Announcement PDF VRX SILICA LIMITED ABN 59 142 014 873 ANNUAL REPORT 30 JUNE 2024 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 the company’s silica sand projects was re-estimated in 2023 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 is on track to become VRX’s first silica sand mine in production despite frustratingly slow progress in the environmental approvals process. Significantly during the year, several important technical stages were completed in that process. The Environmental Protection Authority of Western Australia approved the publication and release of the Arrowsmith North Environmental Review Document for a Public Environmental Review. 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 PER process commenced on 19 June 2023 for a four-week period. Comments from the public and other State and Federal Government Departments, in the form of submissions on the proposal, were compiled by the EPA and provided to the Company in early September 2023 for review and response. The company prepared this response to submissions, which was lodged with the EPA in late September 2023. The EPA provided formal comments to the RtS in April 2024 and an updated RtS in response to those comments was lodged in May 2024. VRX management has been in regular consultation with the EPA to a finalise the RtS, which includes a comprehensive Rehabilitation Management Plan outlining the company’s commitments to mitigating the project’s environmental impact. This document was peer reviewed before re-lodging with the EPA in late September 2024. At the Muchea silica sand project, the company has undertaken further metallurgical test-work and process circuit design to identify downstream manufacturing opportunities for silica sand products that may be produced from these sites. This initiative was underpinned by 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 primary market for this product is the burgeoning LCD production market which requires high quality and specific size dependent silica flour. Samples sent to potential buyers have confirmed that the project can meet the specification and size requirements with high interest in long-term supply]. VRX continues to investigate alternative markets that have potential because of the high grade raw sand that has been identified at the Muchea silica sand project. Demand for silica sand from VRX’s projects, and Muchea in particular, is significant as global supply side constraints continue to deepen. Both the Arrowsmith North and Muchea silica sand projects were again included in Austrade’s 2024 Australian Critical Minerals Prospectus, demonstrating the Australian Government’s recognition of silicon and silica sand as critical minerals. 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 and patience as we navigate project approvals in what is a challenging and protracted process. Paul Boyatzis Chairman 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 detailed engineering complete, plant operating parameters determined and optimal products defined • 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 process • Muchea Project to follow and largely mirror Arrowsmith North approvals process 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 a Taiwanese glass manufacturer, with indicative pricing • Poised to be an Australian first, and only, supplier of foundry sand to South Korea • Substantial interest from significant manufacturers 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 2024 at its world-class 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 Projects VRX is a Western Australian based pure-play silica sand exploration and development company with five world-class 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 silica sand projects. Each project can be run independently and will supply variable grade silica sand to the glassmaking and foundry industries. 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, high-tech and architectural 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 flat and container 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. The quality for foundry sand is distinguished from glass sand with the requirement for a size and grain shape specification rather than the mineralisation required for glassmaking. There has been significant recent development in the foundry market with the advent of 3D printing with significant advancements in technology, materials, and applications, demonstrating the industry's rapid growth and increasing impact across various sectors, including the foundry and casting industries. The trend towards end-to-end workflow automation is gaining momentum. This includes AI-assisted design software and automated post-processing, aiming to create a seamless, efficient workflow from design to final product. This automation is expected to reduce human intervention and increase production efficiency. There is a strong emphasis on sustainability, with efforts focused on using eco-friendly and recyclable materials and implementing energy-efficient printing processes. This approach aims to minimise waste, reduce carbon footprints, and promote circular economy principles. The foundry industry is shifting its focus from technology to applications, addressing specific needs in sectors such as healthcare, aerospace, and construction. This includes custom medical implants, lightweight components, and sustainable building materials. AI and machine learning are playing crucial roles in enhancing 3D printing capabilities. These technologies are used for predictive maintenance, optimising print processes, and improving material usage, leading to greater efficiency and quality. Recent advancements in 3D silica sand printing media for casting have shown significant progress, offering numerous benefits over traditional established methods. 3D printing allows for the creation of highly intricate and complex mould geometries that are challenging to achieve with conventional techniques. New technologies enable precise and detailed patterns, enhancing the capability to produce complex internal passages without additional tooling or post-processing. Additive manufacturing (AM) is increasingly being adopted in the consumer products industry for mass production. AM enables the combination of form and function early in the design process, allowing for innovative and efficient product development. As an example, new materials and systems are being developed for medical and dental applications. Companies have introduced Premium Teeth Resin for dental 3D printing and a new resin pumping system to enhance production efficiency. Innovations in materials and printing techniques continue to emerge, including advanced polymers and metals capable of operating at high temperatures and improved compatibility with AM processes. These advancements are broadening the range of applications for 3D printing. Overall, these developments underscore the transformative potential of 3D printing across various industries including the foundry and casting industry, driven by advancements in automation, materials, and applicationspecific solutions. VRX is engaged with foundry companies developing and using these new and innovative technologies with the aim of producing the specification of foundry sand required, particularly from the Arrowsmith North silica sand project. The largest consumption of lower quality silica sand is for the manufacturing of 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 diminishing global supply. VRX Silica Limited 5 COMPANY REVIEW 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 silica sand project (Arrowsmith Central), Arrowsmith Brand silica sand project (Arrowsmith Brand) 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 applications for exploration tenements and required field studies 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 unique downstream industries in Western Australia. Austrade Critical Minerals Prospectus Arrowsmith North and Muchea were included in the initial Australian Critical Minerals Prospectus for 2022 published by Austrade. 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. Both projects were again included in the Australian Critical Minerals Prospectus for 2023 and 2024. The publications have been widely distributed by Austrade during Government trade delegation promotional trips to trading partner countries, leading to 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. The updated, digital Australian Critical Minerals Prospectus was launched in Perth in September 2024 by Minister for Trade and Tourism, Don Farrell, and Minister for Resources, Madeleine King. Once a static document, the Prospectus is now a dynamic source of information that will be updated regularly as projects develop and additions are made to the Critical Minerals List. The new, interactive tool also allows users to tailor their search to specific criteria, with the ability to filter projects by critical mineral, state, company and project development status. The Prospectus is on the Austrade website and can be accessed here. 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), subject to final environmental approvals. BFS The initial bankable feasibility study (BFS) prepared and released to ASX in August 2019 (2019 BFS) was updated following detailed engineering on a tailored 2Mtpa processing plant with all capital and operating components and released to ASX in March 2024 (Updated BFS). The Updated BFS confirms Arrowsmith North maintains robust economic metrics that will potentially supply up to four silica sand products for a growing Asian market. VRX Silica Limited 6 COMPANY REVIEW The capex update incorporates final engineered equipment and supporting infrastructure as well as the purchase of offset land required to finalise the approvals process. The operating cost update is based on budgeted estimates by noted contractors and incorporates our unique VDT rehabilitation methodology. Key Outcomes from Updated BFS Post Tax, ungeared NPV10 Post Tax, ungeared IRR Payback period (yrs) (post tax) (ramp up rate) Exchange Rate US$/A$ Life of Mine (yrs) (BFS Study) EBIT Total Sales (25 years) no escalation Life of Mine C1 costs, FOB Geraldton (inc Royalties) Cashflow after finance and tax Capex (2 mtpa) Capex contingency (inc) Life of Mine C1 costs, FOB Geraldton (inc Royalties) Tonnes Processed (million tonnes) (BFS Study) Probable Reserves (million tonnes) @ 99.7% SiO2 Reserve life (yrs) JORC Resources (million tonnes) $166,700,000 35% 4.4 $0.66 25 $965,000,000 $2,691,000,000 $31.43 $650,000,000 $66,787,100 20% $31.43 52 221 111 512 Capital expenditure has increased materially since the 2019 BFS, however this remains modest with an approx. 4.4 year payback. The increase is largely driven by: • a significant change to the process circuit from gravity spirals to attritioning and Hydrofloat TM that will produce superior products but has a higher initial capital cost component; • a significant rise in steel, concrete and construction labour costs for the processing plant, with prices for fabricated steel having doubled since the previous estimate in 2019; • additional costs associated with power reticulation, flotation reagent storage and additional supporting infrastructure for administration and laboratory services; • additional costs for the construction of the road and designed and approved Brand Highway intersection, and • purchase of Offset land to conform with State Offsets Policy guidelines. Figures below show renders of the proposed operating plant and surrounding area. Capex also includes a 20% contingency, notwithstanding the re-tendering of supplied capital components. This reflects the Company’s conservative approach to pricing when modelling the financial metrics for the project. In efforts to reduce the capex, the Company continues to seek out second-hand equipment for refurbishment and to-date has sourced a feed trommel and final screen, with significant cost-savings as compared to new equipment. Operating expenditure has increased marginally from the 2019 BFS. Sale prices for silica sand products have been left unchanged towards the lower end of the range of estimates provided for in the 2019 BFS, despite the growing market for silica sand products in Asia and upward pricing pressures. Again, this reflects the Company’s conservative approach to pricing when modelling the financial metrics for the project as well as providing an additional contingency. VRX Silica Limited 7 COMPANY REVIEW Figure 2: An aerial view render of the proposed Arrowsmith North processing plant and facilities Project Locations Figure 3: Close up render of proposed processing plant at Arrowsmith North The Updated BFS also incorporates production from upgraded Reserves following a new Mineral Resource Estimate completed in November 2022. This followed a program of close spaced grade control drill holes to increase the confidence in the early mining stages with approximately 6 years of initial production from Proved Reserves. VRX Silica Limited 8 COMPANY REVIEW 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 final 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. Process Water A process water bore was previously drilled to access water from the Yarragadee North deep aquifer with aquifer testing to supply data for an abstraction licence application for 0.9GlPa of water for the Arrowsmith North processing plant requirements. Additional monitoring boreholes for the borefield have been completed. The abstraction licence application was progressed with the required advertising of the proposed Abstraction Licence Application being published on 7 August 2024 in both 'The West Australian' and the ‘Midwest Times’ newspapers, with a 15 day written objection submission period. No further correspondence has been received. Engineering 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. Equipment The following major equipment OEMs have been selected as preferred and 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 VRX Silica Limited 9 COMPANY REVIEW • Slurry pumps • 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 Final Investment Decision (FID) Approval to place orders for major long lead equipment Site access date for plant construction Project Cost Estimate The baseline project cost estimate, determined in March 2024, is $66.8M (including 20% contingency). The cost estimate will be updated with key equipment re-tendered prior to FID. FID The FID will be decided following final mining approvals, financial arrangements committed and adequate offtake agreements committed. Power Supply 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. VRX has engaged with ResourcesWA to pursue a power supply solution for Arrowsmith North utilising gas directly from a local wellhead. This power solution has the potential to provide the most economic low emission power supply to Arrowsmith North. The Company continues to investigate the potential for a gas fired power supply also with a potential solar power supply hybrid system. Logistics The Company is engaging 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 has prepared tender documents for the short-term haulage operations. VRX Silica Limited 10 COMPANY REVIEW 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. The commencement of assessment of the Arrowsmith North proposal was a referral 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). This was lodged in March 2021. The referral was reviewed, and the EPA determined in May 2021 that the Proposal would be assessed at a Public Environmental Review (PER) level, with a requirement for a four-week public review period. The second step was the lodgment of an Environmental Scoping Document (ESD) which was lodged with the EPA in September 2021 and approved in April 2022. The third step was to lodge with the EPA the Environmental Review Document (ERD) for Arrowsmith North. This was lodged in May 2022. 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 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) in December 2022. In June 2023 DWER confirmed the ERD for Arrowsmith North had been accepted for publication and a fourweek PER period. 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 with a Response to Submission (RtS) document. Following the PER period DWER compiled public submissions and were provided to the Company in September 2023 to review and respond. The Company prepared a RtS and lodged with EPA on 31 September 2023. Following review by the EPA and DCCEEW comments were received on 10 April 2024. The RtS was revised, and a second Version B was lodged on 24 May 2024. Following meetings with the EPA a final version has been compiled that includes a comprehensive Rehabilitation Management Plan (RMP). This document was peer reviewed before re-lodging with the EPA in September 2024. Importantly the RMP 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/ VRX Silica Limited 11 COMPANY REVIEW The VDT methodology can be viewed at: https://vrxsilica.com.au/miningandrehabilitationmethodology/ Figure 4: VDT Modified Loader Bucket Despite new guidelines published by the EPA which better align with DCCEEW guidelines the assessment of Offsets is not included in an accredited assessment advice despite the State/Federal bilateral agreement which covers assessments under the EPBC Act 1999 and includes the Offsets Policy. The Offset will be assessed in parallel with the ERD. Objectives and Principles of Offsets No Net Loss Principle: Offsets aim to ensure that there is no net loss of biodiversity and ecological values. This principle underpins both state and federal environmental poli