Sovereign Metals Looks to Capitalize on China's Squeeze on Graphite Supply

• Sovereign Metals is developing the Kasiya rutile-graphite deposit in Malawi, which is one of the world's largest graphite deposits.
• China's increasing demand for graphite is causing concerns in the Western world, as 93% of all anode material comes from China.
• Sovereign Metals has a substantial graphite resource and is planning to produce 244,000 tons of flake graphite for 25 years.
• The company anticipates rising graphite prices due to China's restrictions on exports, potentially leading to greater demand for their product.
• Rio Tinto is closely involved in Sovereign Metals, providing financing, expertise, and the option to become the operator for the project, which could further boost its prospects.

About Sovereign Metals

Sovereign Metals (ASX: SVM, AIM: SVML) is an Australian exploration company focused on developing mineral deposits in Africa. The company's flagship project is the Kasiya rutile and graphite deposit located in Malawi. With over 20 million tonnes of high-purity flake graphite, Kasiya is one of the world's largest known natural graphite deposits. Additionally, Kasiya contains the largest rutile deposit discovered globally in the past 50 years.

In July 2023, the company secured a major vote of confidence when Rio Tinto invested A$30 million to acquire a 15% stake in Sovereign Metals. The mining giant has the option to increase its holding to 40% through additional share subscriptions. Rio Tinto also agreed to support completion of a definitive feasibility study on Kasiya's rutile and graphite potential. Their involvement validates Kasiya as a world-class deposit and provides Sovereign Metals with crucial technical expertise plus access to capital markets.

Interview with Managing Director Frank Eagar, and Chief Commercial Officer, Sapan Ghai

Major Shareholder Backing

In July 2023, mining giant Rio Tinto invested A$40 million to acquire a 15% stake in Sovereign Metals, with options to increase its holding to 20% for an additional A$18 million. As part of the deal, Rio Tinto will assist Sovereign Metals in completing a definitive feasibility study on the Kasiya deposit.

Rio Tinto's involvement validates the tier-one potential of Kasiya and provides Sovereign Metals with crucial technical and development support. Access to Rio Tinto's financial resources also largely eliminates funding concerns for Sovereign Metals as it advances Kasiya towards production.

China Squeezing Graphite Supply

Recent policy announcements from China indicate it intends to severely restrict exports of natural graphite in order to prioritize domestic use. This poses a major threat to graphite supply in the Western world, given China accounts for over 60% of global graphite production and up to 93% of anode material for lithium-ion batteries.

As Sovereign Metals' COO Sapan Ghai highlighted, "when you've got 93% of all anode material coming out of China, if you put a stop to that or even if you bottleneck it, it’s going to have a big impact into the Western World."

Sapan elaborated that forecasts were predicting a 46% increase in graphite demand in the West just for anode material to meet electric vehicle and battery requirements. However, with China squeezing supply, "all of a sudden you're looking at everything on this side, outside of China, ending up going towards the anode market, just to make up a fraction of where electric vehicle and lithium ion battery demand is probably going to get to."

The supply curbs by China will have ripple effects across Western markets leading to inevitable graphite shortages. This sets the stage for projects like Sovereign Metal's Kasiya deposit to fill the supply gap and capitalize on forecast graphite price increases.

As Sapan summarized, "given the news out of China, there's no doubt that our prices are going to start pushing up towards that price provided by the experts." With industry consultants forecasting Sovereign's graphite to fetch up to US$2,700/tonne, there is major upside to the current conservative price assumptions underpinning the company's feasibility studies.

Massive Graphite Resource at Kasiya

The company's pre-feasibility study outlined a 25-year life of mine, producing 244,000 tonnes of high-purity graphite per annum. This production level accounts for just 30% of Kasiya's massive graphite resource, highlighting scope for multi-generational operations.

At the 25-year production rate, Kasiya's graphite output would generate US$8 billion in revenue for Sovereign Metals using conservative graphite price assumptions of US$1,290/tonne. With graphite prices forecast to rise on the back of China's export restrictions, there is potential for substantially higher revenue streams.

Massive Rutile Resource Alongside Graphite

Kasiya's world-class rutile deposit contains the largest discovery made in over 50 years. Rutile is a key feedstock for pigments, welding and titanium production.

The pre-feasibility study outlined production of 222,000 tonnes of rutile per annum over 25 years. This would make Kasiya one of the top five rutile mines globally based on annual output. Significantly, this production level also only accounts for 30% of the deposit's total rutile resource.

Adding further value is the exceptionally low contaminants in Kasiya's rutile. This will enable simple processing and lower costs compared to alternate rutile projects. The high-purity rutile product will attract premium pricing from titanium pigment producers.

The combined world-class credentials for both graphite and rutile reinforce Kasiya's status as a generational project.

Low Operating Costs

Kasiya's graphite product will be a premium, high-purity offering targeted at lithium-ion battery manufacturers. Importantly, low operating costs of US$404/tonne provide Kasiya's with a significant cost advantage against alternate sources of supply. This will ensure strong profit margins are maintained even if graphite prices decline.

Furthermore, Kasiya's graphite output is forecast to have an extremely low CO2 footprint of just 0.15 tonnes of CO2 per tonne of graphite produced. This ESG advantage will be highly valued by global battery makers such as BMW, Ford and Volvo who have supply agreements with Rio Tinto.

Clear Pathway to Production

While construction at Kasiya is still several years away, Sovereign Metals has a clear pathway to production. It has the backing of a tier-one partner in Rio Tinto, secured its mining licenses, and has the Malawi government's full support to advance permitting and development. Completion of a definitive feasibility study is targeted for late 2024.

Conclusion

Sovereign Metals is superbly positioned with its world-class Kasiya deposit containing substantial graphite and rutile resources.

For graphite, Kasiya is set to capitalize on forecast price increases driven by China's supply squeeze. Its massive scale, low costs and ESG advantages will ensure strong demand from western battery and EV manufacturers.

Additionally, Kasiya's immense rutile potential provides Sovereign Metals with exposure to the critical titanium feedstock market. The exceptionally high-grade and clean rutile at Kasiya positions it as one the world's premier rutile development projects.

With its tier-one credentials in both graphite and rutile, Kasiya's development is de-risked by Rio Tinto's involvement. As the project progresses towards production, Sovereign's share price should rerate substantially higher to better reflect Kasiya's immense value on both the graphite and rutile front.

For investors, Sovereign Metals provides exceptional leveraged exposure to forecast price increases in both critical minerals over the coming decade. The company's world-class dual asset base makes it a compelling investment opportunity.