VRX Silica (ASX:VRX) Presentation, FNN Online Investor Event, August 2021

Company Presentations

VRX Silica Limited (ASX:VRX) Managing Director Bruce Maluish discusses the company's three projects in WA, the predicted deficiency for supply of silica sand, project timelines, permitting and capex.
VRX. I started looking at silica sand in 2017 and mainly because at the time, China made silica sand a strategic mineral. I wondered why they were doing that. It really was at a time when Australia export a little bit of silica sand. The single biggest export of silica sand happens to be Cape Flattery in Northern Queensland. It was the major exporter, and it exported two and a half, three million tons a year. Also, here in Western Australia, we've got Kemerton Sand and we've got Hanson Industries, both export silica sand, and all through to Asia. I could see there was an opportunity there. Pivoted the company around that time, into silica sand. And in fact, we had other projects and we dropped those projects. We've been involved in silica sand since then.

All right. We've got three projects. And combined, we've got over a billion tons, so there's no exploration risk with this and there's an enormous amount of sand. We've engaged a young guy who's been selling silica sand into Asia for about 17 years now. He's based in KL. And he's been chasing up interest from potential buyers in Southeast Asia. We're not dealing with any traders. We're only dealing with end users. At the moment, we're only dealing with buyers potentially, in Korea, Japan, Thailand, Philippines, and Malaysia. But there's an enormous amount of interest. We've got over 65 companies have expressed an interest to buy sand. A lot of those are traders, and a lot of those are China, but we're ignoring at the moment.

We've completed exploration drilling, we've done test work, process circuit design, engineering. We were able to put out a BFS, which we did in 2019. It's got a combined NPV at a 10% discount of over 700 million. But the joy of those projects is the Capex is quite low. It's just around $30 million per project. Each project will have their own processing plant at about two million tons per year. We're leading off with Arrowsmith North. When it comes to the environmental approvals, these are going to be difficult projects. They're very big areas. We're seeking approvals for over 1,000 hectares. That presents quite a challenge. The more benign environmental conditions are at Arrowsmith North, so we're starting there.

We've got mining leases and miscellaneous licenses to access those. They've all been granted. And we're well down the track with the environmental permitting. We're about two and a half years into that process. We've lodged the referral documents for Arrowsmith North. We've lodged a draft environmental scoping document. We've got draft comments back, and we're dealing with those at the moment. There don't seem to be any big hurdles. We don't have threatened or endangered species. We do have some priority species of flora, which we're easily able to avoid. Some of the requirements in the comments we got back, are really about drafting different diagrams, so we're working on that. But the opportunity here is also potentially for future glass making in Western Australia. It's something we're trying to get the government involved in. There is no glass production in Western Australia. So, there's a big opportunity there.

We've got about $500-odd million shares on issue. We've got a number of options out there. We're market capped about $127 million. We've got $4 million in the bank. We don't need to raise money before we make a decision to mine. In fact, we're using some of that money at the moment to buy some secondhand gear that's become available and is in the right size and right condition for us. There's no debt. The board management hold a reasonable chunk. We've had a couple of capital raises last year. We've put that money in the bank.

We've got Paul Boyatzis as the Chairman. Myself. I've had about, in fact, about 40 years in the mining industry. Peter Pawlowitsch is a mining and the software executive. Steve Papadopoulos is our commercial manager. Yoonil Kim is their marketing manager. He's very important to us. We've got him loaded up with options. And his contacts in Asia are valuable. We do get a bit of brokerage coverage from Argonaut and Euroz Hartleys. They haven't been updated for a while, but they'll get updated when we get closer with the environmental approval.

But this is the important bit. If you do any research on silica sand, and people should do their own research, you will find it very difficult to find out what happens with the end use. And the biggest consideration really, there is innumerable uses of silica sand. You're staring at it for a start in LCDs. The lights above you, it's in the paint around you, the concrete around you. Really, the demand for silica sand really is concrete.

That's the biggest issue that it doesn't leave sand available for those other users, particularly making glass. It's the most used commodity on the planet, but people don't really recognise it. You think, "Oh, there's plenty of sand around. But desert sand's no good for making glass or concrete. Beach sand is certainly predominantly calcium carbonate. They're not suitable either.
Finding suitable sand, one for concrete, and more so for making glass, where you need better quality, is getting more and more difficult. And certainly in Asia, it's becoming quite an issue. So, it's a finite resource and it's rapidly, rapidly running out. The use is staggering.

Sand pricing. This is the sand pricing for flat and container glass, which is what we'll produce at Arrowsmith North. It's been steadily increasing, and that's really a recognition of the tightening up of supply. The actual consumption, it dropped last year, mainly due to COVID. But almost all the glass manufacturers that were, beginning of last year, beginning of COVID, they were very weary of doing anything long-term contracts. But now they're a lot more comfortable in doing that. With all the construction that's going on in Asia and Southeast Asia at the moment, there's a huge demand for flat glass and for concrete.

There's a predicted deficiency between supply and demand. That really, that is very dependent on the use in China. They're the biggest users by far. And that's the most difficult place to get any data. But when you talk about importers and exporters, there's almost no seaborne trade. All the Asian countries, bar Vietnam, have banned exports of silica sand. So there is no sea trade. It's very difficult to track where all this sand is going. So most of it's domestic consumption. Except that, the domestic suppliers are drying up.

I've got three projects, Arrowsmith North, Arrowsmith Central. They'll both export out of Geraldton and Muchea, which is higher quality. The critical number for making glass is 99.5% silica dark side. The iron content from then on, determines which end-user it ends up with. Muchea is 99.6, 99.7% in the ground. Now we can produce up to 99.9%. And that's suitable for making ultra clear glass. And ultra clear glass is the glass that goes over solar panels, which is the fastest growing market in glass making. So every glass manufacturer wants to be making that, but it's extremely difficult if you don't have the right quality sand.

Almost all of these... We finished the engineering on one plant and our estimated costing a couple of years ago, is still very close to the mark. It's about $30 million to put a plant in there, but the actual plant is almost the same cost for each of these. The engineering is the same. The process circuit is the same for each of them. So we don't need to re-engineer them. It's really the access and the ancillary equipment that varies between each of them. Water we get from the irrigating north. They've got terrific access from the brand highway. And each of them will end up with a hybrid, either gas, solar, or else at Muchea, probably local grid. Really, this timetable is very, very dependent on the EPA. We're getting so close to that at the moment, I can almost touch it. So, we're getting close to that. Soon as we get some more feedback from the EPA, we'll have a bit of timeline for that. But it's not far away.

Muchea, very similar. We'll probably have a mixture of grid power and solar there. We've got agreements with the state. We've got agreements with the local native title people. When we selected these sites, there were three criteria. One, had to be in the right geology. So these are granite-based sands. Two, it had to be on vacant crown land. Three, it had to be next to the railway line. This is a bulk export commodity initially. When it's on vacant crown land, there were only two stakeholders. That's a state and the native title claimants. We dealt with those.

Ditto, Muchea, it'll be behind. There's probably another year's worth of work we have to do to follow up with that. Also, a comfortable scrutiny. It's only 50 kilometers north of Perth. So, each of these projects have very good economics and they're improving all the time. That demand for this is very, very high. It's a simple process and all the equipment is out of the mineral sands industry. So there's lots of that in Western Australia. And we're identifying equipment at the moment that we can possibly get. Really, the key here is attrition. So, the rest of the circuit, attritioning is just an agitated slurry, and it's grains rubbing on grains. From that we can clean up. It polishes each of the grains. And then the rest of the circuits just getting rid of the clay that you actually rub off. So, it's simple. There's no chemicals, there's no dust and it just uses water. Uses a lot of water.

We've developed this fairly unique mining method. It's called vegetation direct transfer, where we take the top soil off and we put it back behind us where we've just been mining. There's animation on our website. You can have a look at that. I don't think I'll have time to show up today, but it'll demonstrate how we intend to do this. It is unique and it tends to throw the EPA when you put in something unique. But the bush that we've got is very similar to what sits behind me. That's actually a photograph of Arrowsmith North. It's only waist high, so the root systems only go two, 300. And we're taken 400 mill off the top. It's a very effective method.

Now, we're very cognisant of the ESG requirements. While we're at this planning stage, we can put a lot of policies and methods into place where we can minimise how we impact and maximise our use of solar. There's probably 50 windmills within 20 kilometers of where we are. I'm not sure how I'm going to get access to those, but certainly solar. We've got a gas field. The wakes here are gas filled. They're right next door to us. We could use clean energy. Locally, there's quite high unemployment. So we can get to use that quite a bit. We're being innovative about what we're doing and certainly with the rehabilitation. And with our mining method, we're looking to reduce our carbon footprint as well.

But we're certainly an industry leader. We started on this in 2017. There will be a silica sand sector in Australia. There isn't at the moment but it's rapidly growing, because it recognises that Southeast Asia needs a lot of sand. So, these are all 100% owned, quite significant resources. Ultimately, we'll get access to this ultra clear glass market with our Muchea project. There are no restrictions on exporting from Australia. So, it's recognised as low sovereign risk. Strong off-take interest. Project economics are good, particularly because of the Capex. These are very long life. And if we can, in the future, what we'd like to do is somewhere, we'll have downstream processing, particularly for glass manufacturing. Thank you very much. I think tomorrow, we'll look at aiming for a Q&A section.


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