TIDMSVML
RNS Number : 8326V
Sovereign Metals Limited
16 December 2021
SOVEREIGN METALS LIMITED
NEWS RELEASE
KASIYA SCOPING STUDY CONFIRMS GLOBALLY SIGNIFICANT NATURAL
RUTILE PROJECT
Sovereign Metals Limited (the Company or Sovereign) is pleased
to announce the results of the initial scoping study (Scoping Study
or Study) for the Company's Kasiya Rutile Project (Kasiya or the
Project) in Malawi.
HIGHLIGHTS
The Scoping Study confirms Kasiya as a globally significant
natural rutile project. Kasiya is the largest undeveloped rutile
deposit in the world and therefore is highly strategic in a market
characterised by extreme supply deficit.
This initial Scoping Study develops the concept for a
multi-decade mine providing a stable supply of a highly
sought-after rutile (TiO(2) ) and graphite whilst contributing
significantly to the economy of Malawi.
Exceptional Economics
-- Scoping Study demonstrates globally significant &
strategic project with low capital costs & high returns
-- Positioned as one of the world's best undeveloped titanium minerals projects
Positioned for growth
-- The life-of-mine inventory covers just 38% of the drill defined mineralised footprint
-- Substantial additional resource growth expected in early 2022
to enable the Study to be enhanced
Sustainable and ESG Driven
-- Significant contribution to Malawi via fiscal returns,
employment, training & social development
-- Low carbon footprint operation - hydro & solar power supply
Critical raw materials reducing carbon emissions
-- Low carbon - natural rutile can displace carbon, energy & waste intensive alternatives
-- Graphite is a major mineral required for lithium-ion
batteries for electric vehicles which are key components required
for the clean energy transition
Rutile market in structural supply deficit
-- Current supply declining with very limited additional production in the pipeline
-- The current severe structural supply deficit in natural
rutile is forecast to continue to widen in the medium & long
term
Strong relationships
-- Significant support from the government of Malawi for the development of Kasiya
-- Highly supportive community to benefit from project development
-- Establishing relationships with off-takers with significant interest already received
EXCEPTIONAL ECONOMICS
The Scoping Study demonstrates Kasiya as a globally significant
natural rutile project with exceptional economics, including low
capital and operating costs, resulting in a high margin
operation.
NPV(8) IRR EBITDA
(after-tax) (after-tax) (Annual average LoM)
US$861m 36% US$161m
CAPITAL COST ANNUAL OPERATING COST
THROUGHPUT (per tonne mined)
US$332m 12Mt US$5.96/t
MINE LIFE NPV(8) /CAPEX OPERATING COST
(per tonne product)
25 years 2.6 US$352/t
Managing Director, Julian Stephens
"To have achieved this fantastic Scoping Study milestone for the
Kasiya Rutile Project within just 20 months of the initial
discovery is a huge result for Sovereign and a testament to the
dedication and hard work of our Malawi and Australia-based
team.
The Kasiya Rutile Project is the largest undeveloped natural
rutile resource in the world and is therefore highly strategic in
an environment of severe global supply deficit.
We believe that Kasiya is also just the beginning of the story
in the new Central Malawi Rutile Province. We will expand our
resource significantly early next year with the addition of the
Nsaru Rutile Deposit and potentially other regional prospects.
The project benefits from world-class existing infrastructure
and natural ESG advantages. Natural rutile has a far lower carbon
footprint compared to other titanium feedstocks used in the pigment
industry, and the vast majority of power will be supplied by
renewable hydro and solar. Furthermore, natural graphite is a
significant component in lithium-ion batteries and is an important
mineral underpinning the energy transition.
The future development of the Kasiya Rutile Project will bring
substantial benefits to Malawi in terms of GDP, royalties, taxes,
employment and training, local business opportunities and community
development."
ENQUIRIES
Dr Julian Stephens (Perth) Sam Cordin (Perth) Sapan Ghai (London)
Managing Director +61(8) 9322 6322 +44 207 478 3900
+61(8) 9322 6322
Nominated Adviser on AIM
RFC Ambrian
Bhavesh Patel / Andrew Thomson +44 20 3440 6800
Broker
Optiva Securities +44 20 3137 1902
Daniel Ingrams
Mariela Jaho
Christian Dennis
To view the announcement in full including all illustrations and
figures, please refer to the full announcement at
http://sovereignmetals.com.au/announcements/.
OVERVIEW
Sovereign is aiming to develop an environmentally and socially
sustainable operation to supply highly sought-after natural rutile
and graphite to global markets.
The proposed large-scale operation will process soft, friable
mineralisation mined from surface. The Project has excellent
surrounding infrastructure including bitumen roads, a high-quality
rail line connecting to the deep-water of Nacala on the Indian
Ocean and hydro-sourced grid power.
The operation will primarily employ conventional hydro-mining to
produce a slurry that is pumped to a Wet Concentration Plant (WCP)
where the material is sized. A Heavy Mineral Concentrate (HMC) is
produced via processing the sand fraction through a series of
gravity spirals. The HMC is transferred to the dry Mineral
Separation Plant (MSP) where premium quality rutile is produced via
electrostatic and magnetic separation.
Graphite rich concentrate is collected from the gravity spirals
and processed in a separate graphite flotation plant, producing a
coarse-flake graphite product.
The rutile and graphite products will be trucked a short
distance via existing bitumen roads to the Kanengo rail terminal
from where they will be railed via the Nacala Logistics Corridor
(NLC) to the deep-water port of Nacala on the eastern seaboard of
Mozambique.
LOW-COST OPERATION
Kasiya's low costs are achieved through deposit size and grade,
location and infrastructure. Central Malawi boasts excellent
existing infrastructure including hydropower and an extensive
sealed road network. The Kasiya Rutile Project is strategically
located in close proximity to the capital city of Lilongwe,
providing access to a skilled workforce and industrial
services.
The existing quality logistics route to the Indian Ocean
deep-water port of Nacala, via the NLC, for the export of products
to global markets provides significant capital cost savings
compared to many other undeveloped projects.
The soft, friable and high-grade mineralisation occurring from
surface results in no waste stripping requirement and the
amenability to hydro-mining means the mining cost component is kept
relatively low.
The revenue-to-cash cost ratio of 2.8x and the average annual
revenue to capital cost ratio positions Kasiya in the first
quartile compared to other undeveloped mineral sands
operations.
POSITIONED FOR GROWTH
The current mining inventory for the Scoping Study covers only
49km(2) or 38% of the total drill-defined area of high-grade rutile
mineralisation of 129km(2) . The Company expects to be able to
materially increase the overall Mineral Resource Estimate (MRE)
tonnage in early 2022 which will enable the Study options to be
reviewed in terms of potential for scale ups or mine life
extensions beyond the current 25 years.
The objective of this Study was to provide an initial
technically validated concept that will be scalable in future.
Through the Study process, a number of opportunities and options
were identified to enable potential increases in production rates
via additional mining units, plant modifications or modular
additions.
SUSTAINABLE AND ESG DRIVEN
Sustainability is a vital element of Sovereign's strategy for
Kasiya. The Company is committed to making informed choices that
improve our corporate governance, financial strength, operational
efficiency, environmental stewardship, community engagement and
resource management.
The Project aims to meet the requirements of international
guidelines and standards, including the IFC Performance Standards
on Environmental and Social Sustainability (IFC, 2012), the World
Bank Group Environmental, Health and Safety Guidelines (WBG, 2007),
the Equator Principles (Equator Principles Association, 2020) and
the International Council on Mining & Metals (ICMM) principles
for future studies and development phases of the Kasiya
project.
The Kasiya project will be designed considering both the Equator
Principles and Scope 1, 2 and 3 emissions under the Green House Gas
protocol so that the design meets high standards for ESG from the
outset. Access to hydro-generated grid power and a solar power
system to be installed on site will ensure low carbon power supply
for the project and the use of predominantly rail rather than road
transport for rutile and graphite products will further help give
the mine a low carbon footprint.
The Scoping Study contemplates that the operation will use a
closed circuit zero discharge process water circuit and a tailings
storage facility designed to store chemically benign tailings
during operations which will be rehabilitated and restored
progressively.
CRITICAL MINERAL IN SUPPLY DEFICIT
Natural rutile is a genuinely scarce commodity with no other
large rutile dominant deposits having been discovered in the last
half century.
Current sources of natural rutile are in decline as several
operations' reserves are depleting concurrently with declining ore
grades. These include Iluka Resources' (Iluka) Sierra Rutile and
Base Resources' Kwale operations in Kenya. Recent announcements by
Iluka advising of the potential suspension of operations at Sierra
Rutile may cause significant additional product to be removed from
the market in the near to medium term. Additionally, there are
limited new deposits forecast to come online, and hence supply of
natural rutile is likely to remain in structural deficit.
LOW CARBON ADVANTAGE
Like many other industries globally, the titanium dioxide
pigment industry is targeting reduced carbon emissions, reduced
energy consumption and a move toward renewable energy and waste
minimisation.
Natural rutile (+95% TiO(2) ) is the cleanest, purest natural
form of titanium dioxide. However, due to natural rutile's
scarcity, the principal source mineral for titanium has been
ilmenite (50% TiO(2) ). Ilmenite requires energy and carbon
intensive upgrading for use as titanium pigment feedstock.
Conversely, natural rutile requires no upgrading once mined and
processed, resulting in zero additional CO(2) emissions. For each
tonne of natural rutile utilised up to 2.8 tonnes CO(2) eq. could
be saved compared to the upgrading/beneficiation of ilmenite, via
smelting and chemical processes, to high-grade titanium feedstocks
like titania slag and synthetic rutile.
A shift towards a greater percentage of natural rutile feedstock
offers the titanium pigment industry a simple and short lead-time
opportunity to significantly lower its carbon intensity and total
environmental impact.
STRONG RELATIONSHIPS
A key to successful development of Kasiya will be the continuity
of our 10+ year strong relationships with key stakeholders
including the Government of Malawi and local communities.
Supportive Government
The Government of Malawi (GoM) actively encourages foreign
investment into its mining industry and provides a stable climate
for investors. The GoM, through The Honourable Minister of Mining
Mr Rashid Gaffar, has stated its full support for the Company's
efforts to develop the Kasiya Rutile Project.
Malawi has taken significant action to provide an attractive
environment for investors in its mining industry, recently joining
the Extractive Industries Transparency Initiative (EITI). The EITI
is a global standard for the good governance of oil, gas and
mineral resources and provides accountability and transparency
around mining and petroleum revenues.
Communities & Employment
Sovereign conducts significant and regular community engagement
activities with a number of initiatives completed and underway.
Development of Kasiya will have a positive impact on local
communities by providing approximately 480 jobs during operations,
training, and support for locally-owned businesses.
The Company has successfully worked with communities in Malawi
over the last decade and will work with the communities at Kasiya
on infrastructure, local business support, water provision,
healthcare, education and training.
Sovereign is an equal opportunity employer with a gender diverse
workforce. Currently, 60% of Sovereign's professional Malawian
staff and at least 50% of our regular interns are women.
EXISTING EXCELLENT LOGISTICS INFRASTRUCTURE
Kasiya will directly benefit from the exceptional existing
infrastructure in central Malawi. This offers the preferred
logistics route to the Nacala deep water port via the NLC for the
export of natural rutile and graphite. All infrastructure is in
place to connect Kasiya to global markets:
-- A Class-1 bitumen sealed road network runs through the project area
-- The fully operational rail of the NLC located just 15km from Kasiya
-- NLC connects to the under-utilised deep-water port of Nacala on the Indian Ocean
-- Grid infrastructure to deliver hydro power to the operation
from sub-station at the capital, Lilongwe
Access to this existing infrastructure and logistical solutions
significantly reduces capital and operating costs for the Kasiya
project. Total logistics cost from mine gate to FOB Nacala is
estimated to be US$50.85/t.
NEXT STEPS
The Company is targeting a number of significant milestones over
the next two quarters which include;
-- Updated MRE with substantial growth of the Indicated and
Inferred JORC MRE base expected including addition of the Nsaru
deposit
-- Revised Life Cycle Assessment (LCA) based on the Scoping
Study results to quantify the environmental impacts with a specific
focus on carbon footprint
-- Scoping Study update based on the expected new resource base planned for mid-2022
-- Continued product marketing and potential execution of
Memorandum of Understandings (MoU(s)) with future rutile
off-takers
-- Commencement of ESIA field data collection and commencement
of community engagement activities
Following the completion of the above, Sovereign will commence a
pre-feasibility study (PFS) on Kasiya-Nsaru to realise the true
potential of this very large rutile project.
In parallel to the technical study developments on the Company's
projects, significant exploration will continue, with programs
including;
-- Infill drilling at Kasiya-Nsaru to increase MRE confidence and upgrade MRE categories
-- Deeper air-core drilling at Kasiya-Nsaru targeting the
NE-striking, higher-grade zones to depths of 25m below surface
-- Air-core drilling targeting an initial MRE for the Bua
Channel - a traditional placer deposit just 10km north-east of
Kasiya
-- Regional reconnaissance drilling targeting additional
Kasiya-like saprolite-hosted rutile mineralisation
KEY SCOPING STUDY OUTCOMES
The Scoping Study demonstrates an economically robust natural
rutile project with the following key metrics:
Table 1: Key Scoping Study Outcomes
Outcome Unit Kasiya Rutile Project
NPV(8) (real post-tax) US$ $861m
===================================== ====================== ======================
NPV(10) (real post-tax) US$ $684m
===================================== ====================== ======================
IRR (post-tax) % 36%
===================================== ====================== ======================
Capital Costs US$ $332m
===================================== ====================== ======================
Operating Costs US$ per tonne mined $5.96
===================================== ====================== ======================
Operating Costs US$ per product $352
===================================== ====================== ======================
Revenue to Cost Ratio 2.8
============================================================= ======================
NPV(8) / Capital Costs 2.6
============================================================= ======================
Throughput tpa 12,000,000
===================================== ====================== ======================
Life of Mine 25 years
===================================== ===================== ======================
Annual Production - rutile Tonnes 122,000
===================================== ====================== ======================
Annual Production - graphite Tonnes 80,000
===================================== ====================== ======================
Total Revenue (LoM) US$ $6,266m
===================================== ====================== ======================
Revenue - annual (average LoM) US$ $251m
===================================== ====================== ======================
EBITDA - annual US$ $161m
===================================== ====================== ======================
EBITDA - annual (first 5 years) US$ $192m
===================================== ====================== ======================
Payback 2.5 years
===================================== ===================== ======================
Government Royalties (LoM) US$ $313m
===================================== ====================== ======================
Corporate Taxes (LoM) US$ $1,074m
===================================== ====================== ======================
DISCLOSURES & DISCLAIMERS
Scoping Study Parameters - Cautionary Statements
The Scoping Study referred to in this announcement has been
undertaken to determine the potential viability of an open pit
mine, rutile and graphite processing plant constructed onsite at
the Kasiya project in Malawi and to reach a decision to proceed
with more definitive studies. The Scoping Study has been prepared
to an accuracy level of +/-30%. The results should not be
considered a profit forecast or production forecast.
The Scoping Study is a preliminary technical and economic study
of the potential viability of the Kasiya project. In accordance
with the ASX Listing Rules, the Company advises it is based on
low-level technical and economic assessments that are not
sufficient to support the estimation of ore reserves. Further
evaluation work including infill drilling and appropriate studies
are required before Sovereign will be able to estimate any ore
reserves or to provide any assurance of an economic development
case.
Approximately 60% of the total production target is in the
Indicated Mineral Resource category with 40% in the Inferred
Mineral Resource category. Approximately 100% of the scheduled
throughput over the first six years of production is in the
Indicated Mineral Resource category, with 0% in the Inferred
Mineral Resource category. The Company has concluded that it has
reasonable grounds for disclosing a production target which
includes a modest amount of Inferred material. However, there is a
low level of geological confidence associated with Inferred mineral
resources and there is no certainty that further exploration work
(including infill drilling) on the Kasiya deposit will result in
the determination of additional Indicated Mineral Resources or that
the production target itself will be realised.
The Scoping Study is based on the material assumptions outlined
elsewhere in this announcement. These include assumptions about the
availability of funding. While Sovereign considers all the material
assumptions to be based on reasonable grounds, there is no
certainty that they will prove to be correct or that the range of
outcomes indicated by the Scoping Study will be achieved.
To achieve the range outcomes indicated in the Scoping Study,
additional funding will likely be required. Investors should note
that there is no certainty that Sovereign will be able to raise
funding when needed. It is also possible that such funding may only
be available on terms that dilute or otherwise affect the value of
the Sovereign's existing shares. It is also possible that Sovereign
could pursue other 'value realisation' strategies such as sale,
partial sale, or joint venture of the Project. If it does, this
could materially reduce Sovereign's proportionate ownership of the
Project.
The Company has concluded it has a reasonable basis for
providing the forward looking statements included in this
announcement and believes that it has a reasonable basis to expect
it will be able to fund the development of the Project. Given the
uncertainties involved, investors should not make any investment
decisions based solely on the results of the Scoping Study.
Competent Person Statements
The information in this announcement that relates to Production
Targets is based on and fairly represents information provided by
Mr Ryan Locke, a Competent Person, who is a Member of The
Australasian Institute of Mining and Metallurgy. Mr Locke is
employed by Orelogy Group Pty Ltd, an independent consulting
company. Mr Locke has sufficient experience, which is relevant to
the style of mineralisation and type of deposit under
consideration, and to the activity he is undertaking, to qualify as
a Competent Person as defined in the 2012 Edition of the
'Australasian Code for Reporting of Exploration Results, Mineral
Resources and Ore Reserves'. Mr Locke consents to the inclusion in
the Announcement of the matters based on his information in the
form and context in which it appears.
The information in this announcement that relates to Processing,
Infrastructure and Capital and Operating Costs is based on and
fairly represents information compiled or reviewed by Mr Matthew
Langridge, a Competent Person, who is a Fellow Member of The
Australasian Institute of Mining and Metallurgy. Mr Langridge is
employed by DRA Global Ltd, an independent consulting company. Mr
Langridge has sufficient experience that is relevant to the style
of mineralisation and type of deposit under consideration and to
the activities undertaken. Mr Langridge, consents to the inclusion
in the Announcement of the matters based on his information in the
form and context in which it appears.
The information in this announcement that relates to Metallurgy
- rutile is based on and fairly represents information compiled or
reviewed by Mr Paul Marcos, a Competent Person, who is a Fellow
Member of The Australasian Institute of Mining and Metallurgy. Mr
Marcos is an employee of Sovereign and a holder of performance
rights in Sovereign. Mr Marcos has sufficient experience that is
relevant to the style of mineralisation and type of deposit under
consideration and to the activity being undertaken, to qualify as a
Competent Person as defined in the 2012 Edition of the
'Australasian Code for Reporting of Exploration Results, Mineral
Resources and Ore Reserves'. Mr Marcos consents to the inclusion in
the report of the matters based on his information in the form and
context in which it appears.
The information in this announcement that relates to Metallurgy
- graphite is based on and fairly represents information compiled
or reviewed by Mr Russell Bradford, a Competent Person, who is a
Fellow Member of The Australasian Institute of Mining and
Metallurgy. Mr Bradford is employed by Jem-Met Pty Ltd, an
independent consulting company. Mr Bradford has sufficient
experience that is relevant to the style of mineralisation and type
of deposit under consideration and to the activities undertaken. Mr
Bradford consents to the inclusion in the Announcement of the
matters based on his information in the form and context in which
it appears.
The information in this announcement that relates to Exploration
Results is extracted from the announcements dated 26 May 2020 to 22
November 2021. The announcements are available to view on
www.sovereignmetals.com.au . Sovereign confirms that a) it is not
aware of any new information or data that materially affects the
information included in the announcements; b) all material
assumptions included in the announcement continue to apply and have
not materially changed; and c) the form and context in which the
relevant Competent Persons' findings are presented in this report
have not been materially changed from the announcements.
The information in this announcement that relates to the Mineral
Resource Estimate is extracted from the announcement dated 16
December 2021. The announcement is available to view on
www.sovereignmetals.com.au . Sovereign confirms that a) it is not
aware of any new information or data that materially affects the
information included in the announcement; b) all material
assumptions included in the announcement continue to apply and have
not materially changed; and c) the form and context in which the
relevant Competent Persons' findings are presented in this report
have not been materially changed from the announcement.
Information disclosed in this announcement has been reviewed by
Dr Julian Stephens (B.Sc (Hons), PhD, MAIG), Managing Director, a
Qualified Person for the purposes of the AIM Rules for
Companies.
Forward Looking Statement
This release may include forward-looking statements, which may
be identified by words such as "expects", "anticipates",
"believes", "projects", "plans", and similar expressions. These
forward-looking statements are based on Sovereign's expectations
and beliefs concerning future events. Forward looking statements
are necessarily subject to risks, uncertainties and other factors,
many of which are outside the control of Sovereign, which could
cause actual results to differ materially from such statements.
There can be no assurance that forward-looking statements will
prove to be correct. Sovereign makes no undertaking to subsequently
update or revise the forward-looking statements made in this
release, to reflect the circumstances or events after the date of
that release.
Further Important Information for this Announcement
This Study has been prepared and reported in accordance with the
requirements of the JORC Code (2012) and relevant ASX Listing
Rules.
The Study has been prepared to an accuracy level of +/-30%. The
primary purpose of the Study is to establish whether or not to
proceed to the next stage of feasibility studies. The Study results
should not be considered a profit forecast or production forecast.
As defined by the JORC Code, a "Scoping Study is an order of
magnitude technical and economic study of the potential viability
of Mineral Resources. It includes appropriate assessments of
realistic assumed Modifying Factors together with any other
relevant operational factors that are necessary to demonstrate at
the time of reporting that progress to a Pre-Feasibility Study can
be justified."
The Modifying Factors included in the JORC Code have been
assessed as part of the Study, including mining, processing,
infrastructure, economic, marketing, legal, environmental, social
and government factors. The Company has received advice from
appropriate experts when assessing each Modifying Factor.
Following an assessment of the results of the Study, the Company
has formed the view that the next stage of feasibility studies is
justified for Kasiya. Feasibility Studies will provide the Company
with far more comprehensive assessment of a range of options for
the technical and economic viability of Kasiya which by
international standards should be sufficient detail for project
development financers to base an investment decision.
The Company has concluded it has a reasonable basis for
providing any of the forward-looking statements included in this
announcement and believes that it has a reasonable basis to expect
that the Company will be able to fund its stated objective of
completing feasibility studies for Kasiya. All material assumptions
on which the forecast financial information is based are set out in
this announcement.
SUMMARY OF MATERIAL ASSUMPTIONS
Material assumptions used in the estimation of the production
target and associated financial information are set out in the
following table.
Table 2: Assumptions
Maximum accuracy variation - Capital costs +30%/-30%
======================================================== ===========================
Maximum accuracy variation - Operating costs +/-30%
======================================================== ===========================
Minimum LoM 25 years
======================================================== ===========================
Annual throughput (tonnes) 12,000,000
======================================================== ===========================
Head grade - rutile 1.06%
======================================================== ===========================
Recovery - rutile 97%
======================================================== ===========================
Product grade (TiO(2) ) - rutile 95%
======================================================== ===========================
Head grade - graphite 1.12%
======================================================== ===========================
Recovery - graphite 62%
======================================================== ===========================
Product grade (TGC) - graphite 96%
======================================================== ===========================
Annual production (tonnes) - rutile 122,000
======================================================== ===========================
Annual production (tonnes) - graphite 80,000
======================================================== ===========================
USD:AUD 0.73
======================================================== ===========================
USD:MWK 0.0012
======================================================== ===========================
USD:ZAR 0.0690
======================================================== ===========================
Sales Price - rutile (average LoM) US$1,346/t
======================================================== ===========================
Sales Price - graphite (average LoM) US$1,085/t
======================================================== ===========================
Government Royalty 5% of net sales revenue
======================================================== ===========================
Vendor Royalty 2% of gross profit
======================================================== ===========================
Community Development Fund 0.45% of net sales revenue
======================================================== ===========================
Development Capital US$332m
======================================================== ===========================
Working Capital US$34m
======================================================== ===========================
Sustaining Capital US$100m
======================================================== ===========================
Operating Costs including royalties (LoM) - FOB Nacala US$446/t
======================================================== ===========================
Corporate Tax Rate 30%
======================================================== ===========================
Discount Rate 8%
======================================================== ===========================
MODIFYING FACTORS
The Modifying Factors included in the JORC Code (2012) have been
assessed as part of the Scoping Study, including mining,
processing, metallurgical, infrastructure, economic, marketing,
legal, environmental, social and government factors. The Company
has received advice from appropriate experts when assessing each
Modifying Factor.
A summary assessment of each relevant Modifying Factor is
provided below.
Mining - refer to section entitled 'Mining' in the full Scoping
Study Announcement located at
http://sovereignmetals.com.au/announcements/ .
The Company engaged independent consultants Orelogy Mining
Consultants Pty Ltd and Fraser Alexander to carry out the pit
optimisations, mine design, scheduling and mining cost estimation
for the Kasiya Scoping Study. The proposed mining method is hydro
mining with minor dozer assistance. This is considered appropriate
for this style of shallow, saprolite-hosted rutile and graphite
mineralisation. This methodology is used across numerous mineral
sands operations, particularly in Africa, and is well suited for
this style of mineralisation.
Approximately 60% of the total production target is in the
Indicated resource category with 40% in the Inferred resource
category. 100% of the scheduled throughput over the first six years
of production is in the Indicated category, with 0% in the Inferred
category - the p ayback period for the Project is 2.5 years from
the start of operations . The Company has concluded that it has
reasonable grounds for disclosing a production target which
includes a modest amount of Inferred material. However, there is a
low level of geological confidence associated with Inferred mineral
resources and there is no certainty that further exploration work
(including infill drilling) on the Kasiya deposit will result in
the determination of additional Indicated mineral resources or that
the production target itself will be realised.
In the unlikely event that the remaining Inferred resources are
not able to be upgraded, a stand-alone discounted cash flow (DCF)
analysis using only Indicated resources in the mine plan does not
affect the economic viability of the Project.
Metallurgy and Processing - refer to section entitled
'Metallurgy and Process Design' in the full Scoping Study
Announcement located at
http://sovereignmetals.com.au/announcements/ .
Rutile
The Company completed bulk rutile test-work programs at the
globally recognised Allied Mineral Laboratories (AML) in Perth,
Australia. The latest program was supervised by Sovereign's Head of
Development, Paul Marcos. Mr Marcos is a metallurgist and mineral
sands veteran. Bulk test-work programs have confirmed premium grade
rutile can be produced via a simple and conventional process flow
sheet.
Processing engineering was completed by DRA Global who developed
the process plant design and associated cost estimate for the
Scoping Study. An average product grade of 96% TiO(2) and average
recovery of 97% for rutile has been applied in the Scoping
Study.
Graphite
The Company engaged veteran graphite metallurgist Oliver Peters,
MSc, P.Eng., MBA (Consulting Metallurgist for SGS and Principal
Metallurgist of Metpro Management Inc.) to complete initial
test-work for graphite recovery. Mr Peters has over 25 years'
experience in metallurgy on graphite and other commodities. He has
operated numerous graphite pilot plants and commissioned a number
of full-scale processing facilities. Mr Peters has developed the
process flowsheet employed for the Malingunde PFS which has been
largely adopted for this Study. DRA's Senior Engineer, Stewart
Calder considers this appropriate based on the similarities of the
material and the early stage of the project.
Processing engineering was completed by DRA Global who developed
the process plant design and associated cost estimates for the
Scoping Study. Overall average graphite recovery applied was 62%
with gravity tails recovery being 74% and flotation plant recovery
being 84%. Overall concentrate grades average 96% C(t) with 60% of
graphite flakes larger than 180um.
Rutile & Graphite
It is acknowledged that laboratory scale test-work will not
always represent actual results achieved from a production plant in
terms of grade, chemistry, sizing and recovery. Further test-work
will be required to gain additional confidence of specifications
and recoveries that will be achieved at full-scale production.
Overall, the process is conventional for both rutile and
graphite with no novel features or equipment incorporated.
Infrastructure - refer to section entitled 'Infrastructure' in
the full Scoping Study Announcement located at
http://sovereignmetals.com.au/announcements/ .
Kasiya is located approximately 40km north west of Lilongwe,
Malawi's capital, and boasts excellent access to services and
infrastructure. The site is serviced by a dual lane, sealed bitumen
road that links to Lilongwe and the underutilised operational
intermodal rail siding at Kanengo.
The proximity to Lilongwe gives the project a number of
benefits, including access to a large pool of professionals and
skilled tradespeople. This removes the requirement for site
accommodation during the mining phase.
The Company appointed JCM Power ( JCM ) to design a preliminary
Independent Power Producer (IPP ) solution for Kasiya. JCM is a
Canada-headquartered Independent Power Producer ( IPP ) which
develops, constructs, owns and operates renewable energy and
storage projects in emerging markets across the globe. JCM provided
an estimated, levelized cost of energy ( LOCE ) on a Power Purchase
Agreement ( PPA ).
Transport cost estimates were provided by Morgan Sterling
Consultants ( MSC ) based on market data, suppliers' quotations,
industry databases, industry contacts and MSC's existing knowledge
of southern African transport infrastructure and freight markets.
MSC is an independent consultant with substantial experience in the
management of transport logistics studies in southern Africa.
Marketing - refer to sections entitled 'Marketing Strategy' in
the full Scoping Study Announcement located at
http://sovereignmetals.com.au/announcements/ .
Rutile
The Company engaged market leading TZMI to provide a bespoke
marketing report to support the Scoping Study. TZMI is a global,
independent consulting and publishing company which specialises in
technical, strategic and commercial analyses of the opaque
(non-terminal market) mineral, chemical and metal sectors.
TZMI's assessment has confirmed that, based upon their
high-level view on global demand and supply forecasts for natural
rutile, and with reference to the specific attributes of Kasiya,
there is a reasonable expectation that the product will be able to
be sold into existing and future rutile markets.
Given the premium specifications of Kasiya, the product should
be suitable for all major natural end-use markets including TiO(2)
pigment feedstock, titanium metal and welding sectors.
Graphite
The Company engaged Fastmarkets, a specialist international
publisher and information provider for the global steel,
non-ferrous and industrial minerals markets, to prepare a marketing
report for graphite.
Fastmarkets' assessment has confirmed that based upon their
high-level view on global demand and supply forecasts for natural
flake graphite, and with reference to the specific attributes of
Sovereign's projects, there is a reasonable expectation that the
product from Sovereign's projects will be able to be sold into
existing and future graphite markets. Given the extremely low-cost
profile and high-quality product, it is expected that output from
Kasiya will be able to fill new demand or substitute existing lower
quality / higher cost supply.
Project considerations taken by Fastmarkets in forming an
opinion about the marketability of product include:
- Modest production target
- Low capital costs
- Low operating costs
- High quality concentrate specifications
Industry participants confirm that the highest value graphite
concentrates remain the large, jumbo and super-jumbo flake
fractions, primarily used in industrial applications such as
refractories, foundries and expandable products. These sectors
currently make up the significant majority of total global natural
flake graphite market by value.
Fastmarkets have formed their opinion based solely upon project
information provided by Sovereign Metals to Fastmarkets and have
not conducted any independent analysis or due diligence on the
information provided.
Economic - also refer to sections entitled 'Cost Estimations'
and 'Financial & Economic Analysis' in the full Scoping Study
Announcement located at
http://sovereignmetals.com.au/announcements/ .
Capital estimates for the procress plant have been prepared by
DRA, together with input from the Company and other contributing
consultants using combinations of cost estimates from suppliers,
historical data, benchmarks and other independent sources. The
intended accuracy of the capital cost estimate for the Project is
+/-30%.
Capital costs include the cost of all services, direct costs,
contractor indirects, EPCM expenses, non-process infrastructure,
sustaining capital and other facilities used for the mine. Capital
costs make provision for mitigation expenses and mine closure and
environmental costs.
Working capital requirements of US$34m (including contingency)
for plant commissioning and full ramp-up have been excluded in the
headline capital estimate but included in the financial
modelling.
Mining costs have been estimated by Fraser Alexander, a regional
leader in hydro-mining and materials handling. Mining costs have
been built up from first principles based on equipment, vendor, and
contractor quotations, local unit cost rates, and benchmarked
costs.
Labor costs have been developed based on a first-principles
build-up of staffing requirements with labor rates benchmarked in
Malawi and expatriate rates benchmarked for professionals from
South African other jurisdictions.
A Government royalty of 5% (applied to revenue) and a vendor
profit share of 2% (applied to gross profit) has been included in
all project economics. A 0.45% royalty (applied to revenue) has
been applied for the community development fund.
Rehabilitation and mine closure costs are included within the
reported operating cost and sustaining capital figures.
A detailed financial model and discounted cash flow ( DCF )
analysis has been prepared by the Company in order to demonstrate
the economic viability of the Project. The financial model and DCF
were modelled with conservative inputs to provide management with a
baseline valuation of the Project.
The DCF analysis demonstrated compelling economics of the
prospective Project, with an NPV (ungeared, after-tax, at an 10%
discount rate) of US$684 million, and an (ungeared) IRR of 36%.
Sensitivity analysis was performed on all key assumptions used.
The robust project economics insulate the Kasiya Project from
variation in market pricing, capital expense, or operating
expenses. With a rutile and graphite concentrate price 30% lower
than the Scoping Study prices the Project still displays a positive
NPV (ungeared, after-tax, at an 10% discount rate) of US$213
million and IRR of 18%.
Payback period for the Project is 2.5 years from the start of
operations. The payback period is based on free-cash flow, after
taxes.
Sovereign estimates the total capital cost to construct the mine
to be US$332m (which includes a of 21% contingency).
Key parameters are disclosed in the body of the announcement,
and include:
- Life of Mine: 25 years
- Discount rate: 10%
- Tax rate: 30%
- Resource Rent Tax (RRT) of 15% after tax profit is currently
legislated in the Taxation Act. It is understood that it is not
currently being applied to mining projects in Malawi and it is
uncertain if it would apply to Sovereign's projects in the future.
The Company has not applied RRT in any of its financial
analysis.
- Royalty rate: 5% royalty (Government), 2% of gross profit
(Original Project Vendor) and 0.45% Community Development Fund.
- Pricing: Rutile average price of US$1,346 per tonne and
Graphite average basket price of US$1,085 per tonne
The financial model has been prepared internally by the Company
using inputs from the various expert consultants and has been
reviewed by an independent party to validate the functionality and
accuracy of the model.
The Company engaged the services of advisory firm, Argonaut,
with regards to project economics. Argonaut is a financial advisory
firm which specialises in multiple sectors, including metals and
oil & gas. Argonaut is well regarded as a specialist capital
markets service provider and has raised project development funding
for companies across a range of commodities including the
industrial and speciality minerals sector. Following the assessment
of a number of key criteria, Argonaut has confirmed that, on the
basis that a DFS arrives at a result that is not materially
negatively different than the Scoping Study as noted above, all
in-country government and regulatory approvals are received,
commercial offtake agreements are in place for the majority of
Rutile and Graphite production for at least the first five years of
mine life, and that there has not been any material adverse change
in financial condition, results of operations, business or
prospects of the Company/or political and business environment in
Malawi and/or financial or capital markets in general, Sovereign
should be able to raise sufficient funding to develop the
Project.
An assessment of various funding alternatives available to
Sovereign has been made based on precedent transactions that have
occurred in the mining industry, including an assessment of
alternatives available to companies that operate in industrial and
specialty minerals sector. The assessment and advice from Argonaut
Capital (referred to above) indicates that financing for industrial
mineral companies often involves a broader mix of funding sources
than just traditional debt and equity. Argonaut Capital considers
that given the nature of the Project, funding is likely to involve
specialist funds, with potential funding sources including, but not
limited to, traditional equity and debt, royalty financing and
off-take agreements, at either the corporate or project level. It
is important to note that no funding arrangements have yet been put
in place as these discussions continue to take place. The
composition of the funding arrangements ultimately put in place may
also vary, so it is not possible at this stage to provide any
further information about the composition of potential funding
arrangement.
Since initial exploration of the Kasiya Project in November
2019, the Company has completed extensive drilling, sampling,
metallurgical test-work, geological modelling and defined an
Indicated and Inferred Mineral Resource Estimate. Over this period,
with these key milestones being attained and the Project de-risked,
the Company's market capitalisation has increased from
approximately A$18m to over A$250m. As the Project continues to
achieve key milestones, which can also be significant de-risking
events, the Company's share price could be anticipated to
increase.
The Company is debt free and is in a strong financial position,
with approximately A$4.3m cash on hand (30 November 2021). The
current financial position means the Company is soundly funded to
continue into a PFS phase to further develop the Project.
The Company's shares are listed on the ASX and AIM which are
premier markets for growth companies and provides increased access
to capital from institutional and retailed investors in Australia
and the UK.
Sovereign has an experienced and high-quality Board and
management team comprising highly respected resource executives
with extensive technical, financial, commercial and capital markets
experience. The directors have previously raised more than A$1.75bn
from capital markets for a number of exploration and development
companies.
As a result, the Board has a high level of confidence that the
Project will be able to secure funding in due course, having
particular regard to:
1. Required capital expenditure;
2. Sovereign's market capitalisation;
3. Recent funding activities by directors in respect of other resource projects;
4. Recently completed funding arrangements for similar or larger scale development projects;
5. The range of potential funding options available;
6. The favourable key metrics generated by the Kasiya Project;
7. Ongoing discussions for potential offtake agreements; and
8. Investor interest to date.
Environmental, Social, Legal and Governmental - refer to section
entitled 'Environmental & Social Impact' in the full Scoping
Study Announcement located at
http://sovereignmetals.com.au/announcements/ .
Sovereign is committed to conduct its activities in full
compliance to the requirements of national regulations, its
obligations under international conventions and treaties and giving
due consideration to international best practices and policies. The
Company has appointed an experienced environmental consultant to
manage the ESIA process, and environmental and social baseline
studies have commenced with appropriately qualified independent
experts. The Company has also completed a high-level risk
assessment to identify major environmental and social risks which
could affect the development of the Project, along with mitigating
strategies to allow identified risks to be addressed early in the
project design phase.
The Company has embarked on several community engagement
exercises in the area and there is a general positive acceptance of
the Project. Social responsibility costs of US$20m have been
included in this Study, as well as a 0.45% revenue royalty for the
community development fund. This figure will be further assessed as
part of the overall ESIA for the Project as it advances to PFS and
DFS.
Based on the current assessments and commenced ESIA, the Company
believes there are no environmental issues currently identified
that cannot be appropriately mitigated in accordance with standard
practices adopted for the development of mining projects.
Subject to further successful exploration and achieving positive
technical studies, Sovereign endeavours to apply for a Mining
Licence ( ML ) to secure mineral deposits for mining. Under the
Mines and Minerals Act 2019 ( Mines Act ) there are certain
requirements, milestones and approvals needed to submit a ML
application. At this point of Kasiya's development, the Company
notes no known issues.
Under the Mines Act, The Government of Malawi shall have the
right, but not the obligation, to acquire, directly or through a
Government nominee, without cost, a free equity ownership interest
of up to ten percent ( 10% ) in any mining project that will be
subject to a large-scale mining licence (>5Mt mined per annum or
>US$250m Capex).
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