Sovereign Metals #SVML – Half Year accounts

Kasiya is the largest rutile deposit in the world with more than double the contained rutile as its nearest rutile peer, Sierra Rutile. The Kasiya Mineral Resource Estimate (MRE) is 1.8 Billion tonnes (Bt) at 1.0% rutile resulting in 17.9 Million tonnes (Mt) tonnes of contained natural rutile and 24.4Mt of contained graphite. The MRE has broad zones of very high-grade rutile which occurs contiguously across a very large area of over 200km². Rutile mineralisation lies in laterally extensive, near surface, flat “blanket” style bodies in areas where the weathering profile is preserved and not significantly eroded. Kasiya’s graphite co-product MRE is 1.8Bt at 1.4% graphite, containing over 24.4Mt of graphite.

PFS Results

·           Results of the PFS released in late 2023 demonstrated Kasiya’s potential to become the world’s largest rutile producer at an average of 222kt per annum and one of the world’s largest natural graphite producers outside of China at an average of 244kt per annum based on an initial 25 year life-of-mine (LOM)

·           PFS delivered compelling economics with a post-tax NPV₈ of US$1.6 Billion and post-tax IRR of 28%. This long-life, multi-generational operation was modelled to initially generate over US$16 Billion of revenue and provide an average annual EBITDA of US$415 Million per annum

·           The PFS modelling was limited to only 25 years with an initial Probable Ore Reserves declared of 538Mt, representing only 30% of the total Project MRE

Project Optimisation

·           Sovereign advanced optimisation test work and technical studies for Kasiya with the Company’s strategic investor, Rio Tinto

·           Significant field activities and a number of test work programs have commenced in order to provide data for the Project optimisation phase

·           The Company aims to become the world’s largest, lowest cost and lowest-emissions producer of two critical minerals – titanium (rutile) and graphite

Rio Tinto invests $40.6m to become a 15% Strategic Investor 

·           Rio Tinto made an investment of A$40.6 million in Sovereign resulting in an initial 15% shareholding plus options to increase their position to potentially 19.99% within 12 months

·           Rio Tinto’s investment represents a significant step towards unlocking a major new supply of low-CO₂ natural rutile and flake graphite

·           Under the Investment Agreement, Rio Tinto will provide assistance and advice on technical and marketing aspects including Sovereign’s graphite co-product, with a primary focus on spherical purified graphite for the lithium-ion battery anode market

Key Management Appointments to Drive Project Optimisation and Development at Kasiya

·           Appointment of experienced African based mining executive, Mr Frank Eagar, as the new Managing Director and CEO

·           Previous Managing Director Dr Julian Stephens has transitioned to Non-Executive Director

·           Key technical appointments of experienced African engineering, social, environmental and legal teams to work on project optimisation and advancing the development of the Kasiya Project

Lithium-Ion battery graphite program upscaled

·           Over 60 tonnes of ore was extracted targeting production of an initial 600kg of natural graphite for lithium-ion battery anode test work and product qualification

·           The upscaled graphite qualification program will support ongoing Project studies

·           Sovereign and Rio Tinto have agreed to collaborate to qualify graphite from Kasiya, with a particular focus on supplying the spherical purified graphite (SPG) segment of the lithium-ion battery anode market. 

This graphite qualification program coincides with China’s announced curbs on exports of natural graphite, a critical mineral for the US, EU, Japan and Australia

Figures 2 & 3: Bulk sample mechanised spiral drilling and sampling at Kasiya in November 2023

Extensions to Rutile & Graphite Mineralisation at Kasiya

·           Wide-spaced regional reconnaissance drilling, outside the current JORC (2012) compliant MRE area, identified a 8km extension of mineralisation to the south which remains open along strike and at depth

·           Results are testament to the world-class scale of the Kasiya deposit and demonstrate potential for a future increase of the Kasiya’s MRE, which is already the largest natural rutile deposit and second largest flake graphite deposit in the world

Figure 4: Southern newly defined mineralised extensions at Kasiya

Strong Support from the Government of Malawi

·           The 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

·           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

·           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 process  

Highly-experienced social specialist appointed

·           Africa-based social specialist consultancy, SocialEssence were appointed to lead social and community development programs for Sovereign in Malawi

·           SocialEssence joins Sovereign’s Owners Team and will design, implement, and manage several social and community initiatives which will feed into Project studies and permitting

·           SocialEssence has a strong and successful track record of implementing social responsibility programs across southern Africa, including at First Quantum Minerals’ Zambian project

Commissioning of Sustainable Farming Initiative in Malawi

·           Sovereign initiated a Conservation Farming Program in Malawi as part of its sustainability initiatives related to the development of Kasiya

·           Local farmers will be trained in sustainable farming techniques to increase maize crop yield; protect soil from erosion and degradation; and to improve long term food security

·           Supporting local communities in addressing their social priorities is a core principle of Sovereign’s ESG Strategy as the company advances the development of Kasiya

·           Sovereign’s owner’s team have previously implemented this program at First Quantum Minerals’ Zambian operations where over 7,000 farmers were participating in the program by 2022

Figure 5: Local communities embracing the conservation farming program

Transfer of Malingunde licence to NGX Limited

In January 2024, NGX Limited (NGX) was issued with a retention licence of the Malingunde graphite project which fully completed the demerger of Sovereign’s standalone graphite projects. In 2023, Sovereign successfully demerged its standalone graphite projects (Nanzeka Project, Malingunde Project, Duwi Project and Mabuwa Project) into NGX, which listed on ASX in June 2023.

The net operating loss after tax for the half year ended 31 December 2023 was $6,976,503 (2022: $8,486,503) which is attributable to:

(i)         Interest income of $938,402 (2022: $138,366) earned on term deposits held by the Group;

(ii)        exploration and evaluation expenditure of $5,027,397 (2022: $5,792,042), which is attributable to the Group’s accounting policy of expensing exploration and evaluation expenditure (other than expenditures incurred in the acquisition of the rights to explore) incurred by the Group in the period subsequent to the acquisition of the rights to explore up to the successful completion of definitive feasibility studies for each separate area of interest. The exploration and evaluation expenditure in the current period predominately relates to the Group’s PFS at its Kasiya Project in Malawi;

(iii)       business development expenses of $996,548 (2022: $1,130,083) which are attributable to the Group’s investor and shareholder relations activities including but not limited to public relations costs, marketing and digital marketing, broker and advisor fees, travel costs, conference fees, business development consultant fees and costs of the Group’s ASX and AIM listings; and

(iv)       non-cash share based payments expenses of $1,089,974 (2022: $1,061,657) which is attributable to the Group’s accounting policy of expensing the value of shares, incentive options and rights (estimated using an appropriate pricing model) granted to key employees, consultants and advisors. The value of incentive options and rights is measured at grant date and recognised over the period during which the option and rights holders become unconditionally entitled to the incentive securities.

At 31 December 2023, the Group had cash reserves of $39,436,707 (30 June 2023: $5,564,376) placing it in an excellent financial position to continue with the development of Kasiya.

At 31 December 2023, the Company had net assets of $44,263,313 (30 June 2023: $9,672,569), an increase of 358% compared with the prior period. This is largely attributable to the increase in cash reserves following the investment made by Rio Tinto in the period.  

Other than the above, there are no matters or circumstances which have arisen since 31 December 2023 that have significantly affected or may significantly affect:

·       the operations, in periods subsequent to 31 December 2023, of the Group;

·       the results of those operations, in periods subsequent to 31 December 2023, of the Group; or

·       the state of affairs, in periods subsequent to 31 December 2023, of the Group.

Section 307C of the Corporations Act 2001 requires our auditors, Ernst & Young, to provide the directors of Sovereign Metals Limited with an Independence Declaration in relation to the review of the half year financial report. This Independence Declaration is on page 17 and forms part of this Directors’ Report.

This report is made in accordance with a resolution of the directors made pursuant to section 306(3) of the Corporations Act 2001.

For and on behalf of the Directors

Link here to view the full financial statements