VRX Silica (ASX:VRX) Presentation, FNN Online Investor Event, August 2020

Company Presentations

VRX Silica Limited (ASX:VRX) Managing Director Bruce Maluish details the growing demands in Asia for the company's high-grade low iron silica sand for glass manufacture and as a component in foundry casting.

VRX silica is looking to develop a couple of silica sand projects here in Western Australia. And, I'll talk a little bit about some of the background on the investment highlights that we have on the next slide.

And we own three projects, two project areas. One at Arrowsmith, which is about 270 kilometres north of Perth and the Muchea project, which is just 50 kilometres north of Perth.

They are extremely large resources. Arrowsmith North has about 700 million tons. We've got about 200 million tons in the mining area. Muchea is also about 200 million tons. Arrowsmith Central is about 70 odd million tons. So they're all within WA. And they had to meet certain criteria when we selected these areas. One, they had to be in the right geology. So it has the right sort of silica sand. And I'll explain what the right sort of silica sand is.

But also, they are on vacant crown land. So we're not dealing with multiple stakeholders. And also they're adjacent to railway lines because these are ultimately bulk export commodities. So combined, we've got over a billion tons of resource, and these can be processed up to beyond glass making quality. Now, the sand you need for glass making is about 99.5% Silica. Arrowsmith North, we can process up to 99.6, 99.7. But Muchea is extremely high grade and it actually feeds into a different market. Even though it's only 99.9% with low iron, it actually. That little subtle difference means a completely different market. So each of these projects are looking to feed into different markets.

Asia. The Asia region is the largest producer of glass in the world at 46% of the world's glass products. And glass products here include; container, glass, flat glass that you see on buildings, but also the insulation, fiberglass, many, many products and glass comes in all sorts of different qualities as well.

The issue at the moment, particularly in Asia, there's a distinct shortage of sand. And that's being exacerbated now because of concrete, basically. Much of the sand that's used to make concrete can be beneficiated up to glass quality. Now most of the stimulus spending in Asia, particularly in China at the moment, is being spent on concrete.

So in China, it's train stations, tunnels, bridges, an enormous amount of concrete. Which is by the way, the reason why the iron ore price maintains its price at the moment, is because of re-bar. And that's also being duplicated in Vietnam, Philippines, Korea, Japan. But we've had a look at these projects, we've got our BFSs out on each of them and the details of those are on the website and on the announcements.

But we've got an NPV at a discount of 10% of about $728 million. Total CapEx for all three project areas is $87 million. Potentially, but ultimately, of $130 odd million IRR. All excellent metrics for this type of project. And they're based on very conservative silica sand prices. We've used the lower end of what we estimate the prices are going for. And also these were only. BFS's were conducted over 25 years whereas we've got, nearly a hundred years of production.

So the CapEx is pretty low. Well within our reach, with market cap that around sort of $45- $50 million. So $30 million is well within our reach for a 2 million ton per annum project on each of the project areas.

The environmental permitting. Basically that's what we're doing at the moment. We've conducted all the field work that's required. We've put documents together. I think our referral document at the moment for Arrowsmith North is about 400 pages. So these are very extensive submissions initially to Canberra and also to the state EPA.

Off-take agreements, we're working on. I have been working on it for a little while. We're negotiating those in Korea, Japan, Taiwan, Malaysia and Philippines. We're sort of negotiating in China, but it's a tricky destination at the moment. But we're talking to some very large companies in each of those countries.

If we have a quick look next at the corporate summary,

We've got... the current price sits around 10 cents. We've got 440 odd million shares out there. There's no debt. We've got just a bit over a couple of million bucks, but we're not spending a lot of money at the moment. So, that'll last us awhile. Australian Silica is our largest shareholder and we actually bought the Muchea project from them. So they're pretty large holders. Now, they are also redistributing at the moment, some of those shareholdings. Experienced board, we've all been involved in mining projects for quite a while. And I have a Contract Sales Manager who's based in Korea. He is Korean, sorry, and he's based in KL. And he's been involved in selling silica sand for over 15 years. So we've got a fantastic reach there into the market.

If we have a look at the next slide.

Silica Sand has got quite a number of applications. You'll be amazed where sand goes. And you're surrounded by it, not just by the windows, but it's in paint. It's in the light globes. It's the LCD's that are in the screen that you're probably looking at. Basically glass. And, it's surprisingly large volumes of glass is used in particularly glass making and also the Foundry industry. Korea's the largest Foundry industry in the world. You can imagine Kia and Hyundai, all their blocks heads, manifolds are all cast in sand. Now, they can use it many times, but they still use an enormous amount of sand per year. And in glass making, there are just innumerable products that come out of, particularly in Asia.

There're a whole bunch of other industries. They tend to be secondary industries, whereby sand is produced into better quality and used in different areas, particularly chemical production for sodium silicate and metallurgical alloys. And it's used quite a bit in, in ceramics.

If we have a look at the next slide,

It's really the Asia Pacific that is driving the requirements for sand. Now you might think there's plenty of sand around. There's plenty of sand on the beach, but it's not suitable. That's predominantly calcium carbonate. It's Marine based. And you might look at the silica deserts around the world. Sahara's got plenty of sand in it. But you'll notice it's an orangy red colour and that's because of iron. Now, iron is the enemy of making glass. It's not inert. So you're really looking for higher quality sand to go into... particularly glass making.

Foundry industry in Asia, it's growing like crazy. The automobile industry in Asia and particularly China, has phenomenal growth at the moment. But our market's really at the moment... that we're chasing, is the glass industry and the Foundry industry.

If we look at the next slide,

Arrowsmith North and Central are about 20 kilometres apart. They sit about eight kilometres inland. These are not coastal dunes. These are dunes that are being eroded from the granite hinterland. So they are predominantly silica. Quarts. If you like, quartz grains and there's a little bit of aluminium and iron and titanium in there as well.

But these are very big projects. They're going to last a long while and they'll use existing infrastructure. Not just rail lines, but they're near power lines as well. We will develop these one at a time. Arrowsmith North will be first cab off the rank. We've already completed the environmental review document. That'll go in first. Because it's such a large area, we've been able to select an area that is relatively environmentally benign. And we've also developed a method, it's called VDT. Vegetation Direct Transfer, whereby we remove a solder material for rehabilitation immediately after mining. We're looking at, as I said, more off-take coming up.

If we have a quick look at the next slide,

It's very difficult to get independent assessments of silica, sand pricing. And also the consumption. We know the consumption is going up 5% to 6% per year, which will easily take our production. But, really the story... and it's extremely difficult to research this, but the story really is about the supply. Now the supply of sand is getting more and more difficult, as environmental conditions on dredging slowly exacerbating the supply side. The sand pricing. It's a steady increase, and really that's a function of the supply.

Look at the next one.

This next slide, have a look at it. It's on the ASX this morning. Really, unfortunately it's dominated by China, but it's also extremely large use in the other Asian countries as well.

Our project timeline or the next slide...

As long as the government agencies operate as well as they tell us that they're operating it, we should be okay. And currently, we have submissions in there and they're being reviewed now.

If we look at the next bit here...

When we look at the economics here, for the amount of CapEx, you can see why the IRR is so high. They potentially make quite a bit of money out of a plant over a long time. Muchea is higher because it's better quality. And in fact, all these sort of returns on these things, are basically because of the quality. So Muchea is into the ultra clear market, Arrowsmith North into the flat and container market, and Arrowsmith Central also in the flat container market.

Have a look at the next one.

As I said, the criteria of these was the rail network. They're actually adjacent to... both projects are adjacent to Brand Highway, which is one of the major highways running north of Perth. And, it's got a rail and gas pipelines that run directly by it. So, we'll be able to access the gas for potential future glass making, and also for power.

Look at the next one.

There's a bit of detail on here. It's worthwhile having a look at, but really, it stands up very well to any bulk commodity. So, especially for its CapEx. So we've got a number of different products we produce from each project and their pricing is different. As I said, we've used conservative pricing here.

And if we look at the next one,

The margins are pretty good. It cost us about $20 a ton, and we're selling for, anywhere between $45, $50 and some of it, up to about $60 a ton. So there's a $20, $25 up to $40, $45 margin. Which, is a good return on this sort of project.

The processing on the next slide is very simple.

We're not inventing the wheel here. Most of the equipment is out of the mineral sands industries. So, the engineering support here in WA is very good. The availability of this equipment is very good. And basically it's putting off the shelf equipment into a frame. So it's screens, cyclones. And one of the keys here is attritioning cells. Which is the key in fact, to our processing.

Look at the next one.

Fortunately, we've been able to set up the mining and the processing so it has the least environmental impact. We've already got agreements in place with Aboriginal groups and the tenements are on the process of being granted now. But we can keep the impact as low as possible and particularly with our mining method. And there's a description of the mining method actually on the website as well.

Look at the next one.

Really the investment highlight here is, it is potentially we are a strategic silica sand producer. The largest single production exporter in the world in fact is in Northern Queensland. And that's Cape Flattery, which is owned by Mitsubishi. They're the largest by far, and it's very high quality. And there's some other smaller producers as well, but we can look to be a significant player in the silica sand export industry.

Economics are great. CapEx well within our reach. Not difficult to finance, we would think at this sort of price. And we think the outlook is getting better and better every day. The supply side of the equation is really affecting the whole industry.

Next slide here,

If you want a bit of detail, there's some resources in reserves. And of course at the very end is our disclaimer, which you can read at your leisure. Thank you very much.