VRX Soars 6% On ASX; Outlines Robust Market Outlook and Exceptional Project Economics

Summary

• VRX Silica charts out its key target markets, potential opportunities in silica sand market and merits of its silica sand projects.
• VRX is leveraging the growing demand for high-grade, low-iron silica sand for glass manufacture and as a component in foundry casting in the Asia region.
• The Company’s projects have exceptional project economics, robust infrastructure and significant comparative advantage.
• With approvals, offtakes and funding continuing for its silica sand projects, VRX Silica expects development to commence in later 2020.

VRX Silica Limited (ASX:VRX) has recently released its Investor Presentation for August 2020, highlighting its key target markets, potential opportunities in silica sand market and crucial merits of its silica sand projects.

VRX stock shot up by 6% to $0.105 on 25 August, following key update.

Silica Sand can be defined as quartz that over time, through the erosion by water and wind, has been broken down into tiny granules.

VRX Silica is a silica sand explorer based in Australia, which holds 100 per cent stake in three high-grade silica sand projects, including Muchea, Arrowsmith North and Arrowsmith Central, all located close to Western Australia’s Perth region. The Company’s high-value silica sand projects consist of multi-decade scale contiguous sand deposits, with combined 1,056Mt Resource grading 99.6% to 99.9% SiO₂ and low iron impurities.

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High-Value Target Markets – Glassmaking and Foundry

VRX Silica is targeting glassmaking and foundry industries for its silica sand products as these industries present significant market opportunities for the Company, as stated below:

• Asian glass making production is increasing at the rate of 5-6 per cent p.a. (~8-10 Mtpa Growth).
• Flat Glass growth in Asia stands at 5-6 per cent p.a. with current market size 60-65 Mt, while Container Glass growth in Asia stands at 5-6 per cent p.a. with current market size 70-75 Mt.
• Cover Glass (solar panels) growth in Asia is estimated at over 30 per cent p.a. with current market size ~6Mt, while Smart Glass growth in Asia stands at 5-6 per cent p.a. with current market size ~2 Mt.
• Specialist Glass growth in Asia is also estimated at over 10 per cent p.a., with current market size 500-600 kt.
• Demand for casting products for usage in auto components, automobiles and construction equipment is rising considerably.

Robust Silica Sand Market Outlook

The global supply of silica sand has become increasingly constrained due to depletion and environmental restrictions on dredging. VRX Silica is leveraging the growing demand in the Asia region for high-grade, low-iron silica sand for glass manufacture and as a component in foundry casting.

The growth in glassmaking and foundry industries is set to drive the demand for silica sand in the APAC (Asia-Pacific) region, according to VRX. Collectively, these industries represent 65 per cent of the APAC silica sand market and are high-value targets for VRX’s products.

As per the Company, the developing countries in the APAC region are expected to note significant infrastructural spending over time, driving glass demand. Besides, the foundry industry in Asia has grown on the back of manufacturing specialisation gained by countries and increased automotive demand. This also represents a key growth market for silica sand over the coming years.

In line with the rising demand and supply constraints, silica sand is also expected to increase in price across Asia-Pacific countries. Notably, key countries in the APAC region have unmet demand for silica sand amid limited local production.

Key Merits of VRX Silica’s Advanced Projects

The bankable feasibility studies (BFSs) of VRX Silica’s projects have validated exceptional project economics, as stated below:

• combined post-tax NPV₁₀ of $728 million
• capex of just $87 million
• annual EBIT of $137 million
• post-tax IRR of 83 per cent, all based on conservative silica sand sales prices.

VRX notified that the post-tax NPV₁₀ of $728 million is driven by low cost, long-life, high-margin operations. The projects are considered to be high margin operations on the back of steady-state operating margin of $20/t, which further underpins robust project economics. Moreover, the projects have attractive capex sizing, as they require low capex relative to their earnings potential.

All three projects of the Company are large-scale, high-grade and low impurity silica sands projects. These have outstanding standalone economics of over 25 years. Besides, these projects have considerably lower operating costs than domestic and international peers owing to competitive logistics solutions.

VRX Silica’s projects have access to established infrastructure such as logistics, power, water and rail lines running adjacent to project tenements, which connect them to Asian silica sand customers.

It is worth noting that the Company’s Arrowsmith North Silica Sand Project also delivers a spec (+99.5 per cent SiO₂ with simple screen) suitable for flat and container glass and foundry sand. In other words, application of a simple 0.212mm – 1.0mm screen can remove the majority of the impurities in the silica sand produced from Arrowsmith North project.

Moreover, the environmental permitting processes of these projects are well advanced (expected in Q3 CY2020) .The grant of mining leases for each project likely to become the key driver to finalise fixed price and tonnage contracts with Asian and US customers. These offtake agreements are projected to be the catalyst to financing, construction and production.

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Notably, VRX has planned a simple, no chemicals and no dust, processing plant of 2 Mtpa processing capacity for each of its Muchea, Arrowsmith North and Arrowsmith Central projects.

Way Ahead – Indicative Project Timeline

With approvals, offtakes and funding continuing for its silica sand projects, VRX Silica expects development to commence in later 2020.

The Company anticipates construction for the Arrowsmith North Project to begin in late 2020 once permitting, offtake and financing is secured. However, the construction for the Muchea project is likely to start in mid-2021.