➤ Sovereign Metals Ltd. executives saw market-moving potential early on for the Kasiya rutile-graphite project in Malawi.

➤ Australian Securities Exchange investors sometimes struggle to get their heads around the complexities of the niche titanium oxide market.

➤ Global shortage of rutile is expected to help Kasiya avoid debt issues faced by other graphite developers outside of China.

Sovereign Metals Managing Director Julian Stephens. Source: Sovereign Metals Ltd.

Rio Tinto Group agreed to take an initial 15% stake in Sovereign Metals on July 17. The Australia-based company owns the Kasiya project, which is the world's largest active rutile project and fourth-largest graphite project, according to S&P Global Market Intelligence data.

The deal includes an option for Rio Tinto to become the operator of Kasiya on commercial arm's-length terms and making an outright bid for Sovereign Metals "must surely be an end-game for Rio Tinto," analysts at SP Angel said in a July 17 note. The diversified mining major is working on building a global battery minerals business, including a technology center in Australia.

Sovereign's stock price rose 6% on the day of the deal announcement but had already erased that gain as of July 24.

S&P Global Commodity Insights spoke with Julian Stephens, managing director of Sovereign Metals, about what the deal means for the Kasiya development and how it fits into the rutile and graphite supply chains. The following interview has been lightly edited for clarity and space.

S&P Global Commodity Insights: What is happening in the rutile market at the moment?

Julian Stephens: The current rutile market is in extreme supply deficit. Demand is about 1 million metric tons a year, and supply is only about 500,000 metric tons. That deficit at the moment is being filled by poorer-quality titanium products — titanium slag, which requires the smelting of low-grade ilmenite, and synthetic rutile, which is basically acid leaching of that low-grade ilmenite.

That market is bundled up together as what's defined as the high-grade feedstock market, or any product above 85% titanium oxide, which is about 3-4 MMt/y. So there are substitutes for natural rutile, but natural rutile is the preferred product because it's cleaner, greener and has a lot lower carbon footprint than those other things because it doesn't need to be smelted or leached.

It is a little bit of a niche area and a complex market to understand. To boil it all down, there's plenty of space in the natural rutile market, which is borne out by the offtake agreements we already have in place with Japanese trading house Mitsui & Co. Ltd. and US-based titanium technology company and titanium dioxide producer The Chemours Co., and the interest we've had in the product.

The Russia-Ukraine war has exacerbated rutile supply issues, so what does the Rio Tinto deal mean for your project and the broader market?

The Rio Tinto deal would do nothing to the rutile price because it would still be in extreme deficit, as our planned full production rate is about 250,000 t/y.

It provides us with a significant, much larger partner with experience in developing big mines and their reach into the industrial minerals market.

Would we be the largest producer in the world? Yes, but Rio Tinto's involvement would not mean there is one dominant player because Sierra Rutile Holdings Ltd. produces 150,000 t/y, and there are numerous others like Iluka Resources Ltd. that produce natural rutile as well.

Kasiya would likely be one of the largest graphite suppliers in the world as well.

Since we discovered Kasiya in 2019, we have spent about A$30 million to A$40 million on it. We just knew it was a monster — a high-grade rutile deposit with a graphite coproduct. We firmly think this will be a world-class mine and a huge one at that.

What we found along the way is that ASX investors have less desire to invest in industrial mineral projects like this compared to European investors in the UK, Germany, etc.

How will Kasiya be placed in the graphite market as Rio Tinto builds its global battery minerals business?

Part of Rio Tinto's battery minerals business is a technology center being built in Melbourne to test and qualify various products for the battery sector. Kasiya's graphite would obviously fit into that.

It's high-quality graphite, highly suitable for the battery sector and the traditional industrial sector being refractory foundries, etc. We've done a reasonable amount of work on that qualification pathway, but more work is required. For graphite in batteries specifically, there are longer qualification lead times for the product, so you need to step through the qualification program with bigger samples each time.

Flake graphite prices vary considerably. However, Sovereign products will target two markets: the traditional industrial market (refractories, foundry and expandable applications) and the lithium-ion battery market, where it is used in anodes.

We think about 20% of our graphite — the coarse flake component — will go to traditional markets at about $2,000/t to $2,500/t. About 80% would go to the battery market (medium and fine flake) averaging roughly $700/t to $800/t.

Debt has been notoriously hard to obtain for graphite developers in the past. How do you see the financing playing out now?

In our expanded scoping study, the revenue split was 65% rutile and 35% graphite. It's very, very easy to get that debt for rutile as it's in such short supply. So this project will be much easier to fund than any other graphite project because of the rutile revenue.

For financing, we have talked to a number of groups both from the rutile and graphite side — more from the rutile side — in terms of equity, offtake, possible debt, etc.

I expect project development to be more robust and more financeable, and higher quality work to be done with Rio Tinto's input, and we'll have a much bigger market reach with all of Rio Tinto's market contacts in industrial minerals. You can't fast-track a feasibility study with more cash and resources, though.

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