An updated mineral resource includes an indicated resource estimate of 248 million tonnes at 97.7% silica and an inferred resource estimate of 523 million tonnes at 98.2% silica.
Argonaut Securities has assigned a SPEC BUY recommendation for VRX with a risked valuation of 40 cents per share.
The following is an extract from Argonaut’s research report:
VRX Silica Ltd (VRX) has released a Bankable Feasibility Study (BFS) and maiden Ore Probable Reserve for its Arrowsmith North Silica Sands Project in Western Australia (WA). Reported metrics from the study included a 25 year mine producing ~1.8Mtpa clean silica sand generating a post-tax NPV10 of $242.3m and a 79% IRR. Pre-production capex is low at just $28.3m. The project is technically simple incorporating free-digging of dune sands and mechanical processing to remove impurities. Arrowsmith North is the first of three potential silica sand projects in WA, for which VRX has lodged three Mining Lease Applications, including the Arrowsmith Central and Muchea projects. We regard environmental permitting and offtake contracting to be the biggest risks to the projects, however the environmental approval process is progressing and the Company has received several Letters of Intent (LOI) for product offtake. SPEC BUY recommendation.
Event & Impact: Release of first BFS - Positive
Strong BFS results: The Arrowsmith North BFS outlined a 25 year mine producing ~1.8Mtpa generating a post-tax NPV10 of $242.3m and a 79% IRR. Development capex is estimated at $28.3m with ~average EBIT of $46mpa. Applying an extended start-up rate of ~1Mtpa for three years, the payback on capital is 2.4 years. A maiden Probable Ore Reserve was defined at 223 Mt @ 99.7% SiO2. The BFS uses just 24% of this, highlighting the potential for a +100-year operation at the 2Mtpa mining rate.
Simple operations: VRX will be mining unconsolidated sand dunes and using simple gravity and magnetic separation to upgrade silica and remove deleterious matter. Product will be pumped to a processing plant adjacent to an existing rail loop near Eneabba for transport to Geraldton Port. Over 90% of the mined material will be saleable with residue either being sold into local markets or placed back on mined areas. The operation requires no mining dumps, no process tails storage and no chemical processing. Rehabilitation will be conducted on an ongoing basis with only ~14 ha of disturbed land at any time.
First of several potential operations: VRX has also defined Resources at the Arrowsmith Central and Muchea projects (76.5Mt and 208Mt respectively). Muchea is the jewel in the crown with in-situ grades of over 99.6% SiO2. High purity product from this project may be amenable to high-end glass and other silica markets fetching up to US$65/t FOB. However, the projects proximity to populated areas is likely to make permitting more onerous. Argonaut estimates the three projects with a combined 6Mt pa throughput rate could generate total EBITDA of +$130m pa. Successful permitting and market penetration from the Arrowsmith North project should pave the way for subsequent operations.
Argonaut’s VRX valuation includes all three potential silica sand projects. We have applied discounts to account permitting, offtake and development risks (detailed on Page 9). Our risked valuation is $0.40/sh (unrisked $0.89/sh). We assign a SPEC BUY recommendation.