Rio Tinto invests $40.4m in Sovereign Metals to secure stake in Malawi rutile-graphite project

Rio Tinto (ASX: RIO) is backing what is claimed to be the biggest source of rutile ever discovered by investing $40.4 million to give the global miner an “initial” 15% stake in Sovereign Metals (ASX: SVM), owner of the Kasiya project in Malawi.

In addition, options issued as part of the deal will allow Rio to move to 19.99% of Sovereign within 12 months.

The money will be used by Sovereign to push on with its Kasiya rutile-graphite project in the southern African republic.

This is another sign that Rio Tinto is seeking to build its footprint in the critical minerals area, having seen its lithium plans delayed by the Serbian government refusing to issue the London-based company with licences to develop the Jadar deposit in the Balkans nation.

Notably, the agreement with Sovereign Metals provides for Rio to become the operator of Kasiya

Rutile supply ‘genuinely scarce’

Apart from being one of the largest flake graphite deposits in the world with a contained 23.4 million tonnes of that commodity, Kasiya is the globe’s single largest rutile deposit with a contained 18Mt, enough for 50 years’ supply.

Sovereign, in its most recent presentation, said the natural rutile market is completely constrained and is “a genuinely scarce commodity”.

Its uses include being a feedstock for titanium dioxide pigments, welding flux and titanium metal.

There have been no other major discoveries in the past 50 years, the company notes.

Moreover, there is no pipeline containing other significant projects.

Rio deal will focus on graphite for batteries

Under the agreement, Rio Tinto will provide advice on technical and marketing matters regarding Kasiya, with a primary focus on spherical purified graphite for the lithium-ion battery anode market.

Some 83.1 million shares will be issued to Rio at $0.486 per share, along with 34.5 million options.

The options have an exercise price of $0.535 per share.

Sovereign chairman Ben Stoikovich described the deal as a “landmark”.

“The experience and expertise that Rio Tinto brings will truly set Kasiya apart as a potentially globally significant supply of two critical minerals,” he added.

“This is yet another step forward towards unlocking significant benefits from development of the Kasiya deposit.”

Rio has right to become operator

Rio Tinto will be involved in further debt financing and the global miner will have the option to become the operator of Kasiya on commercial arms=length terms.

It will also have first refusal rights on any future capital raisings apart from shareholder entitlement offers.

Moreover, Rio when operator will also have exclusive marketing rights to 40% of all Kasiya’s production.