Timing in IPOs is a matter of luck. The currently poor environment for IPOs is evident in the public listing of Allup Silica (ASX: APS; FRA: U77) in Australia. The Australian quartz sand startup has just successfully raised 5 million AUD at 0.20 AUD from institutional investors, and the stock price has already fallen to 0.125 AUD in the first week. One wonders whether to congratulate the company on its successful IPO or sympathize with the investors from the last round. Either way, at current prices, Allup’s market value is less than 10 million AUD. Of that, 5 million AUD is cash.
The company has sufficient cash for the next two years to implement its business plan: Allup has currently secured a portfolio of twelve promising quartz sand properties (9 granted and 3 applications pending) at three project locations in Western Australia. The company is also looking for additional promising quartz sand areas (and ports) to reduce exploration and project risks, some of which could be in other areas of Australia. This is part of Allup’s strategic vision to develop multiple projects with access to multiple ports.
When selecting projects, care was taken to ensure good road connections to ports with potential for future transport capacities. Special attention was also paid to the quality and type of sand. It should have the highest possible SiO2 (silicon dioxide) content and the lowest possible FeO3 (iron) content, making the projects suitable for higher-value uses such as glass production and for processing the quartz sand needed to supply the solar industry (which is experiencing increasing demand). High-quality sand – especially from ethically clean extraction – is a finite resource that will become scarce in the coming years, according to the thesis.
Once the projects are in production, they could supply high-quality sand for decades. The short-term market activity following the IPO could hardly be in greater contrast to these long-term prospects.
What is Quartz Sand Used For?
After air and water, quartz sand is the most commonly used raw material on our planet. It is the main component in the production of all types of glass, including specialty glass for solar panels and high-tech glass. Demand from the glass industry is increasing by 5-6% annually, i.e., about 8-10 million tons per year. About 47% of the world’s glass is produced in Asia. Quartz sand is an essential component of the foundry and casting industry. The largest foundry industry is in Korea, where it dominates especially in large ship parts. Quartz sand is also the main component of concrete. What is easily forgotten: Quartz sand is also a finite resource that is rapidly running out, and the Asia-Pacific region is currently experiencing increasing demand while supply is scarce worldwide. It’s not just the scarcity of high-quality sand. The problem is exacerbated by often poor connectivity of deposits combined with increasingly stringent environmental regulations, making it increasingly difficult to obtain mining permits.
Quartz sand exploration differs from typical metal exploration in that quartz sand is generally found at or near the surface to a depth of 20 or 30 meters or less. Quartz sand targets initially identified within known geological regions can sometimes be visually inspected at the surface. Initial surface sampling to a depth of no more than 2 meters can provide the first indication of potential for quartz sand specifications prior to processing. The results of this sampling help delineate an area of interest. Once an interesting area is defined, additional machine drilling is conducted to determine the size and dynamics of the resource through analysis of chemical composition. Subsequently, based on the results of the chemical composition analysis, selected quantities of bulk samples are chosen for metallurgical processing studies, contributing to the determination of typical end product specification and corresponding potential resource size.
Allup’s project portfolio includes nine concessions and three pending applications in Western Australia. No large-scale mining has been conducted on the concession areas to date; however, many other mining projects and basic materials industries are located in these regions. Therefore, the infrastructure for future mining is well developed.
The Sparkler project in southwestern Western Australia is the only project for which a resource has already been identified. The inferred JORC resource is 73 million tonnes with a grade of 96.6% SiO2. Recent independent metallurgical testing (see APS ASX announcement dated May 16, 2022) showed that conventional test work (wet screening, heavy liquid separation, attrition and screening, magnetic separation) produced results with SiO2 grades of 99.5% to 99.8% and FeO3 grades of 70 ppm to 390 ppm. This demonstrates the potential for a high-grade quartz sand product.
All other projects are at an earlier stage. For each of these projects, Allup systematically plans the same process: It begins with applying for access permits and other approvals, followed by drilling, chemical analysis and metallurgy, then, if the data supports it, a JORC resource estimate, and finally aims to apply for a mining license and, if successful, start a mining operation. At this point, the company is still at the very beginning of this process.
Conclusion: The risk profile for quartz sand is at the opposite end of the scale from gold exploration. Both exploration risk and exploration costs are significantly lower for sand projects. Moreover, mining and processing are relatively simple. Generally, no chemicals are used. Unlike most metal projects, capital costs are also comparatively manageable, typically around $20 to $30 million depending on variables such as plant size and location. Once projects are in production, they benefit from long-term supply contracts. Currently, about half a dozen sand explorers and potential producers are listed on the Australian stock exchange. The aspiring producer VRX Silica (ASX: VRX) currently has a market capitalization of about AUD 90 million. Suvo Metals (ASX: SUV) is valued at AUD 47 million, Diatreme Resources (ASX: DRX) at AUD 66 million, and the three smallest stocks Perpetual Resources (ASX: PEC), Australia Silica Quartz (ASX: ASQ) and Metallica Minerals (ASX: MLM) have current valuations of AUD 26, 21 and 19 million respectively. Allup Silica is thus not only the newest sand explorer on the Australian stock market but also the one with by far the lowest valuation. Those who enter now receive a discount of almost 40 percent on the IPO. We’re staying on top of this story – also because we believe that in the long term, Australia could play a similar special role in sand as it already does in iron ore. Nowhere are the availability and accessibility of ethically clean sand resources better.
