PERTH (miningweekly.com) – Major Rio Tinto will make a A$40.4-million investment into ASX-listed Sovereign Metals in exchange for a 15% initial shareholding in the critical minerals developer.

Rio Tinto’s exploration arm Rio Tinto Mining and Exploration will subscribe for an initial 83.09-million shares in the company at a price of 48.6c each, reflecting a 10% premium to Sovereign’s 45-day volume weighted average share price.

Rio will also be granted option over a further 34.54-million shares, with a 12-month option period, which could see Rio’s share in Sovereign increase to 19.99%.

Sovereign told shareholders on Monday that proceeds from the investment would be used to advance the company’s Kasiya rutile/graphite project, in Malawi, including progressing a definitive feasibility study.

In addition to the subscription agreement, the two companies have also inked an investment agreement. Under this agreement, the two companies will negotiate financing arrangements to fund mine construction, if Sovereign is raising debt finance, and will work 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 also has the option to become the operator of Kasiya on commercial arm’s-length terms. For so long as Rio is the operator of the project, the major will have exclusive marketing rights over 40% of the yearly production from the project.

Rio will also be entitled to appoint a director to the Sovereign board, and will have the right of first refusal over any capital raisings that are not pro-rata entitlement offers, as long as it holds a minimum 10% interest in Sovereign.

“This landmark agreement with Rio Tinto, one of the world’s largest and most accomplished global mining companies, is confirmation of Kasiya’s place as one of the most significant critical mineral discoveries in recent times,” said Sovereign chairperson Ben Stoikovich.

“The experience and expertise that Rio Tinto brings will truly set Kasiya apart as a potentially globally significant supply of two critical minerals and take us all a step closer to supply chain decarbonisation and achieving net-zero. Furthermore, this is yet another step towards unlocking significant benefits from development of the Kasiya project for Malawi. We welcome Rio Tinto as a major shareholder of Sovereign and look forward to working with Rio Tinto as our strategic partner in the development of Kasiya.”

Kasiya is the largest natural rutile deposit and one of the largest flake graphite deposits in the world. An expanded scoping study into the project last year estimated that it would require a capital investment of $372-million and could produce 265 000 t/y of rutile and 170 000 t/y of graphite over a 25-year mine life.

The study estimated an after-tax net present value of $1.537-billion, an internal rate of return of 36%, and life-of-mine revenues of $12.03-billion.

Sovereign is working on a prefeasibility study for the project, which is expected in the coming months.