Rio Tinto takes deeper plunge into Sovereign Metals’ world class Kasiya rutile and graphite mine
The $18.5m option exercise will up the $170 billion mining giant’s stake in SVM to 19.76%
It highlights the strong development potential of what could be the world’s largest and lowest cost rutile and graphite producer
Special Report: Rio Tinto has taken its hunger for rutile and graphite to a new level, spending $18.5 million to exercise options that will boost its shareholding in Sovereign Metals to 19.76%.
The decision builds on a strategic investment made by Rio (ASX:RIO) in Sovereign (ASX:SVM) one year ago, when Rio spent $40.4m to take an initial 15% in the owner of the world’s largest rutile and second largest flake graphite deposit.
That is the Kasiya orebody in Malawi, which contains a whopping 1.8Bt at 1% rutile and 1.4% graphite, two-thirds of that in the higher confidence indicated category.
Rio has already demonstrated its rare bravado among the legacy mega miners, plunging headfirst into the new and unusual world of battery metals by establishing a lithium business while others (eg. BHP) look only to old world metals they already mine like copper and nickel.
Clearly bullish on the electric vehicle supply chain as a long term thematic, Rio’s initial investment into SVM focused heavily on plans to qualify the graphite product from the deposit for use in lithium-ion battery anodes.
Rio is also a major producer of mineral sands and titanium dioxide for pigment and industrial markets, via operations in Madagascar, South Africa and Canada.
The latest investment will see Rio exercise over 34.5m options at 53.5c a share. That has SVM’s price up slightly today, the ~$360m capped developer having already run far beyond the strike price by opening trade at 66c this morning.
Rio’s initial subscription came at just 48.6c, a 10% premium to SVM’s pre-deal 45-day VWAP.
Major progress at Kasiya
Identified only a few years ago, the collaboration agreement with Rio Tinto has helped Sovereign progress the project at a rapid pace, launching pilot phase mining in May.
It earmarks the deposit as one of the most significant globally for supplying critical future-facing markets from rising urbanisation, electrification and technological developments, including in titanium pigment, titanium metal and lithium-ion batteries.
“In collaboration with Rio Tinto, we have made significant progress in advancing Kasiya over the course of this year, including the successful launch of the pilot phase mining in May,” Sovereign MD Frank Eager said.
“We are excited about Rio Tinto’s further investment in Sovereign, which represents another significant step towards unlocking a major new supply of low-CO2-footprint natural rutile and flake graphite.”
Sovereign chairman Ben Stoikovich said Rio’s investment reaffirmed Kasiya as one of the ‘most significant critical minerals projects globally’.
One deposit to rutile them all
A low CO2 alternative to synthetic rutile, which requires the use of the energy and chemical intensive Becher Process to refine TiO2 from iron rich ilmenite, natural rutile is a key material for production of paint pigments and welding materials and is used in titanium metal products for the aviation and defence industries.
Natural rutile supplies are also depleting, facing severe deficits within five years, with Kasiya the largest discovery in history and first of significance globally in 50 years. Its importance has been ratcheted up amid regulatory pain at Sierra Rutile (ASX:SRX), which attempted to shut its Area 1 mine this year amid a dispute with the Sierra Leone Government. SRX’s board recently recommended a takeover offer from Gemcorp having found the jurisdictional maze too much to navigate.
Sovereign’s trump card is its graphite by-product, which could reduce its all-in sustaining costs and make it a low-cost supplier to challenge Chinese dominance of a key part of the lithium-ion supply chain.
Kasiya would cost US$597m to build but generate US$415m in average annual EBITDA and US$16bn in revenue over its first 25 years of operations, according to a pre-feasibility study released last year.
At 222,000tpa it would be the world’s largest single rutile operation and one of the largest ex-China flake graphite producers at 244,000tpa. Costs of US$404/t would make it the lowest cost producer of both products around the world.
SVM is currently conducting an optimisation study ahead of a planned definitive feasibility study, the required assessment to support a final investment decision.
Under the original Rio investment, Rio had the option to become the operator of Kasiya and be able to market 40% of the offtake within 90 days of the release of Sovereign’s DFS results.
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.
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