A few thoughts on the current situation of Sovereign Metals, especially now when many are on holiday.
In recent weeks, there has been a massive comeback in graphite stocks.
Not just in Australia, but very strong investor interest in North America.
In Australia, Syrah (SYR) has soared from $0.15 to $1 and raised a lot of capital along the way.In Canada, Nouveau Monde (NOU) shot up from under 0.20 to over $1.20. The company has a rather lousy graphite project in Canada that needs more than $200 million to go into production. Nevertheless, the stock market value is only already a good $300 million. Other shares in the graphite sector also went through the roof. ZEN in Canada 0.40 to $3.70 as an example, market value at $318 million.
I would like to remind you that SOVEREIGN has a graphite project with Malingunde that is actually ready for production.
A scoping study was done and the company was about to complete the feasibility study before they luckily discovered the giant rutile project. If we look at the data for the graphite project, we see an NPV of over USD 200 million with an IRR of over 50%. CAPEX is only USD 49 million and the project would generate USD 46 million EBITDA per year for 16 years.
It is easy to mine as it is also in the soft saprolite and close to the railway line. The study is as good as completed.
In this market environment, the graphite project alone should easily be worth $100 million on the stock market, more like $150-200 million. But it has been somewhat forgotten.
If we now look at the rutile project, which already has a gigantic size and, what is more, with grades that can compete with the best projects in the world, then one can only come to the conclusion that the share is far too cheap.
The company could easily cost 300 to 500 million dollars today and would still be cheaper than many of the companies in Canada.
Moreover, Sovereign has the potential that rutile also contains graphite. This was confirmed with reports in the summer of 2020 and they are currently working on further tests to confirm this.
Let's imagine that the company comes up with 500 million tonnes of rutile at 0.80% in the first resource. That would be 4 million tonnes of rutile. One ton costs 1,200 USD. That gives an in situ value of USD 4.8 billion. If this resource contained even 1% graphite, which could then be mined as an additional product during processing, what would that be worth?
Many graphite companies calculate with 1000 USD per tonne, but that is probably too high. I would assume that even with an low-quality end product you would easily get 300 USD, more likely 450 USD. I calculate with 300 USD.At 500 MT at 1%, that's 5 MT of graphite times 300 USD, which would mean another 1.5 billion in-situ value for the company.
Together with the rutile, this would mean 6.3 billion USD in situ value.
Let's just convert that into gold. At USD 1,850 per ounce, Sovereign's deposit would then be like a gold project with 3.4 million ounces of gold!Cardinal (CDV) is currently being taken over by Shandong. The project is low-grade and in Ghana. The Chinese are paying 600 million dollars for 5 million ounces of gold. That's 120 dollars per ounce.With 3.4 million ounces of gold equivalent from SOVEREIGN, that would be 408 million AUD.
Again, as mentioned above, the company should be worth $300-500 million.
These are a few thoughts that crossed my mind. I think we are sitting on an absolute winner here and 2021 is going to be the year for the company.
Cheers
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