TIDMSVML
RNS Number : 3123B
Sovereign Metals Limited
30 September 2022
Sovereign Metals Limited
ANNUAL REPORT FOR THE FINANCIAL YEARED - 30 JUNE 2022
abn 71 120 833 427
CORPORATE DIRECTORY
Directors Brokers
Mr Benjamin Stoikovich Chairman Berenberg, Gossler & Co, KG, London
Dr Julian Stephens Managing Branch
Director 60 Threadneedle Street
Mr Ian Middlemas Non-Executive London EC2R 8HP
Director United Kingdom
Mr Mark Pearce Non-Executive T: +44 20 3753 3132
Director Optiva Securities Limited
Mr Nigel Jones Non-Executive 49 Berkeley Square
Director Mayfair
London W1J 5AZ
Company Secretary United Kingdom
Mr Dylan Browne
Share Register
Registered and Principal Office Australia
Level 9, Computershare Investor Services
28 The Esplanade Pty Ltd
Perth WA 6000 Level 11
172 St Georges Terrace
Telephone: +61 8 9322 6322 Perth WA 6000
Facsimile: +61 8 9322 6558
Telephone: 1300 850 505
Operations Office International: +61 8 9323 2000
Area 9 Facsimile: +61 8 9323 2033
Lilongwe
Malawi United Kingdom
Computershare Investor Services
Stock Exchange Listings PLC
Australia The Pavilions,
Australian Securities Exchange Bridgewater Road,
ASX Code: SVM - Ordinary Shares Bristol BS99 6ZZ
Telephone: +44 370 702 0000
United Kingdom Solicitors
London Stock Exchange (AIM) Thomson Geer
AIM Code: SVML - Depository
Interests Auditor
Ernst and Young
Nominated Advisor
RFC Ambrian Limited Bankers
Octagon Point Australia - National Australia
5 Cheapside Bank Limited, Australia and New
London EC2V 6AA Zealand Banking Group Limited
United Kingdom Malawi - Standard Bank
Website
www.sovereignmetals.com.au
Email
info@sovereignmetals.com.au
CONTENTS
Directors' Report
Auditor's Independence Declaration
Consolidated Statement of Profit or Loss and Other Comprehensive
Income
Consolidated Statement of Financial Position
Consolidated Statement of Cash Flows
Consolidated Statement of Changes in Equity
To view the following sections plus all figures and illustrations,
please refer to the full version of the Annual Report on our
website at www.sovereignmetals.com.au:
Notes to the Financial Statements
Auditor's Independence Declaration
Directors' Declaration
ASX Additional Information
Independent Audit Report
ASX Additional Information
The Directors of Sovereign Metals Limited present their report
on the Group consisting of Sovereign Metals Limited ("the Company"
or "Sovereign" or "Parent") and the entities it controlled at the
end of, or during, the year ended 30 June 2022 ("Group").
OPERATING AND FINANCIAL REVIEW
Sovereign is focused on the exploration and development of its
Kasiya rutile project in Malawi. The recent Expanded Scoping Study
(ESS) confirmed Kasiya as a large-scale, long-life operation with a
low-cost profile and future significant source of critical raw
materials.
This globally significant project has the potential to become a
major producer in both the natural rutile and graphite markets
whilst contributing significantly to the economy of Malawi.
Kasiya is a greenfields discovery in central Malawi which is now
the largest natural rutile deposit and one of the largest flake
graphite deposits in the world. Sovereign is aiming to develop an
environmentally and socially sustainable operation to supply the
highly sought-after natural rutile and graphite to global
markets.
Kasiya will be a simple and conventional operation using
traditional and well-developed processes used across the globe on
numerous mineral sands and graphite operations.
The proposed large-scale operation will process soft, friable
mineralisation that occurs from surface in an area with excellent
access and water availability. The Project has high quality
surrounding infrastructure including hydro-sourced grid power,
bitumen roads and recently upgraded rail lines connecting to the
deep water of ports of Nacala and Beira on the Indian Ocean.
Highlights and advancements during and subsequent to the end of
the financial year include:
Development and Exploration
-- Exploration activities culminated in the Company's maiden
rutile Mineral Resource Estimate (MRE) of 644Mt at 1.01% rutile
(0.7% cut-off) including a high-grade component of 137Mt at 1.41%
rutile (1.2% cut-off).
-- Signification exploration activities continued the Company's
project area during the period resulting substantial expansion of
the mineralisation area.
-- MRE upgraded to support Scoping Study with over 50% of the MRE classified as Indicated.
-- Initial Scoping Study confirmed Kasiya as a globally
significant natural rutile project, Kasiya is the largest
undeveloped rutile deposit in the world and is highly strategic in
a market characterised by extreme supply deficit.
-- The Initial Scoping Study demonstrated outstanding results including:
- a 12Mtpa operation producing 122kt rutile and 80kt graphite per annum over a 25 year mine life
- exceptional economics including a post-tax NPV(8) of US$861m and post-tax IRR of 36%
- a large-scale operation with a low-cost profile resulting from
the deposit's near surface nature, grade and excellent existing
infrastructure
- a low carbon operation with the project to be powered by 100% renewables (hydro and solar)
-- MRE update confirmed Kasiya as the largest rutile deposit
ever discovered with 1.8 Billion tonnes @ 1.01% rutile and 1.32%
graphite (Indicated + Inferred) equating to 18 million tonnes
contained rutile and 23 million tonnes contained graphite.
-- The updated MRE confirmed Kasiya as the world's largest
rutile deposit and one of the largest flake graphite deposits
globally.
-- ESS results confirm Kasiya as an industry-leading major
source of critical raw materials as one of the world's largest and
lowest cost producers of natural rutile and natural graphite with a
carbon-footprint substantially lower than current alternatives.
-- The ESS demonstrated outstanding results including:
- a two-stage development (stage 2 self-funded) with full
production at 24Mtpa operation producing 265kt rutile and 170kt
graphite per annum with a 25 year mine life
- exceptional economics including a post-tax NPV(8) of US$1,537m and post-tax IRR of 36%
- a large-scale operation with a low-cost profile resulting from
the deposits near surface nature, grade, conventional processing
and excellent existing infrastructure.
- conservative assumptions applied with long-term prices used
discounted against current spot prices
- Highly strategic project and a potential major source of raw materials deemed critical to the decarbonisation of the global economy.
-- Pre-Feasibility Study (PFS) commenced with a 12,000m drilling
program drilling underway and key globally recognised consultants
appointed.
Sales and Offtake Marketing
-- Offtake MoU for supply of 25,000 tonnes of natural rutile per
annum to Hascor into the premium priced welding sector.
-- Offtake MoU and Market Alliance with major Japanese global
trading and investment company, Mitsui & Co Ltd (Mitsui). The
MoU establishes a marketing alliance and potential offtake for
30,000 tonnes of natural rutile per annum. The alliance will allow
Sovereign to leverage off Mitsui's extensive network and their
market-leading understanding of the titanium industry and global
logistics.
Corporate
-- Commencement of trading on the AIM market of the London Stock
Exchange. The dual listing has increased the Company's profile in
the northern hemisphere and facilitated the participation of UK and
other European investors in Sovereign's growth.
-- Former Rio Tinto executive, Mr Nigel Jones joins Sovereign
board as Non-Executive Director and Chairman of the ESG
Committee.
-- Institutional Placement for A$15m at an issue price of A$0.67
from UK, European and North American institutional investors with
the Placement corner-stoned by Thematica Future Mobility UCITS
Fund, a European green energy fund which offers exposure to
companies to benefit from the transition to clean and sustainable
energy solutions.
Natural Rutile Market
-- Demand for high-grade titanium dioxide feedstocks continued
to remain strong, and along with supply shortages leading to
continued rutile price appreciation, with realised prices of
+US$1,500/t recorded in the June 2022 quarter and spot price
currently +US$2,200/t.
-- Natural rutile market is in structural deficit with current
global supply estimated to decline 45% in the next three years with
graphite demand set to soar as electric vehicle production is
forecast to increase 12-fold by 2040.
Expanded Scoping Study
In June 2022, the Company announced the Expanded Scoping Study
that confirmed Kasiya will be one of the world's largest and lowest
cost producers of natural rutile and natural graphite with a
carbon-footprint substantially lower than current alternatives
while significantly contributing to the social and economic
development of Malawi.
Highlights of the ESS
-- Significant increase in NPV and EBITDA from the 2021 Initial
Scoping Study with lower operating costs for a relatively small
increase in Capex to first production
US$1,537M 36% US$12,038M
================ ============= ===========
After Tax NPV(8) After Tax IRR LOM Revenue
------------- -----------
( 79%) (No change) ( 92%)
------------- -----------
US$323M US$320/t US$372M
================== ===================== =========================
Ave. Annual EBITDA Operating Cost Capex to 1(st) Production
per tonne of product
--------------------- -------------------------
( 101%) ( 10%) ( 12%)
--------------------- -------------------------
-- Potential to become a major producer in both the natural
rutile and graphite markets with steady state production of 265,000
tonnes of rutile and 170,000 tonnes of graphite over a 25-year mine
life
-- Low capital costs to first production due to exceptional
existing infrastructure offering significant cost reductions and
providing optionality and scalability
-- Low operating cost and high margins due to deposit size, zero
strip ratio with soft, friable high-grade mineralisation from
surface, amenability to hydro-mining, conventional processing,
enviable deposit location and low transport costs
-- Extremely favourable market fundamentals as rutile (titanium)
and natural graphite deemed critical raw materials for the US and
EU based on economic importance and supply risk
-- Natural rutile market in structural deficit with current
global supply estimated to decline 45% in the next three years with
graphite demand set to soar as electric vehicle production is
forecast to increase 12-fold by 2040
-- Natural ESG benefits for Kasiya:
- Substantially reduced CO(2) emissions for both rutile and
graphite compared to current alternatives, including substantial
Scope 3 emissions reductions for pigment production from rutile
compared to alternative feedstocks
- Significant social and economic benefits for Malawi including
job creation, fiscal returns, training and continued community
social initiatives
-- Study based on conservative commodity price estimates.
Long-term rutile price (real) of US$1,254/t versus current spot
price of +US$2,200/t(1) and long-term natural graphite basket price
(real) of US$1,085/t versus current equivalent spot price of
US$1,223/t(2)
Sources:
1. Ruidow
2. RefWin & Asian Metals: Basket: +3295 (5.4%) US$1,950,
+595 (25.1%) US$1,490, +895 (30.9%) US$1,250, +195 (10.9%) US$1,000
& -195 (27.7%) US$900
The Study envisages a 25-year mine life during which time both
rutile and graphite are produced during two stages:
Stage 1 Years 0-5: 12Mt of ore processed per annum to produce
approximately 145,000 tonne of natural rutile and 85,000 tonnes of
flake graphite per annum.
Stage 2 Years 6-25: Additional 12Mt capacity for total 24Mt of
ore processed per annum to produce approximately 265,000 tonnes of
natural rutile and 170,000 tonnes of flake graphite per annum.
Stage 2 will be funded from cashflows from Stage 1.
Table 1: Key Scoping Study Outcomes
Outcome Unit Kasiya Rutile Project
NPV(8) (real post-tax) US$ $1,537M
===================================================================== ====================== ======================
NPV(10) (real post-tax) US$ $1,185M
===================================================================== ====================== ======================
IRR (post-tax) % 36%
===================================================================== ====================== ======================
Capital Costs to First Production - Stage 1 US$ $372M
===================================================================== ====================== ======================
Expansion Capex - Stage 2 (funded from project cashflows) US$ $311M
===================================================================== ====================== ======================
Operating Costs US$/t mined $5.86
===================================================================== ====================== ======================
Operating Costs US$/t product $320
===================================================================== ====================== ======================
Revenue to Cost Ratio X 3.0
===================================================================== ====================== ======================
NPV(8) / Capital Costs to First Production X 4.1
===================================================================== ====================== ======================
Throughput (LOM) Mtpa 21.6
===================================================================== ====================== ======================
Life of Mine years 25
===================================================================== ====================== ======================
Annual Production - rutile ktpa 242
===================================================================== ====================== ======================
Annual Production - graphite ktpa 155
===================================================================== ====================== ======================
Total Revenue (LOM) US$ $12,038M
===================================================================== ====================== ======================
Annual Revenue (Average LOM) US$ $482M
===================================================================== ====================== ======================
Annual EBITDA (Average LOM) US$/year $323M
===================================================================== ====================== ======================
Payback - from start of production years 2.6 years
===================================================================== ====== =============== ======================
Payback - from start of construction years 3.7 years
===================================================================== ====== =============== ======================
Government Royalties (LOM) US$ $601M
============================================================================= =============== ======================
Corporate Taxes (LOM) US$ $2,138M
============================================================================= =============== ======================
Overview of the ESS
Sovereign is aiming to develop an environmentally and socially
sustainable operation to be the largest supplier of highly
sought-after natural rutile to global markets and an important
low-cost natural graphite supplier.
The proposed large-scale operation will process soft, friable
mineralisation from surface. 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
high purity and high value coarse-flake graphite product.
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. At full production, rutile and graphite products will be
railed directly from a purpose-built rail dry port at the mine site
eastward via the Nacala Logistics Corridor (NLC) to the deep-water
port of Nacala or southward via the Sena Rail Line to the
deep-water port of Beira.
Low Carbon Advantage for Two Critical Raw Materials
Natural Rutile - critical to lowering the Titanium industry's
carbon footprint
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. 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.
Sovereign's natural rutile product is expected to have
substantially lower Global Warming Potential (GWP) (Scope 1, 2 and
3 scope emissions) when compared to other titanium feedstock
alternatives produced by upgrading ilmenite (i.e., synthetic rutile
and titania slag). Using natural rutile from Kasiya as titanium
feedstock for the chloride pigment process would significantly
reduce Scope 1, 2 and 3 greenhouse gas emissions.
Titanium feedstock is a key component of various industrial and
consumer products. Therefore, utilising natural rutile such as from
Kasiya as direct use titanium feedstock could hold the solution to
developing low-carbon footprint products including low carbon
paints.
Natural Graphite - a significant component in lithium-ion
batteries for electric vehicles
The lithium-ion battery sector is the main emerging market for
flake graphite. Greater capacity batteries, such as those required
for electric vehicles, are expected to drive significant demand for
graphite over the coming years. It is forecast the battery sector
will drive the largest demand for graphite by 2028, with graphite
making up to 50% of the composition of a lithium-ion battery.
Currently, China is the world's largest supplier of natural
flake graphite. In 2020, leading data provider and market
intelligence publisher Benchmark Mineral Intelligence reported that
China produced 86% of all lithium-ion battery anodes from natural
and synthetic graphite and 100% of all the world's natural graphite
anodes.
Sovereign's natural flake graphite concentrate has significantly
lower greenhouse gas emissions than the Chinese produced natural
flake graphite concentrate from the Heilongjiang Province. Each
tonne of Sovereign's natural graphite is estimated to have a GWP of
0.2 tonnes CO2e - 5x lower than producing natural flake graphite
concentrate in the Heilongjiang Province, China and 103x lower than
production of synthetic graphite.
The significantly lower GWP for Kasiya graphite is due to the
fact that it is hosted in soft, friable saprolite material which
will be mined via hydro methods (high pressure water monitors)
powered by renewable energy sources - hydro power from the Malawi
grid and on-site solar power. This is opposed to the production in
Heilongjiang Province, China where hard-rock ore requires drilling,
blasting, excavation, trucking, crushing, and grinding - overall
high CO2e activities.
Low-Cost Operation
Kasiya's low operating costs are achieved through deposit size
and grade, zero strip ratio, location and excellent existing
operational infrastructure. Central Malawi boasts 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 routes to the Indian Ocean
deep-water ports of Nacala and Beira for the export of products to
global markets provides significant capital cost savings for Kasiya
compared to many other undeveloped minerals 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.
One of the highest Revenue : Cost of Sales Ratios in the Mineral
Sands Industry
The revenue-to-cash cost ratio of 3.0x positions Kasiya in the
first quartile compared to other undeveloped mineral sands
operations. The production of high value natural rutile and
graphite provides strong margins with a cash margin of over 67% for
the life of the operation.
The Study has applied conservative pricing assumptions for both
products which still results in a strong position on the revenue to
cost ratio. This supports the robustness of the Kasiya operation
and its strong profitability during different pricing environments
and the revenue stability of two different products with different
demand drivers.
Lowest Cost Flake Graphite Project in the World
Benchmarking the co-product production cost of graphite from
Kasiya based on the Study results against peer flake graphite
projects positions Kasiya as the lowest operating cost graphite
project in the world. Kasiya has an average life-of-mine FOB
(Nacala) operating cost of US$320 per tonne of product (rutile plus
graphite). On an incremental cost basis reflecting graphite
production as a co-product to primary rutile production, the
operating cost is US$140 per tonne of graphite produced (FOB
Nacala).
Kasiya - The Largest Rutile Deposit in the World
In April 2022, the Company announced its updated MRE for Kasiya
which confirmed it as a Tier 1 natural rutile deposit and a
potential major source of low CO(2) footprint critical minerals
natural rutile and graphite.
The updated MRE now places Kasiya as the largest rutile deposit
in the world with more than double the contained rutile as its
nearest rutile peer, Sierra Rutile. Additionally, the graphite
by-product MRE at Kasiya places it as one of the largest flake
graphite deposits in the world.
Table 2: Kasiya Mineral Resource Estimate at 0.7% Rutile Cut-off
Mineral Resource Category Material Tonnes (millions) Rutile Rutile Tonnes (millions) Total Contained Graphite (TGC) TGC Tonnes (millions) RutEq.
Grade*
(%) (%) (%)
Indicated 662 1.05% 6.9 1.43% 9.5 1.76%
============================ ============================ ======== ========================== ================================ ======================= ========
Inferred 1,113 0.99% 11.0 1.26% 14.0 1.61%
============================ ============================ ======== ========================== ================================ ======================= ========
Total 1,775 1.01% 18.0 1.32% 23.4 1.67%
============================ ============================ ======== ========================== ================================ ======================= ========
* RutEq. Formula: Rutile Grade x Recovery (98%) x Rutile Price
(US$1,308/t) + Graphite Grade x Recovery (62%) x Graphite Price
(US$1,085/t) / Rutile Price (US$1,308/t). All assumptions are taken
from this Study ** Any minor summation inconsistencies are due to
rounding
The MRE has broad zones of very high-grade rutile which occurs
contiguously across a very large area of over 180km(2) . Rutile
mineralisation lies in laterally extensive, near surface, flat
"blanket" style bodies in areas where the weathering profile is
preserved and not significantly eroded.
Overall, the new MRE shows a number of new large, but generally
discrete high grade rutile zones, particularly in the southern
parts and eastern parts of the resource area. The discovery and
delineation of these new high grade mineralised zones has been the
dominant factor in the tripling of the resource base.
A Total of 662 Mt (37%) of the total MRE reports to the
Indicated category @ 1.05% rutile and 1.43% TGC, with a recovered
grade of 1.76% RutEq.
The deposit is expansive with high-grade rutile mineralisation
commonly grading 1.2% to 2.0% in the top 3-5m from surface.
Moderate grade mineralisation generally grading 0.5% to 1.2% rutile
commonly extends from 5m to end of hole where it remains open at
depths >10m in numerous drill-defined, N to NE-striking
zones.
Graphite is generally depleted near surface in the top 3-5m with
grades commonly in the 0.1% to 0.5% total graphitic carbon (TGC)
range. Graphite grades generally increase with depth to about 8m,
then remain constant ranging from 1% to 8% TGC. A number of
higher-grade graphite zones at depth have been identified which are
generally associated with higher grade rutile at surface. Some of
these zones have graphite grades at depth >8m in the 4% to 8%
TGC range and represent very significant coarse flake graphite
tonnages.
The highlighted cut-off of 0.70% presents 1.8 billion tonnes at
a rutile grade of 1.01% with high-grade components providing over
352 Mt at a rutile grade of 1.44% at a 1.20% cut-off (Table 3). The
overall recovered rutile equivalent grade for the MRE at the global
0.7% cut-off is 1.67% RutEq. (Table 2).
Table 3: Kasiya Total Indicated + Inferred Mineral Resource
Estimate at various rutile cut-offs
Cut-off Resource Rutile Contained Graphite Contained
(rutile) (Mt) Grade Rutile Grade (%) Graphite
(%) (Mt) (Mt)
0.40% 2,825 0.84% 23.8 1.26% 35.5
=========== ========== ======== ========== =========== ==========
0.50% 2,503 0.89% 22.4 1.30% 32.5
=========== ========== ======== ========== =========== ==========
0.60% 2,155 0.95% 20.4 1.33% 28.6
=========== ========== ======== ========== =========== ==========
0.70% 1,775 1.01% 18.0 1.32% 23.4
=========== ========== ======== ========== =========== ==========
0.80% 1,391 1.09% 15.1 1.24% 17.3
=========== ========== ======== ========== =========== ==========
0.90% 1,024 1.17% 12.0 1.09% 11.2
=========== ========== ======== ========== =========== ==========
1.00% 727 1.26% 9.2 0.92% 6.7
=========== ========== ======== ========== =========== ==========
1.10% 516 1.35% 7.0 0.76% 3.9
=========== ========== ======== ========== =========== ==========
1.20% 352 1.44% 5.1 0.55% 1.9
=========== ========== ======== ========== =========== ==========
1.30% 241 1.53% 3.7 0.46% 1.1
=========== ========== ======== ========== =========== ==========
1.40% 165 1.62% 2.7 0.43% 0.7
=========== ========== ======== ========== =========== ==========
Corporate
Board Appointment
In February 2022, the Company appointed leading international
mining executive, Mr Nigel Jones, as Non-Executive Director of
Sovereign Metals and Chairman of the ESG Committee. Mr Jones has
over 30 years of mining industry experience with 22 years in a
number of senior roles at Rio Tinto Group, where most recently, Mr
Jones was Managing Director of Rio Tinto's Simandou iron ore
project, one of the world's largest proposed mining
developments.
In this role, he was accountable for all aspects of the
project's development, including its complex environmental, social
and governance (ESG) strategy. Such aspects included impacts on
natural ecosystems, biodiversity, and community and government
relations.
Mr Jones was also a member of the senior leadership team of the
Energy and Minerals product group, which incorporated Rio Tinto's
titanium dioxide feedstock businesses in Canada and southern
Africa. Prior roles in Rio Tinto included Head of Business
Development, Head of Business Evaluation and Managing Director of
the group's Marine operations.
Dual-Listing and Placements
Sovereign completed a placement for A$15 million (gross
proceeds) from UK, European and North American institutional
investors to subscribe for 22,210,268 new ordinary shares of the
Company at an issue price of A$0.67 plus a one-for-two unlisted
option with an exercise price of A$0.80 and 12 month expiry.
Thematica Future Mobility UCITS Fund, a Luxembourg-based green
energy fund with a strong emphasis on Critical Raw Materials and
ESG, was the cornerstone participant in the well-supported
Placement which will fund exploration and development activities at
Kasiya.
Sprott Capital Partners LP acted as exclusive financial advisor
with affiliates of the Sprott Group (Sprott) participating in the
Placement. Sprott is a leading North American-based asset
management firm with an enviable track record of identifying and
funding successful early stage resource projects.
In December 2021, the Company's securities commenced trading on
the AIM Market of the London Stock Exchange. The completion of the
dual listing aims to raise the Company's profile in the northern
hemisphere and facilitate the participation of UK and other
European investors in Sovereign's growth. Sovereign successfully
secured GBP1 million gross proceeds (A$1.9 million) from UK
investors following its listing on the AIM market of the London
Stock Exchange.
During and since the end of the financial year, the Company
raised a further $5.2 million through the exercise of 19,311,500
options.
Results of Operations
The net loss of the Group for the year ended 30 June 2022 was $
13,719,731 (2021: $ 5,067,300 ). Significant items contributing to
the year end loss include the following:
-- Exploration and evaluation expenses of $8,072,133 (2021:
$2,884,311) in relation to the Group's projects in Malawi. This is
attributable to the Group's accounting policy of expensing
exploration and evaluation expenditure incurred by the Group
subsequent to acquisition of the rights to explore and up to the
completion of feasibility studies;
-- Share-based payments expenses totalling $2,941,985 (2021:
$1,263,007) relating to performance rights and incentive options.
The fair value of performance rights and incentive options are
recognised over the vesting period of the incentive security;
and
-- Business development expenses of $1,964,460 (2021: $873,751)
which includes the Group's investor relations activities including
but not limited to public relations costs, marketing and digital
marketing, broker fees, travel costs, conference fees, business
development consultant fees and costs of the Group's AIM
listing.
Financial Position
As at 30 June 2022, the Group had a net current asset surplus of
$17,453,618 (2021: $7,440,390). The Group had cash and cash
equivalents of $18,892,741 as at 30 June 2022 (2021: $7,957,660)
and borrowings of nil (2021: $nil). The Group had net assets of
$25,161,138 at 30 June 2022 (2021: $15,076,255), an increase of
$10,084,883 or approximately 67% compared with the previous year.
The increase is largely driven by the loss incurred for the
financial year offset by the amounts raised through the placements
and exercise of options.
Business Strategies and Prospects for Future Financial Years
The objective of the Group is to create long-term shareholder
value through the discovery, development and acquisition of
technically and economically viable mineral deposits.
To date, the Group has not commenced production of any minerals
. To achieve its objective, the Group currently has the following
business strategies and prospects over the medium to long term:
-- Complete a Pre-Feasibility Study to establish a cost profile
and determine the potential economics of the Kasiya rutile
project;
-- Conduct further exploration programs across rutile targets
identified on the Group's tenements; and
-- Continue to examine other new business development
opportunities in the resources sector, both locally and
overseas.
All of these activities are inherently risky and the Board is
unable to provide certainty that any or all of these developments
will be able to be achieved. T he material business risks faced by
the Group that are likely to have an effect on the Group's future
prospects , and how the Group manages these risks, include:
-- The Group's exploration properties may never be brought into
production - The exploration for, and development of, mineral
deposits involves a high degree of risk. Few properties which are
explored are ultimately developed into producing mines. To mitigate
this risk, the Company will undertake systematic and staged
exploration and testing programs on its mineral properties and,
subject to the results of these exploration programs, the Company
will then progressively undertake a number of technical and
economic studies with respect to its projects prior to making a
decision to mine. However there can be no guarantee that the
studies will confirm the technical and economic viability of the
Company's mineral properties or that the properties will be
successfully brought into production;
-- The Group's activities will require further capital - The
exploration and any development of the Group's exploration
properties will require substantial additional financing. Failure
to obtain sufficient financing may result in delaying or indefinite
postponement of exploration and any development of the Group's
properties or even a loss of property interest. There can be no
assurance that additional capital or other types of financing will
be available if needed or that, if available, the terms of such
financing will be favourable to the Group;
-- The Group is subject to sovereign risk of the Republic of
Malawi - The Group's operations in the Republic of Malawi are
exposed to various levels of political, economic and other risks
and uncertainties. The Republic of Malawi is a developing country
and there can be no assurances that the risks of operating in the
Republic of Malawi will not directly impact the Group's
operations;
-- The Group may be adversely affected by fluctuations in
commodity prices and/or foreign exchange - The price of rutile,
graphite and other commodities fluctuates widely and is affected by
numerous factors beyond the control of the Group. Future
production, if any, from the Group's mineral properties will be
dependent upon the price of graphite and other commodities being
adequate to make these properties economic. Current and planned
development activities are predominantly denominated in US dollars
and the Group's ability to fund these activities may be adversely
affected if the Australian dollar continues to fall against the US
Dollar. The Group currently does not engage in any hedging or
derivative transactions to manage commodity price or foreign
exchange risk. As the Group's operations change, this policy will
be reviewed periodically going forward; and
-- Global financial conditions may adversely affect the Group's
growth and profitability - Many industries, including the mineral
resource industry, are impacted by these market conditions. Some of
the key impacts include contraction in credit markets resulting in
a widening of credit risk, devaluations and high volatility in
global equity, commodity, foreign exchange and precious metal
markets, and a lack of market liquidity. Due to the current nature
of the Group's activities, a slowdown in the financial markets or
other economic conditions may adversely affect the Group's growth
and ability to finance its activities.
DIRECTORS
The names of Directors in office at any time during or since the
end of the financial year are:
Current Directors
Mr Benjamin Stoikovich Chairman
Dr Julian Stephens Managing Director
Mr Ian Middlemas Non-Executive Director
Mr Mark Pearce Non-Executive Director
Mr Nigel Jones Non-Executive Director (appointed 10 February 2022)
Unless otherwise disclosed, Directors held their office from 1
July 2021 until the date of this report.
CURRENT DIRECTORS AND OFFICERS
Benjamin Stoikovich
Chairman
Qualifications - B.Eng, M.Eng, M.Sc, CEng, CEnv
Mr Stoikovich is an experienced mining executive and corporate
finance professional residing in London. Mr Stoikovich is currently
the Chief Executive Officer (CEO) of GreenX Metals Limited (ASX:
GRX) and was formerly a Director of the Mining and Metals Corporate
Finance Division of Standard Chartered Bank in London, with
extensive experience in financing the development of African mining
projects and exposure to the mineral sands sector.
Mr Stoikovich started his career as a mining engineer with BHP
Billiton in Australia, gaining broad experience across mine
operations management and qualifying as a mine manager. He holds a
post graduate degree in Environmental Engineering and UK
professional designation as a Chartered Environmentalist (CEnv)
with wide ranging experience of managing the environmental, social
and sustainability aspects of mining projects across the life-cycle
and the Environmental, Social and Governance (ESG) requirements of
the investment community. Mr Stoikovich was appointed a Director of
the Company on 13 October 2020. During the three year period to the
end of the financial year, Mr Stoikovich held directorships in
GreenX Metals Limited (June 2013 - present).
Julian Stephens
Managing Director
Qualifications - B.Sc (Hons), PhD, MAIG
Dr Stephens originally identified and secured the Malawi
properties acquired by Sovereign in 2012. He has since been closely
involved with the subsequent exploration and development of these
projects, including the discovery of the Kasiya rutile deposit.
Dr Stephens has extensive experience in the resources sector
having spent in excess of 25 years in board, executive management,
senior operational and economic geology research roles for a number
of companies. He has spent over a decade working on African
projects, particularly projects in Malawi. Dr Stephens holds a PhD
from James Cook University, Queensland and is a member of the
Australian Institute of Geoscientists.
Dr Stephens was appointed a Director of Sovereign Metals Limited
on 22 January 2016 and subsequently appointed Managing Director on
27 June 2016. During the three year period to the end of the
financial year, Dr Stephens did not hold any other directorships in
publicly listed companies.
Ian Middlemas
Non-Executive Director
Qualifications - B.Com, CA
Mr Middlemas is a Chartered Accountant and holds a Bachelor of
Commerce degree. He worked for a large international Chartered
Accounting firm before joining the Normandy Mining Group where he
was a senior group executive for approximately 10 years. He has had
extensive corporate and management experience, and is currently a
director of a number of publicly listed companies in the resources
sector.
Mr Middlemas was appointed a Director of Sovereign Metals
Limited on 20 July 2006. During the three year period to the end of
the financial year, Mr Middlemas has held directorships in
Constellation Resources Limited (November 2017 - present), Apollo
Minerals Limited (July 2016 - present), GCX Metals Limited (October
2013 - present), Berkeley Energia Limited (April 2012 - present),
GreenX Metals Limited (August 2011 - present), Salt Lake Potash
Limited (Administrators Appointed) (Receivers and Managers
Appointed) (January 2010 - present), Equatorial Resources Limited
(November 2009 - present), Odyssey Gold Limited (September 2005 -
present), Piedmont Lithium Limited (September 2009 - December
2020), Peregrine Gold Limited (September 2020 - February 2022) and
Cradle Resources Limited (May 2016 - July 2019).
Mark Pearce
Non-Executive Director
Qualifications - B.Bus, CA, FCIS, FFin
Mr Pearce is a Chartered Accountant and is currently a director
of several listed companies that operate in the resources sector.
He has had considerable experience in the formation and development
of listed resource companies. Mr Pearce is also a Fellow of the
Institute of Chartered Secretaries and a member of the Financial
Services Institute of Australasia.
Mr Pearce was appointed a Director of Sovereign Metals Limited
on 20 July 2006. During the three year period to the end of the
financial year, Mr Pearce has held directorships in Constellation
Resources Limited (July 2016 - present), GreenX Metals Limited
(August 2011 - present), Equatorial Resources Limited (November
2009 - present), GCX Metals Limited (June 2022 - present),
Peregrine Gold Limited (September 2020 - February 2022), Odyssey
Gold Limited (September 2005 - August 2020), Apollo Minerals
Limited (July 2016 - February 2021) and Salt Lake Potash Limited
(August 2014 - October 2020).
Nigel Jones
Non-Executive Director
Qualifications - MA
Mr Jones has over 30 years of mining industry experience with 22
years in a number of senior roles at Rio Tinto Group, where most
recently, Mr Jones was Managing Director of Rio Tinto's Simandou
iron ore project, one of the world's largest proposed mining
developments.
In this role, he was accountable for all aspects of the
project's development, including its complex environmental, social
and governance (ESG) strategy. Such aspects included impacts on
natural ecosystems, biodiversity, and community and government
relations.
Mr Jones was also a member of the senior leadership team of the
Energy and Minerals product group, which incorporated Rio Tinto's
titanium dioxide feedstock businesses in Canada and southern
Africa. Prior roles in Rio Tinto included Head of Business
Development, Head of Business Evaluation and Managing Director of
the group's Marine operations.
Mr Jones was appointed a Director of Sovereign Metals Limited on
10 February 2022. During the three year period to the end of the
financial year, Mr Jones held directorships in Berkeley Energia
Limited (June 2017 - November 2020).
Mr Dylan Browne
Company Secretary
Qualifications - B.Com, CA, AGIA ACG
Mr Browne is a Chartered Accountant and Associate Member of the
Governance Institute of Australia (Chartered Secretary) who is
currently Company Secretary for a number of ASX and European listed
companies that operate in the resources sector. He commenced his
career at a large international accounting firm and has since been
involved with a number of exploration and development companies
operating in the resources sector, based in London and Perth,
including Berkeley Energia Limited, Apollo Minerals Limited,
Prairie Mining Limited and Papillon Resources Limited. Mr Browne
successfully listed Prairie on the Main Board of the London Stock
Exchange and the Warsaw Stock Exchange in 2015 and oversaw
Berkeley's listings on the Main Board LSE and the Madrid,
Barcelona, Bilboa and Valencia Stock Exchanges. Mr Browne was
appointed Company Secretary of the Company on 29 April 2021.
PRINCIPAL ACTIVITIES
The principal activities of the Group during the year consisted
of mineral exploration, identification and appraisal of resource
projects. No significant change in the nature of these activities
occurred during the year.
DIVIDS
No dividends have been declared, provided for or paid in respect
of the financial year ended 30 June 2022 (30 June 2021: nil).
LOSS PER SHARE
2022 2021
Cents Cents
---------------------------------- ------- -------
Basic and diluted loss per share (3.17) (1.27)
---------------------------------- ------- -------
CORPORATE STRUCTURE
Sovereign Metals Limited is a company limited by shares that is
incorporated and domiciled in Australia. The Company has prepared a
consolidated financial report including the entities it
incorporated and controlled during the financial year.
CONSOLIDATED RESULTS
2022 2021
$ $
--------------------------------------------- ------------- ------------
Loss of the Group before income tax expense (13,719,731) (5,067,300)
Income tax expense - -
--------------------------------------------- ------------- ------------
Net loss (13,719,731) (5,067,300)
============================================= ============= ============
SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS
There were no significant changes in the state of affairs of the
Group during the year not otherwise disclosed in this report.
SIGNIFICANT POST BALANCE DATE EVENTS
There are no other matters or circumstances which have arisen
since 30 June 2022 that have significantly affected or may
significantly affect:
-- the operations, in financial years subsequent to 30 June 2022 of the Group;
-- the results of those operations, in financial years
subsequent to 30 June 2022 of the Group; or
-- the state of affairs, in financial years subsequent to 30 June 2022 of the Group.
ENVIRONMENTAL REGULATION AND PERFORMANCE
The Group's operations are subject to various environmental laws
and regulations under the relevant government's legislation. Full
compliance with these laws and regulations is regarded as a minimum
standard for all operations to achieve.
Instances of environmental non-compliance by an operation are
identified either by external compliance audits or inspections by
relevant government authorities.
There have been no significant known breaches by the Group
during the financial year.
INDEMNIFICATION AND INSURANCE OF OFFICERS AND AUDITORS
The Company has entered into Deeds of Indemnity with the
Directors indemnifying them against certain liabilities and costs
to the extent permitted by law.
The Group has paid, or agreed to pay, a premium in respect of
Directors' and Officers' Liability Insurance and Company
Reimbursement policies for the 12 months ended 30 June 2022 and
2021, which cover all Directors and officers of the Group against
liabilities to the extent permitted by the Corporations Act 2001.
The policy conditions preclude the Group from any detailed
disclosures including the premium amount paid.
To the extent permitted by law, the Company has agreed to
indemnify its auditors, Ernst & Young, as part of the terms of
its audit engagement agreement against claims by third parties
arising from the audit (for an unspecified amount). No payment has
been made to indemnify Ernst & Young during or since the
financial year.
INFORMATION ON DIRECTORS' INTERESTS IN SECURITIES OF
SOVEREIGN
As at the date of this report, the Directors' interests in the
securities of the Company are as follows:
Interest in Securities at the Date of this Report
----------------------------------------------------------------------------------------------------------------------
Ordinary Shares(i) Performance Rights - Feasibility Performance Rights - Decision to
Current Directors Study Milestone(ii) Mine Milestone(iii)
--------------------- ------------------- ------------------------------------ ------------------------------------
Benjamin Stoikovich 3,590,000 360,000 480,000
Julian Stephens 15,657,518 900,000 1,200,000
Ian Middlemas 16,100,000 - -
Mark Pearce 4,295,842 225,000 300,000
Nigel Jones - 225,000 300,000
--------------------- ------------------- ------------------------------------ ------------------------------------
Notes:
(i) "Ordinary Shares" means fully paid ordinary shares in the capital of the Company;
(ii) "Performance Rights - Feasibility Study Milestone" means an
unlisted performance right that converts to one Share in the
capital of the Company upon satisfaction of the relevant milestone;
and
(iii) "Performance Rights - Decision to Mine Milestone" means an
unlisted performance right that converts to one Share in the
capital of the Company upon satisfaction of the relevant
milestone.
SHARE OPTIONS AND PERFORMANCE RIGHTS
At the date of this report the following options and rights have
been issued by the Company over unissued capital:
-- 11,105,125 $0.80 unlisted Options that expire on 13 May 2023;
-- 5,070,000 Performance Rights subject to the Feasibility Study
Milestone that expire on 31 December 2023; and
-- 7,370,000 Performance Rights subject to the Decision to Mine
Milestone that expire on 31 October 2025.
During the year ended 30 June 2022 and up to the date of this
report, 23,896,500 ordinary shares have been issued as a result of
the exercise of options and conversion of performance rights.
MEETINGS OF DIRECTORS
The following table sets out the number of meetings of the
Company's Directors held during the year ended 30 June 2022, and
the number of meetings attended by each Director.
Board Meetings ESG Committee
------------------------ ----------------------- -----------------------
Eligible Number Eligible Number
Current Directors to Attend Attended to Attend Attended
------------------------ ----------- ---------- ----------- ----------
Benjamin Stoikovich 3 3 1 1
Julian Stephens 3 3 - -
Ian Middlemas 3 3 - -
Mark Pearce 3 3 - -
Nigel Jones (appointed
10 February 2022) 1 1 1 1
------------------------ ----------- ---------- ----------- ----------
The Board as a whole currently performs the functions of an
Audit Committee, Risk Committee, Nomination Committee and
Remuneration Committee. However this will be reviewed should the
size and nature of the Company's activities change.
The ESG Committee was established to support the Company's
ongoing commitment to environmental, health and safety, corporate
social responsibility, corporate governance, sustainability and
other public policy matters relevant to the Company.
REMUNERATION REPORT (AUDITED)
This Remuneration Report, which forms part of the Directors'
Report, sets out information about the remuneration of Key
Management Personnel ("KMP") of the Group.
Details of KMP
The KMP of the Group during or since the end of the financial
year is as follows:
Directors
Mr Benjamin Stoikovich Chairman
Dr Julian Stephens Managing Director
Mr Ian Middlemas Non-Executive Director
Mr Mark Pearce Non-Executive Director
Mr Nigel Jones Non-Executive Director (appointed 10 February 2022)
Other KMP
Mr Paul Marcos Head of Project Development (KMP effective 1 July 2021)
Mr Sam Cordin Business Development Manager
Unless otherwise disclosed, the KMP held their position from 1
July 2021 until the date of this report.
Remuneration Policy
The Group's remuneration policy for its KMP has been developed
by the Board taking into account the size of the Group, the size of
the management team for the Group, the nature and stage of
development of the Group's current operations, and market
conditions and comparable salary levels for companies of a similar
size and operating in similar sectors.
In addition to considering the above general factors, the Board
has also placed emphasis on the following specific issues in
determining the remuneration policy for KMP:
-- the Group is currently focused on undertaking exploration,
appraisal and development activities;
-- risks associated with small cap resource companies whilst
exploring and developing projects; and
-- other than profit which may be generated from asset sales,
the Company does not expect to be undertaking profitable operations
until sometime after the commencement of commercial production on
any of its projects.
Executive Remuneration
The Group's remuneration policy is to provide a fixed
remuneration component and a performance based component (options,
performance rights and a cash bonus, see below). The Board believes
that this remuneration policy is appropriate given the
considerations discussed in the section above and is appropriate in
aligning executives' objectives with shareholder and business
objectives.
Fixed Remuneration
Fixed remuneration consists of base salaries, as well as
employer contributions to superannuation funds and other non-cash
benefits. Fixed remuneration is reviewed annually by the Board. The
process consists of a review of company and individual performance,
relevant comparative remuneration externally and internally and,
where appropriate, external advice on policies and practices.
Performance Based Remuneration - Short Term Incentive
Some executives are entitled to an annual cash bonus upon
achieving various key performance indicators ("KPI's"), as set by
the Board. Having regard to the current size, nature and
opportunities of the Company, the Board has determined that these
KPI's will include measures such as the successful completion of
business development activities (e.g. project acquisition and
capital raisings) and exploration activities (e.g. completion of
exploration programs within budgeted timeframes and costs). The
Board assesses performance against these criteria annually.
During the 2022 financial year, a total bonus sum of $230,000
(2021: $65,000), representing 100% of KMP entitlement, was paid to
executives after achievement of KPIs set by the Board. For the 2022
year, the KPI areas of focus included: (a) completion of successful
drilling programs at the Kasiya Rutile Project ("Kasiya"); (b)
successfully admitting the Company's shares to the AIM market of
the London Stock Exchange; (c) announcement of upgraded resources
at Kasiya in December 2021 and April 2022; (d) announcement of a
positive scoping study at Kasiya; (e) announcement of initial
offtake MoU for Kasiya; (f) announcement of a positive expanded
scoping study at Kasiya in June 2022; and (g) completion of
successful capital raisings in January and April 2022. Specific
KPIs are set and weighted individually for each KMP and are
designed to drive successful business outcomes. No cash bonuses
were forfeited during the financial year.
Performance Based Remuneration - Long Term Incentive
The Group has a long-term equity incentive plan ("Incentive
Plan") comprising the grant of Performance Rights and/or Incentive
Options to reward KMP and key employees and contractors for
long-term performance. To achieve its corporate objectives, the
Group needs to attract, incentivise, and retain its key employees
and contractors. The Board believes that grants of Performance
Rights and/or Incentive Options to KMP will provide a useful tool
to underpin the Group's employment and engagement strategy.
(i) Performance Rights
The Group has an Incentive Plan that provides for the issuance
of unlisted performance share rights ("Performance Rights") which,
upon satisfaction of the relevant performance conditions attached
to the Performance Rights, will result in the issue of an Ordinary
Share for each Performance Right. Performance Rights are issued for
no consideration and no amount is payable upon conversion thereof.
The Incentive Plan enables the Group to: (a) recruit, incentivise
and retain KMP and other key employees and contractors needed to
achieve the Group's business objectives; (b) link the reward of key
staff with the achievement of strategic goals and the long-term
performance of the Group; (c) align the financial interest of
participants of the Plan with those of Shareholders; and (d)
provide incentives to participants of the Incentive Plan to focus
on superior performance that creates Shareholder value.
Performance Rights granted under the Incentive Plan to eligible
participants will be linked to the achievement by the Group of
certain performance conditions as determined by the Board from time
to time. These performance conditions must be satisfied in order
for the Performance Rights to vest. Upon Performance Rights
vesting, Ordinary Shares are automatically issued for no
consideration. If a performance condition of a Performance Right is
not achieved by the expiry date then the Performance Right will
lapse.
During the financial year, 3,975,000 Performance Rights were
granted under the Plan of which 2,775,000 were to KMP . No
Performance Rights held by KMP lapsed during the financial year.
2,145,000 Performance Rights (representing 100% of the Performance
Rights in this class) held by KMP relating to the Scoping Study
Milestone converted to 2,145,000 ordinary shares during the
financial year as the Group announced the results of its positive
Scoping Study for the Kasiya Project. Since the Plan's inception,
18,075,000 Performance Rights have been issued under the Plan in
total.
The vesting conditions of the Performance Rights are performance
conditions as follows:
a. Scoping Study Milestone means announcement of a positive
Scoping Study for the Malawi Rutile Project in accordance with the
provisions of the JORC Code, all of which converted during the
financial year;
b. Feasibility Study Milestone means announcement of a positive
Feasibility Study for the Malawi Rutile Project in accordance with
the provisions of the JORC Code; and
c. Decision to Mine Milestone means announcement of a Decision
to Mine for the Malawi Rutile Project.
(ii) Incentive Options
The Group has an Incentive Plan that provides for the issuance
of unlisted incentive options ("Incentive Options") as part of
remuneration and incentive arrangements in order to attract and
retain services and to provide an incentive linked to the
performance of the Group. The Board's policy is to grant Incentive
Options to KMP with exercise prices at or above market share price
(at the time of agreement). As such, the Incentive Options granted
to KMP are generally only of benefit if the KMP performs to the
level whereby the value of the Group increases sufficiently to
warrant exercising the Incentive Options granted. Other than
service-based vesting conditions (if any) and the exercise price
required to exercise the Incentive Options, there are no additional
performance criteria on the Incentive Options granted to KMP, as
given the speculative nature of the Group's activities and the
small management team responsible for its running, it is considered
that the performance of the KMP and the performance and value of
the Group are closely related. The Group prohibits executives from
entering into arrangements to limit their exposure to Incentive
Options granted as part of their remuneration package.
During the financial year, no Incentive Options were granted to
KMP . 6,375,000 Incentive Options were exercised by KMP during the
financial year utilising the cashless exercise facility. No
Incentive Options held by KMP lapsed during the financial year
.
Remuneration Policy for Non-Executive Directors
The Board policy is to remunerate Non-Executive Directors at
market rates for comparable companies for time, commitment and
responsibilities. Given the current size, nature and risks of the
Company, incentive options and performance rights have been used to
attract and retain Non-Executive Directors. The Board determines
payments to the Non-Executive Directors and reviews their
remuneration annually, based on market practice, duties and
accountability. Independent external advice is sought when
required.
The maximum aggregate amount of fees that can be paid to
Non-Executive Directors is subject to approval by shareholders at a
General Meeting. Director's fees paid to Non-Executive Directors
accrue on a daily basis. Fees for Non-Executive Directors are not
linked to the performance of the economic entity. However, to align
Directors' interests with shareholder interests, the Directors are
encouraged to hold shares in the Company and Non-Executive
Directors have received incentive options and performance rights in
order to secure their services and as a key component of their
remuneration.
Fees for the Chairman are $36,000 per annum (2021: $36,000) and
fees for Non-Executive Directors' are $73,000 (GBP40,000) to
$20,000 per annum (2021: $20,000). Effective 1 July 2022, fees for
the Chairman have been increased to GBP50,000 per annum. These fees
cover main board activities only. Non-Executive Directors may
receive additional remuneration for other services provided to the
Company, including but not limited to, membership of committees
including the ESG Committee. The Chair of the ESG Committee
currently receives GBP10,000 (2021: Nil) for chairing the ESG
Committee.
Relationship between Remuneration of KMP and Shareholder
Wealth
During the Company's exploration and development phases of its
business, the Board anticipates that the Company will retain
earnings (if any) and other cash resources for the exploration and
development of its resource projects. Accordingly the Company does
not currently have a policy with respect to the payment of
dividends and returns of capital. Therefore there was no
relationship between the Board's policy for determining, or in
relation to, the nature and amount of remuneration of KMP and
dividends paid and returns of capital by the Company during the
current and previous four financial years.
The Board did not determine, and in relation to, the nature and
amount of remuneration of the KMP by reference to changes in the
price at which shares in the Company traded between the beginning
and end of the current and the previous four financial years.
However, as noted above, a number of KMP have received incentive
options which generally will only be of value should the value of
the Company's shares increase sufficiently to warrant exercising
the incentive options, and performance rights which are linked to
the achievement of certain performance conditions.
Relationship between Remuneration of KMP and Earnings
As discussed above, the Company is currently undertaking
exploration and development activities, and does not expect to be
undertaking profitable operations (other than by way of material
asset sales, none of which is currently planned) until sometime
after the successful commercialisation, production and sales of
commodities from one or more of its projects. Accordingly the Board
does not consider earnings during the current and previous four
financial years when determining, and in relation to, the nature
and amount of remuneration of KMP.
General
In addition to a focus on operating activities, the Board is
also focused on finding and completing new business and other
corporate opportunities. The Board considers that the prospects of
the Company and resulting impact on shareholder wealth will be
enhanced by this approach. Accordingly, the Board may pay a bonus
or issue securities to KMP (executive or non-executive) based on
their success in generating suitable new business or other
corporate opportunities. A bonus may be paid or an issue of
securities may also be made upon the successful completion of a new
business or corporate transaction.
Where required, KMP receive superannuation contributions, equal
to 10% of their salary, and do not receive any other retirement
benefit. From time to time, some individuals have chosen to
sacrifice part of their salary to increase payments towards
superannuation. Effective 1 July 2022, the superannuation
contribution rate is 10.5%.
All remuneration paid to KMP is valued at cost to the Company
and expensed. Incentive options are valued using the Black Scholes
option valuation methodology. The value of these incentive options
is expensed over the vesting period. The fair value of performance
rights granted is estimated as at the date of grant using the share
price at the grant date. The value of the performance right is
expensed over the vesting period.
Remuneration of KMP
Details of the nature and amount of each element of the
remuneration of each KMP of the Company for the year ended 30 June
2022 and 30 June 2021 are as follows:
Short-Term
Benefits
--------------------- ------------ ---------- ---------- ---------- -------------
Post
Employment Equity Other Percentage
Salary Cash Superann- Options/ Non-Cash Performance
& Fees Bonus uation Rights Benefits Total Related
2022 $ $ $ $ $ $ %
--------------------- -------- -------- ------------ ---------- ---------- ---------- -------------
Directors
Benjamin Stoikovich
(i) 153,450 - - 136,313 - 289,763 47
Julian Stephens 300,000 100,000 27,500 340,782 - 768,282 57
Ian Middlemas 36,000 - 3,600 - - 39,600 -
Mark Pearce 20,000 - 2,000 215,680 - 237,680 91
Nigel Jones
(ii) 33,693 - - 36,013 - 69,706 52
Other KMP
Paul Marcos 250,000 50,000 27,292 355,267 682,559 59
Sam Cordin 180,000 80,000 26,000 136,313 - 422,313 51
--------------------- -------- -------- ------------ ---------- ---------- ---------- -------------
973,143 230,000 86,392 1,220,368 - 2,509,903
--------------------- -------- -------- ------------ ---------- ---------- ---------- -------------
Short-Term
Benefits
--------------------- ------------ ---------- ---------- ---------- -------------
Post
Employment Equity Other Percentage
Salary Cash Superann- Options/ Non-Cash Performance
& Fees Bonus uation Rights Benefits Total Related
2021 $ $ $ $ $ $ %
--------------------- -------- ------- ------------ ---------- ---------- ---------- -------------
Directors
Ian Middlemas 33,750 - 3,206 - - 36,956 -
Julian Stephens 265,313 50,000 25,205 289,547 - 630,065 54
Benjamin Stoikovich
(i) 73,792 - - 115,819 - 189,611 61
Mark Pearce 18,750 - 1,781 42,528 - 63,059 67
Other KMP
Sam Cordin
(iii) 111,938 15,000 12,059 117,806 - 256,803 52
--------------------- -------- ------- ------------ ---------- ---------- ---------- -------------
503,543 65,000 42,251 565,700 - 1,176,494
--------------------- -------- ------- ------------ ---------- ---------- ---------- -------------
Notes:
(i) In addition to Non-Executive Directors fees, Selwyn Capital
Limited, an entity associated with Mr Stoikovich, was paid, or is
payable, A$124,703 (2021: $59,437) for additional services provided
in respect of corporate and business development activities which
is included in Mr Stoikovich's salary and fee amount.
(ii) Appointed as a Director on 10 February 2022. Mr Jones
currently receives director fees of GBP40,000 per annum and and an
additional fee of GBP10,000 per annum to chair the ESG
Committee.
(iii) Mr Cordin's role was reduced to 60% during the period 1 October 2020 to 30 June 2021.
Incentive Option and Peformance Right Holdings of KMP
Held at
Held at 1 July 2021 Granted as Compen-sation Options/ Rights Exercised Options/ Rights Expired Net Change Other 30 June 2022 Vested and Exercisable at 30 June 2022
2022 (#) (#) (#) (#) (#) (#) (#)
------------ --------------------- -------------------------- --------------------------- ------------------------- ------------------ --------------- ----------------------------------------
Directors
Benjamin
Stoikovich 2,700,000 - (1,860,000) - - 840,000 -
Julian
Stephens 5,000,000 - (2,900,000) - - 2,100,000 -
Mark Pearce - 750,000 (225,000) - - 525,000 -
Nigel Jones -(i) 525,000 - - - 525,000 -
Other KMP
Paul Marcos - 1,500,000 (300,000) - - 1,200,000 -
Sam Cordin 4,075,000 - (3,235,000) - - 840,000 -
------------ --------------------- -------------------------- --------------------------- ------------------------- ------------------ --------------- ----------------------------------------
Notes:
(i) As at date of appointment.
Incentive Securities Granted to KMP
Details of unlisted incentive securities granted by the Company
to KMP of the Group during the past two financial years are as
follows:
Grant Expiry Exercise Price Grant Date Fair Value(i) Total Value of Options/ Rights Granted
No. Granted $ No. Vested at 30 June 2022(
Options/ Rights Date Date $ $ (ii) iii)
------------ ------------------ ----------- --------- ----------------- -------------------------- ------------- ---------------------------------------- -----------------------------
Director
------------ ------------------ ----------- --------- ----------------- -------------------------- ------------- ---------------------------------------- -----------------------------
Benjamin 31 Dec
Stoikovich Rights 25-Nov-20 21 - 0.36 360,000 129,600 360,000
31 Dec
Rights 25-Nov-20 23 - 0.36 360,000 129,600 -
31 Oct
Rights 25-Nov-20 25 - 0.36 480,000 172,800 -
------------------ ----------- --------- ------------------------------ -------------------------- ------------- ---------------------------------------- -----------------------------
Julian 31 Dec
Stephens Rights 25-Nov-20 21 - 0.36 900,000 324,000 900,000
31 Dec
Rights 25-Nov-20 23 - 0.36 900,000 324,000 -
31 Oct
Rights 25-Nov-20 25 - 0.36 1,200,000 432,000 -
------------------ ----------- --------- ------------------------------ -------------------------- ------------- ---------------------------------------- -----------------------------
31 Dec
Mark Pearce Rights 25-Nov-21 21 - 0.65 225,000 146,250 225,000
31 Dec
Rights 25-Nov-21 23 - 0.65 225,000 146,250 -
31 Oct
Rights 25-Nov-21 25 - 0.65 300,000 195,000 -
------------------ ----------- --------- ------------------------------ -------------------------- ------------- ---------------------------------------- -----------------------------
31 Dec
Nigel Jones Rights 9-Feb-22 23 - 0.47 225,000 105,750 -
31 Oct
Rights 9-Feb-22 25 - 0.47 300,000 141,000 -
------------------ ----------- --------- ------------------------------ -------------------------- ------------- ---------------------------------------- -----------------------------
Other KMP
------------ ------------------ ----------- --------- ----------------- -------------------------- ------------- ---------------------------------------- -----------------------------
31 Dec
Paul Marcos Rights 6-Sep-21 21 - 0.545 300,000 163,500 300,000
31 Dec
Rights 6-Sep-21 23 - 0.545 450,000 245,250 -
31 Oct
Rights 6-Sep-21 25 - 0.545 750,000 408,750 -
------------------ ----------- --------- ------------------------------ -------------------------- ------------- ---------------------------------------- -----------------------------
31 Dec
Sam Cordin Rights 25-Nov-20 21 - 0.36 360,000 129,600 360,000
31 Dec
Rights 25-Nov-20 23 - 0.36 360,000 129,600 -
31 Oct
Rights 25-Nov-20 25 - 0.36 480,000 172,800 -
------------------ ----------- --------- ------------------------------ -------------------------- ------------- ---------------------------------------- -----------------------------
Notes:
(i) The fair value of the unlisted performance rights as at
grant date is consistent with the closing share price of the
Company as at that date.
(ii) Each unlisted performance right converts into one ordinary
share of Sovereign Metals Limited subject to the performance
conditions being met; and
(iii) The vesting conditions are performance conditions as follows:
a. Scoping Study Milestone means announcement of a positive
Scoping Study for the Malawi Rutile Project in accordance with the
provisions of the JORC Code.
b. Feasibility Study Milestone means announcement of a positive
Feasibility Study for the Malawi Rutile Project in accordance with
the provisions of the JORC Code.
c. Decision to Mine Milestone means announcement of a Decision
to Mine for the Malawi Rutile Project.
The performance rights will also immediately vest if a change of
control event or financing event occurs in respect of the shares
and/or assets of the Company.
Details of the value of options and rights granted, lapsed or
converted for each Key Management Person of the Company or Group
during the financial year are as follows:
Value of Percentage
Value of Options Value of Value of
Options and Options Options and Remuneration
No. of and Rights and Rights for the
options Rights Exercised Rights included in Period that
No. of No. of & rights Granted During Lapsed Remuneration Consists of
options options cancelled/ During the During for the Options and
& rights & rights lapsed the Year Year(i) the Year Period Rights
2022 granted # vested # # $ $ $ $ %
------------ ----------- ----------- ------------ ---------- ---------- ---------- ------------- -------------
Directors
Benjamin
Stoikovich - 360,000 - - 700,200 - 136,313 47
Julian
Stephens - 900,000 - - 1,173,000 - 340,782 44
Mark Pearce 750,000 225,000 - 487,500 128,250 - 215,680 91
Nigel Jones - - - 246,750 - - 36,013 52
Other KMP
Paul Marcos 1,500,000 300,000 - 817,500 171,000 - 355,267 52
Sam Cordin 1,200,000 360,000 - - 1,203,950 - 136,313 32
------------ ----------- ----------- ------------ ---------- ---------- ---------- ------------- -------------
Notes:
(i) Determined at the time of exercise or conversion at the intrinsic value.
Loans to/from KMP
No loans were provided to or received from KMP during the year
ended 30 June 2022 (2021: Nil).
Ordinary Shareholdings of KMP
Purchases/Sell
Held at 1 July 2021 Granted as compensation On Exercise of Options/ Rights Net Other Change Held at 30 June 2022
2022 (#) (#) (#) (#) (#) (#)
------------ --------------------- ------------------------- -------------------------------- ---------------- ------------------ ----------------------
Directors
Benjamin
Stoikovich 2,150,000 - 1,440,000 - - 3,590,000
Julian
Stephens 13,317,518 - 2,340,000 - - 15,657,518
Ian
Middlemas 16,100,000 - - - - 16,100,000
Mark Pearce 4,070,842 - 225,000 - - 4,295,842
Nigel Jones -(i) - - - - -
Other KMP
Paul Marcos - - 300,000 - - 300,000
Sam Cordin 1,769,413 - 2,610,000 (300,000) - 4,079,413
------------ --------------------- ------------------------- -------------------------------- ---------------- ------------------ ----------------------
Notes:
(i) As at date of appointment.
Other Transactions with KMP
Selwyn Capital Limited ("Selwyn"), a company associated with Mr
Stoikovich is engaged under an agreement to provide consulting
services to the Company, on a rolling 12-month term that either
party may terminate with one month written notice. Selwyn receives
a daily rate of GBP800 (increased to GBP1,000, effective 1 July
2022) under the consulting agreement. These services provided
during the financial year amounted to AUD$124,703 (2021:
AUD$59,437).
Apollo Group Pty Ltd, a company of which Mr Mark Pearce is a
Director and beneficial shareholder, was paid, or is payable,
$300,000 (2021: $210,000) for the provision of serviced office
facilities, administration services and additional consulting
services provided during the year. The amount is based on a monthly
retainer due and payable in advance and able to be terminated by
either party with one month's notice. Effective 1 July 2022, the
monthly fee has been increased to $29,000.
Employment Contracts with KMP
Dr Julian Stephens, Managing Director, has a letter of
appointment confirming the terms and conditions of his appointment
as Managing Director of the Company dated 27 June 2016. The
contract specifies the duties and obligations to be fulfilled by
the Managing Director. The contract has a rolling annual term and
may be terminated by the Company by giving 3 months' notice. No
amount is payable in the event of termination for neglect or
incompetence in regards to the performance of duties. As agreed by
the Board, Dr Stephens' annual salary was increased to $300,000
plus superannuation with an annual bonus of up to $100,000 payable
in two equal instalments upon successful completion of KPIs as
determined by the Board. Effective 1 July 2022, Dr Stephens' annual
salary has increased to $350,000 plus superannuation with an annual
bonus of up to $120,000 payable in two equal instalments upon
successful completion of KPIs as determined by the Board.
Mr Paul Marcos, Head of Project Development, has a letter of
employment confirming the terms and conditions of his appointment
dated 14 May 2021. The contract specifies the duties and
obligations to be fulfilled by the Head of Project Development. The
letter of employment has no fixed term and can be terminated by
either party by giving 3 months' notice. No amount is payable in
the event of termination for neglect or incompetence in regards to
the performance of duties. Mr Marcos receives a salary of $250,000
plus superannuation with an annual bonus of $50,000 payable upon
successful completion of KPIs as determined by the Board. Effective
1 July 2022, as agreed by the Board, Mr Marcos' annual salary has
increased to $270,000 plus superannuation.
Mr Sam Cordin, Business Development Manager, has a letter of
employment confirming the terms and conditions of his appointment
dated 9 August 2018. The contract specifies the duties and
obligations to be fulfilled by the Business Development Manager.
The letter of employment has no fixed term and can be terminated by
either party by giving 3 months' notice. No amount is payable in
the event of termination for neglect or incompetence in regards to
the performance of duties. As agreed by the Board, Mr Cordin's
annual salary was increased to $180,000 plus superannuation with an
annual bonus of up to $40,000 payable in two equal instalments upon
successful completion of KPIs as determined by the Board. Effective
1 July 2022, Mr Cordin's annual salary has increased to $205,000
plus superannuation with an annual bonus of up to $50,000 payable
in two equal instalments upon successful completion of KPIs as
determined by the Board.
All Directors have a letter of appointment confirming the terms
and conditions of their appointment as a Director.
End of Remuneration Report
PROCEEDINGS ON BEHALF OF COMPANY
No person has applied for leave of court to bring proceedings on
behalf of the Company or intervene in any proceedings to which the
Company is a part for the purpose of taking responsibility on
behalf of the Company for all or any part of those proceedings. The
Company was not a party to any such proceedings during the
year.
NON-AUDIT SERVICES
During the financial year, the Company's current auditor, Ernst
& Young (or by another person or firm on the auditor's behalf)
provided non-audit services relating to income tax preparation and
advice, totalling $14,214. The Company's former auditor, Deloitte
Touche Tohmatsu provided no non-audit services (2021: nil).
AUDITOR'S INDEPENCE DECLARATION
The lead auditor's independence declaration for the year ended
30 June 2022 has been received and can be found on page 27 of the
Directors' Report.
This report is made in accordance with a resolution of the
Directors made pursuant to section 298(2) of the Corporations Act
2001.
For and on behalf of the Directors
JULIAN STEPHENS
Managing Director
29 September 2022
CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE
INCOME
FOR THE YEARED 30 JUNE 2022
Notes 2022 2021
$ $
-------------------------------------- ----- ------------ -----------
Continuing Operations
Interest Income 33,117 17,463
Other income/(expenses) 2(a) (65,992) 484,834
Exploration and evaluation expenses (8,072,133) (2,884,311)
Corporate and administrative
expenses (708,278) (548,528)
Share-based payment expenses 17 (2,941,985) (1,263,007)
Business development expenses (1,964,460) (873,751)
Loss before income tax (13,719,731) (5,067,300)
Income tax expense 3 - -
Loss for the year (13,719,731) (5,067,300)
====================================== ===== ============ ===========
Loss attributable to members
of the parent (13,719,731) (5,067,300)
====================================== ===== ============ ===========
Other Comprehensive Income, net
of income tax:
Items that may be reclassified
subsequently to profit or loss
Exchange differences on foreign
entities (63,362) (73,520)
Other comprehensive loss for
the year, net of income tax (63,362) (73,520)
-------------------------------------- ----- ------------ -----------
Total comprehensive loss for
the year (13,783,093) (5,140,820)
====================================== ===== ============ ===========
Total comprehensive loss attributable
to members of Sovereign Metals
Limited (13,783,093) (5,140,820)
====================================== ===== ============ ===========
Basic and diluted loss per share
from continuing operations (cents
per share) 12 (3.17) (1.27)
-------------------------------------- ----- ------------ -----------
The above Consolidated Statement of Profit or Loss and Other
Comprehensive Income should be read in conjunction with the
accompanying notes in the full version of the Annual Report
available at www.sovereignmetals.com.au .
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 30 JUNE 2022
Notes 2022 2021
$ $
----------------------------------- ------ ------------ ------------
Current Assets
Cash and cash equivalents 11(b) 18,892,741 7,957,660
Other receivables 4 302,424 149,404
Other financial assets 200,000 90,000
Total Current Assets 19,395,165 8,197,064
----------------------------------- ------ ------------ ------------
Non-current Assets
Other receivables 4 - 150,000
Property, plant and equipment 5 537,238 315,583
Exploration and evaluation assets 6 7,170,282 7,170,282
Total Non-current Assets 7,707,520 7,635,865
----------------------------------- ------ ------------ ------------
TOTAL ASSETS 27,102,685 15,832,929
----------------------------------- ------ ------------ ------------
Current Liabilities
Trade and other payables 7 1,845,954 690,676
Provisions 8 95,593 65,998
Total Current Liabilities 1,941,547 756,674
----------------------------------- ------ ------------ ------------
TOTAL LIABILITIES 1,941,547 756,674
----------------------------------- ------ ------------ ------------
NET ASSETS 25,161,138 15,076,255
=================================== ====== ============ ============
EQUITY
Contributed equity 9 78,860,187 55,276,410
Reserves 10 1,996,771 1,775,934
Accumulated losses (55,695,820) (41,976,089)
----------------------------------- ------ ------------ ------------
TOTAL EQUITY 25,161,138 15,076,255
=================================== ====== ============ ============
The above Consolidated Statement of Financial Position should be
read in conjunction with the
accompanying notes in the full version of the Annual Report
available at www.sovereignmetals.com.au .
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARED 30 JUNE 2022
Notes 2022 2021
$ $
---------------------------------------------- ------ ------------ -----------
Cash flows from operating activities
Interest received 20,416 18,335
COVID-19 cash flow boost - 50,000
R&D refund received - 107,334
Payments to suppliers and employees (10,036,070) (4,095,677)
Net cash used in operating activities 11(a) (10,015,654) (3,920,008)
---------------------------------------------- ------ ------------ -----------
Cash flows from investing activities
Payments for purchase of plant and equipment (313,405) (260,340)
Net cash used in investing activities (313,405) ( 260,340)
---------------------------------------------- ------ ------------ -----------
Cash flows from financing activities
Proceeds from issue of shares 21,811,772 10,218,500
Share issue costs (498,640) (565,017)
Funds received in advance for exercise
of options 27,000 120,000
---------------------------------------------- ------ ------------ -----------
Net cash from financing activities 21,340,132 9,773,483
---------------------------------------------- ------ ------------ -----------
Net increase in cash and cash equivalents 11,011,073 5,593,135
Net foreign exchange differences (75,992) -
Cash and cash equivalents at the beginning
of the financial year 7,957,660 2,364,525
---------------------------------------------- ------ ------------ -----------
Cash and cash equivalents at the end
of the financial year 11(b) 18,892,741 7,957,660
============================================== ====== ============ ===========
The above Consolidated Statement of Cash Flows should be read in
conjunction with the accompanying notes in the full version of the
Annual Report available at www.sovereignmetals.com.au .
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 30 JUNE 2022
Foreign
Share-based Currency
Issued Payments Translation Accumulated Total
Capital Reserve Reserve Losses Equity
$ $ $ $ $
----------------------- ------------ ------------ ------------- ------------- -------------
Balance at 1 July
2021 55,276,410 1,800,267 (24,333) (41,976,089) 15,076,255
Net loss for the
year - - - (13,719,731) (13,719,731)
Other comprehensive
loss - - (63,362) - (63,362)
----------------------- ------------ ------------ ------------- ------------- -------------
Total comprehensive
loss for the year - - (63,362) (13,719,731) (13,783,093)
----------------------- ------------ ------------ ------------- ------------- -------------
Transactions with
owners recorded
directly in equity
Placement of Ordinary
Shares 16,738,022 - - - 16,738,022
Issue of Ordinary
Shares upon exercise
of options 5,193,750 - - - 5,193,750
Share issue costs (1,005,781) - - - (1,005,781)
Transfer from SBP
Reserve 2,657,786 (2,657,786) - - -
Share-based payments
expense - 2,941,985 - - 2,941,985
Balance at 30 June
2022 78,860,187 2,084,466 (87,695) (55,695,820) 25,161,138
----------------------- ------------ ------------ ------------- ------------- -------------
Balance at 1 July
2020 44,883,777 1,273,963 49,187 (36,908,789) 9,298,138
Net loss for the
year - - - ( 5,067,300) ( 5,067,300)
Other comprehensive
loss - - (73,520) - (73,520)
----------------------- ------------ ------------ ------------- ------------- -------------
Total comprehensive
loss for the year - - (73,520) ( 5,067,300) (5,140,820)
----------------------- ------------ ------------ ------------- ------------- -------------
Transactions with
owners recorded
directly in equity
Placement of Ordinary
Shares 8,000,000 - - - 8,000,000
Issue of Ordinary
Shares upon exercise
of options 2,218,500 - - - 2,218,500
Share issue costs (562,570) - - - (562,570)
Transfer from SBP
Reserve 736,703 (736,703) - - -
Share-based payments
expense - 1,263,007 - - 1,263,007
Balance at 30 June
2021 55,276,410 1,800,267 (24,333) (41,976,089) 15,076,255
----------------------- ------------ ------------ ------------- ------------- -------------
The above Consolidated Statement of Changes in Equity should be
read in conjunction with the
accompanying notes in the full version of the Annual Report
available at www.sovereignmetals.com.au .
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END
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