VRX Silica : Half Year Accounts

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VRX SILICA LIMITED

ABN 59 142 014 873

INTERIM FINANCIAL REPORT

FOR HALF-YEAR ENDED

31 DECEMBER 2021

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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

Level 1, 6 Thelma Street

West Perth WA 6005

Telephone: [phone]

Facsimile: [phone]

Website: www.vrxsilica.com.au

SHARE REGISTRY

Computershare Investor Services Pty Ltd

Level 11, 172 St George's Terrace

Perth WA 6000

Telephone: [phone]

Facsimile: [phone]

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

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DIRECTORS' REPORT

Your directors submit the financial report of the consolidated entity for the half-year ended 31 December

2021. In order to comply with the provisions of the Corporations Act 2001, the directors report as follows:

DIRECTORS

The names of the Directors who held office during or since the end of the half-year and until the date of this report are noted below. Directors were in office for this entire period unless otherwise stated:

Paul Boyatzis (Non-Executive Chairman)

Bruce Maluish (Managing Director)

Peter Pawlowitsch (Non-Executive Director)

David Welch (Non-Executive Director) (appointed 1 September 2021)

PRINCIPAL ACTIVITIES

The principal continuing activities during the half-year of entities within the consolidated entity was mineral exploration.

REVIEW OF OPERATIONS

The net loss for the half-year attributable to members of VRX Silica Limited was $3,239,861 (2020: loss of $822,135).

The following is a summary of the activities conducted by VRX Silica Limited (VRX or Company) during the half year ended 31 December 2021 at its silica sand projects at Arrowsmith North, Arrowsmith Central (located 270 km north of Perth) and at Muchea (located 50 km from Perth), all situated in Western Australia.

VRX Silica Sand Resources

VRX is a Western Australian based pure-play silica sand exploration company with three 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 +1bn tonne Mineral Resource of 99.6% to 99.9% SiO2 grade silica sand.

The Company and its management team is WA based as are its three large scale, high-grade and low impurity silica sand projects. Each project can be run independently and supply high grade silica sand to many diverse markets.

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 and high-tech 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 glass is made in Asia.

Silica sand is also the main ingredient in concrete.

Silica sand is a finiteresource that is rapidly being exhausted and the Asia-Pacific region is currently experiencing increasing demand at a time of a global supply shortfall.

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DIRECTORS' REPORT

A Project development pipeline to ensure a disciplined, staged development of world-class assets

The Arrowsmith North silica sand project will lead a staggered and disciplined development program with first production, subject to final environmental approvals, expected in 2022, followed by Muchea and Arrowsmith Central.

VRX has the most-advanced silica sand projects for an ASX listed company in Australia with planning, Aboriginal heritage and environmental studies having commenced in 2017.

Mining Leases are granted over all three 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 downstream industries in Western Australia.

Arrowsmith North - Near-term development opportunity on a world-class silica sand project

The mining and processing operation is relatively simple and low impact with long-term production expected to commence initially at Arrowsmith North on the 223Mt Ore Reserve @ 99.7% SiO2 in 2022, subject to final environmental approvals.

A revised capital estimate is currently underway on a tailored 2Mtpa processing plant with a unique patented process circuit.

Process circuit design and detailed engineering has been designed following an extensive metallurgical testing regime. Further bulk testwork programs commenced prior to 31 December 2021 continue to refine the operating parameters and provide final product samples to an extensive list of potential buyers. Large samples (50-60kg) are required for glassmaking furnace testing and foundry resin coating testing. The samples have been requested by potential buyers following previous successful testwork on smaller (1-5kg) samples.

Geotechnical surveys were completed before 31 December 2021 for the plant site and access roads. The plant design is well progressed along with determination of non-process infrastructure requirements. The creation of an overall site and plant model will culminate in 3D modelling which can be viewed on the Company's website (www.vrxsilica.com.au).

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.

In addition, a process water bore was successfully drilled to access water from the Yarragadee North deep aquifer and currently aquifer testing is underway to supply data for an abstraction licence application for 0.9Gl of water. The development of monitoring boreholes for a borefield is underway. The plant has been designed to operate predominately with recycled water.

Gas pipelines run adjacent to each of the project areas and it is planned for the plant in the medium to long term to run on a hybrid gas and solar power supply following a tender process for power supply contractors.

Arrowsmith North has access to established infrastructure such as the unused rail line (from Eneabba to Geraldton) which runs adjacent to the Arrowsmith project tenements. A joint co-operation agreement with Mid West Ports Authority (for export of silica sand product from Geraldton Port) has been signed and collaboration has commenced with Arc Infrastructure for a dedicated train unloader at the Geraldton Port. The Company has access to the adjacent Brand Highway and a road intersection plan has been submitted to Main Roads to enable road transport of silica sand product in the short term.

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DIRECTORS' REPORT

Heritage Arrowsmith North

VRX has conducted comprehensive Aboriginal Heritage Surveys over the 30-year mining envelope at Arrowsmith North and access roads. These surveys were conducted with Aboriginal Consultants from the Yamatji Southern Regional Corporation, anthropologists and VRX.

No previously unrecorded Aboriginal archaeological sites were found during the surveys which was consistent with previous surveys in the area. The absence of newly recorded Aboriginal sites demonstrates that unsuitable conditions exist for the formation and persistence of surface archaeological sites or previously unrecorded ethnographic sites within the project area and surrounds. There are no recorded heritage features in the survey area requiring action or management.

During the Heritage surveys the Company engaged the consultants to record fauna observations while traversing the survey area. These observations were compiled at the end of each day to provide a firsthand summary of field observations of potential fauna sightings. This data will be incorporated into fauna submissions as part of the environmental approvals process. The Company has used this exercise as an introduction to the future Ranger program with the Yamatji Southern Regional Corporation.

Vegetation Direct Transfer

VRX has developed a unique and progressive mining and rehabilitation method for its silica sand projects. The Vegetation Direct Transfer (VDT) method provides rapid and comprehensive regeneration of mined areas based on continuous rehabilitation as mining progresses. The VDT method is a made- for-purpose mining method which removes and replaces a 400mm-deep sod with topsoil to the mined area containing the vast majority of native flora and invertebrate fauna remaining intact.

At the VRX selected mine areas, the root structures in the loose sand are relatively shallow at 200- 300mm in depth and ideally suited for the VDT system. The method has been developed to provide the best rehabilitation outcome for the recalcitrant sedges and grass species.

The VDT methodology can be viewed at: https://vrxsilica.com.au/miningandrehabilitationmethodology/

QA/QC Metallurgical Testwork

Extensive metallurgical testwork has been undertaken by sand processing specialists BHM Process Consultants to ensure throughput and quality can be maintained. This has resulted in the development and successful testing at lab scale of a new and unique process circuit incorporating flotation.

An Australian patent for the process has been lodged by BHM to protect the unique intellectual property for the benefit of VRX to utilise and share in future licensing. Flotation will replace spirals and screening by upstream classifying, which is intended to not only reduce capex and operating costs but also produce a more consistent high grade marketable product.

The flotation reagents are organic and rapidly oxidise once used, presenting no environmental issues.

Bulk pilot plant scale testing is currently underway and will supply further large samples to potential buyers. Testing to date with sample sizes referred to above has resulted in an Arrowsmith North product of 99.7% SiO2 with Fe2O3<500ppm after processing and a preliminary Muchea product of 99.9% SiO 2 with Fe2O3<100ppm after processing (high-grade).

The Company's goal is to provide for consistent QA/QC production and extend the silica sand resources that can be processed consistently for sale.

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