Anglo-Australian mining company Rio Tinto is set to obtain 15% stake in Sovereign Metals, which owns Kasiya Rutile-Graphite project in Malawi, in exchange for A$40.4m ($27.5m).
Under the terms of the deal, Rio Tinto will initially purchase 83,095,592 new fully paid ordinary shares in Sovereign at a price of A$0.486 per Share for aggregate proceeds of A$40.4m.
The share price is 10% premium to the 45-day volume weighted average price on 14 July 2023.
Also, Rio Tinto holds an option to acquire additional 34,549,598 shares in Sovereign, within 12 months of the initial subscription, which brings its shareholding to increase up to 19.99%.
Sovereign intends to use the proceeds to fund the development of Kasiya project, including advancing a Definitive Feasibility Study (DFS).
The DFS will focus on development of a low-CO2-footprint mine capable of supplying to the titanium pigment, titanium metal and lithium- ion battery industries.
Sovereign chairman Ben Stoifiovich said: “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.
“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.”
In addition to the share purchase, Sovereign and Rio Tinto have also signed an Investment Agreement, which is initial issuance of shares to Rio Tinto time and ownership thresholds.
Pursuant to the agreement, Sovereign and Rio Tinto will negotiate the financing arrangements that facilitate an acceptable mine construction funding package.
Both the companies will work together to qualify Kasiya’s graphite product with a focus on supplying the spherical purified graphite segment of the lithium-ion battery anode market.
Rio Tinto can choose to become the operator of Kasiya, under certain commercial terms.
During its operatorship, Rio Tinto shall have exclusive rights to market 40% of the annual production of all products from the project, as identified in the DFS.
Furthermore, Rio Tinto can appoint a director or an observer to the board of the company, appoint one of its General Managers and three members to the project’s technical committee.
SCP Resource Finance (SCP) served as financial advisor, and Thomson Geer and Simmons & Simmons as legal counsel to Sovereign, on this transaction.
