SGQ: Giant rare earths deposit in the USA’s “neighborhood” - how about these drill results…

Disclosure: S3 Consortium Pty Ltd (the Company) and Associated Entities own 14,115,000 SGQ Shares and 12,500,000 SGQ Options. The Company has been engaged by SGQ to share our commentary on the progress of our Investment in SGQ over time. This information is general in nature about a speculative investment and does not constitute personal advice. It does not consider your objectives, financial situation, or needs. Any forward-looking statements are uncertain and not a guaranteed outcome.

Rare earths...

The weirdly named metals critical in military applications, autonomous robots, modern industrialisation, clean energy and high tech electronics...

China has them, the USA needs them.

9 days ago we wrote about the potential “Monroe Doctrine 2.0” where the USA looks to secure critical minerals supply in its own “neighbourhood”, the Western Hemisphere...

(South America, Canada and... Greenland?)

Yesterday we watched this special secretary to the US President talk about the importance of critical minerals, partnering with friendly countries and spending hundreds of $ billions to secure the USA's supply...

(on a panel with three South American mining companies)

12 hours ago we saw this news article...

Source

And this morning our Brazil rare earths & niobium Investment St George Mining (ASX:SGQ) hit more high grade rare earths mineralisation.

Up to 99.1m at 5.62% rare earth grades, all from surface:

(source)

SGQ owns 100% of the largest and highest-grade carbonatite-hosted rare earths deposit in South America.

It’s also the second highest grade rare earths asset in the Western world.

Before the last ~6 months of new drilling is included in SGQ’s upcoming Mineral Resource upgrade, their project already has:

• 40.6Mt of Rare Earths at grades of 4.13% TREO (total rare earths oxide)
• 41.2Mt of Niobium at grades of 0.63%

SGQ is drilling the project right now with 3 diamond drilling rigs, 24/7... (source)

After today’s news SGQ has high grade niobium and rare earths discovered ~400m to the northwest, 230m to the west, 1km to the east of its existing resource.

So SGQ’s upcoming resource upgrade could be a big one...

Rare earths are essential for modern industry, used in everything from aeroplanes to electric vehicles to wind turbines, and crucial for the “permanent magnets” in certain motors.

They are also vital for cutting-edge defense technologies like drones to laser-guided missiles...

And yep, even autonomous AI robots (a theme we have been recently going deep on).

China has a stranglehold over the entire rare earths market, and has placed export controls to protect its dominance (just ask Japan)

The USA wants to shore up its own supply fast.

The USA sees Brazil as a potential partner for an alternative source of rare earths.

Will the next big investment theme be “the USA replacing China dependent critical metals supply with new supply from western hemisphere sources in South America, Canada and... possibly Greenland? (read our take on this here)

In August last year, the US government’s development bank agreed to loan $465M to Brazil’s only operating rare earths mine. (source)

There’s now chatter about a broader potential USA-Brazil critical minerals deal this quarter (75% chance according to one industry pundit). (source) (source)

As the diplomats work together to hash out a broad critical minerals deal between the two nations, SGQ is furiously drilling out its rare earths asset, with three diamond rigs on site spinning 24/7.

Today’s batch of results once again confirm thick, high grade rare earths (and niobium) from or near surface.

So far here is how it looks for SGQ’s asset:

(source)(source)(source)

Mineralisation remains open in all directions and at depth, with current drilling coverage representing less than 10% of the total project area.

SGQ has been drilling with three rigs 24/7 for over six months now and keeps hitting extensions to the existing resource...

Assays are pending for 32 drill holes at the lab, with the drill campaign extended indefinitely into 2026 to further test the limits of the growing footprint of the mineral system.

A mineral resource estimate baking in all of the recent drilling results is due this quarter.

Which could be good timing given a potential US-Brazil critical minerals deal also this quarter.

Economic studies for development are also underway.

Again, Before SGQ’s upcoming Mineral Resource upgrade, SGQ’s project already has:

• 40.6Mt of Rare Earths at grades of 4.13% TREO (total rare earths oxide)
• 41.2Mt of Niobium at grades of 0.63%

SGQ is capped at $380M (and had $52M in cash at the end of last quarter so is well funded).

In terms of grade, SGQ is comparable to ~$15.6BN Lynas’ project.

In terms of size, SGQ is comparable to ~US$12BN MP Materials’ project.

(Source)

Off the back of the drill results over the last few months, SGQ is now talking about “a very substantial increase in the current MRE” (source), which is expected to be available this quarter.

We think the possibility for SGQ to define a very large and very high grade rare earths asset is one of the big reasons Australia’s richest person, Gina Rinehart’s Hancock Prospecting cornered SGQ’s $72.5M capital raise late last year by investing $22.5M into SGQ.

She is also a shareholder in BOTH MP Materials and Lynas - and since October last year, SGQ too.

(source) (source) (source)

Aside from the Mineral Resource Estimate update this quarter, the big catalysts over the coming years will likely be:

• Met test results (early this year)
• Permitting updates (late this year, early 2027)
• Economic study outcomes (this year)
• Strategic partners commitments (next 24 months).

SGQ is drilling out its asset in some very positive macro tailwinds...

USA-Brazil critical minerals deal this quarter?

Brazil has the world’s second largest rare earths reserves, second only to China:

Source

Naturally, Brazil’s rare earths assets have caught the eye of the USA.

Source

The US government’s International Development Finance Corporation (DFC) agreed to loan US$465M to Brazil’s only operational rare earths mine in Goias state.

So the USA is obviously comfortable with investing in Brazil.

Could we see a wider Brazil - USA deal this quarter?

Christopher Garman, from political risk consultancy Eurasia, expects a US-Brazil agreement on critical minerals soon - “75 per cent odds of some kind of deal occurring by Q1”:

Source

Which could be nicely timed with SGQ’s Mineral Resource Estimate upgrade, also due this quarter...

The hits keep on coming

SGQ continues to deliver quality drill results in the lead up to a mineral resource upgrade this quarter.

(Source)

Here are the key takeaways from today’s announcement:

• SGQ is gearing up for a substantial resource upgrade this quarter, with thick, high grade intervals both within and outside the existing Mineral Resource Estimate.
• Mineralisation is still open - most holes returned very high grade mineralisation at or near the end of the hole - which means it could get bigger.
• 32 more assays still to come, pending results from the lab
• SGQ has decided to extend its drill campaign indefinitely into 2026 to further test the limits of the growing footprint of the mineral system. (SGQ held $52M in cash at the end of 2025, so is well funded).
• Style of deposit looks able to support a low cost open pit mine, which can quickly get to the high grade mineralisation from surface.

How SGQ compares to the multi-billion dollar rare earths producers

Here is how SGQ’s asset compares to the assets held by MP and Lynas right now:

(Source)

Among the rare earths projects in development, SGQ is far and away the highest grade proposition.

The mineral resource upgrade due this quarter should see it grow in size substantially - we will be looking forward to seeing how much this red bubble gets bigger in size, hopefully closer to MP and Lynas’ assets.

Here’s a more detailed table showing how SGQ stacks up, this one is from SGQ’s December AGM presentation:

(Source)

Ultimately, we think a resource upgrade could be the first catalyst to move SGQ closer to delivering our Big Bet which is as follows:

Our Big Bet for SGQ

“SGQ defines a niobium/rare earths deposit large enough to take into development or attract corporate interest via a takeover at a market cap of >$500M”

NOTE: our “Big Bet” is what we HOPE the ultimate success scenario looks like for this particular Investment over the long term (3+ years). There is no guarantee that our Big Bet will ever come true. There is a lot of work to be done, many risks involved, including development risk, country risk and commodity price risk - just some of which we list in our SGQ Investment Memo.

Success will require a significant amount of luck. Past performance is not an indicator of future performance.

What’s next for SGQ?

Mineral Resource Upgrade - due this quarter 🔄

This will be a big one for SGQ, a new Mineral Resource Estimate will establish SGQ’s credentials and bankability as it moves toward development, and it will also allow fair comparisons to other global peers.

SGQ had originally intended to release its Mineral Resource upgrade last year, but given the strength of the drill results that keep coming, it looks like they have decided to collect a few more results to bake into the resource upgrade.

Drilling results 🔄

In the lead up to the Mineral Resource upgrade, we want to see the drill results keep coming.

Ideally we see big extensions at depth and to the north/east/west of SGQ’s current JORC resource estimate.

And then slowly once the limits of the resource are defined, drilling to fill in the gaps...

Here is what we know already from the drilling done to date:

(source)(source)(source)

Beyond the drilling and resource upgrade 🔄

Over the next 12-18 months, a lot of the other share price catalysts for SGQ could come at hard-to-forecast times:

• Updates on downstream processing strategy - We want to see SGQ define its downstream rare earths strategy. We are especially looking forward to an update in relation to the US.
• Development studies - SGQ has already commenced economic, environmental, geotechnical and development studies.
• Pilot plant trials - SGQ has signed an agreement with a University in Minas Gerais, CEFET, to jointly collaborate on a new Pilot Plant trial that will build on the prior 9 month trial from 2012-13 which successfully produced rare earth product at over 99% purity and recoveries of 86% TREO.
• SGQ is also participating in the “MAGBRAS Initiative” - a program that has major automakers like Stellantis working toward building Brazil’s first permanent magnet-making facility. Any positive news here could deliver a result for SGQ.
• Metwork and sample production - SGQ should have results from this in the pipeline with the creation of the St George Technical Centre. The main catalyst we are looking forward to is the re-starting of SGQ’s pilot plant with development of this underway with the agreement signed with CEFET to host and jointly collaborate. This will allow for product samples to be produced for potential strategics/offtake partners.
• Permitting - SGQ is targeting completion for permitting by Q4 2026.
• Strategic partners? SGQ will need support from financiers to support development of the asset - we could see these partners come on board at some point over the next ~ 24 months.

What are the risks?

In the short term, the key risk for SGQ is “exploration risk”.

With drilling underway we are conscious there is no guarantee that drilling will successfully grow SGQ’s resource estimate.

Exploration risk

A big part of our Investment is in seeing SGQ extend mineralisation at its project at depth and along strike. There is no guarantee that drilling will return anything of significant commercial value for SGQ (either through weak grades or thin intercepts).

Source: “What could go wrong?” - SGQ Investment Memo - 6 August 2024

Other risks?

There are several other significant risks worth keeping in mind.

First, there's supply chain concentration risk, with the global niobium market dominated by just three producers (CBMM controlling 80%), SGQ faces the challenge of breaking into an extremely concentrated market where existing players have significant market power and established customer relationships.

The rare earths market is also concentrated, but to a lesser extent than the niobium market.

There's also environmental and regulatory risk.

Brazil has a troubled history with tailings dam disasters, leading to stricter regulations and lengthy permitting processes.

SGQ’s project requires approvals from multiple government authorities with no certainty these will be granted on acceptable terms.

While SGQ’s project sits on well understood geology, there is no guarantee that SGQ can put together a flowsheet that is capable of processing its deposit.

Processing and scaling up production is something that even experienced operators have struggled with in the rare earths-niobium space.

Other risks include commodity price volatility.

Niobium prices can fluctuate up to 35% between quarters due to the opaque pricing mechanisms in this specialised market, potentially impacting project economics.

Rare earths markets are also small and volatile which can impact project economics.

As always, these risks are part of early-stage mining investments, particularly in critical minerals projects in emerging markets.

Our SGQ Investment Memo

You can read our SGQ Investment Memo in the link below.

We use this memo to track the progress of all our Investments over time.

Our SGQ Investment Memo covers:

• What does SGQ do?
• The macro theme for SGQ
• Our SGQ Big Bet
• What we want to see SGQ achieve
• Why we are Invested in SGQ
• The key risks to our Investment Thesis
• Our Investment Plan