NEWS RELEASE I 22 JANUARY 2025

KASIYA - OPTIMISED PFS RESULTS

OPTIMISED PFS COMPLETED WITH OVERSIGHT FROM SOVEREIGN-RIO TINTO TECHNICAL COMMITTEE

LARGEST AND LOWEST-COST STRATEGIC CRITICAL MINERALS PRODUCER POTENTIAL REAFFIRMED

SUPERIOR PROJECT DELIVERY, OPERATIONAL FLEXIBILITY, PERMITTING, ENVIRONMENTAL AND SOCIAL OUTCOMES

"The level of accuracy and confidence in the economic and technical fundamentals of Kasiya have taken a massive step forward. The successful completion of large-scale field trials, in particular for dry mining, the high degree of technical rigour by our enhanced owner's team, and Rio Tinto's technical support have all contributed to confirming Kasiya's potential to become a long-life, low-cost, secure source of two genuine critical and globally strategic minerals."

-     Frank Eagar, Managing Director and CEO

*Annual average graphite produced includes 292kt of graphite processed and sold in two years post cessation of active ore mining. Average graphite produced during the 25-year initial mine life only is 240ktpa; total revenue during the same period is US$15,990 million. All rutile is produced and sold during the 25-year initial mine life. Note: All cashflows and costs are presented in US$ real January 2025 terms unless otherwise stated. Operating costs exclude mineral royalties and community development support costs.

SUMMARY OF OPTIMISATIONS

The PFS proposed a 25-year initial LOM based on a hydraulic mining process where slurry material would be screened and pumped overland to processing plants.

Based on findings from the mining trials undertaken as part of the Pilot Mining and Land Rehabilitation (Pilot Phase), the OPFS proposes a large-scale open-pit dry mining operation using draglines and trucking of material to the processing plants. The change in mining method has not changed the initial mine life of 25 years.

The 2023 PFS envisaged mining would take place on a contractor basis.

During the OPFS, Sovereign undertook a trade-off analysis between the following operating options:

·    Fully owner-operated mine with draglines and trucks purchased by the owner

·    Owner-operated mine with draglines and trucks leased by the owner

·    Mining contractor operation using excavators and trucks

Due to the preference for draglines and maintaining flexibility, an owner-operated mine with leased equipment is selected as the preferred operating model.

Dry mining Kasiya means the material received at the plant is not pre-wet and pre-scrubbed. Therefore, the OPFS proposes a process plant front end consisting of two scrubbers and two oversize screens per 12Mt plant. No further changes are proposed to the processing plant flowsheet.

Per the 2023 PFS, mining would commence in the southern area of the Kasiya deposit, ramping up to 12Mt per annum and then scaling up to 24Mt per annum in Year 5 by constructing a second plant module in the same area, reaching nameplate capacity by the end of the year.

In Year 10 of production, another new 12Mt per annum plant module would be built and commissioned in the northern area of Kasiya, supported by the relocation to the north of one of the southern plants to maintain a steady state of 24Mt per annum.

However, the OPFS has determined the most efficient plant locations to be an initial 12Mtpa South Kasiya plant followed by the construction of another 12Mtpa North Kasiya plant in year 5 of production, negating any relocation requirements in later years.

The OPFS maintains the ROM schedule with operations commencing with 12Mt per annum of throughput during the first four years of production (Stage 1) and expanding to 24Mt per annum in year 5, with full capacity reached by end of year 5 (Stage 2).

Per the PFS, a conventional process would be used to produce rutile and graphite concentrate with tailings in separate sand and fines streams being pumped to a conventional TSF. Mined out pit areas would be backfilled as part of a rehabilitation process. 

The OPFS proposes maximising backfilling of pits as undertaken during the Pilot Phase and the introduction of mud farming on the TSF to accelerate dewatering. This approach has reduced tailings volumes in the TSF by 44% from 187 Mm³ to 105 Mm³.

Mud farming is a technique used by Rio Tinto at operations such as its 100%-owned Weipa bauxite operations in Queensland, Australia, which has been in production since 1963 and produced 35.1Mt of bauxite in 2023.

The PFS proposed that the primary water supply for the Kasiya mining complex would be created by building a dam and collecting run-off water from the greater catchment area. Following the introduction of dry mining and mud farming, the size of the water dam proposed in the PFS has been significantly reduced, with less process water required and more process water recovered.

The OPFS mining trials and material deposition tests indicated a water demand of 10.2 Mm³ per annum, almost a 40% decrease in water requirement from the PFS (16.7 Mm³). The effect on the raw water dam wall could be a reduction in volume from 0.79 Mm³ to 0.57 Mm³ and a reduction in dam wall height from 20 metres to 17 metres.

The 2023 PFS envisaged a hybrid hydro-generated grid power plus solar power system solution.

The Malawi grid reliability has improved since completion of the PFS and is expected to further improve considerably with the commissioning of the country's first HV transmission interconnector to Mozambique in Q2 2025.

This will provide the Project with sufficient power and therefore the OPFS proposes to connect the Project's power system to the hydro-sourced grid network only. This mitigates any risks associated with commissioning a new solar power project and reducing the overall power tariff by eliminating the need for an Independent Power Producer as per the 2023 PFS.

Figure 1: Pilot Phase test pit during mining trials (left) and subsequently backfilled (right)

OPTIMISATION MAINTAINS KASIYA'S GLOBAL LEADER POTENTIAL

Kasiya, located in central Malawi, is the world's largest known natural rutile deposit and second-largest flake graphite deposit.

Natural Rutile is the purest, highest-grade form of naturally occurring titanium feedstock.

Natural Graphite is required for various technological and industrial applications.

Both titanium and graphite have been designated "Critical Minerals" by the USA and the EU. In December 2024, NATO designated both titanium and graphite as defence-critical, strategic minerals essential for the Allied defence industry.

Over the 25-year LOM, Kasiya is set to produce an average of 222kt of natural rutile and 233kt of natural flake graphite per annum. At steady state throughput of 24 million tonnes of ore per annum the Project is anticipated to produce approximately 246kt of natural rutile and 265kt of natural graphite per annum, positioning Sovereign as potentially the world's largest producer of natural rutile and natural flake graphite.

Further, the depletion of rutile reserves at Lenoil Company Limited's Area 1 Mine¹ in the coming 2-3 years and the recent cessation of mining activities at Energy Fuels Inc.'s Kwale Operations² in Kenya means that Sovereign could potentially become the world's only primary natural rutile producer of scale (see Appendix 2).

The incremental cost of producing a tonne of graphite from Kasiya under the OPFS is US$241/t³. Based on public disclosures by listed graphite companies that have undertaken project studies up to a pre-feasibility stage or later, an incremental graphite cost of production of US$241/t would make Sovereign the world's lowest-cost graphite producer outside of China (see Appendix 3).

The rutile-graphite-rich mineralisation will be extracted from surface and trucked to the process plant front end to scrub and screen ROM before it enters a Wet Concentration Plant (WCP) where a low-energy requirement, chemical-free process using gravity spirals produces a Heavy Mineral Concentrate (HMC). The HMC is transferred to the dry Mineral Separation Plant (MSP) where premium quality rutile (+95% TiO₂) is produced via electrostatic and magnetic separation.

The high quality Kasiya rutile product will be amenable for use in high-end titanium products including aerospace and defence applications.

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

¹ In 2024, the previous owner of the Area 1 Mine, Sierra Rutlie Limited, was acquired by Lenoil Company Limited, a private company based in Sierra Leone.

² In 2024, the previous owner of the Kwale Operations, Base Resources Limited was acquired by Energy Fuels Inc., a US-based uranium and critical minerals company.

3 Incremental cost of graphite production is calculated with the following costs attributed to rutile production: all mining costs, all G&A, all material handling costs except for graphitic fines reclamation and graphite concentrate transport, and approximately half of total processing costs. Incremental cost of graphite production therefore includes only those costs incurred on top of primary rutile production to produce an incremental tonne from the process plant and transport the graphite to market. Unit cost of rutile production under this scenario would be US$628/t (FOB Nacala)).

Kasiya's graphite has been confirmed to produce outstanding anode materials suitable for battery production as well as demonstrating suitability for traditional industrial uses such as the production of refractory materials.

The Project has excellent surrounding infrastructure including sealed roads, a high-quality rail line connecting to the deep-water port of Nacala on the Indian Ocean and hydro-sourced grid power.  For the duration of the operation, Kasiya's highly sought-after rutile and graphite products will be railed directly from a purpose-built rail dry port at the mine site eastward via the Nacala Logistics Corridor (NLC) to the port of Nacala. The southern port of Beira, connecting Kasiya via the recently refurbished Sena Rail Line, offers a secondary export route.

DISCLOSURES & DISCLAIMERS

Competent Person Statements

The information in this announcement that relates to Production Targets and Ore Reserves is based on and fairly represents information provided by Mr Frikkie Fourie, a Competent Person, who is an Associate Member of The South African Institute of Mining and Metallurgy and a Registered Professional Engineer with the Engineering Council of South Africa, a Recognised Professional Organisation' (RPO) included in a list promulgated by ASX from time to time. Mr Fourie is employed by Moletech Consulting Pty Ltd, an independent consulting company. Mr Fourie has sufficient experience, which is relevant to the style of mineralisation and type of deposit under consideration, and to the to the activities 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 Fourie 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 Infrastructure, Capital and Operating Costs and process engineering fairly represents information compiled or reviewed by Mr James Gemmel, a Competent Person, who is a who is a Registered Professional Engineer with the Engineering Council of South Africa, a RPO included in a list promulgated by ASX from time to time. Mr Gemmel is employed by DRA Limited, an independent consulting company. Mr Gemmal has sufficient experience, which is relevant to the style of mineralisation and type of deposit under consideration, and to the activities 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 Gemmel 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 and graphite is extracted from announcements dated 28 September 2023, 8 May 2024, 15 May 2024 and 4 September 2024, which are available to view at 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 original announcement; b) all material assumptions included in the original 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.

The information in this announcement that relates to the Mineral Resource Estimate is extracted from Sovereign's 2024 Annual Report and is based on, and fairly represents information compiled by Mr Richard Stockwell, a Competent Person, who is a fellow of the Australian Institute of Geoscientists (AIG). Mr Stockwell is a principal of Placer Consulting Pty Ltd, an independent consulting company. Sovereign confirms that a) it is not aware of any new information or data that materially affects the information included in the original announcement; b) all material assumptions included in the 2024 Annual Report continue to apply and have not materially changed; and c) the form and context in which the relevant Competent Persons' findings are presented in 2024 Annual Report have not been materially changed from the disclosure in the 2024 Annual Report.

Qualified Person

Information disclosed in this announcement has been reviewed by Dr Julian Stephens (B.Sc (Hons), PhD, MAIG), 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.

The information contained within this announcement is deemed by the Company to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014 as it forms part of UK domestic law by virtue of the European Union (Withdrawal) Act 2018 ('MAR'). Upon the publication of this announcement via Regulatory Information Service ('RIS'), this inside information is now considered to be in the public domain.

To view this announcement in full, including the summary section of the OPFS and all images and figures, please refer to https://api.investi.com.au/api/announcements/svm/3b41394f-65e.pdf.

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.

ORE RESERVE STATEMENT

As part of the PFS, an initial Probable Ore Reserve of 538Mt was declared at Kasiya, in accordance with the guidelines of the JORC Code 2012.

As part of the OPFS, a review of the Ore Reserve was completed, taking into account the optimised sections of the OPFS including mining method, operating model, plant configuration and locations, capital and operating costs, and updated financial model. The findings and learning during the Pilot Phase were also considered. As a result of this review, the Ore Reserve at Kasiya remains unchanged. 

The current Kasiya MRE was used as the basis for the OPFS Ore Reserve estimate. Mineral Resources were converted to Ore Reserves in line with the material classifications which reflect the level of confidence within the resource estimate. The Ore Reserve reflects that portion of the Mineral Resource which can be economically extracted by open pits utilising dry mining methodologies. The Ore Reserve considers the Modifying Factors and other parameters detailed in the relevant sections of the OPFS report, including but not limited to the mining, metallurgical, social, environmental, approvals, tenure, statutory and financial aspects of the Project.

In line with the JORC 2012 guidelines, the Kasiya Probable Ore Reserve is based on Indicated classified Mineral Resources. There is no Measured classified Mineral Resource at Kasiya and consequently no Proved Ore Reserve.

The reported MRE is inclusive of the Ore Reserve.

The Ore Reserve includes an allowance for mining dilution and ore loss on the basis that all material within the shell is classified and extracted as ore.

The open pit geometries developed for the purposes of mine planning, and which define the subsequent Ore Reserve, are based on Whittle pit shells edited to comply with practical mining requirements and identified exclusion zones.

The information that relates to Ore Reserves for the OPFS was reviewed and compiled by Mr Frikkie Fourie who takes overall responsibility for the Ore Reserve as Competent Person (see Competent Persons Statement above). Mr Fourie is Associate Member of The South African Institute of Mining and Metallurgy and a Registered Professional Engineer with the Engineering Council of South Africa, and 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 Competent Person in terms of the JORC (2012 Edition).

A site visit has been undertaken by Mr Fourie who also oversaw excavation of the trial mining pit as part of the Pilot Phase.

The Ore Reserve estimate is summarised in Table 14 below, along with the associated cut-off grade used to define the shell.

Pit Optimisation

An open pit optimisation utilising Whittle™ software was carried out on the Kasiya deposit using Indicated Mineral Resources only (in line with the JORC 2012 guidelines). The latest parameters available were used to determine the economic extent of the open pit excavation. The process plant production parameters were supplied by Sovereign with an initial rate of 12Mtpa and a ramp up in production in year 5 to annual rate of 24Mtpa by the beginning of year 6.

Whilst dry mining lends itself to a selective mining approach, the basis of the OPFS is a bulk mining operation and therefore, all material within the "shell" will be extracted and fed to the plant as ore and any interstitial waste and/or sub-economic grade material will be likewise treated as diluent material. However, due to the relatively homogenous and continuous nature the orebody, the quantities of this material will be relatively small and therefore a simple 5% dilution was applied within the Whittle™ tool to approximate this assumption.

For the production schedule on which the Ore Reserve is based all material within the shell was treated as "ore" to ensure the appropriate dilution was captured.

Mineable Pit Geometries

Based on the cut-off grades applied the mining areas was further interrogated to determine the potential recoverable mining inventory. The interrogation process applied the following constraints to determine the bulk mining boundaries:

·    A minimum depth of 5m.

·   Pit extents limited to mineable areas and to remain outside of identified exclusion areas wherever reasonably possible. Sovereign identified all local village areas and areas of cultural or environmental significance within the potential mining envelope that should not be disturbed during the mining phase of the Project.

MODIFYING FACTORS

The Modifying Factors included in the JORC Code (2012) have been assessed as part of the Optimised Pre-Feasibility Study (OPFS), 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 Announcement.

For The OPFS, the Company engaged independent consultants, DRA Limited, Fraser Alexander and Moletech to carry out and determine the pit optimisations, mine design, scheduling, mining cost estimation, updated production schedules and Ore Reserves.

During the second half of 2024, trial mining was successfully completed as part of Pilot Phase at Kasiya. As part of the Pilot Phase, a dry mining trial confirmed Kasiya can be efficiently mined to depth using standard mobile excavators and trucks. Following completion and results of the Pilot Phase and dry mining trial, the proposed mining method for the Study is dry mining using draglines. The Pilot Phase provided significant insight and real mining data as the test pit, which was excavated using conventional dry mining techniques and a simple mobile excavator fleet, covered an area of 120 metres by 110 metres, was mined to a depth of 20 metres through the weathered ore at Kasiya. Dry mining is considered appropriate, safe, low-risk and operationally flexible for this style of shallow, soft and friable saprolite-hosted rutile and graphite mineralisation. Dry mining is used across numerous at-surface mining operations globally and is well suited for the Kasiya style of mineralisation, as evidenced in the Pilot Phase dry mining trial.

Metallurgy and Processing - refer to section entitled 'Processing and Metallurgy' in the Announcement.

Rutile

The Company completed bulk rutile testwork programs at the globally recognised AML in Perth, Australia. Testwork programs are supervised by Sovereign's Head of Development, Paul Marcos. Mr Marcos is a metallurgist and process engineer and a mineral sands industry veteran. Bulk test-work programs have confirmed premium grade rutile can be produced via a simple and conventional process flow sheet.

All the Rutile metallurgical and processing design and performance assumptions of the PFS were carried through to the OPFS and remained unchanged.

Processing engineering was completed by DRA Limited who developed the process plant design and associated cost estimate for the OPFS. An average product grade of 95% TiO₂ and 100% recovery to product factor has been applied.

Graphite

The Company has conducted graphite testwork across ALS Laboratory in Perth, SGS Lakefield in Canada and ProGraphite GmbH in Germany.

DRA's Senior Engineer, Stewart Calder and Manager Metallurgy, John Fleay supervised and advised on sample selection, testwork scope and results from the latest testwork programs. Both consultants are considered to have the appropriate capabilities and similarities with the material and the early stage of the project.

Processing engineering was completed by DRA Limited who developed the process plant design and associated cost estimates for the PFS. Overall average graphite recovery applied in the model was 67.5%.  Gravity recovery ranges between 73.6% to 86.2%, averaging 77.9% and flotation plant recovery ranges between 89.2% and 96.1%, averaging 91.4%. Total Graphite (TGC) recovery average is 72.5%. Overall concentrate grades average 96% C(t) with over 57% of the graphite flake product being larger than 180µm.

All the graphite metallurgical and processing design and performance assumptions of the PFS were carried through to the OPFS and remained unchanged.

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 on specifications and recoveries that will be achieved at full-scale production.

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

Infrastructure - refer to sections entitled 'Infrastructure', and 'Transport and  Logistics' in the Announcement.

 The indicated resource for the Kasiya Rutile Project is immediately proximate to the township of Kasiya, which is approximately 30 km to the northwest of Lilongwe (direct line) and about 45 km by existing roads. The proximity to Lilongwe gives the project a number of benefits, including access to a large pool of professionals and skilled tradespeople, as well as industrial services.

Logistics cost estimates, including rail and port infrastructure and handling, were provided by Thelo DB, Nacala Logistics and Grindrod based on market data, suppliers' quotations, industry databases, industry contacts and consultants' existing knowledge of southern African transport infrastructure and freight markets. All consultants are independent with substantial experience in the management of transport logistics studies in southern Africa.

Marketing - refer to sections entitled 'Rutile Market' and Graphite Market' in the Announcement.

Rutile

During the PFS, the Company engaged TZMI to provide a bespoke marketing report to support the PFS and engaged them again for the OPFS to update the rutile price. 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 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.

Since July 2023, leading global mining company Rio Tinto has made an investment in Sovereign for A$60 million resulting in a shareholding of 19.9%. Rio Tinto is a global leader in titanium feedstock production and is set to produce 1.0 to 1.2 Mt of TiO₂ products in 2025 according to company guidance, giving it a 14% market share.

Under an Investment Agreement, Rio Tinto has been providing assistance and advice on technical and marketing aspects of Kasiya as part of the Sovereign-Rio Tinto technical committee. Also, included under the Investment Agreement, Rio Tinto has the option to become the operator of Kasiya on commercial arm's-length terms.

In the event, Rio Tinto elects to become the operator of Kasiya, and for so long as Rio Tinto remain the operator, Rio Tinto shall have exclusive marketing rights to 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 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 its option to become operator or (ii) Rio Tinto ceasing to hold voting power in the Company of at least 10%.

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 global demand and supply forecasts for natural flake graphite, and with reference to the specific attributes of Sovereign's project, there is a reasonable expectation that the product from Sovereign's Kasiya project 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:

·          Low capital costs (incremental)

·          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.

As noted above, Rio Tinto have made a A$60 million investment in Sovereign and own 19.9% of the Company. Since 2023, Sovereign and Rio Tinto have been working 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 has set up a battery materials business in 2021, including its announced plans to set up a battery testing plant in Melbourne, Australia.

In September 2024, Sovereign announced an update on the downstream testwork which demonstrated that Coated Spherical Purified Graphite (CSPG) produced from Kasiya natural flake graphite has performance characteristics comparable to the leading Chinese natural graphite anode materials manufacturers such as BTR New Material Group (BTR). Electrochemical testing of the CSPG samples at a leading German institute achieved first cycle efficiencies (FCE) of 94.2% to 95.8%, with results above 95%, a key specification for highest quality natural graphite anode materials under the Chinese standard.

BTR has a 20-year track record in the production of lithium-ion battery anode materials, is a dominant player in the market and has recently concluded anode material offtake agreements with global automotive companies including Ford. BTR's highest specification CSPG materials, that have low swelling, long cycle life, good processability and outstanding electrochemical performance include their GSN17 and LSG17 products (with D50 of 17.0+/- 1.5μm).

Economic - also refer to sections entitled 'Cost Estimations' and 'Financial & Economic Analysis' in the Announcement.

Capital estimates for the process plant have been prepared by PCC, together with input from DRA Limited, the Company and other contributing consultants using combinations of cost estimates from suppliers, historical data, benchmarks and other independent sources. The accuracy of the initial capital cost estimate for the Project is -20%/+25%.

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 (including contingency) for plant commissioning and full ramp-up have been included in the headline capital estimate reported under construction, owner's and start-up costs.

Mining costs have been estimated by DRA GIobal, an independent Mining EPCM and Engineering consulting company. 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 labour rates benchmarked in Malawi and expatriate rates benchmarked for professionals from South Africa and other jurisdictions.

A Government royalty of 5% (applied to revenue) and a vendor profit share of 2% (applied to gross profit) have 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 capital and operating cost figures.

A detailed financial model and discounted cash flow (DCF) analysis has been built and prepared by an independent specialist mining financial modelling firm, Practara (Practara), using inputs from various expert consultants 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, pre-tax, at an 8% discount rate) of US$2,322 million,  and an (ungeared) IRR of 27%.

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 both rutile and graphite concentrate prices simultaneously 25% lower than the OPFS prices, the Project still displays a positive NPV (ungeared, pre-tax, 8% discount rate) of US$1,079 million and pre-tax IRR of 18%.

Sovereign estimates the total capital cost to construct the mine to be US$665m (which includes a contingency of 16% of direct and indirect costs).

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

·          Life of Mine: 25 years

·          Discount rate: 8%

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

·          Pricing: Rutile average price of US$1,490 per tonne and Graphite average basket price of US$1,290 per tonne

There is uncertainty in the tax law applicable to mining companies in Malawi. The 2023 PFS assumed a 30% corporate income tax rate and a resource rent tax (RRT) equating to 15% of post-tax profits.

In 2024, mining companies Lotus and Mkango entered into fiscal stability agreements known as MDA with the Government of Malawi. In both the Lotus and Mkango MDAs, it was agreed that no RRT shall be payable until such time that the Government of Malawi completed a review of the relevant legislation. As such, and until such time Sovereign has sight of what actual fiscal terms would apply to the Kasiya Project, results for the OPFS have been reported on a pre-tax basis only.

Applying a 30% corporate income tax rate and a range of RRT from 15% to 0% would result in post-tax NPV at an 8% discount rate of US$1,284 million to US1,557 million.

The financial model has been built and prepared by Practara using inputs from the various expert consultants and has been reviewed by SP Angel Corporate Finance LLP, the Company's Nominated Advisor and Corporate Broker as defined by the AIM Rules for Companies set out by the London Stock Exchange, to validate the functionality and accuracy of the model.

The Company engaged the services of advisory firm, Argonaut PCF Limited (Argonaut), with regards to project economics. Argonaut is a financial advisory firm that offers full-service advisory, stockbroking and research, which specialises in the resources sector. 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 of continued support from Rio Tinto, that a DFS arrives at a result that is not materially negatively different than the OPFS, 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, or business prospects of the Company, or any material adverse changes in global financial markets in general, Sovereign should be able to secure necessary financing for the development of the Project.

Since July 2023, leading global mining company Rio Tinto has made an investment in Sovereign for A$60 million resulting in a shareholding of 19.9%. The investment proceeds are being used to advance Kasiya and represent a significant step towards unlocking the Project as a major new supplier of natural rutile and flake graphite. Under the Investment Agreement with Rio Tinto, it has been agreed with Rio Tinto that 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. Further, Rio Tinto has a right of first refusal on equity raisings that 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 19.9%.

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 which was converted to Ore Reserves as part of the September 2023 PFS and underpins this OPFS. 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$450m. 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 has an uncomplicated, clean corporate and capital structure, is debt free and is in a strong financial position, with approximately A$34 million cash on hand (31 December 2024(unaudited)). The current financial position means the Company is soundly funded to continue into a DFS phase to further develop and de-risk the Project.

The Company's shares are listed on the ASX and AIM which are premier markets for growth companies and provide increased access to capital from institutional and retail investors in Australia and the UK. The Company's shares are also quoted on the OTCQX and Frankfurt Stock Exchange.

Sovereign has a strong track record of successfully raising equity funds for Kasiya plus it 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$2.5 billion 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 strategic partner relationship with Rio Tinto;

3.         Sovereign's market capitalisation;

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

5.         Recently completed funding arrangements;

6.         The range of potential funding options available;

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

8.         Ongoing discussions for potential offtake agreements;

9.         Investor interest to date;

10.       the Company owns 100% of Kasiya which is highly attractive to potential financiers;

11.       the OPFS demonstrates that the Project is commercially viable and provides justification to progress to DFS stage.

Environmental, Social, Legal and Governmental - refer to section entitled 'Environmental and Social Impact' in the Announcement.

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/RAP costs totalling US$97m have been included in this OPFS, as well as a 0.45% revenue royalty for the community development fund.

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 positive technical studies, Sovereign intends to apply for a Mining Licence (ML) to secure mineral deposits for mining. Under the Mines Act there are certain requirements, milestones and approvals required prior to submission of a ML application. At this point of Kasiya's development, the Company notes no known issues or impediments obtaining a ML under normal course of business.

Under the Mines and Minerals Act (2023)(Mines Act), the Government of Malawi has a right to equity ownership for large-scale mining licences (>5Mt mined per annum or >US$250m Capex) with the right a negotiation matter, likely as part of any future MDA. The Mkango and Lotus MDAs included a 10% non-diluting equity interest to the Malawi Government.

In a Press Release issued on 20 July 2023, the Government of Malawi publicly applauded the timely investment by Rio Tinto and marked it as a milestone towards realising the country's aspirations of growing the mining industry as promoted in the Malawi Vision 2063, which identifies mining as a priority industry. The Malawi Mines department has also set up a technical working group, with resources dedicated to the Kasiya Project to ensure its continual progress and development.

The Government's statement and actions confirms its commitment to ensuring the growth of the mining sector through deliberate initiatives aiming at establishing a conducive investment environment in the sector.

Following successful completion of the mining trials stage at the Pilot Phase, the test pit mined at Kasiya has been successfully backfilled which has allowed Sovereign to commence with on-site soil remediation and land rehabilitation activities, testing our proposed rehabilitation approach and demonstrating that the mined land can support sustainable farming post-closure.

During the Pilot Phase mining trials, 170,000m³ was mined using a conventional excavator fleet. The fleet was then used to place mined material back into the pit, filling the pit to the original ground level in less than two months and ahead of schedule.

The rehabilitation approach has been based on agronomic principles, including promoting sustainable farming practices and providing various end-land uses. Rehabilitation is underway through a five-step process:

Step 1: Introduce Lime

The land rehabilitation demonstration commenced with the application and incorporation of locally sourced dolomitic lime (calcium and calcium-magnesium-carbonate) to improve naturally low PH levels.

Step 2: Introduce Carbon and Basic Nutrients

Sovereign is augmenting the mined area with organic carbon and basic nutrients to support post-closure farming. The Company is testing the application of biochar (to provide carbon) and fertiliser (in the form of potash (MOP), phosphate (MAP) and a blend of nitrogen, potash, and sulphur (NPK) 15:23:16).

Step 3: Grading, Ripping and Discing

Lime, biochar, and fertiliser are incorporated into the soil through grading, ripping, and discing using graders and locally sourced farming equipment. This ensures the land is level and safe and that essential inputs are incorporated into the soil.

Step 4: Planting of Rehabilitation Crops

In December 2024 and January 2025, Sovereign has planted rehabilitation crops to maximise the benefit of the coming summer rainfall. Giant bamboo has been introduced in 4 by 8-metre blocks and will act as the primary crop to enhance carbon and bioactivity in the remediated soils. To return the land to farmers, maize and other cover crops will be intercropped between the giant bamboo in formalised farm blocks.

Step 5: Monitoring and Evaluation

Sovereign will monitor soil remediation, plant growth and crop yields. As part of stakeholder engagement, the Company will work with local farmers to improve results through conservation farming, composting operations, testing new seed varieties and establishing an indigenous, fruit and farming nursery. This will serve as a live demonstration of rehabilitation and timely return of land to pre-mining use.

APPENDIX 1 - JORC CODE, 2012 EDITION - TABLE 1

Section 1 - Sampling Techniques and Data

Section 2 - Reporting of Exploration Results

Section 3 - Estimation and Reporting of Mineral Resources

Section 4 - Estimation and Reporting of Ore Reserves