INTERIM FINANCIAL REPORT

FOR THE HALF YEAR ENDED

31 DECEMBER 2025

abn 71 120 833 427

ASX: SVM; aim:SVML; OTCQX: SVMlf

CORPORATE DIRECTORY

The Directors of Sovereign Metals Limited present their report on Sovereign Metals Limited (Sovereign or the Company or Parent) and the entities it controlled at the end of, or during, the half year ended 31 December 2025 (Consolidated Entity or Group).

REVIEW AND RESULTS OF OPERATIONS

KASIYA RUTILE-GRAPHITE PROJECT

Sovereign is focused on the development of its Kasiya rutile-graphite project (Kasiya or the Project) in Malawi to become a leading global supplier to the titanium and graphite industries. Kasiya is the world's largest natural rutile deposit - the purest, highest-grade naturally occurring titanium feedstock - and the world's second-largest flake graphite deposit - a battery mineral essential for the Energy Transition.

Figure 1: Kasiya Regional Project Location

Sovereign discovered Kasiya in 2019 after identifying the potential of a new rutile province in Malawi. Today, Kasiya stands out as the world's largest known natural rutile deposit and second largest known flake graphite deposit and holds the accolade of one of only 11 Tier 1 mining projects discovered in the last decade (source MinEx Consulting, "Exploration: Australia vs The World, October 2023).

An Optimised Pre-Feasibility Study (OPFS), completed last year, reaffirmed Kasiya's potential to become a large, low-cost producer of strategic minerals. Sovereign is now advancing the Definitive Feasibility Study (DFS).

OPERATIONS

Project Vault Participant Traxys Signs Offtake MOU For Kasiya Graphite

·         Subsequent to the period end, non-binding Memorandum of Understanding (MOU) signed with Traxys North America for the marketing of graphite from Kasiya

·           Traxys is one of only three trading houses appointed to procure critical minerals for the US Government's US$12 billion Project Vault - the newly launched US Strategic Critical Minerals Reserve

·        Graphite is designated a US Critical Mineral by the US Geological Survey and is among the 60 minerals targeted under the stockpiling initiative

·         MOU targets 40,000 tonnes per annum of graphite concentrate for Stage 1 (Years 1-5) and up to 80,000 tonnes per annum thereafter

·        Initial focus to be on high-value flake graphite for the refractory market, with potential to include flake graphite to serve battery anode supply chains

Strategic Rare Earths Recovered at Kasiya

·           Sovereign recovers heavy rare earth monazite concentrate from Kasiya rutile tailings stream

·        Preliminary analysis confirms Kasiya monazite to contain exceptionally elevated levels of heavy rare earth elements Dysprosium - Terbium (DyTb) and Yttrium, materially exceeding those of the five largest producers globally, which account for 70% of the world's rare earth production

·         DyTb and Yttrium are of paramount importance to nations seeking to secure and protect rare earth supply chains

o    DyTb: heavy magnet rare earths essential for high-temperature permanent magnets used in advanced technology, including defence systems and precision weapons

o    Yttrium: high-impact rare earth element critical for aerospace, thermal barrier coatings, radar and laser systems, alloy strengthening and semiconductor manufacturing

·           Monazite by-product has potential to add third revenue stream to Kasiya for near-zero incremental cost, with basic monazite concentrate currently selling for over US$8,500/t delivered to China

World Bank Group's IFC to Collaborate with Sovereign on Sustainable Development for Kasiya

·        Collaboration Agreement signed with International Finance Corporation (IFC), a member of the World Bank Group, to support the sustainable development of Kasiya

·         Collaboration with IFC - world's largest global development institution - is expected to lay the foundation for international project financing for Kasiya

·           IFC to provide Environmental & Social expertise, supplementing Rio Tinto's significant input. The Kasiya DFS and Environmental and Social Impact Assessment (ESIA) will seek to integrate IFC's Performance Standards on Environmental and Social Sustainability

·           IFC secures financing rights to fund Kasiya: right to act as lender, mandated co-lead arranger, and/or investor in securities for project financing. IFC's financing rights are subject to Rio Tinto's rights under the Investment Agreement

Kasiya's Growing Strategic Importance Emphasised During and Subsequent to Period

·       During the period, the US State Department's Deputy Assistant Secretary Nick Checker visited Sovereign's facilities in Malawi as part of a broader engagement with strategically significant critical minerals projects in Africa

·       The U.S. Government remains committed to partnering with Malawi to promote trade and investment for shared prosperity

·      In January 2026, China announced strengthened export controls on dual-use items to Japan, effective immediately. Beijing is tightening export licensing for heavy rare earths including dysprosium, terbium, and yttrium

·       Monazite by-product complements Kasiya's rutile and graphite - three critical minerals serving Western defence and clean energy supply chains from a single operation

Various Critical Components of DFS now complete

·        Geotechnical investigations successfully completed across all critical infrastructure locations with oversight from the Sovereign-Rio Tinto Technical Committee confirming favourable subsurface conditions aligned with regional geology

o    Over 400 individual tests conducted covering mining infrastructure, tailings storage facility and raw water dam

o    Consistent stratigraphy and suitable subsurface conditions to enable more standardised foundation designs and construction approaches across infrastructure areas

·           Mining fleet specifically engineered for large-scale dry mining operations following the results of the successful Pilot Mining and Land Rehabilitation (Pilot Phase).

o    No drilling, blasting, crushing or milling required at Kasiya resulting in low capital outlays and operating costs

o    Equipment selection and supplier identification completed for all operational requirements across the proposed initial 25-year mine life

·          Rehabilitation of land at Pilot Phase test pit site successfully completed during the period, further de-risking DFS

o    Exceptional first-year results from its rehabilitation trials at the Kasiya, delivering critical data that will inform the progressive rehabilitation strategy for the ongoing DFS

o    Rehabilitation trials achieved 5x crop yield improvement - demonstrating superior post-mining land productivity versus traditional farming

Next Steps

During the period, various new workstreams were incorporated into the DFS with completion of the DFS expected in the coming months. These included an enhanced focus on plant design and configuration, as well as environmental and social impact workstreams, including the integration of IFC's Performance Standards to support delivery of a DFS that is bankable. These workstreams have been included in the DFS work program to ensure it meets many of the requirements of potential future lenders, including development finance institutions, export credit agencies and potential future offtakers.

Over the coming months, the Company will also continue to update stakeholders regarding progress at Kasiya, including:

·           Mineral Resource Estimate update;

·           Active discussions with US-based and "allied-nation" offtakers of rutile and graphite;

·           Detailed mineralogical characterisation of monazite occurrence and distribution within the Kasiya orebody;

·           Assessment of heavy rare earth concentrate recovery rates through the proposed Kasiya processing flowsheet;

·           Evaluation of potential scale of rare earth production as a by-product and associated economics;

·           Environmental and social impact assessments including the integration of IFC's Performance Standards; and

·           Infrastructure and logistics planning.

DIRECTORS

The names of Directors in office at any time during the financial period or since the end of the financial period are:

Mr Benjamin Stoikovich      Chairman

Mr Frank Eagar                      Managing Director and CEO

Mr Ian Middlemas                Non-Executive Director

Dr Julian Stephens                Non-Executive Director

Mr Mark Pearce                    Non-Executive Director

Mr Nigel Jones                      Non-Executive Director

All Directors were in office from 1 July 2025 until the date of this report, unless otherwise noted.

OPERATING RESULTS

The net operating loss after tax for the half year ended 31 December 2025 was $8,986,797 (2024: $19,546,116) which is attributable to:

(i)         Interest income of $902,176 (2024: $1,025,751) earned on cash term deposits held by the Group;

(ii)        Exploration and evaluation expenditure of $16,098,372 (2024: $16,495,513) in relation to the Kasiya Project. This is attributable to the Group's accounting policy of expensing exploration and evaluation expenditure incurred by the Group subsequent to acquisition of the rights to explore and up to the completion of feasibility studies;

(iii)       Non-cash share based payment benefit of $7,750,775 (2024: expense $1,904,852) relating to performance rights. The fair value of incentive options and rights is measured at grant date and recognised over the period during which the performance rights holders become unconditionally entitled to the incentive securities. During the period it was determined that 4,992,500 and 6,190,000 performance rights that expire on 31 March 2026 and on 30 June 2026 respectively will lapse unvested on the relevant expiry date as the milestones have been determined to be unachievable prior to their expiry date which has resulted in the  share based payment benefit being recognised in the period; and

(iv)       Business development expenses of $815,461 (2024: $1,004,695) which includes the Group's investor and shareholder relations activities including but not limited to public relations costs, marketing and digital marketing, broker and advisor fees, business development consultant fees and costs of the Group's ASX and AIM listings.

FINANCIAL POSITION

At 31 December 2025, the Company had cash and cash equivalents of $33,937,352 (30 June 2025: $54,538,435) and no debt (30 June 2025: nil). The Company had net assets of $38,704,181 (30 June 2025: $55,387,701), a decrease of $16,683,520 or approximately 30% compared with the prior period. This is largely attributable to the decrease in cash reserves relating to exploration and evaluation spend on the Project to complete the DFS.  

SIGNIFICANT POST BALANCE DATE EVENTS

(i)         On 21 January 2026, Sovereign announced that it had recovered heavy rare earth monazite concentrate from Kasiya rutile tailings stream. Preliminary analysis confirmed Kasiya monazite to contain exceptionally elevated levels of heavy rare earth elements DyTb and Yttrium, materially exceeding those of the five largest producers globally, which account for 70% of the world's rare earth production;

(ii)        On 17 February 2026, Sovereign announced that it had signed non-binding MOU with Traxys North America for the marketing of graphite from Kasiya which targeted 40,000 tonnes per annum of graphite concentrate for Stage 1 (Years 1-5) and up to 80,000 tonnes per annum thereafter; and

(iii)       Issue of 9,022,500 Bankable DFS Milestone Performance Rights, expiring on 30 June 2026, and 13,326,500 Finance Milestone Performance Rights, expiring on 30 June 2028, to directors, key employees and contractors.

Other than as disclosed above, there are no other matters or circumstances which have arisen since 31 December 2025 that have significantly affected or may significantly affect:

·       the operations, in periods subsequent to 31 December 2025, of the Group;

·       the results of those operations, in periods subsequent to 31 December 2025, of the Group; or

·     the state of affairs, in periods subsequent to 31 December 2025, of the Group.

AUDITOR'S INDEPENDENCE DECLARATION

Section 307C of the Corporations Act 2001 requires our auditors, Ernst & Young, to provide the directors of Sovereign Metals Limited with an Independence Declaration in relation to the review of the half year financial report. This Independence Declaration is on page 15 and forms part of this Directors' Report.

This report is made in accordance with a resolution of the directors made pursuant to section 306(3) of the Corporations Act 2001.

For and on behalf of the Directors

Frank Eagar

Managing Director and CEO

5 March 2026

CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

FOR THE HALF YEAR ENDED 31 DECEMBER 2025

The above Consolidated Statement of Profit or Loss and Other Comprehensive Income should be read in conjunction with the accompanying notes.

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT 31 DECEMBER 2025

The above Consolidated Statement of Financial Position should be read in conjunction with the accompanying notes.

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE HALF YEAR ENDED 31 DECEMBER 2025

The above Consolidated Statement of Changes in Equity should be read in conjunction with the accompanying notes.

CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE HALF YEAR ENDED 31 DECEMBER 2025

The above Consolidated Statement of Cash Flows should be read in conjunction with the accompanying notes.

NOTES TO THE FINANCIAL STATEMENTS

FOR THE HALF YEAR ENDED 31 DECEMBER 2025

1.       MATERIAL ACCOUNTING POLICY INFORMATION

Sovereign Metals Limited (the "Company") is a for profit company limited by shares and incorporated in Australia, whose shares are publicly traded on the Australian Securities Exchange, the AIM Market of the London Stock Exchange and a Quotation on OTCQX in the U.S. The consolidated interim financial statements of the Company as at and for the period from 1 July 2025 to 31 December 2025 comprise the Company and its subsidiaries (together referred to as the "Group"). The nature of the operations and principal activities of the Group are as described in the Directors' Report.

This interim financial report does not include all the notes of the type normally included in an annual financial report. Accordingly, this report is to be read in conjunction with the audited annual report of Sovereign for the year ended 30 June 2025 (where comparative amounts have been extracted from) and any public announcements made by the Group during the interim reporting period in accordance with the continuous disclosure requirements of the Corporations Act 2001.

(a)       Basis of Preparation of Half Year Financial Report

The consolidated financial statements have been prepared on the basis of historical cost, except for the revaluation of certain financial instruments. Cost is based on the fair values of the consideration given in exchange for assets.  All amounts are presented in Australian dollars, unless otherwise stated. There have been no changes in the critical accounting judgements or key sources of estimation since 30 June 2025.

(b)       Statement of Compliance

The consolidated interim financial report complies with Australian Accounting Standards, including AASB 134 which ensures compliance with International Financial Reporting Standard ("IFRS") IAS 34 "Interim Financial Reporting" as issued by the International Accounting Standards Board. The accounting policies adopted in the preparation of the half-year financial report are consistent with those applied in the preparation of the Group's annual financial report for the year ended 30 June 2025 and the comparative half-year, except for new standards, amendments to standards and interpretations effective 1 July 2025. In the current half year, the Group has adopted all of the new and revised Standards and Interpretations issued by the AASB that are relevant to its operations and effective for the current annual reporting period. The adoption resulted in no material impact.

(c)       Issued standards and interpretations not early adopted

Australian Accounting Standards and Interpretations that have recently been issued or amended but are not yet effective have not been adopted by the Group for the reporting period ended 31 December 2025. Those which may be relevant to the Group are set out in the table below. The impact of these standards are still being assessed.

2.       SEGMENT INFORMATION

AASB 8 requires operating segments to be identified on the basis of internal reports about components of the Consolidated Entity that are regularly reviewed by the chief operating decision maker in order to allocate resources to the segment and to assess its performance. The Consolidated Entity has one operating segment, being exploration in Malawi.

3.       OTHER INCOME/(EXPENSES)

4.       CURRENT ASSETS - OTHER RECEIVABLES

5.       NON-CURRENT ASSETS - PROPERTY, PLANT AND EQUIPMENT

6.       EXPLORATION AND EVALUATION ASSETS

Note:

(i)               The ultimate recoupment of costs carried forward for exploration and evaluation is dependent on the successful development and commercial exploitation or sale of the respective areas of interest.

7.       CURRENT LIABILITIES - TRADE AND OTHER PAYABLES

8.       OTHER FINANCIAL LIABILITIES

Note:

(i)               The Company has a lease agreement for the rental of a property. Refer to Note 5 for the carrying amount of the right of use asset relating to the lease. The following are amounts recognised in the Statement of Profit and Loss: (i) amortisation expense of right of use asset $22,565 (30 June 2025: $43,684); (ii) interest expense on lease liabilities of $10,093 (30 June 2025: $26,667); and (iii) rent expense of $2,476 (30 June 2025: $1,997).

9.       RESERVES

(a)       Movements in Performance Rights were as follows:

Notes

(i)        The value of performance rights granted during the period is estimated as at the grant date based on the underlying share price with the expense recognised over the vesting period in accordance with Australian Accounting Standards.

(ii)       During the period, it was determined that 4,992,500 and 6,190,000 performance rights that expire on 31 March 2026 and on 30 June 2026 respectively will lapse unvested on the relevant expiry date as the milestones have been determined to be unachievable prior to their expiry date.

10.     COMMITMENTS AND CONTINGENCIES

At the last annual reporting date, the Consolidated Entity did not have any material commitments and contingent liabilities. 

11.     DIVIDENDS PAID OR PROVIDED FOR

No dividend has been paid or provided for during the half year (2024: nil).

12.     FAIR VALUE OF FINANCIAL INSTRUMENTS

The net fair value of financial assets and financial liabilities approximates their carrying value.

13.     SUBSEQUENT EVENTS AFTER BALANCE DATE

(i)         On 21 January 2026, Sovereign announced that it had recovered heavy rare earth monazite concentrate from Kasiya rutile tailings stream. Preliminary analysis confirmed Kasiya monazite to contain exceptionally elevated levels of heavy rare earth elements DyTb and Yttrium, materially exceeding those of the five largest producers globally, which account for 70% of the world's rare earth production;

(ii)        On 17 February 2026, Sovereign announced that it had signed non-binding MOU with Traxys North America for the marketing of graphite from Kasiya which targeted 40,000 tonnes per annum of graphite concentrate for Stage 1 (Years 1-5) and up to 80,000 tonnes per annum thereafter; and

(iii)       Issue of 9,022,500 Bankable DFS Milestone Performance Rights, expiring on 30 June 2026, and 13,326,500 Finance Milestone Performance Rights, expiring on 30 June 2028, to directors, key employees and contractors.

Other than as disclosed above, there are no matters or circumstances which have arisen since 31 December 2025 that have significantly affected or may significantly affect:

·       the operations, in periods subsequent to 31 December 2025, of the Group;

·       the results of those operations, in periods subsequent to 31 December 2025, of the Group; or

·       the state of affairs, in periods subsequent to 31 December 2025, of the Group.

DIRECTORS' DECLARATION

In accordance with a resolution of the Directors of Sovereign Metals Limited, I state that:

In the opinion of the Directors:

(a)       the financial statements and notes thereto are in accordance with the Corporations Act 2001, including:

(i)         complying with Accounting Standard AASB 134: Interim Financial Reporting and the Corporations Regulations 2001; and

(ii)        giving a true and fair view of the consolidated entity's financial position as at 31 December 2025 and of its performance for the half year ended on that date.

(b)       there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable.

This declaration is signed in accordance with a resolution of the Board of Directors made pursuant to section 303(5) of the Corporations Act 2001.

On behalf of the Board

Frank Eagar

Managing Director and CEO

5 March 2026

COMPETENT PERSON STATEMENT

The information in this announcement that relates to the exploration results (metallurgy - monazite) is extracted from an announcement dated 21 January 2026, which is 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 announcement have not been materially changed from the original announcement.

The information in this announcement that relates to Production Targets, Ore Reserves, Processing, Infrastructure and Capital and Operating Costs is extracted from an announcement dated 22 January 2025, which is 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 announcement have not been materially modified from the original announcement.

The information in this announcement that relates to the Mineral Resource Estimate is extracted from Sovereign's 2025 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 2025 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 2025 Annual Report

* RutEq. Formula: Rutile Grade x Recovery (100%) x Rutile Price (US$1,484/t) + Graphite Grade x Recovery (67.5%) x Graphite Price (US$1,290/t) / Rutile Price (US$1,484/t). Any minor summation inconsistencies are due to rounding.

All figures are rounded to reflect appropriate level of confidences with any apparent differences a result of rounding.

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.

AUDITOR'S INDEPENDENCE DECLARATION

INDEPENDENT AUDITOR'S REVIEW REPORT