VRX Silica Ltd’s three big projects offer a combined internal rate of return of 83%, on relatively low capex

Significant-sized silica sand projects
Close to infrastructure
Economic studies complete

What does the company own?

VRX Silica Ltd (ASX:VRX) owns three large silica sands projects in Western Australia.

Muchea boasts a JORC resource of 208mln tonnes of ore grading 99.6% silicon dioxide, and a probable reserve of 18.7mln tonnes grading 99.9% SiO2. That resource adds up to a potential 100-plus year mine life. A bankable study for Muchea was completed in October 2019.

Arrowsmith North boasts a JORC resource of 771mln tonnes grading 98% SiO2, and a reserve of 223mln tonnes at 99.7% SiO2. This project also has a mine life that stretches out past a hundred years. A bankable feasibility study on Arrowsmith North was completed in August 2019.

Arrowsmith Central boasts a resource of 76.5mln tonnes grading 96.8% SiO2, with a reserve of 18.9mln tonnes grading 99.6% SiO2. A bankable feasibility study was completed on this project in September 2019.

What’s the plan?

Early in November 2019 VRX Silica raised A$4mln, which it said it would use to make progress with the permitting and approvals processes for its projects, and to pay for certain long-lead items that it will need to order well ahead of construction.

The current thinking is that production at the Arrowsmith projects will commence in June 2020, with first production in December 2020.

Muchea would then run along behind, with construction due to get underway in June 2021, and first production due in December 2021.

Will they make money?

The studies were certainly encouraging. The combined NPV of all the projects rings in at over A$770mln, factoring in a 10% discount rate. Across all three projects the aggregate internal rate of return (IRR) rings in at a chunky 83%, with earnings across a 25 year period reckoned at A$3.4bn.

Initial capex for the Arrowsmith projects comes in at under A$60mln, with a further A$35mln required for Muchea.

The economics benefit from the proximity of both projects to major infrastructure hubs. Arrowsmith is 100km from the port at Geraldton in WA, while Muchea is 50 km north of Perth.

What does the managing director say?

“The recent BFSs for our Arrowsmith North, Arrowsmith Central and Muchea silica sand projects demonstrate the world class potential of our projects and the funds raised will allow us to rapidly advance their development,” says Bruce Maluish.