified exclusion zones.

The information that relates to Ore Reserves was compiled by Mr Ross Cheyne of Orelogy who takes overall responsibility for the Ore Reserve as Competent Person (see Competent Persons Statement above). Mr Cheyne is a Fellow of The Australasian Institute of Mining and Metallurgy and has sufficient experience, which is relevant to the style of mineralisation and type of deposit under consideration, and to the activity he is undertaking, to qualify as Competent Person in terms of the JORC (2012 Edition).

A site visit was undertaken by Mr Ryan Locke in, a Principal Consultant with Orelogy, as a nominated representative of the Competent Person.

The Ore Reserve estimate is summarised in Table 3 below, along with the associated cut-off grade used to define the shell.

Table 3:  Ore Reserve for the Kasiya Deposit as of September 2023
Classification	Tonnes (Mt)	Rutile Grade (%)	Contained Rutile (Mt)	Graphite Grade (TGC) (%)	Contained Graphite (Mt)
Proved	–	–	–	–	–
Probable	538	1.03%	5.5	1.66%	8.9
Total	538	1.03%	5.5	1.66%	8.9

Pit Optimisation

An open pit optimisation utilising Whittle™ software was carried out on the Kasiya deposit using Indicated Mineral Resources only (in line with the JORC 2012 guidelines). The latest parameters available were used to determine the economic extent of the open pit excavation. The process plant production parameters were supplied by Sovereign with an initial rate of 12Mtpa and a ramp up in production from years 5 – 7 to annual rate of 24Mtpa.

 

The intention to hydro-mine the majority of the defined Ore Reserve means that there is no ability to selectively mine and all material will be extracted and sent as plant feed. Therefore, all material within the “shell” will be extracted and fed to the plant as ore and any interstitial waste and/or sub-economic grade material will be likewise treated as diluent material. However, due to the relatively homogenous and continuous nature the orebody, the quantities of this material will be relatively small and therefore a simple 5% dilution was applied within the Whittle™ tool.

For the production schedule on which the Ore Reserve is based all material within the shell was treated as “ore” to ensure the appropriate dilution was captured.

Mineable Pit Geometries

Based on the cut-off grades applied the mining areas was further interrogated to determine the potential recoverable mining inventory. The interrogation process applied the following constraints to determine the bulk mining boundaries:

·      A minimum depth of 5m for the hydro mining method.

·      Removal of any small, isolated pits.

·      Pit extents limited to mineable areas and to remain outside of identified exclusion areas wherever reasonably possible. Sovereign identified all local village areas and areas of cultural or environmental significance within the potential mining envelope that should not be disturbed during the mining phase of the Project.

MODIFYING FACTORS

The Modifying Factors included in the JORC Code (2012) have been assessed as part of the Pre-Feasibility Study, including mining, processing, metallurgical, infrastructure, economic, marketing, legal, environmental, social and government factors. The Company has received advice from appropriate experts when assessing each Modifying Factor.

A summary assessment of each relevant Modifying Factor is provided below.

Mining – refer to section entitled ‘Mining’ in the full Announcement at http://sovereignmetals.com.au/announcements/.

The Company engaged independent consultants, Orelogy and Fraser Alexander to carry out the pit optimisations, mine design, scheduling, mining cost estimation and Ore Reserves for the Study. The proposed mining method is hydro mining with minor bulldozer assistance. This is considered appropriate for this style of shallow, soft and friable saprolite-hosted rutile and graphite mineralisation. This methodology is used across numerous mineral sands operations, particularly in Africa, and is well suited for this style of mineralisation.

Metallurgy and Processing – refer to section entitled ‘Metallurgy and Process Design’ in the full Announcement at http://sovereignmetals.com.au/announcements/.

Rutile

The Company completed bulk rutile testwork programs at the globally recognised AML in Perth, Australia. The latest program was supervised by Sovereign’s Head of Development, Paul Marcos. Mr Marcos is a metallurgist and process engineer and a mineral sands industry veteran. Bulk test-work programs have confirmed premium grade rutile can be produced via a simple and conventional process flow sheet.

Processing engineering was completed by DRA Global who developed the process plant design and associated cost estimate for the Study. An average product grade of 96% TiO₂ and 100% recovery to product factor has been applied.

Graphite

The Company has conducted graphite testwork across ALS Laboratory in Perth and SGS Lakefield in Canada. Veteran graphite metallurgist Oliver Peters, MSc, P.Eng., MBA (Consulting Metallurgist for SGS and Principal Metallurgist of Metpro Management Inc.) was engaged to supervise and consult on the testwork programs. Mr Peters has over 25 years’ experience in metallurgy on graphite and other commodities. He has operated numerous graphite pilot plants and commissioned a number of full-scale processing facilities.

DRA’s Senior Engineer, Stewart Calder and Manager Metallurgy, John Fleay supervised and advised on sample selection, testwork scope and results from the latest testwork programs. Both consultants are considered to have the appropriate capabilities and similarities with the material and the early stage of the project.

Processing engineering was completed by DRA Global who developed the process plant design and associated cost estimates for the PFS. Overall average graphite recovery applied in the model was 67.5%.  Gravity recovery ranges between 73.6% to 86.2%, averaging 77.9% and flotation plant recovery ranges between 89.2% and 96.1%, averaging 91.4%. Total Graphite (TGC) recovery average is 72.5%. Overall concentrate grades average 96% C(t) with over 57% of the graphite flake product being larger than 180µm.

Rutile & Graphite

It is acknowledged that laboratory scale test-work will not always represent actual results achieved from a production plant in terms of grade, chemistry, sizing and recovery. Further test-work will be required to gain additional confidence on specifications and recoveries that will be achieved at full-scale production.

Overall, the process flow-sheet is conventional for both rutile and graphite with no novel features or equipment incorporated.

Infrastructure – refer to sections entitled ‘Infrastructure’, and ‘Transport and  Logistics’ in the full Announcement at http://sovereignmetals.com.au/announcements/.

Kasiya is located approximately 40km northwest of Lilongwe, Malawi’s capital, and boasts excellent access to services and infrastructure. The proximity to Lilongwe gives the project a number of benefits, including access to a large pool of professionals and skilled tradespeople, as well as industrial services.

The Company appointed JCM to design a preliminary IPP solution for Kasiya. JCM is a Canada-headquartered IPP which develops, constructs, owns and operates renewable energy and storage projects in emerging markets across the globe. JCM provided an estimated, levelized cost of energy (LOCE) on a Power Purchase Agreement (PPA).

Logistics cost estimates, including rail and port infrastructure and handling, were provided by Thelo DB, Nacala Logistics and Grindrod based on market data, suppliers’ quotations, industry databases, industry contacts and consultants’ existing knowledge of southern African transport infrastructure and freight markets. All consultants are independent with substantial experience in the management of transport logistics studies in southern Africa.

Marketing – refer to sections entitled ‘Marketing Strategy’ in the full Announcement at http://sovereignmetals.com.au/announcements/.

Rutile

The Company engaged market leading TZMI to provide a bespoke marketing report to support the Study. TZMI is a global, independent consulting and publishing company specialising in technical, strategic and commercial analyses of the opaque (non-terminal market) mineral, chemical and metal sectors.

TZMI’s assessment has confirmed that, based upon their high-level view on global demand and supply forecasts for natural rutile, and with reference to the specific attributes of Kasiya, there is a reasonable expectation that the product will be able to be sold into existing and future rutile markets.

Given the premium specifications of Kasiya’s natural rutile, the product should be suitable for all major natural end-use markets including TiO₂ pigment feedstock, titanium metal and welding sectors.

In July 2023, Rio Tinto made an investment in Sovereign resulting in an initial 15% shareholding and options expiring within 12 months of initial investment to increase their position to 19.99%. Under the Investment Agreement, Rio Tinto will provide assistance and advice on technical and marketing aspects of Kasiya. Also, included under the Investment Agreement, Rio Tinto has the option to become the operator of Kasiya on commercial arm’s-length terms.

In the event, Rio Tinto elect to be the operator of the Project and for so long as Rio Tinto remain the operator, Rio Tinto shall have exclusive marketing rights to market 40% of the annual production of all products from the Project as identified in the DFS on arm’s-length terms.

Rio Tinto’s option over operatorship and 40% marketing rights lapse if not exercised by the earlier of (i) 90 days after the Company announces its DFS results or 180 days after the announcement of the DFS if Rio Tinto’s advises it needs additional time to consider the exercise of the Rio Tinto’s Option or (ii) Rio Tinto ceasing to hold voting power in the Company of at least 10%.

Graphite

The Company engaged Fastmarkets, a specialist international publisher and information provider for the global steel, non-ferrous and industrial minerals markets, to prepare a marketing report for graphite.

Fastmarkets’ assessment has confirmed that based upon their high-level view on global demand and supply forecasts for natural flake graphite, and with reference to the specific attributes of Sovereign’s projects, there is a reasonable expectation that the product from Sovereign’s projects will be able to be sold into existing and future graphite markets. Given the extremely low-cost profile and high-quality product, it is expected that output from Kasiya will be able to fill new demand or substitute existing lower quality / higher cost supply.

Project considerations taken by Fastmarkets in forming an opinion about the marketability of product include:

–          Low capital costs (incremental)

–          Low operating costs

–          High quality concentrate specifications

Industry participants confirm that the highest value graphite concentrates remain the large, jumbo and super-jumbo flake fractions, primarily used in industrial applications such as refractories, foundries and expandable products. These sectors currently make up the significant majority of total global natural flake graphite market by value.

Fastmarkets have formed their opinion based solely upon project information provided by Sovereign Metals to Fastmarkets and have not conducted any independent analysis or due diligence on the information provided.

As noted above, Rio Tinto recently made an investment in Sovereign. The Company and Rio Tinto 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 has set up a battery materials business in 2021, including its recently announced plans to set up a battery testing plant in Melbourne, Australia.

Economic – also refer to sections entitled ‘Cost Estimations’ and ‘Financial & Economic Analysis’ in the full Announcement at http://sovereignmetals.com.au/announcements/.

Capital estimates for the procress plant have been prepared by DRA global, together with input from the Company and other contributing consultants using combinations of cost estimates from suppliers, historical data, benchmarks and other independent sources. The accuracy of the initial capital cost estimate for the Project is ±20%.

Capital costs include the cost of all services, direct costs, contractor indirects, EPCM expenses, non-process infrastructure, sustaining capital and other facilities used for the mine. Capital costs make provision for mitigation expenses and mine closure and environmental costs.

Working capital requirements (including contingency) for plant commissioning and full ramp-up have been included in the headline capital estimate reported under construction, owner’s and start-up costs.

Mining costs have been estimated by Fraser Alexander, a regional leader in hydro-mining and materials handling. Mining costs have been built up from first principles based on equipment, vendor, and contractor quotations, local unit cost rates, and benchmarked costs.

Labor costs have been developed based on a first-principles build-up of staffing requirements with labour rates benchmarked in Malawi and expatriate rates benchmarked for professionals from South Africa and other jurisdictions.

A Government royalty of 5% (applied to revenue) and a vendor profit share of 2% (applied to gross profit) has been included in all project economics. A 0.45% royalty (applied to revenue) has been applied for the community development fund.

Rehabilitation and mine closure costs are included within the reported operating cost and sustaining capital figures.

A detailed financial model and discounted cash flow (DCF) analysis has been prepared by the Company in order to demonstrate the economic viability of the Project. The financial model and DCF were modelled with conservative inputs to provide management with a baseline valuation of the Project.

The DCF analysis demonstrated compelling economics of the prospective Project, with an NPV (ungeared, after-tax, at an 8% discount rate) of US$1,605 million,  and an (ungeared) IRR of 28%.

Sensitivity analysis was performed on all key assumptions used. The robust project economics insulate the Kasiya Project from variation in market pricing, capital expense, or operating expenses. With a rutile and graphite concentrate price 30% lower than the PFS prices the Project still displays a positive NPV (ungeared, after-tax, 8% discount rate) of US$636 million and IRR of 17%.

Payback period for the Project is 4.3 years from the start of production. The payback period is based on free-cash flow, after taxes.

Sovereign estimates the total capital cost to construct the mine to be US$597m (which includes a contingency of 17% of direct and indirect costs).

Key parameters are disclosed in the body of the announcement, and include:

–          Life of Mine: 25 years

–          Discount rate: 8%

–          Tax rate: 30%

–          Resource Rent Tax (RRT) of 15% after tax profit

–          Royalty rate: 5% royalty (Government), 2% of gross profit (Original Project Vendor) and 0.45% Community Development Fund.

–          Pricing:  Rutile average price of US$1,484 per tonne and Graphite average basket price of US$1,290 per tonne

The financial model has been prepared internally by the Company using inputs from the various expert consultants and has been reviewed by BDO Australia – Perth, an independent leading accountancy, tax and advisory services firm to validate the functionality and accuracy of the model.

The Company engaged the services of advisory firm, Argonaut PCF Limited (Argonaut), with regards to project economics. Argonaut is a financial advisory firm which specialises in multiple sectors, including metals and oil & gas. Argonaut is well regarded as a specialist capital markets service provider and has raised project development funding for companies across a range of commodities including the industrial and speciality minerals sector. Following the assessment of a number of key criteria, Argonaut has confirmed that, on the basis that a DFS arrives at a result that is not materially negatively different than the PFS as noted above, all in-country government and regulatory approvals are received, commercial offtake agreements are in place for the majority of rutile and graphite production for at least the first five years of mine life, and that there has not been any material adverse change in financial condition, results of operations, business or prospects of the Company/or political and business environment in Malawi and/or financial or capital markets in general, Sovereign should be able to raise sufficient funding to develop the Project.

In July 2023, Rio Tinto made an investment in Sovereign resulting in an initial 15% shareholding and options expiring within 12 months of initial investment to increase their position to 19.99%. Under the Investment Agreement, is has been agreed with Rio Tinto that if Sovereign is raising debt finance for the development of the Project, Sovereign and Rio Tinto will negotiate, in good faith, financing arrangements in order to put in place an acceptable mine construction funding package.

Since initial exploration of the Kasiya Project in November 2019, the Company has completed extensive drilling, sampling, metallurgical test-work, geological modelling and defined an Indicated and Inferred Mineral Resource Estimate. Over this period, with these key milestones being attained and the Project de-risked, the Company’s market capitalisation has increased from approximately A$18m to over A$236m. As the Project continues to achieve key milestones, which can also be significant de-risking events, the Company’s share price could be anticipated to increase.

The Company is debt free and is in a strong financial position, with approximately A$45m cash on hand (31 August 2023). The current financial position means the Company is soundly funded to continue into a DFS phase to further develop the Project.

In July and August 2023, Rio Tinto invested $40.6m to become a strategic investor of the Company. The investment proceeds will be used to advance Kasiya and represents a significant step towards unlocking the Project for a major new supply of low-CO₂-footprint natural rutile and flake graphite. Under the Investment Agreement, Rio Tinto will provide assistance and advice on technical and marketing aspects of Kasiya including with respect to Sovereign’s graphite co-product, with a primary focus on spherical purified graphite for the lithium-ion battery anode market. 

The Company’s shares are listed on the ASX and AIM which are premier markets for growth companies and provides increased access to capital from institutional and retailed investors in Australia and the UK.

Sovereign has an experienced and high-quality Board and management team comprising highly respected resource executives with extensive technical, financial, commercial and capital markets experience. The directors have previously raised more than A$2bn from capital markets for a number of exploration and development companies.

 

As a result, the Board has a high level of confidence that the Project will be able to secure funding in due course, having particular regard to:

1.    Required capital expenditure;

2.    Sovereign’s strategic partner relationship with Rio Tinto;

3.    Sovereign’s market capitalisation;

4.    Recent funding activities by directors in respect of other resource projects;

5.    Recently completed funding arrangements for similar or larger scale development projects;

6.    The range of potential funding options available;

7.    The favourable key metrics generated by the Kasiya Project;

8.    Ongoing discussions for potential offtake agreements; and

9.    Investor interest to date.

Environmental, Social, Legal and Governmental – refer to section entitled ‘Environmental & Social Impact’ in the full Announcement at http://sovereignmetals.com.au/announcements/.

 

Sovereign is committed to conduct its activities in full compliance to the requirements of national regulations, its obligations under international conventions and treaties and giving due consideration to international best practices and policies. The Company has appointed an experienced environmental consultant to manage the ESIA process, and environmental and social baseline studies have commenced with appropriately qualified independent experts. The Company has also completed a high-level risk assessment to identify major environmental and social risks which could affect the development of the Project, along with mitigating strategies to allow identified risks to be addressed early in the project design phase.

The Company has embarked on several community engagement exercises in the area and there is a general positive acceptance of the Project. Social responsibility/RAP costs totalling US$92m have been included in this Study, as well as a 0.45% revenue royalty for the community development fund.

Based on the current assessments and commenced ESIA, the Company believes there are no environmental issues currently identified that cannot be appropriately mitigated in accordance with standard practices adopted for the development of mining projects.

Subject to further positive technical studies, Sovereign intends to apply for a ML to secure mineral deposits for mining. Under the Mines Act there are certain requirements, milestones and approvals required prior to submission of a ML application. At this point of Kasiya’s development, the Company notes no known issues or impediments obtaining a ML under normal course of business.

Under the current Mines Act, The Government of Malawi shall have the right, but not the obligation, to acquire, directly or through a Government nominee, without cost, a free equity ownership interest of up to ten percent (10%) in any mining project that will be subject to a large-scale mining licence (>5Mt mined per annum or >US$250m Capex).

As previously noted by the Company, the Government of Malawi has proposed a new Mines and Minerals Bill (2023) (New Bill) which has been passed by the Malawian Parliament and received Presidential Assent, though awaits publication in the Malawi Gazette before coming into force. If approved, the New Bill will replace the current Mines Act. The New Bill introduces amendments to improve transparency and governance of the mining industry in Malawi. Sovereign notes the following updates in the New Bill which may affect the Company in the future: (i) ELs may be granted for an initial period of 5 years with the ability to extend by 3 years on two occasions (total 11 years); (ii) the Malawian Government maintains a right to free equity ownership (as discussed above) for large-scale mining licences but the New Bill proposes to remove the free government equity ownership percentage with the right to be a negotiation matter; and (iii) A new Mining and Regulatory Authority will be responsible for implementing the objectives of the New Bill.

In a Press Release issued on 20 July 2023, the Government of Malawi has publicly applauded the timely investment by Rio Tinto and marked it as a milestone towards realising the country’s aspirations of growing the mining industry as promoted in the Malawi Vision 2063, which identifies mining as a priority industry.

The Government’s statement confirms its commitment to ensuring the growth of the mining sector through deliberate initiatives aiming at establishing a conducive investment environment in the sector.

​

 

 

Kasiya Pre-Feasibility Study Results – 07:00:11 28 Sep 2023 – SVML News article | London Stock Exchange