Announcement PDF VRX SILICA LIMITED ABN 59 142 014 873 ANNUAL REPORT 30 JUNE 2023 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 Ground Floor, 52 Kings Park Road West Perth WA 6005 Telephone: (08) 9226 3780 Website: www.vrxsilica.com.au SHARE REGISTRY Computershare Investor Services Pty Ltd Level 17, 221 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 VRX Silica Limited, your company, has continued to make solid progress in the advancement of its silica sand projects in Western Australia. VRX holds the most advanced silica sand projects of any ASX-listed company. The total Mineral Resource within all of the company’s silica sand projects was upgraded during the year to 1,381 million tonnes, underpinning a long-term opportunity for silica sand export and downstream value-adding (including glass manufacturing) in Western Australia. Arrowsmith North remains on track to become VRX’s first silica sand mine in production. A significant milestone was reached during the year with the Environmental Protection Authority of Western Australia approving release of the Arrowsmith North Environmental Review Document for a 4 week public review period. The public review and response process is the final step before the EPA prepares an assessment report and recommendations for the proposal for the State Minister for the Environment. VRX is currently working through this process with the EPA. Environmental approval for Arrowsmith North is crucial and a precursor to the company’s ability to secure other necessary approvals for mining. Other developments at Arrowsmith North during the year include completion of metallurgical testwork, process circuit design and engineering to fabrication stage with a construction program and an orderly procurement process. Specifications and long lead items for processing equipment have been identified and tender documentation prepared. Solutions for key processing and export infrastructure are well-advanced, with a competitive power solution identified and approval by Main Roads WA of the Brand Highway road intersection design and construction. Additionally, the company is in advanced discussions with Mid West Ports Authority for a long term export solution at Geraldton Port with a dedicated storage and ship-loading facility. At the Arrowsmith Central and Muchea silica sand projects, the company has undertaken further metallurgical testwork and process circuit design to identify additional silica sand products that may be produced from these sites. The company has also progressed additional survey work ahead of environmental approval applications for those projects. Other initiatives during the year include the company’s successful application for a grant from the WA State Government Investment Attraction Fund for $2 million in matched funding to produce high purity quartz (or HPQ) flour. The formation of a strategic research partnership with the School of Photovoltaic and Renewable Energy Engineering of the University of New South Wales to investigate the market potential for a local, low carbon, solar panel glass recycling program in Australia. Demand for silica sand from VRX’s projects, and Muchea in particular, is sizeable as global supply side constraints continue to worsen. Both the Arrowsmith North and Muchea silica sand projects were included in Austrade’s 2022 Australian Critical Minerals Prospectus, demonstrating the Australian Government’s recognition of silicon and silica sand as critical minerals. Finally, with the completion of VRX’s recent capital raising initiative, the company is well-funded to progress through the present approvals phase into development at Arrowsmith North. On behalf of the Board, I would like to thank all personnel and contractors for their valuable contribution during the year and shareholders for their continued support, despite a protracted approvals process and broader challenging macroeconomic environment. Bruce Maluish Managing Director For and on behalf of the Board VRX Silica Limited 2 The most advanced, pure-play silica sand company on ASX Five high-value, long-life, high-grade Western Australian silica sand projects • Five multi-decade-scale contiguous sand deposits – Arrowsmith (North, Brand and Central), Muchea and Boyatup • A combined 1.38-billion-tonnes of mineral resources of 99.6% to 99.9% SiO2 grade silica sand on granted mining leases over four projects, all with secure tenure • Arrowsmith North high-purity product of 99.7% SiO2 with <500ppm Fe2O3 and on track to become VRX’s first silica sand mine in production • Muchea boasts ultra-high- purity product of 99.9% SiO2 with <100ppm Fe2O3 after processing, with likely higher quality after further, targeted processing Made-for-purpose, low capex processing plant capable of independent operation • Largely identical 2mtpa processing plants on all 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 at an advanced stage • Extensive environmental studies conducted over a number of seasons • Environmental review document for Arrowsmith North 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 • Arrowsmith North in last stages of environmental and mining approvals processes • Muchea and Arrowsmith Central to follow and largely mirror Arrowsmith North approvals processes 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, preserving topsoil and 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 • Offtake term sheets 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 projects COMPANY REVIEW Review of Operations The following is a summary of the activities conducted by VRX Silica Limited (VRX or Company) during the year ended 30 June 2023 at its silica sand projects at Arrowsmith North, Arrowsmith Brand and Arrowsmith Central (located 270 km north of Perth), Muchea (located 50 km north of 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 and development company with five high-value, advanced, very long-term 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 1.4Bn tonne Mineral Resource of 95.9% to 99.6% SiO 2 high grade silica sand. The Company and its management team is WA based as are its five large scale, high-grade and low impurity silica sand projects. Each project can be run independently and will supply high-grade silica sand to many diverse markets. Figure 1: Project Locations VRX Silica Limited 4 COMPANY REVIEW Applications of 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 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 manufactured in Asia. Silica sand is also an essential component of the foundry and casting industries. The largest foundry industry is in Korea where it dominates the industry particularly for large marine components. Lower quality silica sand is also the main ingredient in concrete. Silica sand is a finite resource that is rapidly being exhausted and the Asia-Pacific region is currently experiencing increasing demand at a time of a global supply shortfall. Project development pipeline to ensure a disciplined, staged development of world-class assets The Arrowsmith North silica sand project (Arrowsmith North) will lead a staggered and disciplined development program, followed by the Muchea silica sand project (Muchea), the Arrowsmith Central (Arrowsmith Central) and Arrowsmith Brand (Arrowsmith Brand) silica sand project and the Boyatup silica sand project (Boyatup). VRX has the most-developed ASX listed company silica sand projects in Australia with planning, Aboriginal heritage, environmental approvals, metallurgical testwork studies and plant engineering well advanced, having commenced in 2017. Mining Leases are granted over four of its five projects as well as various Miscellaneous Licences for access, with permitting and infrastructure preparations well-advanced. 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. Critical Minerals Publication In December 2022 VRX announced its Arrowsmith North and Muchea silica sand projects have been included in the Australian Critical Minerals Prospectus for 2022 published by Austrade and launched by the Hon. Don Farrell, Minister for Trade and Tourism. The prospectus includes technical, commercial, and geological data to facilitate investment into projects for Australia’s identified critical minerals. To-date, the prospectus has received significant recognition among interested foreign investors and buyers, Australian corporates, and the Australian government for its significant role in marketing opportunities in the Australian and export markets. The recognition by the Australian Government that silicon and silica sand are a critical mineral and that VRX has significant potential to address anticipated production shortfalls, build supply chain security, and help deliver progress on a net-zero future is an important step forward. The publication has been widely distributed by Austrade during Government trade delegation promotional trips to trading partner countries. This has driven a significant increase in enquiries from countries visited for the purchase of silica sand products from Australian producers. VRX has been contacted by potential trading partners from India for glassmaking and foundry sand, and Indonesia, Saudi Arabia and China for glassmaking sand. These enquiries have confirmed the fundamental issues concerning the dwindling supply of silica sand globally, particularly high-grade sand, and the looming shortfall that has been predicted for some time. VRX continues to engage with potential buyers that have received samples of products from Arrowsmith North and Muchea. Arrowsmith North The mining and processing operation is relatively simple and low impact with long-term production expected to commence initially at Arrowsmith North on the 221Mt Proved and Probable Ore Reserve (9.2Mt Proved and 212Mt Probable) in 2024, subject to final environmental approvals. A revised capital estimate is currently underway on a tailored 2Mtpa processing plant with a unique patented custom process circuit. VRX Silica Limited 5 COMPANY REVIEW 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 forwarded to an extensive list of potential buyers. 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 in order to enable a timely construction program following a decision to mine at Arrowsmith North. Delays in the approvals process that have afflicted the resources industry in general in Western Australia have necessitated the tender process for major equipment to be deferred until a more precise commencement date can be established. However, previous tenders have identified Original Equipment Manufacturers (OEM) that will be requested to supply updated tenders. Engineering In May 2023 VRX announced it has completed all material engineering work for construction of a 2 million tonne per year silica sand processing plant at Arrowsmith North. The detailed design phase of the project is largely complete. Remaining minor areas/items will be easily and efficiently detail designed during the execution phase of the project, without affecting the execution schedule. This phase of engineering has been based on a comprehensive metallurgical testwork program and peer reviewed process circuit design and testing. The design incorporates some innovative processing techniques which allows flexibility for the Company to produce multiple products subject to market requirements for foundry and glassmaking silica sand. This stage of the project follows an extensive testing program that VRX has conducted over the last few years with its metallurgical consultants. The Company has developed a number of unique processes to produce the most valuable, high yield and high-quality silica sand products possible. This design work by the engineering team at ProjX will allow a very long production future at Arrowsmith North with low emissions and carbon footprint. Detailed Design The following areas/items are detail designed, peer reviewed and ready to progress to execution: • Site and plant layout drawings. • The attritioning/flotation building (structural, mechanical, and concrete packages). • The product area (structural, mechanical, and concrete packages). • Rejects cyclone stacker. • Civil works for the plant & product area. • Civil works for the southern access road. • Civil works for the Brand Highway interface. (Note that this has been fully approved by Main Roads WA). • Concrete has been detail designed. • Electrical reticulation design and single line diagrams. • Process Flow Diagrams (PFDs). • Piping & Instrumentation Diagrams (PIDs). • Circuit mass balance. • Water management. • Mechanical Equipment List (MEL). • Fabrication drawings verified. • 3D design model. The functional control philosophy document is currently being developed. VRX Silica Limited 6 COMPANY REVIEW The following areas/items are concept designed only and will be detail designed or completed during the execution phase of the project: • • The mine plant area, including the feed hopper, transfer conveyors, trommel and other associated equipment such as water tank & pump skids, pipe systems etc. This area is all concept designed but is essentially comprised of vendor equipment linked together. The trommel is sourced and refurbished, and the other vendor equipment has been tendered and the preferred vendor selected. Finalisation of this area and design of ancillary items will be completed during the execution phase. Non-Process Infrastructure (NPI) will be designed/selected during the execution phase but have been included in site layout drawings. This includes items such as the following: o Admin, crib, toilet buildings etc and associated water and wastewater system. o Fire and raw water services. o Workshop, stores, laydown, etc. o Vehicle wash bays. Equipment The following major equipment has been tendered, selected as preferred and therefore used in the detailed design: • Cyclone cluster. • Attritioners. • Hydrofloat separators. • Classifiers. • Conditioning tank. • Thickener. • Transformers. • Ring main unit. • MCC/switchrooms. • Product dewatering screens. • Feed hopper and conveyors (preferred vendor yet to be selected). • Slurry pumps (preferred vendor yet to be selected). • Water pumps. • Air compressors. The following minor equipment is yet to be officially tendered: • • • • • Bore pumpset. Transportable buildings. Samplers. Pipe supply. Fabricated steelwork, chutes, etc. Project Execution Schedule The most recent execution schedule uses the following key milestones prior to the decision to commence construction: • • • • Finalise finance and establish construction commencement date. Site access date to construct the northern access road. Approval to place orders for major long lead equipment. Site access date for plant construction. VRX Silica Limited 7 COMPANY REVIEW Project Cost Estimate The baseline project cost estimate, determined at a preliminary level in 2019, was $28.3M (including ~$6M contingency). The cost estimate will be updated during 2023 as key equipment is re-tendered. There has been a significant increase in costs for steel and concrete since 2019. The cost estimate will be reviewed and updated prior to the decision to commence construction. Major Equipment Procurement VRX has prepared a summary of the major long lead time equipment that will be procured and has recently refreshed the quotations for most of these items. Some equipment has not been tendered for some time and will require re-tendering closer to the execution phase. Timing for procurement is subject to the approvals process, primarily with the Environmental Protection Authority of Western Australia (EPA). When evaluating tenders VRX uses a Tender Evaluation (TEV) process to summarise the tender submissions and to essentially land on the preferred tender. Short Term Ongoing Works VRX intends to carry on with the following development tasks. • • • • • • • • Rearrange the execution cost estimate to show costs by area rather than by task, for inclusion in the data room for due diligence by financiers. This is a short-term priority. Evaluate recent re-tendering of key major equipment and follow up on other equipment that has not been re-tendered recently. Continuously update a summary of lead times for major equipment suppliers to carry out the detailed design of their equipment, in order to reduce their equipment lead times. Continue to refine the execution cost estimate in light of recent retendered equipment and other information. Refine the execution schedule estimate in light of recent retendered equipment and other information. Produce a manning histogram for the execution phase and investigate accommodation planning as necessary. Review the Operating & Control Philosophy. Liaise with the power provider to assist with the development of the preferred power option Key Plant Equipment VRX has previously announced the start of project capital expenditure for its Arrowsmith North processing plant, with the purchase of two major items of sand processing capital equipment. VRX has purchased locally a 3m diameter x 8m long RCR-designed feed trommel (see Figure 2) and a 3.6 x 8.5m Schenck “banana” vibrating screen (see Figure 3). This equipment has been refurbished by Bunbury based workshops. The banana screen has undergone strip, non-destructive testing and refurbishment by the OEM (Original Equipment Manufacturer) and is complete. VRX will continue to pursue other lead time and cost-saving opportunities to capitalise on its first-mover advantage in Western Australia’s emerging silica sand sector, at a time when there is fast-rising global demand for high-quality, responsibly sourced silica sand. VRX Silica Limited 8 COMPANY REVIEW Figure 2: FeedTrommel Figure 3: Schenk vibrating banana screen VRX Silica Limited 9 COMPANY REVIEW Process Water A process water bore was successfully drilled to access water from the Yarragadee North deep aquifer with aquifer testing to supply data for an abstraction licence application for 0.9Gl of water for the Arrowsmith North processing plant requirements. Monitoring boreholes for the borefield have been completed. The plant has been designed to operate predominately with recycled water. VRX has also successfully completed a production bore and monitoring bores for abstraction at Arrowsmith Central, 20kms to the south of Arrowsmith North. Results from the pump testing at Arrowsmith Central will contribute to the assessment modelling for both Arrowsmith North and Central water abstraction. Figure 4: Bore testing equipment VRX Silica Limited 10 COMPANY REVIEW Power Supply In March 2023 VRX announced it has executed a letter of intent (LOI) with ResourcesWA to investigate a proposed power supply solution for the Company’s Arrowsmith North Silica Sand Project utilising gas directly from a local wellhead. The purpose of the LOI is to investigate the potential to establish a powerhouse, with containerised gas reciprocating engines, at a nearby gas wellhead site with direct offtake from the existing gas plant and reticulation to the Arrowsmith North site via a dedicated transmission line. ResourcesWA has a fully resourced and operational project development, delivery and asset management team. The proposal is inclusive of all design, construction and operational requirements to provide a 100% turnkey Build, Own and Operate solution. VRX has been considering for some time how to best take advantage of the abundant supply of LNG from nearby gas fields to meet power requirements at Arrowsmith North. Desktop modelling indicates that a gas-driven powerhouse and transmission solution is not only cost effective but will reduce the project’s carbon footprint and expected greenhouse gas emissions. This power solution has the potential to provide the most economic low emission power supply to Arrowsmith North. Logistics The Company is continuing discussions with the Mid West Ports Authority (MWPA) for export of silica sand product from Geraldton Port to enable a storage area and shiploading within their Port Maximisation Plan. Proposed sites for future storage and berth access for shiploading have been identified. The Company has access to the adjacent Brand Highway from the Arrowsmith North processing plant site and an approved road intersection construction plan from Main Roads WA to enable road transport of silica sand product in the short-term. The Company is preparing tender documents for the short-term haulage operations. Major Advance In Arrowsmith North Environmental Approvals Process VRX has conducted extensive environmental studies on its 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 (now Department of Climate Change, Energy, the Environment and Water) (DCCEEW) for accredited approval under the Environment Protection and Biodiversity Conservation Act 1999 (EPBC Act). Accreditation of the EPA’s 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. The Arrowsmith North proposal was referred to the Western Australian Department of Water and Environmental Regulation (DWER) and the EPA for assessment under Part IV, Section 38 of the Environmental Protection Act 1986 (WA) (EP Act) in March 2021. The referral was reviewed and in May 2021 the EPA determined that the Proposal would be assessed at a PER level, with a requirement for a fourweek public review period. The Environmental Scoping Document (ESD) was lodged with the EPA in September 2021 and approved in April 2022. VRX Silica Limited 11 COMPANY REVIEW During May 2022 the Company lodged the initial Environmental Review Document (ERD) for Arrowsmith North with the EPA. The ERD is required under the EPA’s public environmental review process and was released for public review following assessment and acceptance by the EPA and other relevant authorities. The ERD was prepared according to the EPA’s Administrative Procedures Manual and other guidance documents. 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. The Company received a request from the EPA for further information in early July 2022 and the response was submitted later that month. As per the Procedures Manual, the ERD was distributed for review by relevant government agencies, subsequently a request for additional information was received in November 2022. The Company lodged a revised ERD (Revision D) and response table to address the requested information in December 2022. Subsequently, the Company received a further response in April 2023 requesting confirmation that the Company has complied with requirements for flora collecting and Herbarium vouchers, Index of Biodiversity Surveys for Assessments (IBSA) submissions and consistency in flora naming, inclusion of amended appendices in the final ERD and conformity in variously dated surveys with respect to amended affected areas. The EPA considers the ERD to be the proponent’s view of the proposal for public comment and public release of the ERD does not mean the EPA has endorsed the proposed approaches to impact assessment and management. If additional information is required from the proponent during the Response to Submissions phase of the assessment, this information may subsequently require publishing on the EPA website for further public review and comment. In June 2023 the ERD for Arrowsmith North had been accepted by DWER for publication and a four-week PER period. The final ERD comprises a 341 page summary and 32 appendices detailing a comprehensive environmental impact description of the proposal. The ERD seeks approval for a development area that has the potential to underpin a project lasting up to 30 years, underscoring the enormous economic contribution that could flow to the Irwin Shire in particular and Western Australia more broadly. The PER process commenced on 19 June 2023 for a four-week period and included a requirement for VRX to respond to all comments received. This PER and response process are the final steps before the EPA prepares an assessment report including recommendations to the Western Australian Environment Minister on whether the proposal should be approved. Environmental approval for Arrowsmith North is crucial and linked to VRX’s ability to secure other approvals necessary for mining. The PER milestone therefore is a significant step in Arrowsmith North’s approvals process. DWER has compiled public submissions, and these were provided to the Company in mid-September 2023 to review and respond. The Company is in the process of preparing its response to the public submissions for consideration by the EPA. Importantly this stage of the environmental approvals process for Arrowsmith North will establish the credentials for the use of VDT in Kwongan Heath, which is the vegetation encountered at Arrowsmith North and also for the grasses and sedges within Banksia Woodland at our other projects. It is estimated to result in the best restoration of the mine area vegetation and habitat within the mine area. The ERD and further information on the proposal is available on the EPA website at: https://www.epa.wa.gov.au/proposals/arrowsmith-north-silica-sand-project A copy of the ERD is also available on the VRX website at: https://vrxsilica.com.au/arrowsmith-north-erd-documents/ The VDT methodology can be viewed at: https://vrxsilica.com.au/miningandrehabilitationmethodology/ VRX Silica Limited 12 COMPANY REVIEW Figure 5: VDT Modified Loader Bucket Arrowsmith North update to the Mineral Resource Estimate and Ore Reserve Statement In November 20221 VRX announced an update to the Mineral Resource Estimate (MRE) and Ore Reserve Statement (ORS) for Arrowsmith North. The MRE update was based on an additional 130 close spaced grade control holes. These holes were drilled as a pre-production activity to increase the resource confidence in the initial years of mining, and to produce a bulk sample for pilot scale metallurgical testwork and the generation of bulk samples for potential offtake partners. A pilot plant testwork of a 3.3 tonne bulk metallurgical composite was completed. In