Three publicly traded takeover targets in a niche energy sector segment
The largest silica sands producer, U.S. Silica (NASDAQ: SLCA), just completed a ~$175 million bought deal financing with one of the purposes for the capital raise being the potential acquisition of “complementary businesses or assets”.
After putting in a double-bottom near $13.50 in January SLCA has rallied nearly 80% and is currently on the brink of completing a major chart pattern bottom which would be confirmed with a breakout above long term support/resistance and a key Fibonacci level near $23:
The silica sands sector has been absolutely torched since the oil downturn began in the summer of 2014 with many of the stocks in the sector seeing 80%+ declines.
The SLCA bought deal is undoubtedly a positive sign for the sector, not only because it shows that a company can get a large financing done, but it also shows that the biggest name in the sector sees value in terms of potential acquisitions. If the biggest publicly traded player in the silica sands space just raised US$175 million with the stated intention of acquiring complementary businesses and/or assets then it’s time to look at potential acquisition targets.
There isn’t a large universe of publicly traded silica plays. Here are the 3 stock setups which look most attractive:
Emerge Energy Services (EMES) – EMES is a Wisconsin based miner and producer of silica sand. EMES shares have formed a multi-month bottom since crashing last September:
A move above ~$7 would trigger a chart pattern breaking from a rounding bottom pattern with a target close to $11. That would be more than a double from current levels! The 10% short interest in EMES should add fuel to any upside move.
Hi-Crush Partners (HCLP) – HCLP is another Wisconsin based frac sand producer with an intriguing chart:
HCLP breaks out above ~$7.
HCLP and EMES have very similar market caps (~$125 million) which put them in the upper end of the SLCA’s potential ballpark range of acquisition candidates (one can normally expect a takeover to occur at a 30%-50% premium to current market levels).
Select Sands (TSX-V: SNS) – SNS is a micro-cap (US$13 million market cap) silica sand play with a large ‘white sand’ resource in Arkansas. Select Sands’ Sandtown resource in Arkansas has a competitive location advantage as it is approximately 650 rail miles closer to the Texas/Louisiana oil/gas plays as well as the Houston port and industrial hub.
SNS shares have had a rough couple of months and have recently fallen to an important area of support near .22-.25:
Given its relatively small market cap and highly attractive location, SNS is likely to be on U.S. Silica’s acquisition radar. With SNS shares trading at support and a move up to .50 (a double from current levels) being far from unreasonable, SNS is an attractive albeit highly speculative investment proposition.
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