Sovereign Metals (LON: SVML) shares have jumped 35% over the past few days as news of the Kasiya deposit in Malawi filters out. The find is now a 1.8 billion tonne JORC resource of rutile. Rutile is one of the major ores of titanium and trades at a significant premium to the other, ilmenite.
The deposit at Kasiya also contains flake graphite as a byproduct. Sovereign themselves are claiming this as a Tier 1 – that is, of global importance – find and deposit.
It’s important not to get too carried away at this point, though. The discovery is that there’s something that might well be worth mining there. That doesn’t, in fact, mean that it will be worth mining – that’s something that still needs to be worked upon.
Yes, of course, finding substantial rutile is of interest. But it’s worth thinking about minerals sands for a moment. The material is already broken down, by erosion, into sand. It’s easy enough to separate out the rutile – which is in the 1 to 2% of total material range – from the surrounding material. Easy in the sense that it’s a well-known technique. The flake graphite can also be extracted on much the same line.
On the other hand, this is a large volume and capital intensive business, for these are always, by definition, large-scale operations. So to exploit, there will have to be a source of capital from outside Sovereign. As is also true of any such large-scale operations the surrounding infrastructure makes a large difference to costs.
It’s also true that while rutile deposits around the world are being mined out, there are bountiful supplies of the logical alternative for titanium, ilmenite. Any one specific factory cannot switch between them, but industry as a whole can. So too, with flake graphite, it is possible to make an artificial form from hydrocarbon wastes. Sometimes the artificial type is to be preferred, sometimes not.
That is, given that there are substitutes, there are natural price caps on both minerals, whatever the supply of those two minerals themselves.
It’s also worth considering the actual stage that the Sovereign discoveries in Malwai are at. Both the rutile and the graphite are resources at present. Translated into normal language that means that everyone’s sure they’re there, and also pretty sure that they can be mined profitably. But more work needs to be done to prove that they can be mined profitably. Once that work has been done, then they will move from being resources to reserves, and the world to raise the capital to actually mine them can start.
That is, while the rutile find is very interesting indeed, this is still early days for Sovereign. There’re a number of levels of research and proof necessary still to come. A useful supposition about Sovereign’s share price is that it will move along with those milestones of the varied levels of proof required.
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Tim Worstall is a freelance writer specialising in economics and the financial markets.