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Sovereign Metals: Malingunde PFS Delivers Lowest Operating Cost Coarse Flake Graphite Project Globally

Sovereign Metals Limited (“the Company” or “Sovereign”) is pleased to announce the Pre-Feasibility Study (“PFS”) for the Company’s Malingunde Saprolite-Hosted Graphite Project (“Malingunde Project” or “the Project”) in Malawi. The PFS shows the Project’s low capital and very low operating costs are at the bottom of the graphite supply cost-curve at a scale appropriate for the current market.

The PFS confirms Malingunde’s world-class status based on the following:

-         Maiden Ore Reserve declared: high grade Reserve with 32% in the Proven and 68% in the Probable categories. PFS based 100% on Reserves.

-         Extremely low operating costs: due to the advantages of the soft saprolite-hosted deposit.

-          US$323/t concentrate (FOB) LoM average, moving to as low as US$284/t after year 7.

-          Mine gate LoM average US$257/t moving to as low as US$218/t after year 7.

-         Low technical risk: free-dig mining, low strip ratio with simple, proven process flowsheet.

-         High-quality concentrates: sales targeted to traditional industrial sector (refractories, foundries, expandables) as well as the emerging Li-ion battery sector.

-         Substantial upside: huge scalability and expansion opportunities.

Sovereign’s Managing Director, Dr Julian Stephens, said “We believe Malingunde is the world’s best flake graphite project. The high-grade, soft, free-dig saprolite-hosted ore, requiring no primary crush or grind combined with a simple and proven flowsheet results in low capital intensity and extremely low operating costs. Malingunde is an unparalleled, low technical risk, high margin project that provides significant cashflows with substantial upside scalability into a growing graphite market.”

ENQUIRIES    

Dr Julian Stephens – Managing Director

Sam Cordin – Business Development Manager

+618 9322 6322  

Extremely Low Operating & Low Capital Costs, High Margins

-        Average LOM (“life of mine”) operating costs of US$323/t concentrate FOB with long-term, steady-state operating costs averaging as low as US$284/t FOB (year 7 to end LoM).

-        High quality product with ~60% +150µm, 96-98% TGC commanding high revenues.

-        Total capital cost of US$49 million including contingency of US$5m.

-        NPV of US$201m pre-tax, using conservative long-term average basket pricing assumption of US$1,216 per tonne of concentrate.

-        Average EBITDA over US$42m per annum over LoM.

-        Payback: 3.0 years from start of production.

Excellent Existing Infrastructure

-        Recently refurbished rail line to Nacala Port: MOU signed with rail concessionaire - drafting of full transport agreement currently underway.

-        High quality existing road network to site: mostly bitumen with ~10km all-weather gravel road.

-        10km from planned Bunda electricity sub-station, 44km from new Nkhoma sub-station: grid power provision slated for 2024.

Strong Relationships and Partnerships

-        Project located in the mining friendly jurisdiction of Malawi. Strong government and community support with long standing relationships.

-        Rail and port export logistics partnership with CEAR (controlled by Vale and Mitsui).

-        Well advanced sales negotiations with numerous Tier 1 and other high quality off-take parties across a number of industrial sectors and global locations.

Commentary

Sovereign’s 100%-owned Malingunde saprolite-hosted graphite project is a globally significant, coarse flake graphite development. It represents a high quality potential future mining operation producing premium quality natural graphite products. The PFS demonstrates extremely low operating and low capital costs providing excellent margins. The compelling economic estimates can be attributed to the deposit being hosted entirely by soft saprolite material, its high grade at 9.5% TGC and the excellent infrastructure availability.

Soft-saprolite hosted graphite deposits are sought after as they have distinct operating and capital cost advantages over hard-rock deposits. Currently operating saprolite-hosted flake graphite mines are located in Madagascar, however these are mostly small and low grade (typically 4-6% TGC). Malingunde is rare in that it is the world’s largest reported saprolite-hosted flake graphite deposit and also has a high-grade ore reserve at 9.5% TGC.

The PFS shows that Malingunde offers a technically and economically robust, low risk pathway to production of premium quality, coarse flake graphite concentrates. The significant cost savings, compared to hard-rock peers, are realised by the soft, free dig nature of the mineralisation and low strip ratios, with no requirement for primary crushing or grinding in the processing plant. Additionally, the project is located just 20km from Lilongwe, the capital of Malawi, which brings with it access to important infrastructure including rail and grid power.

Figure 1: The Saprolite Advantage

TABLE 1 - KEY PROJECT METRICS

Notes:

1. LoM operating cost: cost per tonne including mining, processing, G&A and transportation.

EXTREMELY LOW, FIRST QUARTILE CASH OPERATING COSTS

The Malingunde PFS estimates operating costs of approximately US$323 per tonne concentrate free on board (“FOB”), or US$257 at mine gate (“MG”), for its high quality graphite concentrates at a production rate averaging 52,000 tonnes per annum over the life of mine. Additionally, estimated long term average costs move to just US$284 FOB or US$218 MG after year 7. The project has the lowest estimated unit operating cost of the current and future listed graphite development pipeline, at a reasonable scale that can easily be placed into existing traditional markets and the growing battery supply chain.

Figure 2: Operating cost per tonne of graphite concentrate versus selected ASX & TSX-listed peer companies.

LOW CAPITAL COSTS

The results of the PFS demonstrate low overall capital requirements and low capital intensity. This allows rapid payback of development capital, even in low global graphite pricing scenarios. This is a significant advantage in terms of seeking potential offtake partners and financing for development.

Figure 3: Capital intensity versus selected, listed peer projects.

LOW COST, HIGH MARGIN OPERATION AT MARKETABLE SCALE

Sovereign is in a unique position of being able to target profitable production of graphite without relying on extreme size to achieve economies of scale, or assuming optimistic product pricing scenarios.

The Company has taken a deliberately conservative view for its base-case PFS scenario on graphite pricing. Using these assumptions, the PFS shows high operating margins and significant cash generation. Importantly, downside pricing scenarios also show good margins and short payback periods, meaning the project is profitable even in extremely low global graphite market pricing conditions.

The combination of very low operating cost, low capital cost and high quality, high value concentrates allows Sovereign to focus on entry into existing primary end-markets, including refractories and foundries. The low-cost profile of the Malingunde Project means it is able to compete on price point with China, the world’s largest supplier and consumer of natural flake graphite.

The Project is also exposed to the strongly emerging Lithium-ion battery market with significant forecasted upside. Recent test-work demonstrated very high purity (“five nines” +99.999% C) graphite is easily achievable, facilitating future entry into the lithium-ion battery supply chain and other high-tech, emerging industries.

Figure 4: Production scale, operating costs and capital costs of key undeveloped graphite projects.

To view the entire original news including all tables and appendices, please follow the link:

https://www.asx.com.au/asxpdf/20181107/pdf/44028jwmjqmqz0.pdf