Rio Tinto invests in Sovereign Metals 'Kasiya rutile project in Malawi

Sovereign Metals Limited (ASX:SVM, OTC:SVMLF, AIM:SVML) has attracted the attention of global mining giant Rio Tinto (LSE: Rio), which will invest $40.4 million to become a 15 per cent shareholder in the small mining company.

The investment will advance the Kasiya rutile-graphite project in Malawi, releasing a large supply of natural rutile and flake graphite with a low carbon footprint.

Investors have recognized the importance of the deal, and the company's shares rose as much as 23.24 per cent to A $0.61 in morning trading on the Australian Stock Exchange, a 12-month high.

A landmark agreement

Ben Stoikovich, chairman of Sovereign, is enthusiastic about the deal: "this landmark agreement with Rio Tinto, one of the world's largest and most successful global mining companies, confirms that Kasiya is one of the most important key mineral discoveries in recent years.

The experience and expertise that Rio brings will really make Kasiya stand out as a potentially important global supplier of two key minerals and bring us all closer to supply chain decarbonization and net zero emissions.

"in addition, this is another step for Malawi to reap huge benefits from the development of the Kasiya project.

We welcome Rio Tinto as a major shareholder in Sovereign and look forward to jointly developing Kasiya with Rio Tinto as our strategic partner. "

The main focus of the investment is to finance the final Feasibility study (DFS) of the Kasiya project.

World-class low-carbon mine

The study aims to develop a world-class low-carbon footprint mine that can supply titanium pigments, titanium and lithium-ion battery industries.

Rio Tinto agreed to provide technical and marketing assistance for the project, focusing on the production of graphite by-products of Sovereign and spherical purified graphite for the negative electrode market of lithium-ion batteries.

As part of the deal, Rio Tinto will buy 83095592 new shares in Sovereign at A $0.486 a share, a 10 per cent premium to the volume-weighted average price of the Australian Stock Exchange for the 45 days to July 14, 2023.

In addition, Rio will receive 34549598 options, which could increase its stake to 19.99 per cent by the end of the year. The exercise price of these options is A $0.535 per share, 21 per cent higher than the average price.

Measures for cooperation

In addition to their financial commitments, Sovereign and Rio Tinto signed an investment agreement outlining various co-operation measures.

If Sovereign seeks debt financing for the development of the project, the two companies will negotiate appropriate financing arrangements. The two sides will also cooperate to certify Kasiya's graphite products, focusing on the spherical purified graphite portion of the lithium-ion battery negative market.

Rio Tinto has the right to become an operator of the Kasiya project in accordance with commercial terms. If this option is exercised, Rio Tinto will also have the exclusive right to sell 40 per cent of all identified annual production of the project's DFS.

In order to promote cooperation and supervision, Rio Tinto will have the right to appoint a director or an observer, a general manager with the right to participate in the project, and three members of the project technical committee.

As long as Rio's ownership remains above 10 per cent but less than 19.99 per cent, Rio will also have pre-emptive rights to any future financing that does not involve a pro rata rights issue.