VRX will supply silica sand to not one, but two South Korean importers
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VRX has reached a milestone with the signing of an offtake terms sheet for the supply of silica sand from its Arrowsmith North project to two South Korean companies.
Offtake partners Dong A Heung Eop Mining Co and DongNam Corporation are leading suppliers of foundry sand to major companies such as Hyundai Motors, Kia Motors and Renault Samsung Motors.
VRX Silica (ASX:VRX) said the non-binding terms sheet for the supply of 200,000 tonnes per annum of AFS55 certified foundry sand for a period of four years follows comprehensive testing of Arrowsmith silica sand that confirmed its suitability and superior quality.
Laboratory testing had confirmed that the particle size distribution and grain shape and size of the project’s sand is superior in quality to the product produced by Dong A’s incumbent supplier.
The company expects this terms sheet to underpin future supplies into the South Korean market as companies seek to replace dwindling volumes from current suppliers.
“The term sheet is a major milestone in the journey to develop our high-quality WA silica sand projects,” managing director Bruce Maluish said.
“We are delighted with the calibre of our first offtake partners Dong A and DongNam, given their significant industry experience and high standing in the foundry industry in South Korea.
“Both companies have shown confidence in the quality of our foundry sand product from Arrowsmith North and are very keen to convert this term sheet into a secure, long-term supply agreement.”
He added that the South Korean foundry industry is an extensive support service for the automobile and marine industries and that the engagement with Dong A and DongNam will increase awareness of the quality of the company’s product.
“Importantly, this maiden term sheet vindicates VRX’s strategy to take our time to ensure production of a highly sought-after product and to secure the right customers for our silica sand,” Maluish noted.
While pricing has yet to be agreed under the terms sheet, it does set out that delivery of product will be FOB (Free on Board) from the Port of Geraldton, which negates any concerns about the volatile price of shipping.
The offtake is subject to permitting, port clearances and formal documentation.
It also contains provisions for quality and quantity of product, other delivery terms, payment terms, and other customary provisions for such commercial transactions.
Arrowsmith North is currently expected to produce 53Mt of silica sand over 25 years to generate total sales of nearly $2.7bn.
This will generate net present value and internal rate of return, both measures of a project’s anticipated profitability, of $243.3m and 77 per cent respectively.
This article was developed in collaboration with VRX Silica, a Stockhead advertiser at the time of publishing.
This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.