A Look At VRX Silica’s Business Model With Key Resource In Focus; Stock Up Today

Headquartered in Australia, VRX Silica Limited (ASX: VRX) is engaged in supplying the worldwide demand for silica sand. The company identifies and delineates large scale silica sand resources close to infrastructure, explores opportunities for further processing to value-add and develops plans for the mining and export of high-quality silica sand.

The company’s major silica sand projects are located in Western Australia, including the Arrowsmith Silica Sand Project, the Muchea Silica Sand Project and Boyatup Silica Sand Project. It holds two other projects in Western Australia – Warrawanda HPQ Project which is prospective for high purity quartz and nickel sulphides, and Biranup Project that is prospective for gold and base metals.

Arrowsmith Silica Sand Project and the Muchea Silica Sand Project are the key projects of the company in Western Australia. The chart below indicates the progress to-date in these projects and the future outlook of these projects:

Uses of Silica Sand

Silica sand has been a key raw material in the industrial development across the world and has supported human progress throughout history. Let us have a look at the different uses of silica sand:

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Glass Manufacturing

Being an important component in all kinds of specialty and standard glass, Silica Sand provides the required SiO2 (Silicon dioxide) component of glass formulation. The extensive use of silica sand in the modern world in all types of glass manufacturing; production of flat glass, container glass, speciality glass and in high-capacity lithium-ion (Li-ion or LIB) rechargeable batteries, has raised the demand for silica sand in the global economy.

Foundry Industry

Industrial sand is used in a sand-and-clay mould which is utilised for casting the metal parts ranging from engine blocks to sink faucets to produce their external shape.

Metallurgical Uses

In the production of metal, silica sand works as a flux to lower the viscosity of slag and melting point of the metal, making it more efficient and reactive.

Chemical Production

Silicon-based chemicals are used in products like household and industrial cleaners to remove impurities from cooking oil and brewed beverages.

Paint and Coatings

High purity silica improves the appearance and durability of architectural and industrial paints and coatings by producing properties like brightness reflectance and colour consistency.

Ceramics

In all types of ceramic products, Ground silica is a crucial component of the glaze and body formulations. Silica products used in industrial furnaces deliver high-temperature resistance to acidic attack.

Filtration and Water Production

Industrial sand filters water, making it fit for drinking use. On coming in contact with contaminants, acids, solvents or volatile organics; silica does not degrade or react as it is chemically inert.

Oil and Gas Recovery

Industrial sand is generally known as a proppant that is used to prop open rock fissures when it is pumped down holes in deep well applications, improving the flow rate of oil or natural gas.

Construction Sand

A wide variety of building and construction products contain construction sand. Whole-grain silica is used in these products to provide flexural strength and packing density without adversely affecting the chemical properties of the binding system.

Why is Silica Sand’s Demand Rising?

The wide use of silica sand in well-diversified applications has increased its demand significantly in recent years.

The rising demand from the construction market, mounting per capita income, rising automotive production and sales, and technological advancements have resulted in the high growth of the glass market, boosting the demand for silica sand. The other factors that have contributed towards the growth of the glass industry include increasing usage of the hybrid guide plate, building glasses, solar control glazing for automotive and advanced nanotechnology in flat glass.

Asian demand is increasing for energy-saving specialised plate glass required in double glazing. In the Asian market, greater growth of the glass market is seen in China, where there is a massive glass manufacturing expansion.

As per a market research firm, the global construction glass market stood at approximately USD 91.7 billion in 2017, and it is expected to grow at a CAGR of 7 per cent, reaching at approximately USD 138.3 billion in 2023.

Besides this, the recent rise in demand for electric vehicles (EV) has increased the demand for lithium-ion batteries (LIB), thereby raising silica sand’s demand. The lithium-ion batteries are an alternative to nickel metal batteries used in electric vehicles, that have gained popularity among automobile manufacturers due to their small size and light weight.

In order to reduce their dependence on crude oil, several countries are moving towards naturally available shale gas. The extraction of shale gas is undertaken using the hydraulic fracturing process, wherein silica sand is used as a dominant proppant. Therefore, the growth in the production of shale gas is also expected to raise the silica sand’s demand.

Opportunities for VRX Silica

Sand has been labelled as a strategic resource by the Asian regional governments due to its supply deficits. Also, the environmental damage caused by often illegal mining activities is adding to the social pressure on the governments. The looming shortage of silica sand in the region has led to a rise in its prices, making Australian prospects more competitive.

The silica sand shortage in the Asia-Pacific region was identified by the company as a unique opportunity for Western Australia in early 2018. Forty-seven per cent of the global demand for silica sand comes from the Asia-Pacific region, and the demand is predicted to grow by 6.1 per cent to 138 million metric tonnes in 2019. The silica sand shortage in this region is anticipated to worsen with dwindling local supplies and increasing demand.

VRX Silica examined prospective sites which had some prior exploration indicating suitable sand and efficient logistics solutions to meet the silica sand shortage in the Asia-Pacific region. Arrowsmith Silica Sand Project and Muchea Silica Sand Project were identified by the company that have proximity to either a port and/or connecting rail.

Stock Performance: The company’s stock zoomed up by 11.90% mid-day, settling the day’s trade on the Australian Stock Exchange at AUD 0.087 (on 12th June 2019), up by 3.57 per cent relative to the last closed price.

The stock has generated a return of 44.83 per cent and 27.27 per cent in the last one month and in the previous five days, respectively.


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