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Sales of electric cars have been patchy of late. Consumer enthusiasm has been subdued and analysts have been forced to temper expectations for this year.
However, these vehicles are expected to become a major part of our roads over time as carmakers increasingly move away from traditional engines and ramp up production of their electric equivalents.
Lithium is a key component of the batteries that power most electric vehicles, but they also require graphite, and currently more than 80 percent of the world’s graphite is mined and processed in China, which is a problem.
Boosting sales: Sovereign Metals produces the graphite needed for electric car batteries
Last year, for example, President Xi Jinping restricted graphite exports on national security grounds and the United States responded by imposing a 25 percent tax on all Chinese graphite.
The tax was designed to encourage exploration elsewhere and Sovereign metals He is one of those explorers.
Founded by an Australian geologist, Sovereign spent several years focusing on a small graphite mine in Malawi, East Africa.
However, in 2018, the company discovered a neighboring site exceptionally rich in graphite and rutile, the raw material for titanium.
The company currently has rights to a 600-square-mile site, which contains the world’s largest rutile deposit and the second-largest graphite deposit.
The importance of this discovery has been recognised by governments, potential customers and, most importantly, Rio Tinto, the world’s second largest mining group.
Rio acquired a 15 percent stake in Sovereign in the summer of 2023 and earlier this month increased that stake to 19.9 percent.
Not only has this provided Sovereign with a lot of cash in the bank, but Rio is also providing technical expertise and support to help chairman Ben Stoikovich move from exploration to development and then to commercial production. Rio did not become a mining industry giant by picking losers.
The group spent 18 months verifying Sovereign’s credentials before purchasing the business and its investment has grown since then.
President Jakob Stausholm’s decision is based on clear reasons: governments around the world consider titanium and graphite to be essential minerals.
Electric vehicles need graphite to get from point A to B. Titanium is widely used in military vehicles, commercial aircraft and spacecraft because it does not rust and has the highest strength-to-weight ratio of any known metal.
Many titanium deposits require extensive processing to turn them into commercially useful materials. Sovereign’s is already 95 percent pure, so production costs can be kept low and carbon emissions are minimal – a big plus for customers looking to improve their environmental footprint.
Japanese industrial giant Mitsui and New York-listed Teflon maker Chemours have already agreed to buy Sovereign’s rutile once production begins, with graphite contracts also expected soon.
Last week, the company installed a new testing facility to show potential customers how good its graphite is.
And as discussions progress on both fronts, Stoikovich and his team are working hard to ensure their mine is as technically advanced and economically efficient as possible.
Working with experts from Rio Tinto, Sovereign has created a “mini mine” where excavation and workover techniques are being tested to find what works best. There is also a pilot processing plant to showcase the quality of Sovereign’s ores to potential customers.
Large deposits of critical minerals often attract a lot of attention and Sovereign’s are no exception. Government officials from the UK, US and Japan have visited the Malawi site and the group is a key participant in a UN-related panel being held this week in New York.
Mining in Africa can be politically risky, but the Malawi government has been very supportive, and rightly so.
Malawi is the ninth poorest country in the world and the Sovereign mine could increase annual economic output by 15 percent.
Efforts are being made to help neighbouring farming communities, while employees are mostly local.
Building a mine is very expensive and early studies suggest Sovereign will need around $600m (£450m) to move into commercial production. The project is also likely to take several years.
But Sovereign has money in the bank, no debt and a deep-pocketed investor providing financial and operational muscle.
Stoikovich made his name as a banker who provided funding to mining groups, so he has good contacts, and the association with Rio also provides a clear boost.
MIDAS VERDICT: Like all early-stage mining companies, Sovereign is not without risk, but it could prove very rewarding for intrepid investors. There is always the possibility that Rio Tinto will also make a bid. At 32p, the shares look tempting.
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