Arrowsmith – BFS

Arrowsmith Central Bankable Feasibility Study (BFS)

The full Bankable Feasibility Study report can be downloaded here.

Arrowsmith North Bankable Feasibility Study (BFS)

The full Bankable Feasibility Study report can be downloaded here.

The BFS details the project and financial attributes supporting the development of Arrowsmith North, located north of Eneabba, 270km north of Perth in Western Australia (see Figure 1). The project economics are driven by the strong demand for high-grade silica sand in the Asia Pacific region, with growth expected to average 5-6% per annum over the coming years.

The BFS demonstrate Arrowsmith North as a robust development proposition, with an after-tax NPV10 of $242.3 million, IRR of 79% and a payback period of 2.4 years based on an initial capital expenditure of $28.3 million. The initial life-of-mine is 25 years, with potential for the project to continue for 100+ years.

The full Bankable Feasibility Study report can be downloaded here.

Key points and assumptions

The BFS is based on only 25 years production from a considerable +100 year mine life.

The project will be a potentially new long-term industry for Western Australia with substantial economic benefits, including long-term employment and royalties with a significant economic contribution to the local and Mid West region.

The Company has met with the local Shires, Mid West Development Commission, Mid West Chamber of Commerce & Industry and various local Members of State and Federal Parliament with great support for the project.

The Company has engaged with the Department of Water and Environmental Regulation following preliminary environmental studies to identify key issues pertaining to the project environmental approvals for mining particularly the habitat for potential foraging by Carnaby’s cockatoos.

VRX Silica has developed a mining and rehabilitation methodology specific to the environment at Arrowsmith North which will enable a successful restoration of mined areas.

A key challenge for industrial minerals projects is meeting market specifications. The silica sand market has specifications for parameters such as purity (e.g. SiO2 content) in addition to tight specifications for trace elements such as Fe, Ti, Al and Cr in the glass industry.

The Company is confident that it can meet these specifications from Arrowsmith North.

Key economic assumptions for the BFS are as follows:

Currency Australian dollars
Sales contracts in Asia for silica sand are invariably based $US and a A$0.70 exchange rate has been applied
Project life 25 years
Total probable Ore Reserve is well in-excess of this time period, however the model is conservatively restricted to 25 years
Depreciation 15% rate on capital
Corporate tax rate 27% on taxable profit
Production Steady state of production from Probable Ore Reserves over life of mine, with the first 3 years at 1 million tonnes per year and thereafter at 2 million tonnes per year
The Company has currently expressions of interest and letters of intent to purchase 1.5 million tonnes per year of Arrowsmith North products and expects further interest once these products are made available to the market
Shares on Issue 404,318,617
NPV estimation discount rates Standard financial modelling conducted at both 10% and 20% discount rates.
The 20% rate is generally above standard reporting rates but demonstrates that the Project is still financially robust at this higher rate
Capital cost Based on estimates ±15% from engineering companies with extensive experience in sand separation
Operating costs A$30.18 C1 costs, including royalties
Based on first principles and current rates for equipment
Sales revenue US$35-53 per dry metric tonne dependent on product type, product quality, contract terms and quantity
Revenue is constant based on current prices and ignores any projected growth in prices
Maximum debt A$26 million
Borrowing rates 12%
Accounts receivable 30 days
Accounts payable 30 days
Plant maintenance 5% of capital cost per year
Environmental bond A$500,000
May be substituted by the WA Department of Mines, Industry Regulation and Safety’s “Mining Rehabilitation Fund”
Capex contingency 20%
Recoveries N40 (Foundry ASF 40) 40% N20 (Foundry ASF 20) 24% NF400 (Glass 400 ppm Fe2O3) 20%
Recoveries are based on CDE testwork at ±5%

Probable Ore Reserve

The Probable Ore Reserve for Arrowsmith North totals 223 Mt @ 99.7% SiO2 as reported in accordance with the JORC Code 2012 edition1, (JORC Code) with 204 Mt @ 99.7% SiO2 contained within the area of the Company’s Mining Lease application (MLA70/1389).

This follows the Company’s recent announcement of a Mineral Resource Estimate for Arrowsmith North of 771Mt @ 98.0% SiO2, comprising an Indicated Resource estimate of 248Mt @ 97.7% SiO2 and an additional Inferred Resource estimate of 523 Mt @ 98.2% SiO2.

VRX Silica has previously announced2 an upgraded Mineral Resource Estimate (MRE) for Arrowsmith North of an Indicated Mineral Resource of 248 Mt @ 97.7% SiO2 in addition to an Inferred Mineral Resource of 523 Mt @ 98.2% SiO2 for a Total MRE of 771 Mt @ 98.0% SiO2 (see Table 1).

Table 1: Arrowsmith North Silica Sand Mineral Resource Estimate as at July 2019

VRX Silica has completed the necessary work to convert the Indicated Mineral Resource to Probable Ore Reserves. A summary of the work undertaken is included in this document, and in Appendix 1, JORC Code Table 1 Sections 1 to 4 set out in full in the BFS (annexed to this announcement).

Table 2 below details the Probable Ore Reserve that will be produced from the mining of the Indicated Mineral Resource and processing in a purpose built, wet sand processing plant.

The plant will produce four saleable products for different markets with a total Probable Ore Reserve of 223 Million tonnes, with 204 Million tonnes contained within the mining lease application MLA70/1389.

Table 2: Arrowsmith North Silica Sand Probable Ore Reserve as at July 2019

Economic Analysis

Following are the outputs of the economic analysis of the Arrowsmith North Project.

Measure

Result

Post Tax, ungeared NPV10

$242,300,000

Post Tax, ungeared NPV20

$99,800,000

Post Tax, ungeared IRR

79%

Payback period (yrs) (post tax) (ramp up rate)

2.4

Exchange Rate US$/A$

$0.70

Life of Mine (yrs) (Scope of BFS)

25

EBIT

$1,144,000,000

Total Sales (initial 25 years) (no escalation)

$2,773,000,000

Cashflow after finance and tax

$835,000,000

Capex (2 mtpa)

$28,260,000

Capex contingency (inc)

20%

Life of Mine C1 costs, FOB Geraldton (inc royalties)

$30.18

Tonnes Processed (initial 25 years) (Mt)

53

Production Target (initial 25 years) (Mt)

47.7

Probable Ore Reserves @ 99.7% SiO2 (Mt)

204

Ore Reserve life (yrs)

102

JORC Resources (million tonnes)

771

The full Bankable Feasibility Study report can be downloaded here.

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