Sovereign Metals Limited (ASX:SVM, OTC:SVMLF, AIM:SVML) has attracted the attention of global mining giant Rio Tinto PLC (LSE:ASX:RIO), with the mega-cap to invest $40.4 million to become a 15% shareholder in the junior miner.
The investment will advance the Kasiya Rutile-Graphite Project in Malawi, unlocking a significant supply of low-carbon-footprint natural rutile and flake graphite.
Investors have recognised the significance of the deal, sending shares as much as 23.24% higher in early ASX trading to A$0.61, a new 12-month high for the company.
Landmark agreement
Sovereign chairman Ben Stoikovich is enthusiastic about the deal: “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.
“Furthermore, this is yet another step towards unlocking significant benefits from development of the Kasiya project for Malawi.
We welcome Rio Tinto as a major shareholder of Sovereign and look forward to working with Rio Tinto as our strategic partner in the development of Kasiya.”
The investment's primary focus is to finance the definitive feasibility study (DFS) for the Kasiya project.
World-class low-carbon mine
The study aims to develop a world-class, low-carbon-footprint mine capable of supplying the titanium pigment, titanium metal and lithium-ion battery industries.
Rio has agreed to offer technical and marketing assistance for the project, with a specific focus on Sovereign's graphite co-product and the production of spherical purified graphite for the lithium-ion battery anode market.
As part of the deal, Rio Tinto will acquire 83,095,592 new shares of Sovereign at a price of A$0.486 per share, which represents a 10% premium over the 45-day volume weighted average price on the ASX as of July 14, 2023.
Additionally, Rio Tinto will receive 34,549,598 options, allowing it to potentially increase its shareholding to 19.99% within the year. These options have an exercise price of A$0.535 per share, constituting a 21% premium over the aforementioned average price.
Cooperation measures
In addition to the financial commitment, Sovereign and Rio Tinto have entered into an investment agreement that outlines various cooperation measures.
If Sovereign seeks debt financing for the project's development, the two companies will negotiate suitable financing arrangements. They will also collaborate to qualify Kasiya's graphite product, emphasising on supplying the spherical purified graphite segment of the lithium-ion battery anode market.
Rio Tinto has the option to become the operator of the Kasiya project on commercial terms. If this option is exercised, Rio Tinto will also hold exclusive marketing rights for 40% of the project's annual production of all identified products from the DFS.
To facilitate collaboration and oversight, Rio Tinto will be entitled to appoint a director to Sovereign's board or an observer, a general manager with access to the project and three members to the project's technical committee.
Rio Tinto will also possess the right of first refusal over any future capital raisings that do not involve pro rata entitlement offers, as long as its ownership remains above 10% but below 19.99%.