High Purity Quartz Pty Ltd Company Presentation Equity Issue - - PowerPoint PPT Presentation

High Purity Quartz Pty Ltd

Company Presentation – Equity Issue November 2016

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Important Notice

This document is confidential and its content may not be copied, reproduced, redistributed, quoted, referred to or

• therwise disclosed, in whole or in part, directly or indirectly, to any third party, except with the prior written consent of

High Purity Quartz Pty Ltd (“the Company” or “HPQM”). This document is for informational purposes only, and does not constitute or form part of an offer, solicitation or invitation of any offer, to buy or subscribe for any securities, nor should it or any part of it form the basis of, or be relied in any connection with, any contract or commitment whatsoever. Any invitation to subscribe for securities in the Company will be subject to a formal document. This document contains interpretations and forward-looking statements that are subject to risk factors associated with the mining and processing industries. You are cautioned not to place reliance on these forward-looking statements, which are based on the current view of the Company on future events. Investing in securities is risky and investors are advised to seek their own advice in this regard. Investors should undertake their own investigations on potential qualification and availability of any investment tax incentives. The Company believes that the expectations reflected in the document are reasonable but may be affected by a variety of variables and changes in underlying assumptions which could cause actual results to differ substantially from the statements made. These include but are not limited to: production fluctuations, commodity price fluctuations, variations to drilling, resource estimates, loss of market, industry competition, environmental risk, physical risks, legislative fiscal and regulatory changes, changes to licences/regimes, economic and financial market conditions, project delay or advancement, approvals and cost estimates. The Company and its Advisors and their Directors, agents, officers or employees do not make any representation or warranty, express or implied, as to endorsement of, the fairness, accuracy or completeness of any information, statement, representation or forecast contained in this document and they do not accept any liability for any statement made in, or omitted from, this document. The information contained in this document noted above are subject to change without notice. This document is intended only for the recipients thereof and may not be forwarded or distributed to any other person and may not be copied or reproduced in any manner.

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• HPQ Materials (HPQM) is seeking interest from potential investors to raise target $532,000 to undertake

works to de-risk its high purity quartz resource to underpin its innovative High Purity Sand project. This initial work primarily involves a drilling & sampling program with associated assay/test work

• Successful completion of the drilling program will open up significant liquidity from major investors

through to planned IPO targeted for c12 months to fully fund its high purity sand project

• The proceeds from the Issue will be utilised to undertake a 5 to 6 holes drilling and assay program to

de-risk the resource and related costs. See slide 31 for detail

• HPQM will issue 46,450 ordinary shares representing c10% of the total post issue share capital of

HPQM at a valuation of cA$5m.

• Subscription price is A$11.45 per share. The minimum investment per subscriber is A$26,600

representing minimum 2,322 shares. There is no limit to the number of shares which an individual investor may subscribe

• HPQM may, at its option, accept oversubscriptions up to a limit of $775,000. Any scale back will be at

HPQM discretion. Final allocations, based on valid Application Forms received, will be notified in writing and will require completion of the final Subscription Agreement

• An Application Form and copy of the draft Subscription Agreement can be can be requested from

HPQM by contacting one of the persons listed at the end of this presentation

Equity Investment Opportunity

Subject to satisfaction of certain conditions and subject to investor status any investment made may qualify for Early Stage Innovation Company (ESIC) incentives with advantageous Australian Income Tax and CGT incentives for investors (see Slide 33 for more detail)

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Corporate Structure - Proposed

HPQM currently has 418,000 shares on issue, and will issue 46,450 new shares to bring the total shares on issue to 464,450 shares. The new issue will represent 10.01% of the share capital. This will raise A$532,000 at A$11.45 per share. The proposed structure is provided by way of illustration and allows flexibility for potential future asset acquisitions/disposals and corporate development. The structure is therefore indicative only but is in line with HPQM business plan.

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Renewable energy (solar PV) and semiconductor supply chain focus

• Clean-tech/hi-tech/high value markets
• High barriers to entry in rapidly growing solar PV and Semiconductor markets
• Security of Supply is an issue for Downstream buyers/users of high purity quartz sand
• Long asset and project life > 40 years (pre-drill estimates based on geologist info)

Excellent Project Economics

• Low volume, low capex, low risk development
• Sales under LOI for first 3/4 years of production
• EBITDA margins 75%+, high returns
• Pre-tax project NPV10 of > AUD$1.0Billion with exceptional project IRR (>50%)

Project Pathway established and investment de-risked

• Project de-risked via development and contracting strategy
• Strong downside case ensures strong return on capital invested

Near term exits and IPO potential

• Upside case through high value, low cost, expansion and potential downstream integration
• Resource de-risking will open the project to funding from large investors who have already

expressed interest.

• IPO in c12-15 months from date of initial funding is targeted

Investment Thesis

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What Do We Make? Why is it important to Green Tech & Hi Tech industries?

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High Purity Sand is arguably the world’s most strategic mineral

Polysilicon metal (Si) is then melted and drawn into cylindrical ingots (boules). These ingots are wafered and are the basis of solar PV cells and semiconductor wafers

With huge growth in Solar PV energy and Semiconductor industries, security of high purity sand supply is now a key issue. Analogous to Lithium and battery storage markets

Polysilicon metal (Si) is loaded into CZ crucibles (Si02)

HPQM will quarry high purity lump quartz from its mining lease and crush, grind and process it too make HIGH PURITY QUARTZ SAND - Si02.

High Purity Sand is then sold to manufacturers of Czochralski (CZ) crucibles. The most efficient solar cells and semiconductors are made with CZ crucibles.

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Concentration of Supply is a Major Risk to the PV/Semiconductor Industry

There are few producing resources - economic sources of chemically pure quartz is rare globally. New entrants will be limited. Downstream PV market needs a new entrant to secure growth.

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High Purity Sand Market Development and Current Market Size

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High Purity Quartz Sand Market History & Development

1970’s

• HPQ sand used in radios, radar systems
• In 1974, IMC began supplying HPQ sand from its Spruce Pines mines
• End 1970’s - market size around 10,000 tonnes of HPQ sand per annum

1980’s

• Unimin acquires IMC.
• End 1980’s - market size around 20,000 tonnes per annum.
• All supplied by Unimin at a price around USD$5,000 per tonne

1990’s

• During the 1990’s fibre optics, Pentium chips boomed and solar panels started to appear.
• End 1990’s – market size around 40,000-50,000 tonnes
• All supplied by Unimin at a price of US$5,000-US$6,000 per tonne

2000’s

• By 2007 solar was consuming more sand than the semiconductor sector
• End 2010 - The Quartz Corp entered the market
• End 2010 – market size around 100,000 tonnes with prices averaging USD$7,500-USD$8,500 per tonne

2010’s

• Nov 2015 – COP21 Paris conference. All nations set to grow solar PV share of energy mix putting pressure
• n PV materials supply
• Polysilicon markets under stress as demand starts to outstrip supply – proxy for HPQ Sand market
• Momentive 10K company filing highlights over-reliance on single supplier (Unimin) as a key business risk

Today

• Security of supply chain is a key issue for downstream developers of Solar PV
• Analogous to market for Lithium driven by battery/storage development
• HPQM has opportunity to deliver product into a rapidly evolving and supply-short market

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• Demand for Solar grade HPQ sand is correlated to growth in new Solar pV capacity installations (base 15%

downside 10%) and existing capacity renewal

• These growth estimates are conservative compared to industry estimates - Solar CAGR – 25.4% to 20201 then

13.1% to 20252

• 1-PVMA/Becquerel Institute Global Market Report 2015-2020
• 2-CleanTechnica/GlobalData 2016

Supply & Demand Projections (Source:HPQM based on various sources)

HPQ Materials plans to ease into the supply gap without oversupplying the market. Target market share of 10% to 15% once fully ramped-up over 5 years.

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Ownership of chemically pure resource meeting all above criteria is rare, hence there are few market participants and new entrants will be limited.

Barriers to Entry Are Significant

• Raw material must be >99.95% pure in ground
• Impurities must be within specific tolerances
• Resource must be long-life to ensure security
• f supply

Resource Quality and Quantity

• Requires experts with actual experience of high

purity silica production

• Benefication process is proprietary to the

specific quartz resource

Technical Expertise and Know-How

• Processing costs must allow for economic

benefication

• High reliance on preventing contamination

through to product delivery and downstream manufacture

Processing

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What is our project?

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ØFully permitted mining lease in Australia. Outcropping quartz resource over 800m ridge Ø99.99% pure quartz in situ confirmed via independent NATA accredited laboratory assay ØInitial independent geologist review estimates circa 2 to 4 million tonnes (Note 1) on a pre-drilling, volumetric assessment basis assuming depths of 50m and 100m respectively. ØProvides mine life of 20-40 years (Note 1). ØSimple surface scree excavation followed by later drill and blast of outcropping resource ie Quarrying

Note 1 – these volumes are pre-drilling estimates. Volumes can only be ascertained with greater degree of certainty following the drilling program anticipated in the development plan. The mine life is estimated by dividing the estimated resource volume by the annual targeted ROM volume of c100k tonnes per annum.

Sugarbag Hill High Purity Quartz Deposit

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Raw Material Volumes (Pre-drill estimates)

Independent geologist report – 20 years mine life to 50 metres depth (4Mt to 100m) The initial drilling anticipated by this raising will confirm that quartz exists at depth. Volumes will only be known more fully after in-fill drilling scheduled for a later funding round.

Independent geologist resource estimates (n.b. non-JORC)

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Raw Material Assay

Independent testing of samples indicates HPQM should be able to meet high purity and ultra high purity specifications following processing The drilling program anticpated by this rasie will provide addtinal comfort that the quartz at depth is similar in chemical purity

Al Fe Ca K Na Li SUM % SBH1 46.527 6.223 4.488 13.798 10.768 0.442 82.246 99.992 SBH2 50.680 15.717 2.562 23.977 10.007 0.753 103.696 99.990 SBH3 47.207 26.917 1.647 24.010 4.377 0.494 104.652 99.990 SBH4 72.005 45.958 1.526 100.434 5.246 0.405 225.574 99.977 SBH5 28.451 28.737 0.933 69.605 6.994 0.390 135.110 99.986 SBH6 31.889 4.743 3.613 17.198 13.959 0.396 71.798 99.993 SBH7 28.890 14.538 1.132 48.310 6.494 0.231 99.595 99.990 SBH8 40.650 9.520 2.668 27.553 10.498 0.224 91.113 99.991 SBH9 58.191 11.741 8.642 37.881 33.754 0.160 150.369 99.985 SBH10 46.289 11.487 1.255 36.542 3.224 0.202 98.999 99.990 AVERAGE 45.078 17.558 2.847 39.931 10.532 0.370 118.764 99.988

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Raw material

• 99.99% pure in-situ
• Can generate early stage cash flow from low grade sales
• Feedstock for HP5 process

HP5

• HP5 is produced in sand form HP5(s) and powder form HP5(p)
• HP5(s) is used to make speciality quartzware, ceramics and tools used in medical/solar pV

manufacture.

• Feedstock for HP7 process

HP7

• HP7 sand is sold to high purity solar (<30 ppm Impurities) and is used to make crucibles for

polysilicon wafer/cell production and quartzware for solar PV manufacturers.

• Feedstock for HP9 process.

HP9

• HP9 sand is primarily sold as ultra high purity sand (<10 ppm impurities) and is used to make

crucibles for polysilicon wafer production for electronic grade quartzware.

Raw material is iteratively processed to meet speciality glass (HP5), solar grade (HP7) and semi-conductor grade (HP9) specifications

Project Process Overview

HPQM quartz resource is 99.99% pure in situ. This means that it can be potentially processed to higher grades (HP7 and HP9) economically

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HP5 (Powder) HP5 (Sand) HP7 (Sand) HP9 (Sand)

Purity

99.99% 99.99% 99.997% 99.999%

Product Specification Total impurities: <100ppm Total impurities: <100ppm Total impurities: <30ppm Total impurities: <10ppm Markets High Purity Filler, specialty glass/ceramics, and Epoxy Molding Compounds Halogen and mercury lamps, custom production applications such as fused quartz tubing, and ingots Mono-crystalline crucibles, high grade multi-crystalline crucibles, high quality fused glass tubing and quartzware Semiconductor grade crucibles and high end solar and semiconductor applications Market Driver Consumer electronics, pharmaceutical packaging, high efficiency lighting. Solar PV equipment – CAGR 20-30% Semi-conductor equipment – CAGR 5-10%. Key Product Features By-product of higher grade processing High purity silica sand for fused quartz uses. Very high purity silica sand suitable for solar grade quartz crucibles and quartzware products Ultra high purity quartz sand suitable for semiconductor grade crucibles and quartzware products

Market Price USD/tonne (Estimated) $500-$1,000 $600-$1,500 $5,500-$8,500 $12,000-$15,000

Purity & Pricing

HPQM will produce and market a range of high value products

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Summary Economics

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Key Economics (All monetary values are A$millions)

Strong EBITDA growth, early cashflow , high value products – exceptional returns

Profit & Loss 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 $Am 1 2 3 4 5 6 7 8 9 10 Revenue 0.1 14.3 71.5 127.7 236.7 299.6 307.1 314.7 322.6 330.7 EBITDA (1.2) 0.9 37.5 87.2 176.7 227.8 234.2 240.0 245.9 251.9

• 1756%

6% 52% 68% 75% 76% 76% 76% 76% 76%

Earnings in Year (1.3) (1.5) 23.6 57.3 118.7 153.6 159.0 164.4 167.9 172.1

Sales Pricing

A$/tonne

HP5

1,450

HP5 Blend

500

HP5 - EMC

750

HP5 - HPF

750

HP7

8,000

HP9

12,000

20 Year Project NPV Discount Rate: 10% 20% NPV Cash (Pre-tax) 1,355,104 600,102 NPV Cash (Post-tax) 926,345 403,275 20 Year Project IRR Pre Tax 150% Post Tax 120%

EBITDA positive in second half of Year2 Low grade sales (HP Blend) starts in Month 6 Commercial cashflow (HP5) starts in Month 10 Early breakeven and payback

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Indicative Project/Equity Valuation Growth

Valuation grows as incremental milestones achieved and project is de-risked DCF valuation based on milestone achievement and related reduction of risk discount Exit at significant multiple in 12 months via IPO is targeted

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Funding Approach

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• Drilling / testing / JORC equivalent resource report
• Low grade sales (HP Blend). HP5 batch samples.
• High grade laboratory samples (HP7)

Phase 1a - A$3m Month 1-4

• HP5 plant build and production start
• High grade batch samples (HP7)

Phase 1b - A$5m Month 2-12

• Ramp up mining and HP5 grade production
• High grade plant build and full production start (HP7)

Phase 2a - A$30m Month 12 to 18

Sugarbag Hill - Development Phases and Costs

HPQM has adopted a staged development approach to mitigate development and investor risk.

Overall Funding Plan – Total A$38m Based on Development Milestones

Round 1a - A$3m Round 1b - A$5m Round 2 – A$30m

Note capex estimates for Phase 2 above are approximate and require finalization of materials testing and assessment Phase 1a can be further spilt as follows: Initial resource de-risking–drilling/testing to depth – cA$510k Asset acquisition, deliver low grade sales and high grade lab samples – cA$2.5m This equity raising

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• Drill 5 to 6 holes to 70-100m depth (sufficient to satisfy

next round funders)

• Subsequent JORC compliant infill drilling funded via

later rounds Appraisal drilling

• Confirm initial quality assays are consistent at depth

Testing

• Mine sufficient volumes to send samples to buyers

Initial Mining for samples testing

• Employ staff, contractors, short term premise/storage

rental and develop next round funding Staff/ Working capital and next funding round costs

• Extension fee
• Other fees

Lease Maintenance Costs

Equity Raise Purpose – Initial resource de-risking

HPQM is now seeking cA$510k to de-risk asset volumes through drilling and testing.

Ø Significant interest exists from Major Funds/Investors once initial volume de- risking has been completed. Ø Most funds will not invest until resource has been de-risked. Ø Multiple funding options exist after the above work is completed successfully

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Exit Routes

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• IPO planned in c12-15 months
• IPO proceeds will fund Phase 2 development

IPO

• As an alternative to IPO (to be investigated)

Compliance Listing

• Downstream PV/Semiconductor manufacturers looking

to secure supply to protect US$Billions invested Strategic Buy-Out

• Industrials looking for exposure to high growth markets
• Competitors looking to control/consolidate the market

Trade Sale

Multiple Exit Routes

Ø HPQM plans to IPO the business after Phase 1a and Phase 1b are completed Ø IPO will fund Phase 2 development Ø Strategic buy-out or trade sale is possible once asset de-risked and HP7 has been proven to pilot sample level

Multiple Exit Routes

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Initial raise opens up significant liquidity from large investors through to IPO.

• Phase 1a
• Acquire asset
• Commence

sampling program

• Commence HP7

metallurgy

• PFS
• Phase 1b
• Minesite infrastructure
• Bulk sampling

program

• HP5 Plant build
• HP7 Pilot Plant
• BFS
• Phase 2
• Townsville pre-processing plant
• Minesite infrastructure expansion
• HP7 Production plant & HP9 Metallurgy
• HP9 commercial samples

Asset/HP5 De-risking

HP5 Plant Construction/HP7 Pilot HP5 Production and Sales Ramp Up HP7 Plant Construction HP7 Production and Sales Ramp Up Round 1a Balance Raise $2.5m Feb 2017 IPO c$30m Nov 2017 Round 1b Raise $5.0m April 2016

Round 1a De-risk Raise $0.5m Nov/Dec 2016

Phase 1a (Balance raise $2.5m) + Phase 1b Raise ($5m) may be combined as a single $7.5m raise depending on results of initial de-risking works.

HPQ Path to IPO – Indicative

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Stuart Jones – Chief Executive Officer

• Experienced listed company C-level executive with background in

international banking

• Significant commercial and financial experience in companies with mix of

international operations and early stage project developments.

• Significant small/mid-cap corporate development experience.

Jason May - Chief Technical Officer

• Experienced C-level executive with significant technology expertise.
• High purity quartz technical expert.
• Significant solar and semiconductor market development experience.

Brook Burke - Company Secretary and General Counsel

• Experienced General Counsel and Company Secretary with ASX 200 listed

public energy and resource companies

• Significant greenfield mineral project development expertise, particularly in

Queensland Andrew Hamilton – Chief Commercial Officer

• Result-orientated experienced senior executive with background in Finance

and Resource sectors.

• Experience incorporate project management, business development, mining

and exploration, operations management and logistics.

Experienced and dedicated management team covering all necessary disciplines ü Commercial ü Financial ü Technical ü Sales & Marketing ü Operational ü Legal ü Risk ü Compliance ü International

Key Management Summary

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Additional Materials

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The market needs a new long term supplier of one of the world’s most strategic mineral. ØHigh Purity Quartz Sand is the only material suitable for high purity quartz crucible manufacture ØQuartz crucibles are used as the melting pots to produce both mono-crystalline and multi-crystalline polysilicon ØMono-crystalline solar PV cells produce higher energy output per cell than multi-crystalline cells ØConsequently, mono-crystalline polysilicon is growing its share of the solar PV cell/wafer market compared to multi-crystalline polysilicon ØMono-crystalline polysilicon can only be manufactured using the highest grade Czchoalski (Cz) crucibles ØCz crucibles require the highest purity sand compared to other crucible types ØHPQM is targeting sales to major solar PV/semiconductor industry players (or their preferred Cz crucible suppliers) ØDownstream Pv and Semiconductor growth is enormous with US$ Billions invested and more scheduled ØThe Downstream markets depend on reliable and diverse supply of HPQ Sand. High purity sand availability is a critical factor to solar and semiconductor industry growth.

Perhaps the World’s most strategic mineral

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High Purity Quartz Sand – Multiple Uses

High purity quartz sand is critical to many high value and strategically important applications.

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Use of Funds A$532k

Use of Funds A$ Totals Month 1 Month 2 Month 3

Lease and Extension Costs

65,000

15,000 50,000

• Drilling and Reporting

80,000

10,000 35,000 35,000 HP5/HP7 Testing & Samples

40,000

15,000 15,000 10,000

Total Capex 185,000 40,000 100,000 45,000

• Extraction & Processing

30,000

• 15,000

15,000 Key Staff /Consultants/Contractors

135,000

45,000 45,000 45,000 Overheads - Rent/Travel/Sundries

60,000

20,000 20,000 20,000

Total Opex 225,000 65,000 80,000 80,000

Fund raising costs/IPO prep

122,000

47,000 25,000 50,000

Total for Program 532,000

152,000 205,000 175,000

Fund raising and IPO prep costs of A$122k includes A$22k costs related to this equity issue. Net raise is A$510k for the work program as outlined.

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Potential Investor Returns (Pre-tax basis)

Indicative returns based on Management view of entry equity valuation at each subsequent funding round Initial A$1m founder investment is notional based on estimated opportunity cost and the value of work done by founders to develop the opportunity to current status. DCF valuation is based on milestone achievement and related reduction of risk discount (included to highlight the potential net present valuation of future cashflows at each round)

Valuation A$millions This Round Round 1a Round 1b Round 2/IPO This Round 0.500 $ Later Rounds 2.5 $ 5.0 $ 30.0 $ Cumulative Total Investments 1.0 $ 1.500 $ 4.0 $ 9.0 $ 39.0 $

Implied Equity Entry Values

Implied Val at Equity Entry (Seed Inv) 5.0 $ Implied Val at Equity Entry (R1a) 12.50 $ Implied Val at Equity Entry (R1b Inv) 50.0 $ Implied Val at Equity Entry (R2 Inv) 300.0 $ Risked DCF Valuation (A$m) 12 $ 41 $ 54 $ 474 $ 881 $ See through investment multiples This Round Round 1a Round 1b Round 2/IPO This Round 1.0x 2.0x 7.2x 38.9x R1a Investor 1.0x 2.2x 19.4x R1b Investor 1.0x 5.4x

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ESIC (Early Stage Innovation Company) From 1 July 2016, if an investor acquires newly issued shares in a qualifying ESIC, they may be eligible for the following tax incentives:

• A non-refundable carry forward tax offset equal to 20% of the amount paid for their qualifying
• investments. This is capped at a maximum tax offset amount of $200,000 for the investor and their

affiliates combined in each income year; and

• Modified capital gains tax (CGT) treatment, under which capital gains on qualifying shares that are

continuously held for at least 12 months and less than ten years may be disregarded. Capital losses

• n shares held less than ten years must be disregarded.
• Investors who are not 'sophisticated investor' will not be eligible for any tax incentives if their total

investment in qualifying ESICs in an income year is more than $50,000.

• The company must qualify as an early stage innovation company (ESIC) immediately after the new

shares are issued to the investor. A company will qualify as an ESIC if it meets both the early stage test and either the 100-point innovation test or principles-based innovation test. HPQM considers that it meets the requirements of these Company tests, so Investors participating in this issue may qualify for advantageous tax treatment. NB Investors should undertake their own investigations in relation to qualification for ESIC incentives

Investment – ESIC Tax Incentives

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Solar PV and battery storage materials are set to grow strongly in value

Battery storage and solar PV demand growth are correlated to growth in renewable energy targets

• COP21 was a tipping point in recognising the

need to halt global warming and in setting international climate change targets

• Solar PV is set to grow its share of the global

energy mix and that trend is likely irreversible

• Participants in key materials supply chain will

be rewarded

Lithium and High Purity Sand demand is correlated to battery and solar PV growth respectively

Lithium production High Purity Sand production

Solar PV & Battery Storage Growth are Correlated and Synergistic

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Solar and semi conductor grade crucibles HP7 and HP9 grade HP5 Powder HP5/HP7/HP9 Sand Ex-Townsville Quartz 7mm chip Mono-crystalline solar cell Semi-conductor Camera lenses HP5 powder

Reference Photographs

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Stuart Jones (Chief Executive Officer) +61 477 847 346 stuart@hpquartz.com Jason May (Chief Technical Officer) +61 425 798 888 jason@hpquartz.com Website www.hpquartz.com

Contacts