Level 9, BGC Centre, 28 The Esplanade,

Perth WA 6000 Tel: + 618 9322 6322, Fax: + 618 9322 6558

ANNOUNCEMENT TO THE AUSTRALIAN SECURITIES EXCHANGE: 14 AUGUST 2012

SOVEREIGN TO ACQUIRE MAJOR COARSE FLAKE GRAPHITE PROJECT IN MALAWI, AFRICA

The Directors of Sovereign Metals Limited (“Sovereign” or “Company”) are pleased to announce that the Company has entered into an agreement to acquire McCourt Mining Pty Ltd (“McCourt”) which holds the large and highly prospective Central Malawi Graphite Project, (“Project”) located in Malawi, near the capital city, Lilongwe.

Highlights Controlling ground position in a major graphite province that hosts other significant

graphite projects including Balama - Syrah Resources Ltd (ASX: SYR).

100% unencumbered control of 8,070km2 of prime graphite terrain (see Figure 1).

Main prospects within 50km of operating railway that connects to the Nacala deep water port.

Five major, regional graphite gneiss belts identified with over 100km2 of verified outcropping graphite gneiss and a cumulative strike length of ~270km.

Three prime prospects already identified – substantial areas of high-grade graphite gneiss at surface. At the Tuinchi Prospect, historic rock chip grades of up to 21% total graphitic carbon (“TGC”) and representative average of 10.5% TGC have been recorded.

At least a further 50 separate targets with known graphite gneiss in outcrop and/or logged in historical water bore drilling will be progressively explored.

Majority of graphite mineralisation identified to date is of the coarse to very coarse flake variety. Historical metallurgical test-work on projects in this region shows that high grade, coarse flake concentrates can be produced.

Substantial news flow expected over the coming months with: Exploration activities consisting of mapping and rock chip sampling having

already commenced. An initial trenching programme has now been finalised and is expected

commence in the coming weeks. An airborne electromagnetic (“EM”) survey to extend and better define

existing graphite targets and identify new priority targets within the Project area is expected to commence as soon as possible.

Drill programmes are expected commence progressively as results from other activities are assessed.

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Figure 1 - Location of the Central Malawi Graphite Project

For further information contact: Peter Woodman

Managing Director Sovereign Metals Limited Tel: (+618) 9322 6322

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Overview of the Central Malawi Graphite Project The Central Malawi Graphite Project (“CMGP” or “Project”) is located within the Central Region of Malawi and is near the capital city, Lilongwe. The Project is composed of two tenements totalling 8,070km2 in area, being;

Exclusive Prospecting Licence EPL0355 - 780km2; and

Reconnaissance Licence RL0146 – 7,290km2.

Five substantial graphite gneiss belts have been identified within EPL0355 and RL0146. Together, these total about 270km of strike length of known and inferred graphite gneiss which also includes a ~100km2 area of verified, outcropping graphite gneiss within EPL0355.

Figure 2 - The Central Malawi Graphite Project

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Historical Exploration To date, three main phases of historical graphite exploration have been undertaken, although these covered only limited areas within the Project, including;

1906-1909: The Geological Survey of Nyasaland reported on graphite discoveries in

the Central Region and a small graphite mine that produced a few tonnes of concentrate, located at Dete III, about 30km east of Lilongwe, within RL0146;

1937-1939: The British South Africa Company (“BSAC”) conducted relatively detailed geological mapping (1/2 mile spaced traverses) and mineral prospecting over large portions of the Central Region. Major zones of high-grade graphite mineralisation were identified and sampled at Tuinchi, Kaolatsitsi and Mpatodzombe, all within EPL0355, and at South Kapiri Hill and Malingunde within RL0146; and

1949-1965: The Geological Survey of Nyasaland/Malawi conducted country wide

regional geological mapping and various, mainly reconnaissance studies on numerous graphite deposits and prospects in the Central Region.

Infrastructure

The infrastructure surrounding the Project is considered to be good with the following services currently in place:

Rail: all major prospects within EPL0355 are within 50km of operating railway that

links in to the major Nacala Rail Corridor – 20Mt capacity by 2015, 5Mt allocated for Malawian cargo;

Port: Nacala deep water port in Mozambique undergoing major expansion;

Roads: good paved highway and secondary road access to most major prospects; and

Power: major prospects within EPL0355 within 50km of high capacity power lines.

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Figure 3 - Very coarse flake, high grade graphite sample at the Kaolatsisi Prospect

Prime Targets Based on the historical and recent exploration activities, three initial prime prospects have already been identified within EPL0355, at:

Tuinchi;

Kaolatsitsi; and

Mpatodzombe.

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Figure 4 - Location of prime target areas within EPL0355 that contains over 100km2 of

outcropping graphite gneiss Tuinchi Prospect At Tuinchi, graphite gneiss is exposed over an area of at least 7km strike length and 1.5km surface width. A central higher grade zone has been identified with approximate dimensions of 3km x 0.5km, although this is open along strike in both directions. A majority of the graphite observed by McCourt’s and Sovereign’s geologists is of the coarse to very coarse flake variety.

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Figure 5 - Rock chip sample from the Tuinchi Prospect The 1937 BSAC historical exploration program included the following summary of its findings at the Tuinchi prospect: “….Tuinchi Hill to the north of Dowa was sampled by eight aggregate samples each taken from a considerable area of outcrop. The samples cover an area of approximately 2 x 1 miles and may be considered to give a fair estimate of the graphite content of the exposed rock over that area. The eight samples gave an average carbon content of 10.5%, the range being from 4.6% to 21.0%.”

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Figure 6 - Outcropping, high-grade graphite gneiss at the Tuinchi Prospect

Figure 7 - Simplified map of the main Tuinchi target area

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Kaolatsitsi Prospect In the Kaolatsitsi – Mpatodzombe area, ~70km2 of graphite gneiss is exposed – this has been verified in the field by McCourt and Sovereign. Approximately 180 samples have been collected by McCourt’s geologists in this area, with laboratory analytical results pending. Kaolatsitsi is a large hill measuring about 2.5km x 2km that is made up entirely of graphite gneiss, intruded by minor pegmatite dykes. A higher grade zone has been identified on the northern side of the hill which has a strike length of about 1.6km. However, this is open in both directions along strike, and not enough field work has yet been completed to determine its approximate width.

Figure 8 - Very large flake graphite gneiss sample at the Kaolatsisi Prospect, with view to the east where graphite gneiss makes up both ranges in the background.

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Mpatodzombe Prospect The Mpatodzombe Prospect is considered a prime target for immediate evaluation. The last known exploration work was undertaken by BSAC geologists during the 1937 mapping and mineral prospecting campaign, which identified a substantial zone of higher grade graphite gneiss in this area. Recent field mapping and sampling by McCourt’s geologists has identified an area of outcropping higher grade graphite gneiss with surface dimensions of about 2km x 0.5km, which is also open along strike in both directions. The majority of observed graphite flakes were consistently coarse size.

Figure 9 - Graphite gneiss outcrop at Mpatodzombe with the Kaolatsisi Prospect represented by the hill in the middle ground – view is to the north.

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Figure 10 - Graphite rich sample from the Mpatodzombe Prospect

Additional Prospects Over 50 additional targets have been identified in total over EPL0355 and RL0146. Within RL0146, two targets that have been selected for immediate investigation include the:

Dete III area on the Mkhoma Belt. A historical mine in this area produced a few tonnes of flake graphite and outcropping graphite gneiss has been identified in numerous areas, the largest known zone measuring 2.5km x 0.3km; and

The Malingunde Belt. This area has large tonnage potential, but will require an airborne VTEM (time domain electromagnetic survey) to identify the highest conductivity responses in order to target drilling.

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Geological Setting The geology of the Central Region is dominated by Proterozoic meta-sedimentary rocks that were metamorphosed under extreme temperature and pressure conditions to granulite facies. Under these ideal conditions, the carbonaceous mudstones evolved into coarse flake graphitic gneisses, as the high temperatures and long cooling period allowed the coarse flakes time to crystalize. This is a similar geological setting to the Balama Project in Mozambique (Syrah Resources) and Molo Project in Madagascar (Energizer Resources & Malagasy Minerals). A thick package of paragneisses that includes numerous graphitic horizons crops out across EPL0355 and the south-eastern portion of RL0146. This same package containing thick horizons of graphite bearing paragneisses also underlies nearly the entire western portion of RL0146, known as the Lilongwe Plain. In this area, however, outcrop is relatively scarce due to a thin cover of alluvium and colluvium. Based on currently available data, the areas of no outcrop, particularly to the west and north-west of Lilongwe and to the south of Lilongwe (i.e. between the Malingunde and Mkhoma Belts), are considered prospective as they are likely to contain graphite gneiss units. These areas will be subject to further exploration activities, including EM surveys, as the Project develops. The Kaolatsitsi Belt occurs in the southern part of EPL0355. This belt is a coherent, outcropping band of graphite gneiss with a surface area of ~70km2. To the Company’s knowledge, this makes it one of the largest, known and verified outcropping graphite gneiss units globally. The western part of this outcropping graphite gneiss unit contains two prime, potentially large targets at Kaolatsitsi and Mpatodzombe (discussed above). The Tuinchi Belt occurs in the western part of EPL0355. This belt of graphite gneiss crops out over an area of approximately 7km x 1.5km at Tuinchi, and then is interpreted to trend broadly west under shallow cover to Mponela where substantial outcrops of graphite gneiss occur in the Kasangadzi River. Historical exploration at Tuinchi, as well as recent confirmatory mapping by McCourt’s geologists shows outcropping higher grade mineralisation over at least a 3km x 0.5km area and confirm it to be a prime target. The Malingunde Belt is located in the Lilongwe Plain area, to the south west of Lilongwe. Significant outcrops and large areas of graphite gneiss float occur at the South Kapiri Hill and Malingunde areas. In addition, numerous historical water bore drillholes in the area have intersected graphite gneiss. These prospects and occurrences appear to occur along a relatively coherent trend of over 100km in strike length with a width range in the order of 1km to 5km. The Mkhoma Belt is located to the east and south-east of Lilongwe. A number of graphite gneiss outcrops in the Dete III area, including a historical graphite mine, are interpreted to link along strike southwards with numerous historical water bore holes that intersected graphite gneiss. The Chimutu Belt is located to the immediate south and east of Lilongwe. The belt is made up of numerous occurrences noted in Geological Survey of Nyasaland/Malawi mapping, and historical water bore drill holes. High grade graphite mineralisation is also known to occur along trend 1km north of the RL0146 boundary.

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Commercial Terms of the Acquisition The Share Sale Agreement (“Agreement”) to acquire 100% of McCourt Mining Pty Ltd (“McCourt”) includes consideration as follows: (i) $100,000 cash payable immediately;

(ii) $900,000 cash payable on completion;

(iii) 12,500,000 fully paid ordinary shares on completion;

(iv) 8,750,000 unlisted convertible performance shares on completion, which convert into

fully paid ordinary shares upon announcement by the Company to ASX of the delineation of at least an Inferred Mineral Resource of at least 25Mt at an average grade of not less than 10% total graphitic carbon (or the equivalent in contained tonnes of total graphitic carbon provided the average grade is not below 7.5% total graphitic carbon) using a cut-off grade of not less than 5% total graphitic carbon globally on the Project Licences and which is determined in accordance with the provisions of the JORC Code, within three years from the date of issue;

(v) 8,750,000 unlisted convertible performance shares on completion, which convert into

fully paid ordinary shares upon the announcement by the Company to ASX of the results of a positive Scoping Study, within four years from the date of issue; and

(vi) 2% net mine gate royalty (being revenues minus mining and processing cash operating costs) from products mined and sold from the Project Licences.

Project Licences means licence EPL0355 and reconnaissance licence RL0146 and any other mining tenement or mining tenements which may be granted in lieu of (in whole or in part) or relate to the same ground (or whole or in part) as those licences.

The consideration shares and performance shares will be subject to a minimum 12 month voluntary escrow from completion.

The Agreement also provides that Sovereign may agree to make a limited loan facility available to McCourt prior to completion, which is intended to provide limited funding to McCourt to conduct agreed exploration activities.

The Agreement is dated 13 August 2012. Completion of the acquisition of McCourt must occur within 4 months of signing the Agreement (“End Date”) and is subject to the following conditions precedent:

1. Sovereign Shareholders passing all resolutions as a required under the ASX Listing Rules, the Constitution and the Corporations Act to give effect to the transactions contemplated by the Agreement within 90 days of signing the Agreement;

2. Sovereign completing its technical, financial and legal due diligence on McCourt and the Project within 30 days of signing the Agreement;

3. ASX approving the terms and conditions of the performance shares within 60 days of signing the Agreement;

4. No material breach of the Vendor warranties; and

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5. Sovereign complying with the ASX Listing Rules and the Corporations Act in order for completion to occur.

There are normal commercial warranties associated with the acquisition.

Capital Raising Sovereign will now make a placement to raise up to $1.1 million by the issue of up to 5,000,000 shares at $0.22 each to provide additional working capital for the Company’s Projects, which is expected to be completed next week.

Due Diligence and Risk Factors

Shareholders and potential investors should note that prior to the Company executing the Agreement, it has conducted a high level review and assessment of the information provided in respect of the acquisition of McCourt.

Sovereign will now be undertaking a more comprehensive due diligence process (including title and other risks) with respect to the acquisition of McCourt, however, it should be noted that the usual risks associated with start-up companies undertaking exploration and development activities of large scale projects in the graphite sector will remain at completion of the acquisition.

Shareholders and investors should also be aware that the agreement to acquire McCourt is conditional on shareholder approval and due diligence. Accordingly there is a risk that the transaction contemplated by this announcement may be changed or not be completed before the End Date. Should the transaction not complete, the monies paid, loaned or advanced to McCourt may not be refunded. A number of additional risk factors specific to McCourt and the Project have also been identified, including, but not limited to:

(a) Exploration work undertaken on the Project to-date consists of regional geological mapping and a limited surface sampling program to determine the potential for graphite mineralisation. The Company plans to implement a staged exploration program on the Project, including an aerial geophysics survey and exploration drilling program, to determine whether the Project has the potential to host large scale open pit graphite mineralisation. However, there can be no assurances that the Company will identify mineral resources or establish economic quantities of mineral reserves at the Project.

(b) The Project is located in Malawi and, as such, the operations of Sovereign will be

exposed to related levels of political, economic and other risks and uncertainties. Changes, if any, in mining or investment policies or shifts in political attitude in Malawi may adversely affect the operations or profitability of Sovereign.

(c) The Company’s mining exploration activities are dependent upon the grant, or as the

case may be, the maintenance of appropriate licences, concessions, leases, claims, permits and regulatory consents which may be withdrawn or made subject to limitations. The maintaining of tenements, obtaining renewals, or getting tenements granted, often depends on the Company being successful in obtaining required statutory approvals for its proposed activities and that the licences, concessions, leases, claims, permits or consents it holds will be renewed as and when required.

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There is no assurance that such renewals will be granted or that such renewals, rights and title interests will not be revoked or significantly altered to the detriment of the Company.

Shareholders should note that some of the additional risks may be mitigated by the use of appropriate safeguards and systems, whilst others are outside the control of the Company and cannot be mitigated. Should any of the risks eventuate, then it may have a material adverse impact on the financial performance of the Project, the Company and the value of the Company’s securities. A Notice of Meeting to be sent to Shareholders shortly which will include information on the Project and the relevant risks associated with the acquisition and ongoing operation of McCourt. The information in this report that relates to Exploration Results, Mineral Resources or Ore Reserves is based on information compiled by Mr Peter Woodman, who is a member Australian Institute of Mining and Metallurgy. Mr Woodman is an employee of Sovereign Metals Limited. Mr Woodman has sufficient experience, which is relevant to the style of mineralisation and type of deposit under consideration and to the activity, which he is undertaking to qualify as a Competent Person as defined in the 2004 Edition of the ‘Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves’. Mr Woodman consents to the inclusion in the report of the matters based on his information in the form and context in which it appears.

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