Sovereign Metals (SVM) - Technical Analysis and Due Diligence

Sovereign Metals Limited is an Australian exploration and development company focused on the advancement of its Kasiya asset, high-grade rutile, and graphite project in Malawi. The company aims to develop the project into an environmentally and socially sustainable operation with the ability to be a major supplier of critical raw materials.

Merlin-Marr Johnson caught up with Dr. Julian Stephens, Managing Director, Sovereign Metals Limited. Dr. Stephens is a geologist with extensive experience in the resources sector having spent in excess of 20 years in board, executive management, senior operational, and economic geology research roles for a number of companies. He has spent 12 of those years working on African projects including 9 years on projects in Malawi. He holds a Ph.D. from James Cook University, Queensland, and is a member of the Australian Institute of Geoscientists. Dr. Stephens led the team that discovered the Malawi Flake Graphite Projects. He was appointed a Director of Sovereign Metals Limited on 22 January 2016, and subsequently appointed Managing Director in June 2016.

Company Overview

Sovereign Metals is a mining company that is developing the world’s largest rutile project in Malawi. The company was founded in 2006 and is headquartered in Australia. It is listed on the Australian Stock Exchange (ASX: SVM) and the London Stock Exchange (LSE: SVML). Sovereign Metals (Zambia) Ltd, Mccourt Mining Limited, Sovereign Mozambique Limitada, NGX Exploration UK Limited, NGX Exploration Limited, NGX Mining Limited, Sovereign Coal Pty Ltd, NGX Graphite Pty Ltd, Sovereign Zambia Pty Ltd, Mccourt Mining (UK) Limited, McCourt Mining Pty Ltd, NGX Holdings UK Limited, Sovereign Cloncurry Pty Ltd, Sovereign Services Limited, Mccourt Holdings (UK) Limited, and Sovereign Mozambique Pty Ltd are the company’s subsidiaries.

Sovereign Metals is developing the world’s largest rutile project in Malawi, Africa. The company took its graphite project to a PFS (Preliminary Feasibility Study) in 2017-2018. At this time, the graphite market was coming off, and the company ended up discovering natural rutile at the project. The company chose to focus on rutile for a few years as the graphite market was quiet. After a series of hits and misses over the years, the company was successful in discovering and delineating the world’s largest rutile deposit.

The Kasiya Project

Traditional mineral sand deposits, also known as placer deposits, feature sand that contains valuable minerals that have been eroded off basement rocks, transported down rivers, and deposited in places such as rivers, shorelines, and sand dunes This is generally caused by wind and water processes. The company’s asset in Malawi is slightly different than a traditional placer deposit due to the rutile presence. The company has identified a crystalline rock containing rutile. The rock has been weathered for millions of years, leading to the deflation of the profile.

The deflation has moved away the lighter materials by 2 methods. The first is winnowing caused by water and wind. The second is a chemical process where rainwater dissolves diffusible minerals and moves them away. Both processes cause deflation or loss of volume in the weathering profile. Since rutile is heavy and non-reactive, it does not react with water and ends up getting concentrated in place. This phenomenon occurred across a very large plane in Malawi which is known as the Lilongwe Plane. So far, the company has drilled about 180 square kilometres of this area and has been able to delineate the world’s largest rutile deposit across the area by a factor of 2.5.

The company has found portions of moderate grade rutile along with areas that feature higher grade, over 1% rutile. The higher the original grade, the higher grade of upgraded rutile can be expected at the surface. However, there is an even-out effect due to the mushrooming that takes place during the deflation and weathering process. The mixing of the regolith in the top causes the smoothing of grades in the top 4m-5m. This is the actual high-grade initial target area. The area is shaped like a very short, laterally extensive mushroom.

From a traditional weathering profile perspective, the company has a ferruginous petalith in the top 3m-5m of the deposit, which is a mottled saprolite, a kind of ferruginous saprolite. The material is easy to crumble and allows for free digging. Underneath this, the company has identified saprolite proper, which is also a weathered, friable material. This is where the company intersected thick intercepts of 20m-30m at 1.1%-1.2%. The deeper rutile mineralization zones can be considered as a core. Notably, rutile is a dark material that often takes a lighter colour such as light grey or white for higher grades.

The saprolite is effectively in the protolith, while the original saprolite features are still visible. Most of the silicate minerals have been weathered to clay, leading to the formation of kaolin clay which causes the material to become soft and friable. According to the company, the core material is so friable that it disintegrates in the hand. Placing the piece of the core into the water makes it slate away immediately. Due to these features, the company has decided to carry out hydraulic mining at the deposit.

Ongoing Operations

Sovereign Metals announced an initial resource and completed a Scoping Study in early 2021. 6 months after the initial Scoping Study, the company tripled the size of the resource from 600Mt to 1.8Bnt. Due to a large-scale change in the mineral resource, the company decided to conduct another Scoping Study rather than going for a PFS.

The expanded Scoping Study was completed earlier this year, demonstrating the company’s ability to produce around 250,000t/year of rutile on an average for about 25 years, using only about 35% of the mineral resource. The company artificially stopped the resource modelling at 25 years as it did not have a significant impact on the project’s NPV (Net Present Value). The company recognizes that this is potentially a 50-100 year mine that can produce 250,000t rutile on an annual basis. It has carried out some drilling, which was recently stopped in order to shift the focus on development pathways.

In the expanded Scoping Study, the company reported that 60% of the material was in the indicated resource category, while the remaining 40% was in the inferred category. The latter was used for the mining inventory in the Scoping Study. In order to convert the reserve in the upcoming PFS, the company would need 100% of the mining inventory in the indicated category. Currently, it is focused on bringing the 40% inferred resource into the indicated category. A secondary point of focus is drilling deeper beneath the proposed open pit as the mineralization extends at depth.

Recently, the company reported drill results from the first 32 out of 160 holes to the market. These results indicate that the mineralization does extend deeper than in previous drill operations. The company anticipates that it should be able to extend the depth of the proposed pits in most areas.

The start of the harder rock is the bottom of the mineralization. This rock is also known as sap rock or transitional material in Western Australia. This is where the rock becomes more competent and less weathered. Due to these features, the rock cannot be mined by traditional mineral sand mining methods. Instead, the company has plans to utilise either hydro mining or push mining. From a cost perspective, it would be beneficial to deepen the pits where the grade warrants. This would also mean that the mining equipment would stay in the same pit for longer instead of frequent relocation.

Hydraulic mining requires a significant water supply. Malawi has a semi-tropical rain reason once a year, averaging about 900mm of water. The company is looking to plan to capture the rain in a dam as its main source of water. This water supply will be supported by supplementary resources. While the company is looking to recycle as much water as possible, it also plans to use groundwater sources if required. While the groundwater isn’t needed at the moment, it serves as a backup supply in case of a possible drought.

The company is currently conducting a large hydrogeological drilling program alongside a resource upgrade program. It’s a part of the PFS, where the company is drilling numerous hydrogeological boreholes and monitoring pump testing along with other parameters. Malawi’s Ministry of Mines has been highly-supportive of the project.

Graphite Production

At the Kasiya project, Sovereign Metals initially started exploration for graphite, which led to discovering the rutile reserve. In the Lilongwe plane, graphite and rutile are loosely associated, particularly in the Kasiya deposit. The graphite found here is relatively low-grade. The company is looking to mine around 12t of graphite, which will be upscaled to 24Mt in stage 2 of the proposed development. This will enable the company to produce 170,000t graphite in stage 2.

The graphite starts at a low grade, around 1.3% in the resources. The recoveries are within a 60%-65% range since a traditional graphite flow sheet isn’t being used. Despite the lower grades, the amount of graphite here is substantial, and it has the potential to add significant value to the project as a by-product.

At the deposit, the company has observed depletion of graphite in the top 3m-5m zone where the rutile is found in high concentrations. At a depth of 8m-12m, the graphite grade picks up and the flakes get larger in size. At an 8m depth, there isn’t any degradation in the graphite flakes. These are highly-crystalline coarse flakes sitting in a friable matrix.

Since the pits are shallow, the company is looking to mine the entire pit in a single operational phase. Once a pit is exhausted, the company will move on to the next pit. This would provide a suitable blend and a balance of both graphite and rutile.

Material Separation

Sovereign Metals has an off-take agreement with Mitsui. The former is in conversation with various companies for potential graphite off-takes as well. Notably, the company has carried out significant bulk test work on graphite. The graphite is a relatively low density as its a coarse flake. As a result, the graphite goes to the lightest tail fractions when exposed to a wet table.

The company has realised that rutile is the heaviest mineral in the system, while graphite is the lightest material. This enables it to separate the two materials using a traditional wet gravity process. While the company is using wet tables on-site, its laboratory is utilising spirals for a commercial approach. It has conducted metallurgical test work to demonstrate that the two materials are very easy to separate with gravity. It results in a light tail stream which comprises the majority of the graphite and a heavy mineral concentrate that contains all the rutile.

In addition to the gravity plant, the company also needs a minimum separation plant or the dryer component as it will help remove the junk heavy minerals such as iron oxides that go into the heavy mineral concentrate. The easiest way to remove these heavy metals is by using magnetics. The company also needs to remove kyanite, an alumina silicate, which it plans to remove using an electrostatic separation technique.

Project Logistics

Malawi is a landlocked country that benefits from a well-developed infrastructure. The company anticipates that the project will benefit from the existing rail lines. The Nacala Corridor is a key route which is a trans-Malawi, and trans-Mozambique railway line that goes out to the deep water port of Nacala. The 900km long route was recently upgraded by the rail concessionaire and a package from Japan. This rail line is responsible for hauling coal from Moatize, Mozambique, and it also takes export-import freight in and out of Malawi.

Sovereign Metals is looking to ship around 420,000t of material containing about 250,000t rutile and 170,000t of graphite. Malawi’s rail export capacity currently stands at 25Mt, out of which 20Mt is reserved for coal, while 5Mt is reserved for Malawi-originating export freight. Currently, only 10% of the capacity is being used, mainly for agricultural products. This leaves a significant capacity surplus for the rail line. Notably, Sovereign Metals has an MOU (Memorandum of Understanding) with the rail concessionaire to arrange a full-take-or-pay freight export agreement as the project gets closer to development.

As per the Scoping Study, the company’s transport cost is estimated at $55/t. It is important to note that this estimate includes a short truck to the rail head in the early years of operations. In stage 2 of operations, the company is proposing a 12km spur line that would go right to the plant, enabling the loading of material straight onto the rail carriages at the plant. While there has been an isolated mine-related incident in Mozambique, the company hasn’t seen any problems in its operation so far. The company also has the option to export the material south via the Beira Corridor.

Targets 2022 and Beyond

Sovereign Metals’ first delivery milestone is within the next 6 months. The company is looking to upgrade the existing MRE (Mineral Resource Estimate) by February 2023. The PFS is expected to be completed by May. In the meantime, the company is looking to sign additional off-take agreements with interested parties. Notably, the company has had a lot of interest in its products, especially rutile as the material currently has a significant supply deficit.

Rutile is the world’s purest natural form of titanium. It’s largely used in pigment markets, where it acts as a replacement for lead in white pigments. Pigments are rutile’s biggest market. Rutile is also used in the flux of welding rods. It is also used in the titanium metal market, which has seen significant growth in recent times.

Sovereign Metals is currently in the process of producing graphite products in the lab. These products will then be sent out to off-takers for assessment. The company is looking to supply graphite to China, however, it isn’t likely to be a major market for the company.

To find out more, go to the Sovereign Metals website