To say that Rio Tinto Plc's (LSE:ASX:RIO) strategic investment in Sovereign Metals Limited (ASX:SVM, OTC:SVMLF, AIM:SVML) is a ‘positive’ may be something of an understatement, indeed, in London the share shot up nearly 25% following Monday’s news.
Rio is taking a 15% stake in the ASX and AIM-listed mining junior in exchange for a A$40 million investment to help drive forward the Kasiya rutile-graphite project in Malawi.
Sovereign said the deal is “a significant step towards unlocking a major new supply of low-CO2-footprint natural rutile and flake graphite”, and, added that Rio is expected to assist in the technical and marketing aspects of the project.
Rio also has the option to increase its stake to 19.99% within the next 12 months.
Multiple positives
Analysts at Berenberg reckon Rio could become much more involved, and much more invested, in the project in the future.
“We consider Rio to be a logical long-term owner of Kasiya, and view the announcement as a positive,” the European bank said in a note.
According to Berenberg, the Rio investment benefits Sovereign from a reputational, project de-risking and financial perspective.
“We would also expect that ESG factors will take centre stage, relating to both Kasiya’s low carbon footprint and Rio’s positive influence from a project development standpoint,” the bank added.
Berenberg has a ‘buy’ rating for Sovereign with a 90p price target suggesting more than 200% upside, even after Monday’s reaction to the Rio investment.
In London, on Monday afternoon, Sovereign shares were up 5.5p or 23.9% changing hands at 28.5p.
Earlier, on the ASX, the company’s primary listing saw the shares rise just over 7% to A$0.53, valuing the company at A$247mln.
A landmark agreement
Sovereign chair Ben Stoikovich, in a statement, said: "This landmark agreement with Rio Tinto, one of the world's largest and most accomplished global mining companies, is confirmation of Kasiya's place as one of the most significant critical mineral discoveries in recent times.
“The experience and expertise that Rio Tinto brings will truly set Kasiya apart as a potentially globally significant supply of two critical minerals and take us all a step closer to supply chain decarbonisation and achieving net-zero.”
Julian Stephens, Sovereign Metals managing director, meanwhile, joined Andrew Scott in the Proactive Australia studio.