REG - Sovereign Metals Ltd - Rio to Invest $40.4m to Become Strategic Investor

Sovereign MetalsAnnouncement

17/07/2023 07:00

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RNS Number : 1503G  Sovereign Metals Limited  17 July 2023

SOVEREIGN METALS LIMITED

 

NEWS RELEASE I 17 JULY 2023

 

RIO TINTO TO INVEST $40.4 MILLION AND BECOME A 15% STRATEGIC INVESTOR IN
SOVEREIGN

 ·           Rio Tinto to make an investment of A$40.4 million in Sovereign resulting in an
             initial 15% shareholding
 ·           Investment proceeds will be used to advance the Kasiya Rutile-Graphite Project
             in Malawi
 ·           Rio Tinto's investment represents a significant step towards unlocking a major
             new supply of low-CO(2)-footprint natural rutile and flake graphite
 ·           Under the Investment Agreement, Rio Tinto will provide assistance and advice
             on technical and marketing aspects of Kasiya including with respect to
             Sovereign's graphite co-product, with a primary focus on spherical purified
             graphite for the lithium-ion battery anode market
 ·           Issue of 83,095,592 new Shares of Sovereign to Rio Tinto at a price of A$0.486
             per share represents a 10% premium to the 45-day volume weighted average price
             on the ASX as at close 14(th) July 2023
 ·           Rio Tinto also issued with 34,549,598 options to increase its shareholding by
             an additional 4.99% to potentially 19.99% of Sovereign within 12 months
 ·           Rio Tinto's 34.5 million options have an exercise price of A$0.535 per Share,
             representing a 21% premium to the 45-day volume weighted average price on the
             ASX as at close 14th July 2023, for additional proceeds of up to $18.5 million
             (if all options are exercised)

 

Sovereign's Chairman Ben Stoikovich commented: "This landmark agreement with
Rio Tinto, one of the world's largest and most accomplished global mining
companies, is confirmation of Kasiya's place as one of the most significant
critical mineral discoveries in recent times. The experience and expertise
that Rio Tinto brings will truly set Kasiya apart as a potentially globally
significant supply of two critical minerals and take us all a step closer to
supply chain decarbonisation and achieving net-zero. Furthermore, this is yet
another step towards unlocking significant benefits from development of the
Kasiya project for Malawi. We welcome Rio Tinto as a major shareholder of
Sovereign and look forward to working with Rio Tinto as our strategic partner
in the development of Kasiya."

 

ENQUIRIES

 Dr Julian Stephens (Perth)  Sam Cordin (Perth)  Sapan Ghai (London)

Managing Director
+61(8) 9322 6322
+44 207 478 3900

 +61(8) 9322 6322

 

 Nominated Adviser on AIM
 SP Angel Corporate Finance LLP  +44 20 3470 0470
 Ewan Leggat

 Charlie Bouverat

 Harry Davies-Ball

 Joint Brokers
 Berenberg                       +44 20 3207 7800
 Matthew Armitt
 Jennifer Lee

 Optiva Securities               +44 20 3137 1902
 Daniel Ingram
 Mariela Jaho
 Christian Dennis

 Tavistock PR                    +44 20 7920 3150

 

Sovereign Metals Limited (ASX:SVM ; AIM:SVML) (Sovereign or the Company) is
delighted to announce a A$40.4 million strategic investment by Rio Tinto
Mining and Exploration Limited (Rio Tinto) to advance Sovereign's world-class
Kasiya Rutile-Graphite Project (Kasiya or the Project) in Malawi.

Rio Tinto has agreed to initially subscribe for and purchase 83,095,592 new
fully paid ordinary shares (Shares) in Sovereign at a price of A$0.486 per
Share for aggregate proceeds of A$40.4 million. Rio Tinto's subscription price
reflects a 10% premium to the 45-day volume weighted average price on the ASX
as at close 14(th) July 2023 and will result in Rio Tinto holding
approximately 15% of the ordinary shares of the Company.

The subscription also involves Rio Tinto being granted options to acquire
34,549,598 further Shares in Sovereign within 12 months of the initial
subscription which could result in Rio Tinto's shareholding in the Company to
potentially increase up to 19.99% (based on the number of shares in issue in
the Company as at the date of this announcement).

The Company will use the proceeds from Rio Tinto's strategic investment to
fund the advancement of Kasiya, including progressing a Definitive Feasibility
Study (DFS) focused on the development of a world-class, low-CO(2)-footprint
mine capable of supplying to the titanium pigment, titanium metal and
lithium-ion battery industries.

In addition to the subscription for Shares and options, Sovereign and Rio
Tinto have also entered into an Investment Agreement pursuant to which,
subject to certain conditions, including the initial issuance of Shares to Rio
Tinto under the Subscription Agreement, time and ownership thresholds, the
following has been agreed:

 ·             If Sovereign is raising debt finance for the development of the Project,
               Sovereign and Rio Tinto will negotiate, in good faith, financing arrangements
               in order to put in place an acceptable mine construction funding package.
 ·             Sovereign and Rio Tinto will work together to qualify Kasiya's graphite
               product with a particular focus on supplying the spherical purified graphite
               segment of the lithium-ion battery anode market.
 ·             Rio Tinto shall have the option to become the operator of Kasiya on commercial
               arm's-length terms.
 ·             For so long as Rio Tinto is the operator of the Project, Rio Tinto shall also
               have exclusive marketing rights to market 40% of the annual production of all
               products from the Project as identified in the DFS on arm's-length terms.
 ·             Rio Tinto's option over operatorship and 40% marketing rights lapse if not
               exercised by the Investor End Date.
 ·             The "Investor End Date" means the earlier of (i) 90 days after the Company
               announces its DFS results or 180 days after the announcement of the DFS if Rio
               Tinto's advises it needs additional time to consider the exercise of the Rio
               Tinto's Option or (ii) Rio Tinto ceasing to hold voting power in the Company
               of at least 10%.
 ·             Rio Tinto shall be entitled to appoint (i) a director to the board of the
               Company or an observer to the Board where it has not appointed a director,
               (ii) one of its General Managers with access to the Project and (iii) three
               members to the Project's Technical Committee (one of which is Rio Tinto's
               appointed General Manager).
 ·             Rio Tinto will have the right of first refusal over any  future capital
               raisings that are not pro rata entitlement offers as long as it holds a
               minimum of 10% of the issued share capital of the Company and subject to Rio
               Tinto's aggregate holding not exceeding 19.99%.
 ·             As long as it holds a minimum of 10% of the issued share capital of the
               Company and until the Investor End Date, Rio Tinto will have a pre-emptive
               right over any offer from a third party to acquire any of the shares in, or
               the assets held by, any of Sovereign's subsidiaries with interests in the
               Project.

 

SUBSCRIPTION AND INVESTMENT AGREEMENT PARTICULARS

Advisors

SCP Resource Finance (SCP), formerly Sprott Capital Partners, is acting as
financial advisor and Thomson Geer (Australia) and Simmons & Simmons (UK)
are acting as legal counsel to Sovereign in connection with the strategic
investment by Rio Tinto.

Subscription Agreement

 ·             Rio Tinto has agreed to subscribe for 83,095,592 shares and will be granted
               34,549,598  options (exercise price $0.535, expiry date 12 months from the
               date of issue) in the Company for $40,384,458. Initial completion is expected
               to occur on or around 21 July 2023. Completion of the issue of a further
               439,918 Shares to Rio Tinto will, subject to shareholder approval and
               shareholder approval of the issuance of Shares to SCP, occur shortly after the
               general meeting (see below for further details).
 ·             Rio Tinto and the Company have provided representations and warranties
               considered standard for an agreement of this nature

 

Investment Agreement

Following the issue of the Shares to Rio Tinto under the Subscription
Agreement, the Company has agreed to provide Rio Tinto with certain rights
pursuant to the Investment Agreement between the parties.

 ·             (Use of funds) The Company will use the proceeds from Rio Tinto's strategic
               investment to fund the advancement of its  Project, including the completion
               of a DFS, product qualification and other expenditures agreed with Rio Tinto
               such as permitting costs.
 ·             (Board nominee/observer) Subject to Rio Tinto's voting power in the Company
               not falling below 15% for a continuous 3 month period, Rio Tinto will have the
               right to nominate one director or one observer to the board of the Company
               where it has not nominated a director.
 ·             (Right of first refusal - equity raisings) Subject to Rio Tinto's voting power
               in the Company not falling below 10%, if the Company undertakes equity
               raisings (other than pursuant to a pro rata entitlement offer), Rio Tinto has
               a right to be consulted and a right of first refusal to participate in the
               equity raisings up to a level where Rio Tinto's aggregate voting power does
               not exceed 19.99%. This right is subject to any approvals required by law
               (including any securities exchange) and/or governmental or other regulatory
               approvals.
 ·             (Right of first refusal - Project interests) Subject to Rio Tinto's voting
               power in the Company not falling below 10% and until the Investor End Date, if
               the Company receives an offer to dispose of any shares in or the assets held
               by any of its subsidiaries with interests in Kasiya (Project Interest) from a
               third party, then Rio Tinto has a pre-emptive right to acquire the Project
               Interest in priority to the third party. This right is subject to any
               approvals required by law (including any securities exchange) and/or
               governmental or other regulatory approvals.
 ·             (Governance)

 

 o    (Technical Committee & Access to Information) Until the Investor End Date,
      Rio Tinto and the Company will establish a technical committee comprising of 3
      members appointed by each to provide recommendations, advice and reports to
      the Company's Board on technical matters relating to the Project. Until the
      Investor End Date, the Company will also provide Rio Tinto's General Manager
      to the Project and the members of the Technical Committee with access and
      inspection rights to information relating to the Project.
 o    (Restricted matters) Until the Investor End Date, the Company is restricted
      from entering into any offtake, marketing or sales agreement (including
      pre-pay agreements or streaming and similar agreements), royalty agreements
      and granting any encumbrance over the Project or shares in any of the
      Company's subsidiaries with interests in Kasiya without Rio Tinto's consent.
 o    (Project debt funding) Until the Investor End Date, if the Company is
      considering any debt financing for the development and operation of Kasiya, it
      must consult and negotiate with Rio Tinto's to seek to put in place an
      acceptable mine construction funding package, with any legally binding
      commitments relating to such funding package not to be entered into until
      after the Investor End Date.
 o    (Graphite co-product) Until the Investor End Date, Sovereign and Rio Tinto's
      will work together to qualify the Project's graphite co-product with a
      particular focus on supplying the spherical purified graphite segment of the
      lithium-ion battery anode market.

 

 ·             (Operatorship of Project and marketing) Following the Company announcing a DFS
               for the Project until the Investor End Date, Rio Tinto has the option (Rio
               Tinto Option) to be appointed as the operator of the Project on arm's length
               terms and subject to Rio Tinto becoming the operator of the Project, be
               granted the exclusive right to 40% of the annual production of all products
               produced from the Project as identified in the DFS for so long as Rio Tinto
               remains the operator of the Project. This right is subject to any approvals
               required by law (including any securities exchange) and/or government or other
               regulatory approvals.

The Company has also provided undertakings to Rio Tinto to comply with various
corporate governance and administrative matters.

Further issuance of Shares

An advisory fee of 3% is payable to SCP on the amount of Rio Tinto's
investment and, subject to shareholder approval, can be paid by way of the
issue of ordinary shares to SCP, with 2,492,868 shares being issuable to SCP
based on Rio Tinto's initial subscription. The Company has agreed, subject to
Shareholder approval, to issue a further 439,918 Shares to Rio Tinto at the
subscription price of A$0.486 per Share upon the issue of shares to SCP. The
Company will call a general meeting, to be held in late August/early September
2023 to obtain these shareholder approvals. A notice of meeting (and
explanatory statement) will be sent out to shareholders in early August 2023.

Admission

Application to AIM will be made for the 83,095,592 Shares to be admitted to
trading on AIM (the "AIM Admission"). It is expected that AIM Admission will
take place and dealings will commence on AIM on or around 8.00 a.m. on 24
July 2023.

Total Voting Rights

Immediately following the AIM Admission, the Company's issued share capital
will be 553,970,615 Shares, with each share carrying the right to one vote.
The Company does not hold any Ordinary Shares in treasury. The total voting
rights figure immediately following the AIM Admission of 553,970,615 may be
used by shareholders (and others with notification obligations) as the
denominator for the calculations by which they will determine whether they are
required to notify their interest in, or a change to their interest in, the
Company under the Disclosure Guidance and Transparency Rules.

The information contained within this announcement is deemed by Sovereign to
constitute inside information as stipulated under the Regulation 2014/596/EU
which is part of domestic law pursuant to the Market Abuse (Amendment) (EU
Exit) Regulations (SI 2019/310) ("UK MAR"). By the publication of this
announcement via a Regulatory Information Service, this inside information (as
defined in UK MAR) is now considered to be in the public domain. The person
responsible for arranging for the release of this announcement on behalf of
Sovereign is Mr Dylan Browne (Company Secretary).

ABOUT KASIYA

Kasiya, located in central Malawi, is the largest natural rutile deposit and
one of the largest flake graphite deposits in the world. Sovereign is aiming
to develop a sustainable operation to supply highly sought-after natural
rutile and graphite to global markets.

An Expanded Scoping Study (ESS) released in June 2022 by the Company confirmed
Kasiya as potentially one of the world's largest and lowest cost producers of
natural rutile and natural graphite with a global warming potential
substantially lower than other existing and planned operations.

The Company is in the advanced stages of a Pre-feasibility Study (PFS) for
Kasiya which will build on the on the ESS. The Company expects to announce the
outcomes of the PFS in the coming months.

Forward Looking Statement

This release may include forward-looking statements, which may be identified
by words such as "expects", "anticipates", "believes", "projects", "plans",
and similar expressions. These forward-looking statements are based on
Sovereign's expectations and beliefs concerning future events. Forward looking
statements are necessarily subject to risks, uncertainties and other factors,
many of which are outside the control of Sovereign, which could cause actual
results to differ materially from such statements. There can be no assurance
that forward-looking statements will prove to be correct. Sovereign makes no
undertaking to subsequently update or revise the forward-looking statements
made in this release, to reflect the circumstances or events after the date of
that release.

 

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