Rio Tinto set to be major player in rutile, graphite with Sovereign Metals deal

Rio Tinto Group's latest investment in niche metals could make it the world's top rutile producer and a major graphite player.

On July 17, Rio Tinto took an initial 15% stake in Australia's Sovereign Metals Ltd., whose Kasiya rutile-graphite project in Malawi is the world's top active rutile project and fourth-largest graphite deposit, according to S&P Global Market Intelligence analysis.

Kasiya is also the second-largest flake graphite project, according to Sovereign Metals Managing Director Julian Stephens.

"Would we be the largest [natural rutile] producer in the world? Yes, but Rio Tinto's involvement would not mean there is one dominant player because Sierra Rutile Holdings Ltd. produces about 150,000 [metric] tons a year and there are numerous other producers like Iluka Resources Ltd. that produce natural rutile as well," Stephens told S&P Global Commodity Insights.

Kasiya is scheduled to start production by 2027. The rutile would help lower the carbon intensity of Rio Tinto's titanium production, and the graphite could flow into the major's end-to-end battery laboratory under construction in Melbourne, Australia, sources said.

Outright bid in mind

SP Angel sees it as inevitable that Rio Tinto would want to acquire the whole project, as it did in another niche commodity with the Owendale scandium asset in New South Wales, Australia, which is expected to transform the market for the aluminum alloy additive.

"While we suspect it is too early for Rio Tinto to make an outright bid for Sovereign Metals, this must surely be an end-game for Rio Tinto once the technical quality of the project is confirmed and agreement has been established with the government of Malawi to mine the Kasiya project," SP Angel said in a July 17 note.

Rio Tinto will have the option to become Kasiya's operator on commercial arm's length terms, but it will not be able to sit on the project once the definitive feasibility study (DFS) has been published, SP Angel said.

"If Rio Tinto decides not to be the operator within 90 days of the publication of the DFS then Rio will lose all pre-emption and marketing rights. These rights also disappear if Rio Tinto's stake in Sovereign falls below 10%."

ESG benefits in hungry markets

Dual extraction of rutile and graphite at Kasiya is "a major benefit from a CO₂ perspective" for Rio Tinto, a large producer of titanium dioxide with mines in Canada, Madagascar and South Africa that is keen on decarbonizing that business, SP Angel said.

"Natural rutile is a low-carbon route to getting a high-grade titanium, and everyone is becoming more carbon conscious," Martin Alciaturi, Sierra Rutile's finance director, told Commodity Insights.

"So the product from Kasiya, like Sierra Rutile's Sembehun product [in Sierra Leone], would be attractive to end users and supply chain players along the way who need to ensure more sustainable provenance of their product."

The deal sends an important signal about the opportunity in rutile markets, Alciaturi said, and gives Rio Tinto a foothold in the flake graphite market where Benchmark Mineral Intelligence sees a small 15,000 metric ton surplus in 2023 before more volatility in coming years.

"Rio is already a big player in titanium oxide markets, but the fact that they're making a new investment in a large greenfield natural rutile project just underscores the significant underinvestment there has been in rutile in recent years and the strong fundamental outlook for the commodity," Alciaturi said.

Stephens does not expect the deal to greatly impact rutile prices "because [the market] would still be in extreme deficit": Kasiya's top rutile capacity is about 250,000 t/y, which would not close the roughly 500,000 t/y global supply deficit.

As for the flake graphite market, Benchmark expects a possible deficit in 2024 and 2025, "given increasing demand as many new anode projects come online, particularly outside of China," senior price analyst Daisy Jennings-Gray said in an email interview.

"However, given the dominance of synthetic graphite-based anodes in China over the last year or so, and much more flexibility around feedstock for these players, we don't anticipate this deficit to last too long, swinging back into a surplus from 2026-2028, particularly with new flake graphite mines set to come online by then," Jennings-Gray said. "We do then see the market entering a deficit once again towards the end of the decade and beyond, as demand accelerates faster than supply."

Battery lab vision

Stephens said Kasiya's graphite would "obviously fit" into Rio Tinto's plans for an end-to-end battery laboratory being built in Melbourne.

Rio Tinto aims to improve its understanding of battery production, manufacturing and chemistry and enable it to build its own batteries when the facility starts up in November. This will allow it to "test how our minerals and other products will perform in real-world applications, such as in electric vehicle batteries," Sinead Kaufman, Rio Tinto's minerals chief executive, told the World Mining Congress in Brisbane, Australia, on June 28.

The lab is "market creating" and provides "critical support" for Rio Tinto's battery materials business established in 2021 as part of its strategy to "prioritize growth capital in commodities essential for the drive to net zero," Kaufman said.

"How we mine at Rio Tinto is being transformed by the development of a suite of niche specialty products," Kaufman said.

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