A key takeaway of the just-completed reporting season was investors’ focus on mining projects that spin off free cash. Free cash, after all, gives a hint at potential dividends – and goes some way to combating the market’s overarching concern that inflationary cost pressures in Australia’s mining sector are proving difficult to offset.
Not surprisingly, emerging players are being viewed through a more narrow lens – perhaps – than project proponents of the past.
So it was refreshing to see WA-focused silica sands hopeful VRX Silica (ASX: VRX) put some new numbers out for its flagship project amid hopes this year will finally deliver the necessary regulatory approvals to enable construction to start – and dreams of cash flow to be realised.
VRX’s updated bankable feasibility study for the Arrowsmith North project, 270km north of Perth, reinforced the flagship asset’s long-life cash generation potential and also set the cap-ex record straight.
Arrowsmith North’s enormous proved and probable ore reserve of 221Mt at 99.6% SiO2 is capable of producing for more than a century.
The BFS, which covers the initial 25-year mine life, shows the potential for sustained, long-term shareholder value – boasting a $167 million net present value (VRX’s market capitalisation last night was a touch under $60 million), a payback period of 4.4 years, life-of-mine cash flow after tax and finance of $650 million and a 35 per cent internal rate of return.
The updated capex of $66.8 million for a 2Mtpa plant at Arrowsmith North incorporates the higher capital costs required for the improved processing circuit, factors in the soaring costs of labour and materials and, to err on the side of caution, also includes a 20 per cent contingency.
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The re-worked processing circuit at Arrowsmith North has changed from gravity spirals to attritioning, which VRX said would facilitate superior production outcomes and allow it to sell up to four high-demand silica sand products to foundry and glass-making offtake partners.
Managing director Bruce Maluish said the updated BFS further demonstrated the fundamentals that made Arrowsmith North a world-class silica sand project.
“The updated BFS confirms that the Arrowsmith North project maintains robust economic metrics that will potentially supply up to four silica sand products for a growing Asian market,” he said.
“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 opex update is based on budgeted estimates by noted contractors and incorporates our unique VDT rehabilitation methodology.”
VRX has also reassured investors there is light at the end of the environmental approvals tunnel.
The company has submitted a formal ‘response to submissions’ document on preliminary comments from WA’s Environmental Protection Authority. Pending comment from the EPA, VRX will update its ‘response to submissions’ for review and, once accepted, the EPA will prepare an assessment report for consideration by the WA Government.
While progress may be slower than anticipated, it is important to remember that Arrowsmith North is the first silica sand project of its kind in WA and will lay the foundations for VRX’s entire portfolio – including Arrowsmith Central, Arrowsmith Brand, Muchea and Boyatup – that have a combined resource of more than 1.2 billion tonnes.