Sovereign Metals (ASX:SVM) — An Introduction to Sovereign Metals

0:01 Good morning, and welcome to the SOVEREIGN METALS LIMITED investor presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged and can be submitted at any time via the Q and A tab situated in the top right hand corner of your screen. Please just simply type in your questions at any time and press send. The company may not be in a position to answer every question it receives during the meeting itself. However, the company will review all questions submitted today and publish responses where it is appropriate to do so. Before we begin, I'd like to submit the following poll. And now I'd like to hand over to Sapan Gay, CCO from SOVEREIGN METALS. Good morning.

0:34 Morning, Zach. Thanks for that. Welcome everyone to our first investor meet company presentation for SOVEREIGN METALS. My name is Sapan Gay. I am chief commercial officer of SOVEREIGN METALS. We're listed on the ASX under the ticker SVML and on AIM under the ticker SVML. We listed on AIM in mid December last year, so we're quite aware that not not not very many people are aware of the story of the investment case and what SOVEREIGN METALS is all about and and specifically what our Kaseo Rutile project in Malawi in in in Southeastern Africa is all about, as well as what our commodity, rutile, what are its end uses, in what form, shapes and forms is it used, etcetera. So I'm going to take the next twenty minutes or so just running through a few slides here.

1:31 These slides are from our corporate presentation, which is available on our website. So the first thing, I guess, is what you can see on this front page is is Kaseya. It's a drone shot of our project. It's quite a vast landmass or land package. The rutile that we're looking to effectively mine is within the top five to 15 meters below that topsoil that is that is that that bushland and semi agricultural land that you're seeing there. A little bit of background to SOVEREIGN METALS. So the company's been listed in Australia for about ten years or so. During those the first eight or so of those years, the the company was really looking at the exploration and development of graphite projects in Malawi.

2:28 During that time, that that exploration phase took us to scoping out and putting a prefeasibility study together for the Malangundi graphite project, which still belongs in the company. That project in itself was taken to a PFS level. That PFS, you can find on our website. And and and Malangundi is quite a nice stand alone graphite project. It can it it had an NPV of around $200,000,000 for a $60,000,000 CapEx, so it was quite a nice project. But what really segued us into rutile is while we were doing the BFS work around Malangundi, we found, quite high levels of rutile in the tailings of bulk test sampling we were doing on the graphite.

3:17 That got us to start asking questions around, well, how much rutile do we actually have? Is it commercially viable? And can we put a resource on it? And, basically, by the end of or mid December last year, we got to a point where we had a scoping study on what is now the Kaseya rutile discovery. So so so let's get into first what exactly is rutile. So rutile is a major source of titanium. I actually have some here. I don't know if if if you'd be able to see that, but it's a it's a very reddish brown, bit of a shiny mineral. That that that, in fact, is straight from from Kaseya. That's about 95% titanium dioxide.

4:05 Now what it's used in is predominantly in the pigment industry. So brightness, whiteness, opaqueness of paints, and anything that uses pigments like cosmetics, sunscreen, plastics, coatings, even foodstuffs, that that pigment is more more often than not based on titanium dioxide, which rutile is a is a form of. That market in itself is around 15 to 18,000,000 billion dollar market per annum depending on which source you want to look at. A third of rutile ends up in the welding industry as welding flux. It has certain chemical parameters that allow it to to to be used within within the welding industry, so that obviously has connotations for global construction, infrastructure projects, etcetera.

5:03 As long as we're building objects with metal, we'll be needing welding, and therefore, you'll be needing rutile. And and I think most people are aware of titanium in its in its metal form, which actually is is not the largest components of rutile these days, but is a growing component as more of that titanium metal is being used in in cleantech solutions, whether that's the the casing for for the battery of an electric vehicle car. It's the coatings on on on offshore wind turbine towers to to prevent them from corrosion. It's used in the medical industry, aerospace, etcetera. So so given all these uses of titanium, which is the the end product of rutile, it's it's it's it's no surprise that it's designated a critical raw material by The US and The EU based on supply risk and economic importance.

5:55 In fact, this has been highlighted quite recently with the with the war in in in Ukraine with Russia being one of the largest producers of titanium metal. And in fact, companies like Boeing, Airbus, Rolls Royce used to used to source their titanium from from Russia given self imposed sanctions on the on those kind of supply routes. It it it's it's filtering out just how critical titanium is to to global industry. So natural rutile is the purest natural form of titanium. So there's mainly two forms of titanium that we mine.

6:42 One is natural rutile, which is what we have, and the other is ilmenite. Now ilmenite is around 50% t I o two or t titanium dioxide, and natural rutile tends to be around 95% plus t I o two. And that differential in the in the titanium dioxide grade is is reflected in the share pry oh, sorry. Not the share price, the commodity prices. The so ilmenite trades at around $200 a ton currently on a contractual basis, and natural rutile, you can see there, is is around almost 7 times that at $1,350 a ton. When it comes to supply, about 8,000,000 tons overall of t I o two is supplied into into those markets.

7:36 6,200,000 tons of that comes from ilmenite, so it's the majority of of titanium dioxide supply globally, and only half a million tons actually comes from rutile. Now if rutile is 95% of the way there to what what what the end product needs to be, then why is only half a million tons of it used? And the the the simple answer is there's just isn't enough of it around. In fact, most rutile in the world is a byproduct, a lower grade byproduct of ilmenite mines. On this slide, you can see just what that means in terms of supply of rutile and expected global rutile supply out to twenty thirty. The commodity has been in in structural deficit since 2017 and continues to increase that deficit over time where we think by or TZMI, which is a which is a world renowned titanium minerals consultancy, they believe by 2030 that we'd be around 250,000 tons of of rutile versus the 750,000 tons we were in 2017.

8:52 Currently, as I said, we're about half a million half a million tons. So so that's a 70% expected decrease in global rutile supply. At the same time, the demand side for t I o two is expected to increase by 2,800,000 tons. You can see some of the other players, Luca Resources, which owns the old Sierra Rutile projects in Sierra Leone. Sierra Rutile, some of you may remember, was listed on AIM and was taken out by Luca in 2016. And you have BASE Resources, another ASX and AIM listed company, which has the the the Quale project. Between those two, they probably produce around 30% of global rutile supply, the rest coming as a as a byproduct of of ilmenite mines.

9:44 The key here is that it's been over half a century since a new significant standalone rutile dominant deposit has been discovered until we discovered Kaseya. So so we discovered Kaseya, as I said in the intro, a bit serendipitously while we were looking for graphite. Towards the end of last year, we were able to put a mineral resource estimate out, which showed about 605,000,000 tons of material tray with with about 1% rutile grade and 1.24% graphite grade, which gives us about 6,000,000 tons of graphite and seven and a half million sorry, 6,000,000 tons of rutile and seven and a half million tons of graphite within that that resource itself.

10:45 That resource made us the largest undeveloped rutile deposit in the world. We're one of the largest stand alone rutile dominant deposits discovered in over fifty years. You can see on that chart there in the green, we stand we we we stand side by side with Sierra rutile as as one of the top two Rutile resources in the world. And and, look, we we expect a substantial additional resource growth expected. Why can we say that? Well, that that resource that you see on Kaseya only covered 38% of the known total drill defined mineralization foot footprint in Malawi at the time. Since then, a few weeks ago, we announced some drill results.

11:31 What those drill results did was they have changed that a 129 square kilometer rutile mineralization zone into a 165 square kilometer rutile mineralization zone. So that's increased in in in footprint. So, actually, the resource that you saw is just below 30% of the total defined mineralization at this moment, which is which is why at the bottom of this slide, you can see that bullet point, that significant potential resource increases are planned for early to mid twenty twenty two.

12:14 When we define that resource, we announced an initial scoping study, and this really was to define or or give a signal to the economic parameters around that resource. So we know it's big. And to better understand the the the financial or economic benefits of the rutile and the graphite byproduct, we completed a scoping study which said, okay. If we were to mine this resource for twenty five years in a plant with an annual throughput of 12,000,000 tons, what would that look like? And what it looks like is we'd be producing just over a 120,000 tons of rutile, about 80,000 tons of graphite, and that would all culminate in an NPV, a post tax of around 860,000,000 US dollars, and an IRR after tax of 36% with a payback of two and a half years on a capital cost of $332,000,000.

13:19 So so what we're saying there is our NPV over CapEx is around 2.6%, making the making the project viable at this stage at a scoping study level. Over those twenty five years, you'd get a total revenue of over $6,000,000,000. That's around $250,000,000 of revenue averaged over over each year and a $160,000,000 of EBITDA. So quite a high EBITDA margin there. In terms of contribution to the economy of Malawi, we'd be creating over 480 direct jobs and many more indirect jobs in in in a in a space.

14:05 And in a commodity that is highly strategic and experiencing extreme supply deficit. So why are we getting such good numbers from our scoping study? The the the answer lies within the next few slides. So simple geology. As I as I said at the beginning, the rutile mineralization sits just below surface. So if you imagine that you're looking at this drone picture on the right hand side of this slide, If you were to take the top half a meter away, you'd be looking at the the mineralized the the the the mineralized material right there. The highest grade rutile sits within the top five meters. So we know that now after after extensive drilling, and that allows us to really really focus on those high grade areas and really start picking up high grade rutile early on in our in our scoping study mine plan.

15:09 How would we be mining this? Well, on this slide, you see one of my colleagues holding holding this the the material that hosts the rutile, and it's a homogenous soft friable saprolite. In layman's terms, it's it's soft rock. You can crush it in your hands. As you can see there, it doesn't need huge drilling and blasting with explosives or anything of that kind. Because it occurs like that and because of certain chemical parameters of that saprolite, we're able to hydro mine this the this deposit. What is hydro mining? It's essentially that picture there where you see a high powered water jet being aimed at the material surface, and and and that water essentially mixes with the material, creates a slurry.

15:59 That slurry gets pumped directly to the the plant. Okay. Which takes us on to processing. It's a very conventional flow sheet. This is all off off off the rack type of plant machinery. There's nothing here that is that that that is new tech or anything like that. So after we hydro mine, that slurry gets fed into the wet concentration plant, which then goes into a mineral separation plant where we where we are able to retrieve the rutile product. For an incremental a marginal incremental cost, and I would say around 10% of total CapEx, we are able to construct a graphite flotation plant next to the mineral separation plant, which would which would give us our graphite product.

16:49 On the right hand side here, you can see some of the the parameters that we're getting from from some metallurgic test work we did, including two bulk test work programs we've done over the past few years and and along with the scoping study. So we were getting up to a 100% of the rutile recovered. We're getting a premium specification rutile at 95 to 97.2% t I l two and quite a high grade coarse flake graphite as well. Why is that premium spec of rutile important? Well, premiums premium specification rutile ends up in the welding industry, And the welding industry pays around a 25% premium on average to your your your contractual rutile prices.

17:44 Why is that of interest to us? Well, a few weeks ago, we announced our first MOU with a potential off taker, and that was with The US group, Haskell International, who are a global welding products and rutile distributor processor. And that MOU has been signed for 25,000 tons of of our rutile product.

18:13 Simple progressive rehabilitation. What does this mean? This means that, look, Kaseya is a huge deposit. The plan is to start at one end and get to the other. And what we don't want to do is is not be able to return this land to communities on an ongoing basis. So we've modeled in simple progressive rehabilitation, which is essentially all tailings. So once we've taken the graphite and the rutile out of the out of the material, that material is disposed back into the pits where it came from. Those pits are rehabilitated in real time, and the area is returned to farming or bushland or or or whatever community driven

19:00 uses that land had. What that means is unlike many other mining projects around the world, we're not we're not using up land or community land for for for several years or decades. We're actually looking at several months here. Again, this is not new this is not new tech. This is not something groundbreaking. You can see an example of progressive rehabilitation of a mineral sands mine there there at the bottom of that that page, and I think that's about thirty six months between the the first and the second picture there. So all in, a low risk operation, simple mining, which I've talked about using hydro mining, simple processing using a simple conventional flow sheet, and that allows us for progressive rehabilitation positioning those for effective ESG outcomes.

20:02 A little bit about Malawi because I'm aware it's not it's not that well known to people. It is a member country of the Commonwealth. It's a former British colony. So English is the spoken commercial and legal language. The the the legal framework is based on British common law. And, look, it's attracting significant investment. It is a a poor nation, so they understand that industries such as mining can bring can bring real development to to the to to Malawi both at a national and a local level. So there's demonstrable aspiration for mining.

20:51 There are a few other companies such as Lotus Resources, Globe, and Makango who are who are also exploring and operating in in Malawi. Had we had this conversation or we had discovered Kaseya about fifteen years ago, it would have been a bit of a moot point despite its size, and and the reason is Malawi is a landlocked country. However, ten years ago, the Nakala Logistics Corridor, which is that red rail line you see there on the on on the map, that got that got built by Vale, the large the the the large miner alongside a number of development banks.

21:38 And what that logistics corridor does is it connects Malawi to the Nucala Deepwater Port, And so that allows us operational ready infrastructure on a logistics basis. So we've already done the work to understand how much a ton of our product from mine gate to the Nacala Deepwater Port onto a vessel, what the cost of that would be. And and at the scoping study stage, that was just over $50 a ton for a rutile product that's selling for around $1,400 a ton. Here's here's here are a few examples of the operational ready infrastructure. So you have bitumen roads there.

22:31 You you you can actually see in that that picture, there's a sign for Kaseya. So that's only five clicks away from Kaseya. The logistics corridor railway, you can see operating there, and a and a and a helicopter shot of the deepwater port that has all the all the infrastructure required for for onboarding on vessels.

22:58 A lot is said about ESG and environmental benefits or otherwise of mining companies these days. We are in a fortuitous position in that natural rutile because it's a a high grade product of the end use of rutile. It's a direct use material. At 95%, it can be used directly in the production of pigments, which then go into paints and coatings, etcetera. On the other hand, ilmenite needs to be upgraded via quite energy and carbon intensive processes, which create which create essentially synthetic alternatives to rutile, such as titanium slag, which is around 85% t I o two, and synthetic rutile, which is around 88% t I o two.

23:55 What we did last year was we tried to understand the the the fundamental objective nature of that that carbon saving of natural rutile. And what you can see here is, essentially, we had an independent consultancy based here in The UK, which said if you were to take a ton of natural rutile in the pigment production process versus a ton of any of its alternatives, you would be saving 2.8 tons of carbon emissions per ton of that natural rutile. What does that mean in the the layperson terms? Well, an average car on the roads of London would would emit around one and a half tons per year.

24:44 So you're talking about once you're talking about scaling this up to a hun hundreds of thousands of tons of of production over many years, you can see the significant significant environmental benefits of of natural rutile. So, look, just just in closing, exciting year ahead. The first bullet point here, revised life cycle assessment. We put that out a few weeks ago. What that revised life cycle assessment was was essentially, okay. We know from the slide previously that we'd save about three tons of carbon dioxide by using natural rutile. Well, if we mined the rutile at Kaseya the way we have outlined in our scoping study, what does that mean vis a vis the alternatives?

25:33 And what we found was that that that producing a ton of natural rutile at Kaseya is about 20 to 33 times lower carbon footprint than its its alternatives. So that's quite a significant one, and I do urge you to go and have a read of that that r and s. Second point here, substantial jock resource tonnage increase. That's expected in h one twenty twenty two. Some of you may be aware that we went into a trading halt on the ASX overnight pending a mineral resource estimate update. Given the nuances of a dual listing, we are still trading on AIM. I I'm not going to talk more about that at this stage.

26:26 And, look, that any jock jock resource will then feed into an updated scoping study, which we're hoping to complete around midyear this year. Once that's completed, that'll that that that then will take us on to commencement of the prefeasibility study.

26:45 And, obviously, we will still be talking to and discussing potential execution of MOUs with future rutile offtakers. So with that, I'll I'll hand back over. That's perfect, Safan. Thank you very much for your presentation today. Ladies and gentlemen, please do continue to submit your questions using the q and a tab situated in the top right hand corner of your screen. But just while they're coming, do take a few moments to review those questions submitted today. I'd like to remind you that a recording of this presentation along with a copy of the slides and the published Q and A could be accessed via your investor dashboard. As you can see, we received a number of questions today. And thanks to all investors for submitting their questions. If possible, please could I ask you to read out the question and give a response where it is appropriate to do so, and I'll pick up from you at the end. Sure. So on the questions, first question here, the headline numbers look very good. How do you see the project funded and how long to revenue?

27:40 So, look, we're at scoping study stage. We and we had an initial scoping study out in December last year. We're expecting a an updated scoping study based on a new resource midyear this year. We would probably use the rest of this year to get to a prefeasibility study stage by the end of end of this year, which would mean that next year is really focused on getting a definitive feasibility study done with a construction or a decision to mine closer to the end of next year. So in terms of first cash flows, we're really looking at twenty six twenty twenty six 2026, assuming that it will take us, two or so years to to to build the project.

28:33 K. Next question here. What can you say about the strategy and the capital cost to production? Well, look, our our strategy really is to better understand exactly what we have on our hands As we drill more from our previous drilling announcement, you can see that the the the mineralized area is increasing. It's still open laterally and at depth, so we're still we're still understanding what we have here. What the initial scoping study has done for us is it's basically told us even if we've to mine 30% of this project on a CapEx number that is, for lack of a better word, bite size for a company of our size or is is is financeable by a company of our size, that that would give us point $9,000,000,000 of NPV. So so so, really, for us, it's a matter of understanding more about, well, how much how much more of this material do we have, what grade it's at, how big can this thing get, and, hypothetically, if someone was to throw larger numbers of CapEx at it, what would that mean in terms of the the economic viability of the of the project?

29:58 A couple of questions here on funding. Look. It's very early stage for us to to be talking about funding. My my background is I was an investment banker to to the mining sector for about fifteen years. Over that time, I've probably funded 20 or so different projects or helped fund 20 or so different projects. So it's not it's not something new for us, but what I would say is it's it's early stage. We need to better understand what we have here before going into what the funding looks like. What I will say is that a project of this size and given the scarcity of the commodity is more likely than not to attract attract a number of off takers globally.

30:54 And those off takers, in order to secure supply of this material, are known in other commodities and within within the mineral sand space to to take up financial positions or financing the construction of these projects in the past, and it's something that we'll we'll obviously bear in mind along with the plethora of other other financing solutions we may have. And I think that's that's all the questions answered from your side. That's perfect. I think you've addressed all those questions you can from investors today. And, of course, the company will review all questions to me today, and we will publish those responses on the investment company platform. But just before redirecting investors to provide you with their feedback, which I know is particularly important to the company, can I please ask for a few closing comments?

31:42 Yeah. Sure. Look. So so the way to look at SOVEREIGN METALS is it's it's the it's the right commodity. It's a commodity in supply deficit. It's a commodity that the demand side is only set to grow. If there's more than enough space in the market for for the type of levels of production we're talking about coming from Kaseya, if we're looking at half a million tons of this product or this commodity being lost over the next next eight or so years, and we're only furnishing around 120,000 tons into it, it's still going to be in structural deficit.

32:28 So that's one point. The second point is the the environmental benefits and the environmental impact on carbon footprint of using lower lower carbon footprint t I o two, which which essentially is what rutile is because it's been beneficiated by mother nature rather than in in a in a smelter somewhere. They shouldn't be overlooked. They're very, very important, both both financially to users, but also to consumers of end products and and and as we move towards a more sustainable sustainable future. And and, look, thirdly, I would say we are putting out quite a bit of news flow.

33:16 We have been over the last few months. In fact, you'll probably find that we've been putting out quite material announcements once a week or so over the last few months, and and we continue to keep our our the investor community and our shareholders abreast of everything that we're doing. So I'm hoping that we will have more more more announcements over the coming coming weeks and months. Sapan, thank you for updating investors today. Could I please ask investors not to close this session as you now be automatically redirected for the opportunity to provide your feedback in order that the management team can better understand your views and expectations. This will only take a few minutes to complete, but I'm sure it'll be greatly valued by the company. On behalf of the management team of SOVEREIGN METALS LIMITED, we'd like to thank you for attending today's presentation, and good morning to you all.