SOVEREIGN METALS LIMITED

NEWS RELEASE

KASIYA SCOPING STUDY CONFIRMS GLOBALLY SIGNIFICANT NATURAL RUTILE PROJECT

Sovereign Metals Limited (the Company or Sovereign) is pleased to announce the results of the initial scoping study (Scoping Study or Study) for the Company's Kasiya Rutile Project (Kasiya or the Project) in Malawi.

HIGHLIGHTS

The Scoping Study confirms Kasiya as a globally significant natural rutile project. Kasiya is the largest undeveloped rutile deposit in the world and therefore is highly strategic in a market characterised by extreme supply deficit.

This initial Scoping Study develops the concept for a multi-decade mine providing a stable supply of a highly sought-after rutile (TiO₂) and graphite whilst contributing significantly to the economy of Malawi.

Exceptional Economics

•    Scoping Study demonstrates globally significant & strategic project with low capital costs & high returns

•    Positioned as one of the world's best undeveloped titanium minerals projects

Positioned for growth

•    The life-of-mine inventory covers just 38% of the drill defined mineralised footprint

•    Substantial additional resource growth expected in early 2022 to enable the Study to be enhanced

Sustainable and ESG Driven

•    Significant contribution to Malawi via fiscal returns, employment, training & social development

•    Low carbon footprint operation - hydro & solar power supply

Critical raw materials reducing carbon emissions

•    Low carbon - natural rutile can displace carbon, energy & waste intensive alternatives

•    Graphite is a major mineral required for lithium-ion batteries for electric vehicles which are key components required for the clean energy transition

Rutile market in structural supply deficit

•    Current supply declining with very limited additional production in the pipeline

•    The current severe structural supply deficit in natural rutile is forecast to continue to widen in the medium & long term

Strong relationships

•    Significant support from the government of Malawi for the development of Kasiya

•    Highly supportive community to benefit from project development

•    Establishing relationships with off-takers with significant interest already received

EXCEPTIONAL ECONOMICS

The Scoping Study demonstrates Kasiya as a globally significant natural rutile project with exceptional economics, including low capital and operating costs, resulting in a high margin operation.

Managing Director, Julian Stephens

"To have achieved this fantastic Scoping Study milestone for the Kasiya Rutile Project within just 20 months of the initial discovery is a huge result for Sovereign and a testament to the dedication and hard work of our Malawi and Australia-based team.

The Kasiya Rutile Project is the largest undeveloped natural rutile resource in the world and is therefore highly strategic in an environment of severe global supply deficit.

We believe that Kasiya is also just the beginning of the story in the new Central Malawi Rutile Province. We will expand our resource significantly early next year with the addition of the Nsaru Rutile Deposit and potentially other regional prospects.

The project benefits from world-class existing infrastructure and natural ESG advantages. Natural rutile has a far lower carbon footprint compared to other titanium feedstocks used in the pigment industry, and the vast majority of power will be supplied by renewable hydro and solar. Furthermore, natural graphite is a significant component in lithium-ion batteries and is an important mineral underpinning the energy transition.

The future development of the Kasiya Rutile Project will bring substantial benefits to Malawi in terms of GDP, royalties, taxes, employment and training, local business opportunities and community development."

ENQUIRIES

To view the announcement in full including all illustrations and figures, please refer to the full announcement at http://sovereignmetals.com.au/announcements/.

OVERVIEW

Sovereign is aiming to develop an environmentally and socially sustainable operation to supply highly sought-after natural rutile and graphite to global markets.

The proposed large-scale operation will process soft, friable mineralisation mined from surface. The Project has excellent surrounding infrastructure including bitumen roads, a high-quality rail line connecting to the deep-water of Nacala on the Indian Ocean and hydro-sourced grid power.

The operation will primarily employ conventional hydro-mining to produce a slurry that is pumped to a Wet Concentration Plant (WCP) where the material is sized. A Heavy Mineral Concentrate (HMC) is produced via processing the sand fraction through a series of gravity spirals. The HMC is transferred to the dry Mineral Separation Plant (MSP) where premium quality rutile is produced via electrostatic and magnetic separation.

Graphite rich concentrate is collected from the gravity spirals and processed in a separate graphite flotation plant, producing a coarse-flake graphite product.

The rutile and graphite products will be trucked a short distance via existing bitumen roads to the Kanengo rail terminal from where they will be railed via the Nacala Logistics Corridor (NLC) to the deep-water port of Nacala on the eastern seaboard of Mozambique.

LOW-COST OPERATION

Kasiya's low costs are achieved through deposit size and grade, location and infrastructure. Central Malawi boasts excellent existing infrastructure including hydropower and an extensive sealed road network. The Kasiya Rutile Project is strategically located in close proximity to the capital city of Lilongwe, providing access to a skilled workforce and industrial services.

The existing quality logistics route to the Indian Ocean deep-water port of Nacala, via the NLC, for the export of products to global markets provides significant capital cost savings compared to many other undeveloped projects.

The soft, friable and high-grade mineralisation occurring from surface results in no waste stripping requirement and the amenability to hydro-mining means the mining cost component is kept relatively low.

The revenue-to-cash cost ratio of 2.8x and the average annual revenue to capital cost ratio positions Kasiya in the first quartile compared to other undeveloped mineral sands operations.

POSITIONED FOR GROWTH 

The current mining inventory for the Scoping Study covers only 49km² or 38% of the total drill-defined area of high-grade rutile mineralisation of 129km². The Company expects to be able to materially increase the overall Mineral Resource Estimate (MRE) tonnage in early 2022 which will enable the Study options to be reviewed in terms of potential for scale ups or mine life extensions beyond the current 25 years.

The objective of this Study was to provide an initial technically validated concept that will be scalable in future. Through the Study process, a number of opportunities and options were identified to enable potential increases in production rates via additional mining units, plant modifications or modular additions.

SUSTAINABLE AND ESG DRIVEN

Sustainability is a vital element of Sovereign's strategy for Kasiya. The Company is committed to making informed choices that improve our corporate governance, financial strength, operational efficiency, environmental stewardship, community engagement and resource management.

The Project aims to meet the requirements of international guidelines and standards, including the IFC Performance Standards on Environmental and Social Sustainability (IFC, 2012), the World Bank Group Environmental, Health and Safety Guidelines (WBG, 2007), the Equator Principles (Equator Principles Association, 2020) and the International Council on Mining & Metals (ICMM) principles for future studies and development phases of the Kasiya project.

The Kasiya project will be designed considering both the Equator Principles and Scope 1, 2 and 3 emissions under the Green House Gas protocol so that the design meets high standards for ESG from the outset. Access to hydro-generated grid power and a solar power system to be installed on site will ensure low carbon power supply for the project and the use of predominantly rail rather than road transport for rutile and graphite products will further help give the mine a low carbon footprint.

The Scoping Study contemplates that the operation will use a closed circuit zero discharge process water circuit and a tailings storage facility designed to store chemically benign tailings during operations which will be rehabilitated and restored progressively.

CRITICAL MINERAL IN SUPPLY DEFICIT

Natural rutile is a genuinely scarce commodity with no other large rutile dominant deposits having been discovered in the last half century.

Current sources of natural rutile are in decline as several operations' reserves are depleting concurrently with declining ore grades. These include Iluka Resources' (Iluka) Sierra Rutile and Base Resources' Kwale operations in Kenya. Recent announcements by Iluka advising of the potential suspension of operations at Sierra Rutile may cause significant additional product to be removed from the market in the near to medium term. Additionally, there are limited new deposits forecast to come online, and hence supply of natural rutile is likely to remain in structural deficit.  

LOW CARBON ADVANTAGE

Like many other industries globally, the titanium dioxide pigment industry is targeting reduced carbon emissions, reduced energy consumption and a move toward renewable energy and waste minimisation.

Natural rutile (+95% TiO₂) is the cleanest, purest natural form of titanium dioxide. However, due to natural rutile's scarcity, the principal source mineral for titanium has been ilmenite (~50% TiO₂). Ilmenite requires energy and carbon intensive upgrading for use as titanium pigment feedstock. Conversely, natural rutile requires no upgrading once mined and processed, resulting in zero additional CO₂ emissions. For each tonne of natural rutile utilised up to 2.8 tonnes CO₂ eq. could be saved compared to the upgrading/beneficiation of ilmenite, via smelting and chemical processes, to high-grade titanium feedstocks like titania slag and synthetic rutile.

A shift towards a greater percentage of natural rutile feedstock offers the titanium pigment industry a simple and short lead-time opportunity to significantly lower its carbon intensity and total environmental impact.

STRONG RELATIONSHIPS

A key to successful development of Kasiya will be the continuity of our 10+ year strong relationships with key stakeholders including the Government of Malawi and local communities.

Supportive Government

The Government of Malawi (GoM) actively encourages foreign investment into its mining industry and provides a stable climate for investors. The GoM, through The Honourable Minister of Mining Mr Rashid Gaffar, has stated its full support for the Company's efforts to develop the Kasiya Rutile Project.

Malawi has taken significant action to provide an attractive environment for investors in its mining industry, recently joining the Extractive Industries Transparency Initiative (EITI). The EITI is a global standard for the good governance of oil, gas and mineral resources and provides accountability and transparency around mining and petroleum revenues.

Communities & Employment

Sovereign conducts significant and regular community engagement activities with a number of initiatives completed and underway. Development of Kasiya will have a positive impact on local communities by providing approximately 480 jobs during operations, training, and support for locally-owned businesses.

The Company has successfully worked with communities in Malawi over the last decade and will work with the communities at Kasiya on infrastructure, local business support, water provision, healthcare, education and training.

Sovereign is an equal opportunity employer with a gender diverse workforce. Currently, 60% of Sovereign's professional Malawian staff and at least 50% of our regular interns are women.

EXISTING EXCELLENT LOGISTICS INFRASTRUCTURE

Kasiya will directly benefit from the exceptional existing infrastructure in central Malawi. This offers the preferred logistics route to the Nacala deep water port via the NLC for the export of natural rutile and graphite. All infrastructure is in place to connect Kasiya to global markets:

·      A Class-1 bitumen sealed road network runs through the project area

·      The fully operational rail of the NLC located just 15km from Kasiya

·      NLC connects to the under-utilised deep-water port of Nacala on the Indian Ocean

·      Grid infrastructure to deliver hydro power to the operation from sub-station at the capital, Lilongwe

Access to this existing infrastructure and logistical solutions significantly reduces capital and operating costs for the Kasiya project. Total logistics cost from mine gate to FOB Nacala is estimated to be US$50.85/t.

NEXT STEPS

The Company is targeting a number of significant milestones over the next two quarters which include;

·    Updated MRE with substantial growth of the Indicated and Inferred JORC MRE base expected including addition of the Nsaru deposit

·    Revised Life Cycle Assessment (LCA) based on the Scoping Study results to quantify the environmental impacts with a specific focus on carbon footprint

·      Scoping Study update based on the expected new resource base planned for mid-2022

·    Continued product marketing and potential execution of Memorandum of Understandings (MoU(s)) with future rutile off-takers

·      Commencement of ESIA field data collection and commencement of community engagement activities

Following the completion of the above, Sovereign will commence a pre-feasibility study (PFS) on Kasiya-Nsaru to realise the true potential of this very large rutile project.

In parallel to the technical study developments on the Company's projects, significant exploration will continue, with programs including;

·      Infill drilling at Kasiya-Nsaru to increase MRE confidence and upgrade MRE categories

·      Deeper air-core drilling at Kasiya-Nsaru targeting the NE-striking, higher-grade zones to depths of ~25m below surface

·      Air-core drilling targeting an initial MRE for the Bua Channel - a traditional placer deposit just 10km north-east of Kasiya

·    Regional reconnaissance drilling targeting additional Kasiya-like saprolite-hosted rutile mineralisation

KEY SCOPING STUDY OUTCOMES

The Scoping Study demonstrates an economically robust natural rutile project with the following key metrics:

DISCLOSURES & DISCLAIMERS

Scoping Study Parameters - Cautionary Statements

The Scoping Study referred to in this announcement has been undertaken to determine the potential viability of an open pit mine, rutile and graphite processing plant constructed onsite at the Kasiya project in Malawi and to reach a decision to proceed with more definitive studies. The Scoping Study has been prepared to an accuracy level of ±30%. The results should not be considered a profit forecast or production forecast.

The Scoping Study is a preliminary technical and economic study of the potential viability of the Kasiya project. In accordance with the ASX Listing Rules, the Company advises it is based on low-level technical and economic assessments that are not sufficient to support the estimation of ore reserves. Further evaluation work including infill drilling and appropriate studies are required before Sovereign will be able to estimate any ore reserves or to provide any assurance of an economic development case.

Approximately 60% of the total production target is in the Indicated Mineral Resource category with 40% in the Inferred Mineral Resource category. Approximately 100% of the scheduled throughput over the first six years of production is in the Indicated Mineral Resource category, with 0% in the Inferred Mineral Resource category. The Company has concluded that it has reasonable grounds for disclosing a production target which includes a modest amount of Inferred material. However, there is a low level of geological confidence associated with Inferred mineral resources and there is no certainty that further exploration work (including infill drilling) on the Kasiya deposit will result in the determination of additional Indicated Mineral Resources or that the production target itself will be realised.

The Scoping Study is based on the material assumptions outlined elsewhere in this announcement. These include assumptions about the availability of funding. While Sovereign considers all the material assumptions to be based on reasonable grounds, there is no certainty that they will prove to be correct or that the range of outcomes indicated by the Scoping Study will be achieved.

To achieve the range outcomes indicated in the Scoping Study, additional funding will likely be required. Investors should note that there is no certainty that Sovereign will be able to raise funding when needed. It is also possible that such funding may only be available on terms that dilute or otherwise affect the value of the Sovereign's existing shares. It is also possible that Sovereign could pursue other 'value realisation' strategies such as sale, partial sale, or joint venture of the Project. If it does, this could materially reduce Sovereign's proportionate ownership of the Project.

The Company has concluded it has a reasonable basis for providing the forward looking statements included in this announcement and believes that it has a reasonable basis to expect it will be able to fund the development of the Project. Given the uncertainties involved, investors should not make any investment decisions based solely on the results of the Scoping Study.

Competent Person Statements

The information in this announcement that relates to Production Targets is based on and fairly represents information provided by Mr Ryan Locke, a Competent Person, who is a Member of The Australasian Institute of Mining and Metallurgy. Mr Locke is employed by Orelogy Group Pty Ltd, an independent consulting company. Mr Locke has sufficient experience, which is relevant to the style of mineralisation and type of deposit under consideration, and to the activity he is undertaking, to qualify as a Competent Person as defined in the 2012 Edition of the 'Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves'. Mr Locke consents to the inclusion in the Announcement of the matters based on his information in the form and context in which it appears.

The information in this announcement that relates to Processing, Infrastructure and Capital and Operating Costs is based on and fairly represents information compiled or reviewed by Mr Matthew Langridge, a Competent Person, who is a Fellow Member of The Australasian Institute of Mining and Metallurgy. Mr Langridge is employed by DRA Global Ltd, an independent consulting company. Mr Langridge has sufficient experience that is relevant to the style of mineralisation and type of deposit under consideration and to the activities undertaken. Mr Langridge, consents to the inclusion in the Announcement of the matters based on his information in the form and context in which it appears.

The information in this announcement that relates to Metallurgy - rutile is based on and fairly represents information compiled or reviewed by Mr Paul Marcos, a Competent Person, who is a Fellow Member of The Australasian Institute of Mining and Metallurgy. Mr Marcos is an employee of Sovereign and a holder of performance rights in Sovereign. Mr Marcos has sufficient experience that is relevant to the style of mineralisation and type of deposit under consideration and to the activity being undertaken, to qualify as a Competent Person as defined in the 2012 Edition of the 'Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves'. Mr Marcos consents to the inclusion in the report of the matters based on his information in the form and context in which it appears.

The information in this announcement that relates to Metallurgy - graphite is based on and fairly represents information compiled or reviewed by Mr Russell Bradford, a Competent Person, who is a Fellow Member of The Australasian Institute of Mining and Metallurgy. Mr Bradford is employed by Jem-Met Pty Ltd, an independent consulting company. Mr Bradford has sufficient experience that is relevant to the style of mineralisation and type of deposit under consideration and to the activities undertaken. Mr Bradford consents to the inclusion in the Announcement of the matters based on his information in the form and context in which it appears.

The information in this announcement that relates to Exploration Results is extracted from the announcements dated 26 May 2020 to 22 November 2021. The announcements are available to view on www.sovereignmetals.com.au. Sovereign confirms that a) it is not aware of any new information or data that materially affects the information included in the announcements; b) all material assumptions included in the announcement continue to apply and have not materially changed; and c) the form and context in which the relevant Competent Persons' findings are presented in this report have not been materially changed from the announcements.

The information in this announcement that relates to the Mineral Resource Estimate is extracted from the announcement dated 16 December 2021. The announcement is available to view on www.sovereignmetals.com.au. Sovereign confirms that a) it is not aware of any new information or data that materially affects the information included in the announcement; b) all material assumptions included in the announcement continue to apply and have not materially changed; and c) the form and context in which the relevant Competent Persons' findings are presented in this report have not been materially changed from the announcement.

Information disclosed in this announcement has been reviewed by Dr Julian Stephens (B.Sc (Hons), PhD, MAIG), Managing Director, a Qualified Person for the purposes of the AIM Rules for Companies.

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.

Further Important Information for this Announcement

This Study has been prepared and reported in accordance with the requirements of the JORC Code (2012) and relevant ASX Listing Rules.

The Study has been prepared to an accuracy level of ±30%. The primary purpose of the Study is to establish whether or not to proceed to the next stage of feasibility studies. The Study results should not be considered a profit forecast or production forecast. As defined by the JORC Code, a "Scoping Study is an order of magnitude technical and economic study of the potential viability of Mineral Resources. It includes appropriate assessments of realistic assumed Modifying Factors together with any other relevant operational factors that are necessary to demonstrate at the time of reporting that progress to a Pre-Feasibility Study can be justified."

The Modifying Factors included in the JORC Code have been assessed as part of the Study, including mining, processing, infrastructure, economic, marketing, legal, environmental, social and government factors. The Company has received advice from appropriate experts when assessing each Modifying Factor.

Following an assessment of the results of the Study, the Company has formed the view that the next stage of feasibility studies is justified for Kasiya. Feasibility Studies will provide the Company with far more comprehensive assessment of a range of options for the technical and economic viability of Kasiya which by international standards should be sufficient detail for project development financers to base an investment decision.

The Company has concluded it has a reasonable basis for providing any of the forward-looking statements included in this announcement and believes that it has a reasonable basis to expect that the Company will be able to fund its stated objective of completing feasibility studies for Kasiya. All material assumptions on which the forecast financial information is based are set out in this announcement.

SUMMARY OF MATERIAL ASSUMPTIONS

Material assumptions used in the estimation of the production target and associated financial information are set out in the following table.

MODIFYING FACTORS

The Modifying Factors included in the JORC Code (2012) have been assessed as part of the Scoping Study, including mining, processing, metallurgical, infrastructure, economic, marketing, legal, environmental, social and government factors. The Company has received advice from appropriate experts when assessing each Modifying Factor.

A summary assessment of each relevant Modifying Factor is provided below.

Mining - refer to section entitled 'Mining' in the full Scoping Study Announcement located at http://sovereignmetals.com.au/announcements/.

The Company engaged independent consultants Orelogy Mining Consultants Pty Ltd and Fraser Alexander to carry out the pit optimisations, mine design, scheduling and mining cost estimation for the Kasiya Scoping Study. The proposed mining method is hydro mining with minor dozer assistance. This is considered appropriate for this style of shallow, saprolite-hosted rutile and graphite mineralisation. This methodology is used across numerous mineral sands operations, particularly in Africa, and is well suited for this style of mineralisation.

Approximately 60% of the total production target is in the Indicated resource category with 40% in the Inferred resource category. 100% of the scheduled throughput over the first six years of production is in the Indicated category, with 0% in the Inferred category - the payback period for the Project is 2.5 years from the start of operations. The Company has concluded that it has reasonable grounds for disclosing a production target which includes a modest amount of Inferred material. However, there is a low level of geological confidence associated with Inferred mineral resources and there is no certainty that further exploration work (including infill drilling) on the Kasiya deposit will result in the determination of additional Indicated mineral resources or that the production target itself will be realised.

In the unlikely event that the remaining Inferred resources are not able to be upgraded, a stand-alone discounted cash flow (DCF) analysis using only Indicated resources in the mine plan does not affect the economic viability of the Project.

Metallurgy and Processing - refer to section entitled 'Metallurgy and Process Design' in the full Scoping Study Announcement located at http://sovereignmetals.com.au/announcements/.

Rutile

The Company completed bulk rutile test-work programs at the globally recognised Allied Mineral Laboratories (AML) in Perth, Australia. The latest program was supervised by Sovereign's Head of Development, Paul Marcos. Mr Marcos is a metallurgist and mineral sands veteran. Bulk test-work programs have confirmed premium grade rutile can be produced via a simple and conventional process flow sheet.

Processing engineering was completed by DRA Global who developed the process plant design and associated cost estimate for the Scoping Study. An average product grade of 96% TiO₂ and average recovery of 97% for rutile has been applied in the Scoping Study.

Graphite

The Company engaged veteran graphite metallurgist Oliver Peters, MSc, P.Eng., MBA (Consulting Metallurgist for SGS and Principal Metallurgist of Metpro Management Inc.) to complete initial test-work for graphite recovery. Mr Peters has over 25 years' experience in metallurgy on graphite and other commodities. He has operated numerous graphite pilot plants and commissioned a number of full-scale processing facilities. Mr Peters has developed the process flowsheet employed for the Malingunde PFS which has been largely adopted for this Study. DRA's Senior Engineer, Stewart Calder considers this appropriate based on the similarities of the material and the early stage of the project.

Processing engineering was completed by DRA Global who developed the process plant design and associated cost estimates for the Scoping Study. Overall average graphite recovery applied was 62% with gravity tails recovery being 74% and flotation plant recovery being 84%. Overall concentrate grades average 96% C(t) with 60% of graphite flakes larger than 180µm.

Rutile & Graphite

It is acknowledged that laboratory scale test-work will not always represent actual results achieved from a production plant in terms of grade, chemistry, sizing and recovery. Further test-work will be required to gain additional confidence of specifications and recoveries that will be achieved at full-scale production.

Overall, the process is conventional for both rutile and graphite with no novel features or equipment incorporated.

Infrastructure - refer to section entitled 'Infrastructure' in the full Scoping Study Announcement located at http://sovereignmetals.com.au/announcements/.

Kasiya is located approximately 40km north west of Lilongwe, Malawi's capital, and boasts excellent access to services and infrastructure. The site is serviced by a dual lane, sealed bitumen road that links to Lilongwe and the underutilised operational intermodal rail siding at Kanengo.

The proximity to Lilongwe gives the project a number of benefits, including access to a large pool of professionals and skilled tradespeople. This removes the requirement for site accommodation during the mining phase.

The Company appointed JCM Power (JCM) to design a preliminary Independent Power Producer (IPP) solution for Kasiya. JCM is a Canada-headquartered Independent Power Producer (IPP) which develops, constructs, owns and operates renewable energy and storage projects in emerging markets across the globe. JCM provided an estimated, levelized cost of energy (LOCE) on a Power Purchase Agreement (PPA).

Transport cost estimates were provided by Morgan Sterling Consultants (MSC) based on market data, suppliers' quotations, industry databases, industry contacts and MSC's existing knowledge of southern African transport infrastructure and freight markets. MSC is an independent consultant with substantial experience in the management of transport logistics studies in southern Africa.

Marketing - refer to sections entitled 'Marketing Strategy' in the full Scoping Study Announcement located at http://sovereignmetals.com.au/announcements/.

Rutile

The Company engaged market leading TZMI to provide a bespoke marketing report to support the Scoping Study. TZMI is a global, independent consulting and publishing company which specialises in technical, strategic and commercial analyses of the opaque (non-terminal market) mineral, chemical and metal sectors.

TZMI's assessment has confirmed that, based upon their high-level view on global demand and supply forecasts for natural rutile, and with reference to the specific attributes of Kasiya, there is a reasonable expectation that the product will be able to be sold into existing and future rutile markets.

Given the premium specifications of Kasiya, the product should be suitable for all major natural end-use markets including TiO₂ pigment feedstock, titanium metal and welding sectors.

Graphite

The Company engaged Fastmarkets, a specialist international publisher and information provider for the global steel, non-ferrous and industrial minerals markets, to prepare a marketing report for graphite.

Fastmarkets' assessment has confirmed that based upon their high-level view on global demand and supply forecasts for natural flake graphite, and with reference to the specific attributes of Sovereign's projects, there is a reasonable expectation that the product from Sovereign's projects will be able to be sold into existing and future graphite markets. Given the extremely low-cost profile and high-quality product, it is expected that output from Kasiya will be able to fill new demand or substitute existing lower quality / higher cost supply.

Project considerations taken by Fastmarkets in forming an opinion about the marketability of product include:

-          Modest production target

-          Low capital costs

-          Low operating costs

-          High quality concentrate specifications

Industry participants confirm that the highest value graphite concentrates remain the large, jumbo and super-jumbo flake fractions, primarily used in industrial applications such as refractories, foundries and expandable products. These sectors currently make up the significant majority of total global natural flake graphite market by value.

Fastmarkets have formed their opinion based solely upon project information provided by Sovereign Metals to Fastmarkets and have not conducted any independent analysis or due diligence on the information provided.

Economic - also refer to sections entitled 'Cost Estimations' and 'Financial & Economic Analysis' in the full Scoping Study Announcement located at http://sovereignmetals.com.au/announcements/.

Capital estimates for the procress plant have been prepared by DRA, together with input from the Company and other contributing consultants using combinations of cost estimates from suppliers, historical data, benchmarks and other independent sources. The intended accuracy of the capital cost estimate for the Project is ±30%.

Capital costs include the cost of all services, direct costs, contractor indirects, EPCM expenses, non-process infrastructure, sustaining capital and other facilities used for the mine. Capital costs make provision for mitigation expenses and mine closure and environmental costs.

Working capital requirements of US$34m (including contingency) for plant commissioning and full ramp-up have been excluded in the headline capital estimate but included in the financial modelling.

Mining costs have been estimated by Fraser Alexander, a regional leader in hydro-mining and materials handling. Mining costs have been built up from first principles based on equipment, vendor, and contractor quotations, local unit cost rates, and benchmarked costs.

Labor costs have been developed based on a first-principles build-up of staffing requirements with labor rates benchmarked in Malawi and expatriate rates benchmarked for professionals from South African other jurisdictions.

A Government royalty of 5% (applied to revenue) and a vendor profit share of 2% (applied to gross profit) has been included in all project economics. A 0.45% royalty (applied to revenue) has been applied for the community development fund.

Rehabilitation and mine closure costs are included within the reported operating cost and sustaining capital figures.

A detailed financial model and discounted cash flow (DCF) analysis has been prepared by the Company in order to demonstrate the economic viability of the Project. The financial model and DCF were modelled with conservative inputs to provide management with a baseline valuation of the Project.

The DCF analysis demonstrated compelling economics of the prospective Project, with an NPV (ungeared, after-tax, at an 10% discount rate) of US$684 million,  and an (ungeared) IRR of 36%.

Sensitivity analysis was performed on all key assumptions used. The robust project economics insulate the Kasiya Project from variation in market pricing, capital expense, or operating expenses. With a rutile and graphite concentrate price 30% lower than the Scoping Study prices the Project still displays a positive NPV (ungeared, after-tax, at an 10% discount rate) of US$213 million and IRR of 18%.

Payback period for the Project is 2.5 years from the start of operations. The payback period is based on free-cash flow, after taxes.

Sovereign estimates the total capital cost to construct the mine to be US$332m (which includes a of 21% contingency).

Key parameters are disclosed in the body of the announcement, and include:

-          Life of Mine: 25 years

-          Discount rate: 10%

-          Tax rate: 30%

-          Resource Rent Tax (RRT) of 15% after tax profit is currently legislated in the Taxation Act. It is understood that it is not currently being applied to mining projects in Malawi and it is uncertain if it would apply to Sovereign's projects in the future. The Company has not applied RRT in any of its financial analysis.

-          Royalty rate: 5% royalty (Government), 2% of gross profit (Original Project Vendor) and 0.45% Community Development Fund.

-          Pricing:  Rutile average price of US$1,346 per tonne and Graphite average basket price of US$1,085 per tonne

The financial model has been prepared internally by the Company using inputs from the various expert consultants and has been reviewed by an independent party to validate the functionality and accuracy of the model.

The Company engaged the services of advisory firm, Argonaut, with regards to project economics. Argonaut is a financial advisory firm which specialises in multiple sectors, including metals and oil & gas. Argonaut is well regarded as a specialist capital markets service provider and has raised project development funding for companies across a range of commodities including the industrial and speciality minerals sector. Following the assessment of a number of key criteria, Argonaut has confirmed that, on the basis that a DFS arrives at a result that is not materially negatively different than the Scoping Study as noted above, all in-country government and regulatory approvals are received, commercial offtake agreements are in place for the majority of Rutile and Graphite production for at least the first five years of mine life, and that there has not been any material adverse change in financial condition, results of operations, business or prospects of the Company/or political and business environment in Malawi and/or financial or capital markets in general, Sovereign should be able to raise sufficient funding to develop the Project.

An assessment of various funding alternatives available to Sovereign has been made based on precedent transactions that have occurred in the mining industry, including an assessment of alternatives available to companies that operate in industrial and specialty minerals sector. The assessment and advice from Argonaut Capital (referred to above) indicates that financing for industrial mineral companies often involves a broader mix of funding sources than just traditional debt and equity. Argonaut Capital considers that given the nature of the Project, funding is likely to involve specialist funds, with potential funding sources including, but not limited to, traditional equity and debt, royalty financing and off-take agreements, at either the corporate or project level. It is important to note that no funding arrangements have yet been put in place as these discussions continue to take place. The composition of the funding arrangements ultimately put in place may also vary, so it is not possible at this stage to provide any further information about the composition of potential funding arrangement.

Since initial exploration of the Kasiya Project in November 2019, the Company has completed extensive drilling, sampling, metallurgical test-work, geological modelling and defined an Indicated and Inferred Mineral Resource Estimate. Over this period, with these key milestones being attained and the Project de-risked, the Company's market capitalisation has increased from approximately A$18m to over A$250m. As the Project continues to achieve key milestones, which can also be significant de-risking events, the Company's share price could be anticipated to increase.

The Company is debt free and is in a strong financial position, with approximately A$4.3m cash on hand (30 November 2021). The current financial position means the Company is soundly funded to continue into a PFS phase to further develop the Project.

The Company's shares are listed on the ASX and AIM which are premier markets for growth companies and provides increased access to capital from institutional and retailed investors in Australia and the UK.

Sovereign has an experienced and high-quality Board and management team comprising highly respected resource executives with extensive technical, financial, commercial and capital markets experience. The directors have previously raised more than A$1.75bn from capital markets for a number of exploration and development companies.

As a result, the Board has a high level of confidence that the Project will be able to secure funding in due course, having particular regard to:

1.   Required capital expenditure;

2.   Sovereign's market capitalisation;

3.   Recent funding activities by directors in respect of other resource projects;

4.   Recently completed funding arrangements for similar or larger scale development projects;

5.   The range of potential funding options available;

6.   The favourable key metrics generated by the Kasiya Project;

7.   Ongoing discussions for potential offtake agreements; and

8.   Investor interest to date.

Environmental, Social, Legal and Governmental - refer to section entitled 'Environmental & Social Impact' in the full Scoping Study Announcement located at http://sovereignmetals.com.au/announcements/.

Sovereign is committed to conduct its activities in full compliance to the requirements of national regulations, its obligations under international conventions and treaties and giving due consideration to international best practices and policies. The Company has appointed an experienced environmental consultant to manage the ESIA process, and environmental and social baseline studies have commenced with appropriately qualified independent experts. The Company has also completed a high-level risk assessment to identify major environmental and social risks which could affect the development of the Project, along with mitigating strategies to allow identified risks to be addressed early in the project design phase.

The Company has embarked on several community engagement exercises in the area and there is a general positive acceptance of the Project. Social responsibility costs of US$20m have been included in this Study, as well as a 0.45% revenue royalty for the community development fund. This figure will be further assessed as part of the overall ESIA for the Project as it advances to PFS and DFS.

Based on the current assessments and commenced ESIA, the Company believes there are no environmental issues currently identified that cannot be appropriately mitigated in accordance with standard practices adopted for the development of mining projects.

Subject to further successful exploration and achieving positive technical studies, Sovereign endeavours to apply for a Mining Licence (ML) to secure mineral deposits for mining. Under the Mines and Minerals Act 2019 (Mines Act) there are  certain requirements, milestones and approvals needed to submit a ML application. At this point of Kasiya's development, the Company notes no known issues.

Under the Mines Act, The Government of Malawi shall have the right, but not the obligation, to acquire, directly or through a Government nominee, without cost, a free equity ownership interest of up to ten percent (10%) in any mining project that will be subject to a large-scale mining licence (>5Mt mined per annum or >US$250m Capex).