The Directors of Sovereign Metals Limited present their report on Sovereign Metals Limited (Sovereign or the Company or Parent) and the entities it controlled at the end of, or during, the half year ended 31 December 2025 (Consolidated Entity or Group).
REVIEW AND RESULTS OF OPERATIONS
KASIYA RUTILE-GRAPHITE PROJECT
Sovereign is focused on the development of its Kasiya rutile-graphite project (Kasiya or the Project) in Malawi to become a leading global supplier to the titanium and graphite industries. Kasiya is the world’s largest natural rutile deposit – the purest, highest-grade naturally occurring titanium feedstock – and the world’s second-largest flake graphite deposit – a battery mineral essential for the Energy Transition.
Figure 1: Kasiya Regional Project Location
Sovereign discovered Kasiya in 2019 after identifying the potential of a new rutile province in Malawi. Today, Kasiya stands out as the world’s largest known natural rutile deposit and second largest known flake graphite deposit and holds the accolade of one of only 11 Tier 1 mining projects discovered in the last decade (source MinEx Consulting, “Exploration: Australia vs The World, October 2023).
An Optimised Pre-Feasibility Study (OPFS), completed last year, reaffirmed Kasiya’s potential to become a large, low-cost producer of strategic minerals. Sovereign is now advancing the Definitive Feasibility Study (DFS).
OPERATIONS
Project Vault Participant Traxys Signs Offtake MOU For Kasiya Graphite
· Subsequent to the period end, non-binding Memorandum of Understanding (MOU) signed with Traxys North America for the marketing of graphite from Kasiya
· Traxys is one of only three trading houses appointed to procure critical minerals for the US Government’s US$12 billion Project Vault – the newly launched US Strategic Critical Minerals Reserve
· Graphite is designated a US Critical Mineral by the US Geological Survey and is among the 60 minerals targeted under the stockpiling initiative
· MOU targets 40,000 tonnes per annum of graphite concentrate for Stage 1 (Years 1-5) and up to 80,000 tonnes per annum thereafter
· Initial focus to be on high-value flake graphite for the refractory market, with potential to include flake graphite to serve battery anode supply chains
Strategic Rare Earths Recovered at Kasiya
· Sovereign recovers heavy rare earth monazite concentrate from Kasiya rutile tailings stream
· Preliminary analysis confirms Kasiya monazite to contain exceptionally elevated levels of heavy rare earth elements Dysprosium – Terbium (DyTb) and Yttrium, materially exceeding those of the five largest producers globally, which account for 70% of the world’s rare earth production
· DyTb and Yttrium are of paramount importance to nations seeking to secure and protect rare earth supply chains
o DyTb: heavy magnet rare earths essential for high-temperature permanent magnets used in advanced technology, including defence systems and precision weapons
o Yttrium: high-impact rare earth element critical for aerospace, thermal barrier coatings, radar and laser systems, alloy strengthening and semiconductor manufacturing
· Monazite by-product has potential to add third revenue stream to Kasiya for near-zero incremental cost, with basic monazite concentrate currently selling for over US$8,500/t delivered to China
World Bank Group’s IFC to Collaborate with Sovereign on Sustainable Development for Kasiya
· Collaboration Agreement signed with International Finance Corporation (IFC), a member of the World Bank Group, to support the sustainable development of Kasiya
· Collaboration with IFC – world’s largest global development institution – is expected to lay the foundation for international project financing for Kasiya
· IFC to provide Environmental & Social expertise, supplementing Rio Tinto’s significant input. The Kasiya DFS and Environmental and Social Impact Assessment (ESIA) will seek to integrate IFC’s Performance Standards on Environmental and Social Sustainability
· IFC secures financing rights to fund Kasiya: right to act as lender, mandated co-lead arranger, and/or investor in securities for project financing. IFC’s financing rights are subject to Rio Tinto’s rights under the Investment Agreement
Kasiya’s Growing Strategic Importance Emphasised During and Subsequent to Period
· During the period, the US State Department’s Deputy Assistant Secretary Nick Checker visited Sovereign’s facilities in Malawi as part of a broader engagement with strategically significant critical minerals projects in Africa
· The U.S. Government remains committed to partnering with Malawi to promote trade and investment for shared prosperity
· In January 2026, China announced strengthened export controls on dual-use items to Japan, effective immediately. Beijing is tightening export licensing for heavy rare earths including dysprosium, terbium, and yttrium
· Monazite by-product complements Kasiya’s rutile and graphite – three critical minerals serving Western defence and clean energy supply chains from a single operation
Various Critical Components of DFS now complete
· Geotechnical investigations successfully completed across all critical infrastructure locations with oversight from the Sovereign-Rio Tinto Technical Committee confirming favourable subsurface conditions aligned with regional geology
o Over 400 individual tests conducted covering mining infrastructure, tailings storage facility and raw water dam
o Consistent stratigraphy and suitable subsurface conditions to enable more standardised foundation designs and construction approaches across infrastructure areas
· Mining fleet specifically engineered for large-scale dry mining operations following the results of the successful Pilot Mining and Land Rehabilitation (Pilot Phase).
o No drilling, blasting, crushing or milling required at Kasiya resulting in low capital outlays and operating costs
o Equipment selection and supplier identification completed for all operational requirements across the proposed initial 25-year mine life
· Rehabilitation of land at Pilot Phase test pit site successfully completed during the period, further de-risking DFS
o Exceptional first-year results from its rehabilitation trials at the Kasiya, delivering critical data that will inform the progressive rehabilitation strategy for the ongoing DFS
o Rehabilitation trials achieved 5x crop yield improvement – demonstrating superior post-mining land productivity versus traditional farming
Next Steps
During the period, various new workstreams were incorporated into the DFS with completion of the DFS expected in the coming months. These included an enhanced focus on plant design and configuration, as well as environmental and social impact workstreams, including the integration of IFC’s Performance Standards to support delivery of a DFS that is bankable. These workstreams have been included in the DFS work program to ensure it meets many of the requirements of potential future lenders, including development finance institutions, export credit agencies and potential future offtakers.
Over the coming months, the Company will also continue to update stakeholders regarding progress at Kasiya, including:
· Mineral Resource Estimate update;
· Active discussions with US-based and “allied-nation” offtakers of rutile and graphite;
· Detailed mineralogical characterisation of monazite occurrence and distribution within the Kasiya orebody;
· Assessment of heavy rare earth concentrate recovery rates through the proposed Kasiya processing flowsheet;
· Evaluation of potential scale of rare earth production as a by-product and associated economics;
· Environmental and social impact assessments including the integration of IFC’s Performance Standards; and
· Infrastructure and logistics planning.
DIRECTORS
The names of Directors in office at any time during the financial period or since the end of the financial period are:
Mr Benjamin Stoikovich Chairman
Mr Frank Eagar Managing Director and CEO
Mr Ian Middlemas Non-Executive Director
Dr Julian Stephens Non-Executive Director
Mr Mark Pearce Non-Executive Director
Mr Nigel Jones Non-Executive Director
All Directors were in office from 1 July 2025 until the date of this report, unless otherwise noted.
OPERATING RESULTS
The net operating loss after tax for the half year ended 31 December 2025 was $8,986,797 (2024: $19,546,116) which is attributable to:
(i) Interest income of $902,176 (2024: $1,025,751) earned on cash term deposits held by the Group;
(ii) Exploration and evaluation expenditure of $16,098,372 (2024: $16,495,513) in relation to the Kasiya Project. This is attributable to the Group’s accounting policy of expensing exploration and evaluation expenditure incurred by the Group subsequent to acquisition of the rights to explore and up to the completion of feasibility studies;
(iii) Non-cash share based payment benefit of $7,750,775 (2024: expense $1,904,852) relating to performance rights. The fair value of incentive options and rights is measured at grant date and recognised over the period during which the performance rights holders become unconditionally entitled to the incentive securities. During the period it was determined that 4,992,500 and 6,190,000 performance rights that expire on 31 March 2026 and on 30 June 2026 respectively will lapse unvested on the relevant expiry date as the milestones have been determined to be unachievable prior to their expiry date which has resulted in the share based payment benefit being recognised in the period; and
(iv) Business development expenses of $815,461 (2024: $1,004,695) which includes the Group’s investor and shareholder relations activities including but not limited to public relations costs, marketing and digital marketing, broker and advisor fees, business development consultant fees and costs of the Group’s ASX and AIM listings.
FINANCIAL POSITION
At 31 December 2025, the Company had cash and cash equivalents of $33,937,352 (30 June 2025: $54,538,435) and no debt (30 June 2025: nil). The Company had net assets of $38,704,181 (30 June 2025: $55,387,701), a decrease of $16,683,520 or approximately 30% compared with the prior period. This is largely attributable to the decrease in cash reserves relating to exploration and evaluation spend on the Project to complete the DFS.
SIGNIFICANT POST BALANCE DATE EVENTS
(i) On 21 January 2026, Sovereign announced that it had recovered heavy rare earth monazite concentrate from Kasiya rutile tailings stream. Preliminary analysis confirmed Kasiya monazite to contain exceptionally elevated levels of heavy rare earth elements DyTb and Yttrium, materially exceeding those of the five largest producers globally, which account for 70% of the world’s rare earth production;
(ii) On 17 February 2026, Sovereign announced that it had signed non-binding MOU with Traxys North America for the marketing of graphite from Kasiya which targeted 40,000 tonnes per annum of graphite concentrate for Stage 1 (Years 1-5) and up to 80,000 tonnes per annum thereafter; and
(iii) Issue of 9,022,500 Bankable DFS Milestone Performance Rights, expiring on 30 June 2026, and 13,326,500 Finance Milestone Performance Rights, expiring on 30 June 2028, to directors, key employees and contractors.
Other than as disclosed above, there are no other matters or circumstances which have arisen since 31 December 2025 that have significantly affected or may significantly affect:
· the operations, in periods subsequent to 31 December 2025, of the Group;
· the results of those operations, in periods subsequent to 31 December 2025, of the Group; or
· the state of affairs, in periods subsequent to 31 December 2025, of the Group.
AUDITOR’S INDEPENDENCE DECLARATION
Section 307C of the Corporations Act 2001 requires our auditors, Ernst & Young, to provide the directors of Sovereign Metals Limited with an Independence Declaration in relation to the review of the half year financial report. This Independence Declaration is on page 15 and forms part of this Directors’ Report.
This report is made in accordance with a resolution of the directors made pursuant to section 306(3) of the Corporations Act 2001.
For and on behalf of the Directors
Frank Eagar
Managing Director and CEO
5 March 2026
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