Announcement PDF VRX SILICA LIMITED ABN 59 142 014 873 ANNUAL REPORT 30 JUNE 2022 CORPORATE DIRECTORY DIRECTORS Paul Boyatzis (Non-executive Chairman) Bruce Maluish (Managing Director) Peter Pawlowitsch (Non-executive Director) David Welch (Non-executive Director) SECRETARY Ian Hobson REGISTERED AND PRINCIPAL OFFICE Level 1, 6 Thelma Street West Perth WA 6005 Telephone: (08) 9226 3780 Facsimile: (08) 9226 3764 Website: www.vrxsilica.com.au SHARE REGISTRY Computershare Investor Services Pty Ltd Level 11, 172 St George's Terrace Perth WA 6000 Telephone: (08) 9323 2000 Facsimile: (08) 9323 2033 AUDITORS RSM Australia Partners Level 32, Exchange Tower 2 The Esplanade Perth WA 6000 AUSTRALIAN SECURITIES EXCHANGE VRX Silica Limited shares (VRX) are listed on the Australian Securities Exchange. VRX Silica Limited 1 LETTER FROM THE BOARD OF DIRECTORS TO SHAREHOLDERS Dear Shareholders During the year VRX Silica continued to make solid progress on its Western Australian silica sand projects, in what has globally been a challenging environment. Disruption caused by the Covid-19 pandemic, together with an unprecedented skills shortage, has materially affected all manner of Government approvals processes. With department resources stretched to the limit advised and mandated timelines are consistently put to the test. All of the Company’s silica sand projects at Arrowsmith North, Arrowsmith Central, Muchea and Boyatup have progressed throughout the year despite these challenges, with Arrowsmith North the most advanced through the approvals process. All projects continue to attract a significant level of interest from potential offtake customers, with demand (subject to final agreed terms) for anticipated silica sand products far exceeding what we expect to be able to supply. Key areas of progress during the year include: • Continuing and expanding detailed extensive environmental studies across all silica sand projects • Finalising unique processing circuit engineering for Arrowsmith North • Issuing a tender for major processing equipment and electrical infrastructure for Arrowsmith North • Acquiring and refurbishing second hand critical equipment for Arrowsmith North • Establishment of a pilot scale test rig at Nagrom laboratories and completing trials • Developing a tailings management strategy for each project • Issuing a tender for power supply at Arrowsmith North • Drafting piping & instrumentation diagrams for Arrowsmith North • Submission of Brand Highway intersection design to Main Roads Western Australia for Arrowsmith North • Continuing proactive engagement with key stakeholders, including traditional owners, local authorities and the general public We are entering an exciting new phase for the Company as we progress to development of Arrowsmith North and work towards our goal of becoming a leading supplier of high-quality silica sand to the global market. On behalf of the Board, I would like to thank all personnel for their valuable contribution during the year and thank shareholders for their continued support. Paul M Boyatzis Chairman For and on behalf of the Board VRX Silica Limited 2 VRX SILICA LIMITED The most advanced, pure-play silica sand company on ASX Four high-value, long-life, high-grade Western Australian silica sand projects • Four multi-decade-scale contiguous sand deposits – Arrowsmith North, Arrowsmith Central, Muchea and Boyatup • A combined +1.1 billion tonne mineral resources of 99.6% to 99.9% SiO2 grade silica sand on granted mining leases over three projects, all with secure tenure • Muchea boasts ultra-high- purity product of 99.9% SiO2 with <100ppm Fe2O3 after processing, with likely higher quality after further, targeted processing • Arrowsmith North high-purity product of 99.7% SiO2 with <500ppm Fe2O3 Made-for-purpose, low capex processing plant capable of independent operation • Largely identical 2mtpa processing plants on all four projects utilising a unique flotation process, rather than spirals and screening • Flotation will reduce capex and operating costs, and produce a more consistent, high-grade and marketable product • Process circuit design and detailed engineering complete, extensive and ongoing metallurgical testing regime to refine plant operating parameters and optimal products • Flotation reagents are organic and rapidly oxidise once used, presenting no environmental issues Extensive environmental studies and approvals progressing • Extensive seasonal environmental studies conducted over a number of years in anticipation of State and Federal environmental requirements • Number and extent of required surveys expanded following further consultation with EPA • Advanced in the approvals process with the EPA for development of Arrowsmith North • Environment approvals process commenced for Arrowsmith Central Rehabilitation at the heart of mining – Vegetation Direct Transfer • VDT provides rapid and comprehensive regeneration of mined areas based on continuous rehabilitation as mining progresses • VDT removes a 3m x 3m, 400mm deep sod, with topsoil containing the vast majority of native flora and invertebrate fauna Substantial offtake interest • Bulk pilot plant scale testing programs test the process circuit and supply large samples to an extensive list of potential buyers • Initial offtake term sheet agreed for supply of Arrowsmith North foundry sand products to prominent South Korean foundry sand suppliers and users, subject to project approvals and pricing • Poised to be an Australian first, and only, supplier of foundry sand to South Korea • Substantial interest from significant players across the Asia Pacific for silica sand products from all four projects Arrowsmith North in final stages of approval, targeting production in 2023 • First project slated for commencement of production in 2023 • Project in last stages of environmental and mining approvals processes • Environmental review document (ERD) close to release for public review and comment. Provides a comprehensive summary of the environmental setting, physical and operational elements of the mine and infrastructure, environmental impact and mitigation and proposed rehabilitation and closure plan • Mining proposal finalised for DMIRS approval, subject to EPA approval • Indicative timetable from the EPA for development anticipates final approvals in late 2022 with plant construction following in early 2023 • Plant and equipment procurement process well-advanced to enable timely construction following a decision to mine • Long-lead plant items identified, specification and production of tender documentation for processing equipment underway • Substantial interest in financing and offtake to underpin project Arrowsmith North – Key Environmental Assessment Milestones Past • Desktop, recce and detailed flora and a surveys • Desktop, basic, detailed and targeted fauna surveys • Short Range Endemic species desktop and field assessment • Terrestrial Environmental Quality Q4 2022/Q1 2023 • Dieback field and follow up assessment EPA produces assessment report Minister approves • Surface Water Drainage assessment • Groundwater Hydrology Q4 2022 ERD approved and released to public • Acid Mine Drainage • Social Surrounds and Archaeological and Ethnographic Heritage survey • Cultural Values and Heritage assessment • Greenhouse Gas Emissions estimation Future • Air Quality assessment • EPA accepts ERD July 2022 ERD lodged March 2022 ESD approved • ERD released for 4 week public review • EPA provides summary of public submissions to proponent • EPA reviews proponent response to submissions • EPA accepts and publishes proponent’s response to submissions Oct 2021 EPA referral approved • EPA finalises assessment report (including consultation on draft conditions) and sends recommendation to Minister for the Environment 2019-2021 Detailed environmental studies • Minister for Environment grants approval for project 2018 Baseline and desktop studies COMPANY REVIEW Review of Operations The following is a summary of the activities conducted by VRX Silica Limited (VRX or Company) during the financial year ended 30 June 2022 at its silica sand projects at Arrowsmith North, Arrowsmith Central (located 270 km north of Perth), Muchea (located 50 km from Perth) and Boyatup (located 100 km east of Esperance), all situated in Western Australia. VRX Silica Sand Resources VRX is a Western Australian based pure-play silica sand exploration company with four high-value, advanced, very long-term, high-grade and low impurity silica sand projects in Western Australia, a Tier 1 mining region. The Company has multi-decade scale contiguous sand deposits on granted Mining Leases with secure tenure and a combined +1.1bn tonne Mineral Resource of 99.6% to 99.9% SiO 2 grade silica sand (see Table 1). Project Muchea Arrowsmith North Arrowsmith Central Boyatup* Classification Mt SiO₂ % Al₂O₃ % Fe₂O₃ % TiO₂ % LOI % Indicated Inferred Total Indicated Inferred 29 172 208 248 523 771 28.2 48.3 76.5 60 60 99.6 99.6 99.6 97.7 98.2 98.0 96.6 96.9 96.8 97.8 97.8 0.09 0.05 0.06 1.00 0.80 0.86 1.70 1.50 1.50 0.83 0.83 0.03 0.02 0.02 0.40 0.30 0.30 0.40 0.40 0.40 0.23 0.23 0.07 0.10 0.10 0.20 0.20 0.17 0.20 0.20 0.20 0.13 0.13 0.22 0.23 0.23 0.50 0.40 0.41 0.70 0.70 0.70 0.88 0.88 Total Indicated Inferred Total Inferred Total Total Mineral Resource 1,116 Million Tonnes** * Boyatup Mineral Resource Estimate announced to ASX on 18 August 2022 ** See material assumptions statement on page 19 Table 1: Silica Sand Mineral Resources as at 30 June 2022 Each project can be run independently and supply high grade silica sand to many diverse markets. Applications for Silica Sand Silica sand is the most-used commodity on the planet after air and water. It is the main ingredient in all types of glassmaking, including containers, flat glass and specialty solar panel and high-tech glass. The glass manufacturing industry demand is increasing at a rate of 5-6% per year, or about 8-10 million tonnes pa. Around 47% of the world’s glass is made in Asia. Silica sand is an essential component of the foundry and casting industries. The largest foundry industry is in South Korea, which dominates these industries, particularly for large marine components. Silica sand is the main ingredient in concrete and building cladding. VRX Silica Limited 5 COMPANY REVIEW It is also a component of many household products such as paint, plastics and insulation and automobile components such as glass and tyres. Silica sand is a finite resource that is rapidly being exhausted with the Asia-Pacific region currently experiencing increasing demand at a time of a global supply shortfall. Figure 1: Applications for silica sand A Project development pipeline to ensure a disciplined, staged development of world-class assets VRX has the most-advanced silica sand projects in Australia for an ASX listed company, having commenced planning, Aboriginal heritage and environmental studies in 2017. The Arrowsmith North silica sand project will lead a staggered and disciplined development program, followed by Muchea and Arrowsmith Central. Resources have been reported for all four projects with Mining Leases granted over three projects as well as various Miscellaneous Licences for access. Permitting and infrastructure preparations are well-advanced, with Arrowsmith North in the final stages of approval. The scale of the projects provides for a long-term opportunity for silica sand export and potential for glass manufacturing and downstream industries in Western Australia. VRX Silica Limited 6 COMPANY REVIEW Arrowsmith North – Near-term development opportunity on a world-class silica sand project The mining and processing operation is relatively simple and low impact. Long-term production is expected to commence in 2023 at Arrowsmith North on the 223Mt Probable Ore Reserve1 @ 99.7% SiO2, subject to final environmental and mining approvals. Classification Product Recovery Mt N20 24% Probable N40 / NF500 60% Local Market 6% Arrowsmith North Probable Ore Reserve 60 149 15 223 SiO2 % Al2O3 % Fe2O3 % TiO2 % LOI % 99.7 0.2 0.05 0.035 0.1 Million Tonnes Table 2: Arrowsmith North Probable Ore Reserve (as at 30 June 2022) Process circuit design and detailed engineering for a tailored 2Mtpa processing plant, with a unique patented process circuit, has been undertaken following an extensive metallurgical testing regime. Bulk testwork programs continue to refine the operating parameters and provide final product samples to an extensive list of potential buyers. The results of additional bulk testwork programs undertaken during the March and June 2022 quarters were received in August 2022. These programs produced sufficient final product for the large samples (50-60kg) required for glassmaking furnace testing and foundry resin coating testing. The samples have been requested by an extensive list of potential buyers following previous successful testwork on smaller (1-5kg) samples. Geotechnical surveys have been completed for the plant site and access roads. The plant design has determined the location of non-process infrastructure requirements. The creation of an overall site and plant model will culminate in 3D modelling, which can be viewed on the Company’s website (www.vrxsilica.com.au). The Company has identified long-lead items and has commenced the specification and production of tender documentation of processing equipment for the plant in preparation for the procurement process. This will enable a timely construction program following a decision to mine at Arrowsmith North. Water is a critical component for the viability for any silica sand processing. The Company has secured this critical component by successfully drilling a 400 metre deep water bore to access water from the Yarragadee North deep aquifer with aquifer confirmation testing to supply data for an abstraction licence application for 0.9Gl per year of water. This deep bore will ensure that the surficial water aquifer is unaffected. Monitoring boreholes for a borefield have been completed. The plant has been designed to operate predominately with recycled water. Gas pipelines run adjacent to each of the project areas and it is planned for the plant in the medium to long term to run on a hybrid gas and solar power supply following a tender process for power supply contractors. Arrowsmith North has access to established infrastructure such as the unused rail line (from Eneabba to Geraldton) which runs adjacent to the Arrowsmith project tenements. A joint co-operation agreement with Mid West Ports Authority (for export of silica sand product from Geraldton Port) has been signed and collaboration has commenced with Arc Infrastructure for a dedicated train unloader at the Geraldton Port. The Company has access to the adjacent Brand Highway and a road intersection plan has been submitted to Main Roads to enable road transport of silica sand product in the short term. 1 See ASX announcement of 28 August 2019 and material assumptions statement on page 19 VRX Silica Limited 7 COMPANY REVIEW Heritage – Arrowsmith North VRX has conducted comprehensive Aboriginal Heritage Surveys over the 30-year mining envelope at Arrowsmith North and access roads. These surveys were conducted with Aboriginal Consultants from the Yamatji Southern Regional Corporation, anthropologists and VRX. No previously unrecorded Aboriginal archaeological sites were found during the surveys which was consistent with previous surveys in the area. The absence of newly recorded Aboriginal sites demonstrates that unsuitable conditions exist for the formation and persistence of surface archaeological sites or previously unrecorded ethnographic sites within the project area and surrounds. There are no recorded heritage features in the survey area requiring action or management. During the Heritage surveys the Company engaged the consultants to record fauna observations while traversing the survey area. These observations were compiled at the end of each day to provide a first-hand summary of field observations of potential fauna sightings. This data has been incorporated into fauna submissions as part of the environmental approvals process. The Company has used this exercise as an introduction to the proposed Ranger program with the Yamatji Southern Regional Corporation. Vegetation Direct Transfer VRX has developed a unique and progressive mining and rehabilitation method for its silica sand projects. The Vegetation Direct Transfer (VDT) method provides rapid and comprehensive regeneration of mined areas based on continuous rehabilitation as mining progresses. The VDT method is a made-for-purpose mining method which removes and relocates a 400mm-deep sod with topsoil to the mined area containing the vast majority of native flora and invertebrate fauna remaining intact. At the VRX selected mine areas, the root structures in the loose sand are relatively shallow at 200-300mm in depth and ideally suited to the VDT system. The method has been developed to provide the best rehabilitation outcome for the recalcitrant sedges and grass species. The VDT methodology can be viewed at: https://vrxsilica.com.au/miningandrehabilitationmethodology/ QA/QC Metallurgical Testwork Extensive metallurgical testwork has been undertaken by sand processing metallurgical specialists BHM Process Consultants to ensure throughput and quality can be maintained. This has resulted in the development and successful testing at lab and bulk scale of a new and unique process circuit incorporating flotation to replace spirals. A patent application for the process has been lodged by BHM to protect the unique intellectual property for the benefit of VRX to utilise and share in future licensing opportunities. Flotation will replace spirals and screening by upstream classifying, which is intended to not only reduce capex and operating costs but also produce a more consistent high grade marketable product. The flotation reagents are organic and rapidly oxidise once used, presenting no environmental issues. Bulk pilot plant scale testing has been undertaken to test the process circuit and supply further large samples to potential buyers. Testing to date has resulted in an Arrowsmith North product of 99.7% SiO 2 with Fe2O3 <500ppm after processing and a preliminary Muchea product of 99.9% SiO 2 with Fe2O3 <100ppm after processing (high-grade). The Company’s goal is to provide consistent QA/QC production and extend the silica sand resources that can be processed to its maximum grade for sale. VRX Silica Limited 8 COMPANY REVIEW Environmental Approvals Arrowsmith North VRX has conducted extensive environmental studies over the Company’s silica sand projects over a number of seasons in anticipation of requirements of the State and Federal environmental regulation authorities to undertake approvals assessments. These surveys commenced shortly after the tenements were acquired and the number and extent of these surveys have expanded following further consultation with these authorities. The Company has initially concentrated on gaining approval for development of the Arrowsmith North project. VRX has received confirmation from the Commonwealth Department of Agriculture, Water and the Environment (DWER) for accredited approval under the Environment Protection and Biodiversity Conservation Act 1999 (EPBC Act). Accreditation of the Environmental Protection Authority of Western Australia’s (EPA) assessment processes means that the Commonwealth can rely on environmental assessments undertaken by the EPA for the purpose of its approval decisions under the EPBC Act on proposals that are likely to have a significant impact on a matter of national environmental significance. If the EPA assesses a proposal at the level of Public Environmental Review (PER), as is the case for Arrowsmith North, separate assessment by the Commonwealth is not required. In late 2021 the Company finalised its mining proposal for Arrowsmith North for lodgment at the Department of Mines, Industry Regulation and Safety (DMIRS) subject to the receipt from the EPA of approval for the Company’s Environmental Scoping Document (ESD) for the project. An initial project scope document was prepared and discussed with DMIRS prior to its lodgement. The ESD was lodged with the EPA in September 2021 and approved in April 2022. In May 2022 the Company lodged the Environmental Review Document (ERD) with the EPA for Arrowsmith North. The ERD document is required under the EPA’s PER process and will be released for public review following the review by the EPA and other relevant authorities. The ERD was prepared according to the procedures in the EPA’s Environmental Impact Assessment (EIA; Part IV Divisions 1 And 2) Procedures Manual (EPA, 2021b). The ERD is a comprehensive summary of the project environmental setting, the physical elements of the mine and infrastructure, operational elements, the extent of effects on the environment and the proposed rehabilitation and closure plan. An important feature of the proposed rehabilitation is the use of the unique VDT method to restore of the mine area vegetation and habitat. The Company received a request from the EPA for further information on 4 July 2022 and the response was submitted on 12 July 2022. The Company awaits EPA confirmation of when that the document will be released for public review. The indicative timetable for the development of Arrowsmith North anticipates final EPA approval in December 2022, with the six-month construction phase scheduled to commence in January 2023, subject to formal consent required from the State Minister for Environment. Arrowsmith Central The Arrowsmith Central proposal was referred to the EPA under s. 38 of the EP Act in September 2021 The initial referral to DAWE for EPBC assessment of the Arrowsmith Central project was lodged in October 2021. VRX has been informed by DAWE that the proposal is a Controlled Action and DAWE will accept the State EPA accredited assessment. In December 2021, the EPA issued to the Company a notice under s. 38F (1) and (2) of the EP Act to supply further information to incorporate additional material from the September 2021 detailed flora and vegetation study at Arrowsmith Central. This was submitted to the EPA in February 2022. VRX Silica Limited 9 COMPANY REVIEW The revised referral package was reviewed and in April 2022 the EPA determined that an amendment application under s. 38C of the EP Act was required prior to the EPA making a decision whether or not to assess the proposal. The additional information was lodged in May 2022 and included alignment with new EPA guidance that was issued in March 2022, subsequent to the original lodgement date. This led to the inclusion of a proposal content document section, holistic impact section, cumulative impact section, restructure of the impact tables, revision of development envelopes, disturbance footprints and updated figures. In June 2022, as expected the EPA determined that the proposal should be assessed at a PER level of assessment and the ESD for Arrowsmith Central was to be submitted to the EPA for assessment later that same month. The Company awaits the EPA’s comments on this document. Offtake The Company has entered into an initial offtake term sheet for the supply of Arrowsmith North foundry sand products to the South Korean foundry industry, with strong interest from other potential customers in SE Asia at a time of diminishing global supply and increasing demand. The customers, prominent South Korean foundry sand suppliers and users, Dong A Heung Eop Mining Co. Ltd (Dong A) and Dong Nam Corporation (Dong Nam) supply casting and silica sand to Kia, Hyundai, Daewoo and Samsung Renault. This is a first for VRX and Australia, as it is the first and only intent to supply agreement for foundry sand from Australia to South Korea. The term sheet, which is non-binding and conditional on project approvals, sets out the terms and conditions for a FOB silica sand supply contract from Geraldton Port, as well as product specifications, quality control and variation limits, term and quantity determination, sampling and analysis procedures, dispute resolution, FOB (INCO 2020) terms and required documentation and Letter of Credit payment terms. The final purchase price is to be determined once the delivery date can be committed. Muchea - Large scale, world class high-grade silica sand project Once production is underway at Arrowsmith North, the Company expects to commence development at Muchea on the 18.7Mt Probable Ore Reserve2 @ 99.8 to 99.9% SiO2. Classification Product Recovery F80 48% F80C 20% F150 20% Muchea North Probable Ore Reserve Probable Mt 10.2 4.25 4.25 18.7 SiO2 % Al2O3 % Fe2O3 % TiO2 % LOI % 99.9 0.02 0.008 0.03 0.1 99.8 Million Tonnes Table 3: Muchea Probable Ore Reserve (as at 30 June 2022) Muchea sits adjacent to established infrastructure such as grid power, road (Brand Highway), rail (underutilised railway line to Kwinana Port) and two gas pipelines. Water will be sourced from the Yaragadee deep aquifer. As for Arrowsmith North, the mining and processing operation is relatively simple and low impact. The processing plant will be identical to that at Arrowsmith North and will utilise the same unique flotation process and upstream classifying. 2 See ASX announcement of 18 October 2019 and material assumptions statement on page 19 VRX Silica Limited 10 COMPANY REVIEW This is intended to not only reduce capex and operating costs but also produce a more consistently highgrade marketable product. Testing to-date at lab scale 20-40kg samples, has resulted in 99.9% SiO2 with Fe2O3 <100ppm after processing (high-grade). The Company has received a substantial number of enquiries from international buyers for Muchea silica sand. The production of such consistently high-grade silica sand with a low iron content will be in high demand as raw material for the manufacture of premium ultra-clear cover glass production, particularly for the burgeoning solar panel manufacturing industry. Figure 2: Muchea Banksia open woodland In July 2021, VRX commissioned Mattiske consulting to undertake a detailed springtime flora and vegetation study on the priority area in the north of the Muchea silica sand project area. This is in addition to a 2017 desktop survey and a field survey in spring 2018. The survey area included 884ha of proposed mining area and proposed access routes. A comprehensive flora and vegetation assessment of the survey area has been prepared, and includes: • An assessment of the area at a suitable scale that allows the vegetation communities to be delineated, including replicate survey sites in similar vegetation types to enable statistical analysis of flora species data. • The collection and identification of the vascular plant species present in both the survey sites and opportunistically in order for a more complete assessment of the flora in the survey to be made. • A review of the conservation status of the vascular plant species recorded by reference to current literature and listings by the Department of Biodiversity, Conservation and Attractions (DBCA) and plant collections held at the Western Australian State Herbarium (WAH), and listed by DAWE under the EPBC Act. • Collation and analysis of data and comparison with local and regional datasets and analyses. • Definition and mapping of the vegetation communities, Floristic Community Types (FCTs) and SiteVegetation Types (SVTs) in the survey area. VRX Silica Limited 11 COMPANY REVIEW • Definition and mapping of the location of any Threatened or Priority flora and any Threatened or Priority Ecological Communities located within the survey area. • Definition of any management issues related to flora and vegetation values. • Provision of recommendations on the local and regional significance of the vegetation communities In combination with previous flora and fauna survey reports the detail in this report will allow VRX to select areas of mining that will have the least impact to the environment and habitats. Further detailed flora, vegetation and fauna studies have been commissioned for the spring season in 2022 on provisional mining areas. Boyatup In March 2022 VRX conducted a 206 hole, 312m, 400m x 800m spaced air core drill program over nine days at its 100% owned Boyatup silica sand project, located approximately 100km east of Esperance, Western Australia. Results of early work undertaken by VRX and the previous tenement holder indicate in-situ sand grades up to 99.7% SiO2 with potential to produce a very low Fe2O3 product. This drilling campaign enabled a maiden Inferred Mineral Resource Estimate of 60 million tonnes at 97.8% SiO23. Drilling also produced bulk material for metallurgical testwork to determine the product quality that the project can produce. Preliminary testing demonstrates that the Resource can be processed to high-quality glassmaking sand. A heritage (site avoidance) survey was undertaken by the Esperance Tjaltjraak Native Title Aboriginal Corporation (ETNTAC) who cleared the area for the drill program. Environmental desktop studies over the area have commenced with databases from the DBCA received to review regional data on: • Priority flora • Priority ecological communities • Threatened ecological communities; and • Significant fauna. The desktop studies will be reviewed to select potential production sites with the lowest environmental impact in line with our ESG priorities. The Solar Panel Industry To meet 2050 greenhouse gas targets the world requires +400GW of solar installation per year. A record 140GW was installed in 2020. The majority of solar panels are manufactured in