Sovereign Metals Ltd (ASX:SVM, AIM:SVML) intends to demerge its Malawian graphite holdings, including the Nanzeka, Malingunde, Duwi and Mabuwa projects, through NGX Limited, a wholly-owned subsidiary of the company.
The demerger will create a distinct company for the graphite arm of the business, allowing Sovereign to focus on the development of the Kasiya Rutile Project while shareholders continue to retain exposure to the value and upside of the graphite projects.
This process, which will be subject to shareholder approval, will involve a spin-out of NGX and in-specie distribution of NGX fully paid ordinary shares to Sovereign shareholders through the issue of one NGX share for every 11 Sovereign shares.
New graphite arm set for IPO
The plan is for NGX to pursue an ASX listing through an initial public offering of NGX shares pursuant to a prospectus following the completion of the demerger.
NGX's IPO will consist of one new NGX share for every one NGX share received pursuant to the demerger to raise roughly $8.6 million and a general offer of $1 million to assist with satisfying ASX spread requirements. At the time of publication, the company has 470,875,023 shares on issue.
This will ensure there is no cash outflow from Sovereign to NGX as part of the demerger, other than applicable Sovereign expenses to affect the demerger.
Shareholders may elect to retain exposure to either one or both companies as dictated by their investment preferences and objectives.
A Notice of Meeting for the demerger and distribution will be sent to shareholders with the meeting planned to take place early in 2023.
Why demerge?
The demerger allows Sovereign to focus on its efforts and resources on its flagship Kasiya Rutile Project, the largest natural rutile deposit in the world.
This project is on track for a pre-feasibility study, due for completion in the first half of the new year.
The board sees considerable potential in the graphite projects that is not recognised by the market and thinks a dedicated, separately funded vehicle may realise appropriate value for shareholders.
Future capital raisings are expected to be more readily achieved by each individual entity as the focus of the funding will be on their specific projects.
In addition, this model is expected to provide greater flexibility to both Sovereign and NGX to attract strategic investors.
NGX will have a dedicated board and management team to focus on the development of the graphite projects.