Balanced commentary from Archer3 May 2025 18:43
In Arher's latest commentary on SVML I feel he's delivered balanced commentary on where and why we are where we are:
"Let’s start with Sovereign Metals.
As I fit neither category, I instead have to buy more shares when my favourites fall for no good reason whatsoever - and that’s life. The joys of averaging down however means that when the recovery comes, I make even more profits.
SVML rose to 49p per share in late March, but has since fallen to 32.75p - down circa 13% year-to-date. That’s not a disaster but it is a shame given how much paper profit has come off the table.
But I don’t much care - it will sort itself out.
For reference, SVML raised A$40,000,000 just before the share price started falling, and is cashed up in all likelihood into 2027 and beyond, with A$65 million in cash and no debt.
Good luck with the placing timing - yes, it always helps.
We’ve now got the geotechnical investigations underway at Kasiya - with the DFS due in Q4. But first, the updated mineral resource estimate is due this quarter (it’s imminent :)).
And the company continues to chat with ‘future potential end-users of rutile and graphite.’
This is perhaps where the rub is. Major investor and FTSE 100 titan Rio Tinto has invested A$60 million into Sovereign to fund the completion of the DFS, which when delivered in Q4 2025 will leave Rio up to 180 days to exercise its option to become the operator at Kasiya.
However, the major did not participate in the recent placing. SVML notes this was because the accountants at the major ‘believe the Company has sufficient funds to complete the Kasiya DFS.’
RIO’s shareholding has remained static at 119.4 million shares, but its relative shareholding has decreased from 19.9% to 18.5%.
Investors may be worried that falling from the maximum proportional percentage ownership (20%, and under ASX rules a buyout must be considered) signifies a problem with RIO’s attraction to the project…
But the opposite is true.
RIO wants to buy Kasiya and helping SVML out financially now will only increase the eventual price point. SVML clearly wants to sell - but the offer has to be good enough. Otherwise, it can get the mine financed by the Chinese, the Americans or the Japanese - and build it themselves.
Giving Sovereign more cash now just strengthens the junior’s position. The placing was a stroke of genius - because while before SVML would have run out of capital perhaps around that 180 day post DFS mark, now the company can sit back and relax.
If RIO doesn’t want to play ball, someone else will. FWIW, I don’t believe this will happen. But it needs to be a credible risk.
But bottom line, RIO wants to own the largest rutile and second-largest graphite deposit in the world - the only graphite deposit that can beat Chinese production on a cost basis as it’s a by-product of titanium production, which also happens to be the only rutile deposit discovered in decades.
It’s just a matter of time
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