Cast an Eye Over Project Funding and Mine Plan of VRX Silica’s Advanced Projects

The emerging silica sand explorer of Australia VRX Silica Limited (ASX: VRX) is committed to meet the supply shortage of the product in the area, amidst the growing demand of silica sand across the Asia-Pacific region. The company intends to develop silica sand assets in Western Australia via its three advanced silica sand projects - Muchea, Arrowsmith North and Arrowsmith Central projects.

VRX Silica has so far made considerable progress at its advanced silica sand projects, that demonstrated compelling financial metrics in their respective Bankable Feasibility Study (BFS). The economic analysis performed under BFS calculated 10 per cent and 20 per cent discounted ungeared post-tax net present value (NPV) of these three projects, summarised in the below table:

The economic analysis indicated that the financials of these silica sand projects are very robust, and there is high confidence that a viable long-term mining operation can be justified.

In addition to BFS, the company also declared the Probable Ore Reserves for all these three projects, highlighted in the below figure:

Backed by these outstanding probable ore reserves, the company intends to advance the development of these projects further. In this regard, the company has shared the project funding details for all these three projects along with the details of its mine plan for Arrowsmith Central and Muchea projects.

Project Funding

Based on the financial model declared in the BFS, the company framed a potential capital structure for the development of its advanced silica sand projects. The company expects the source of funding the capital investment at all these projects will be any one, or a combination of- equity, debt and pre-paid offtake from the project.

Muchea Project

The company has estimated a total capital expenditure of about $33 million for the Muchea project for a 2 million tonnes per annum processing plant. The financial model has assumed a maximum of $30 million in debt.

Arrowsmith Central Project

Total capital expenditure at Arrowsmith Central (for a 2 million tonnes per annum processing plant) was estimated at approximately $25.88 million, with the financial model assuming a maximum $20 million in debt.

Arrowsmith North Project

The company has assessed a total capital expenditure of around $28 million for Arrowsmith North project for a 2 million tonnes per annum processing plant. The financial model has assumed a maximum of $26 million in debt.

As per the company, the financial model provides for debt capacity and have been designed to meet the expectations of the providers of potential debt funding for their due diligence and other internal requirements. The company has planned to fund the balance of its capital requirements from equity capital.

The company has so far received positive feedback from the potential funding partners that have expressed interest for silica sand products from its projects.

The company believes that the positive feedback and compelling financial metrics of the BFS provide encouragement as to the likelihood of meeting optimum project and corporate capital requirements.

Mine Plan

Muchea Project

Based on the recent BFS study, the company aims to produce 48.3 million tonnes in the initial 25 years from the Muchea project. The production target incorporates the maiden Probable Ore Reserve of 14.6 Mt @ 99.9% SiO₂ that sits within the Mining Lease Application (MLA) area as well as a portion of the Inferred Mineral Resource.

The maiden Probable Ore Reserve constitutes about 30 per cent of the total estimated production target over the 25-year mine life for the Project BFS estimates. The company intends to mine solely from the Probable Ore Reserve for the first 9-10 years of mining operations.

The Inferred Mineral Resource available to mine within the Mine Plan Pit has been estimated at 61.4 Mt @ 99.6% SiO₂.

The company believes that an additional 1,500m of drilling would be required to upgrade the inferred resource category. It has estimated the cost for drilling, assaying and associated studies at $250,000 (at current rates) that need to be undertaken within the first 9 years of mining operations.

Arrowsmith Central Project

The company has targeted to produce 39.6 million tonnes in the initial 25 years from the Arrowsmith Central project, based on BFS estimates. The production target incorporates the maiden Probable Ore Reserve of 18.7 Mt @ 99.6% SiO₂ within the MLA area as well as a part of the Inferred Mineral Resource.

The maiden Probable Ore Reserve constitutes around 48 per cent of the total estimated production target over the 25-year mine life for the Project BFS estimates. The company aims to mine solely from the Probable Ore Reserve for the first 13-14 years of mining operations.

The Inferred Mineral Resource available to mine within the Mining Lease application area has been estimated at 29.4 Mt @ 96.2% SiO₂.

As per the company, an additional 500m of drilling would be required to upgrade the inferred resource category. It has assessed the cost for drilling, assaying and associated studies at $100,000 (at current rates) that need to be undertaken within the first 13 years of mining operations.

VRX Silica has designed the Mine Plan Pit after considering the constraints and restrictions on mining activities in the context of surrounding areas and the interests of stakeholders. Moreover, the company expects that the additional drilling will be sufficient to realise the production targets at these two projects.

Stock Performance: VRX traded at $0.120 on 18^th November 2019 (1:40 PM AEST) with a rise of 14.3 per cent relative to the last closed price. The stock has generated a six-month return of 59.1 per cent.

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