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Select Sands (TSX-V:SNS) is one of the hottest and most undervalued silica sands stocks in the entire market.
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Last week Select Sands entered into an agreement to purchase a dry processing plant, operating equipment, saleable inventory, and customer lists amongst other miscellaneous assets owned by Ozark Premium Sand, LLC. These assets were valued at ~US$32 million in 2015 PEA and Select Sands is acquiring these assets for a total purchase price of ~US$4.3 million.
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With this acquisition Select Sands will now have capacity to produce 600,000 tons of fracking sand per year. In addition, production can be doubled to ~1.2 million tons with minimal capex.
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U.S. Silica recently acquired a producing sand asset in Texas in which the company paid US$105 per producing ton. At this same valuation Select Sands’ Sandtown assets would be valued at ~US$63 million which would equate to roughly C$1.50 per SNS share.
The silica sands sector is red hot as demand for fracking sands has never been stronger and demand is forecast to get even stronger over the next couple of years. The most popular well completion methods for horizontal wells require mammoth amounts of fracking sands in order to maximize well output. Moreover, the quality of the frac sand is of crucial importance; Select Sands’ Sandtown Silica Sand Project contains high purity Silica (99% SiO2), high roundness, and high sphericity.
We connected with Select Sands CEO Rasool Mohammad last week to get an update on what he’s seeing in the frack sand market and what Select Sands latest acquisition means for the company:
Scott Armstrong: Tell us about the frac sand market and what kind of demand you are seeing out there.
Rasool Mohammad: We are anticipating a surge in demand for our products. You can go from anywhere from Goldman Sachs to Credit Suisse to some smaller firms and they are all forecasting aggregate frac sand demand that is nearly double the previous peak from 2014 which was 54 million tons.
A shift in the completion method has led to surging demand for finer mesh frac sand; the kind of sand that Select Sands produces at its Sandtown property in Arkansas. The ‘slickwater method’ uses a tremendous amount of finer mesh sand. For example, the ‘mega-fracks’ which are happening in Louisiana and Oklahoma use anywhere between 13,000-27,000 tons of sand per well and this sand is primarily finer mesh sand (40/70 and 100 mesh).
CEO Technician: Since you are anticipating a surge in demand which will create a supply/demand gap are you waiting to sign contracts at higher prices? And if so, what prices are you looking for?
Rasool Mohammad: Yes we are looking for prices to go over before entering into long-term arrangements with customers. Right now the price is in the low $20s ($20/ton) and it is changing very rapidly. By Q1 2017 I could see $30/ton, and by mid-2017 I could see the price moving up to somewhere between $30 and $40 per ton. And my estimates may be conservative because I see several analysts predicting prices in the $50s for the types of premium products which we sell (finer mesh).
Source: Goldman Sachs June, 2016
Select Sands is uniquely positioned in the heart of the U.S. shale oil industry with premium frac sand products which are experiencing surging demand. Select Sands’ latest infrastructure acquisitions have transformed the company into a vertically integrated supplier of premium frac sands. The market has yet to fully appreciate the value which Select Sands is on the verge of unlocking as premium fracking sand demand goes into overdrive.
SNS.V (Daily)
Strong accumulation in SNS shares in recent weeks confirms that the market sees considerable value creation in Select Sands’ latest acquisition.
Disclaimer:
The article is for informational purposes only and is neither a solicitation for the purchase of securities nor an offer of securities. Readers of the article are expressly cautioned to seek the advice of a registered investment advisor and other professional advisors, as applicable, regarding the appropriateness of investing in any securities or any investment strategies, including those discussed above. Select Sands Corp. is a high-risk venture stock and not suitable for most investors.. Consult Select Sands Corp.’s SEDAR profile for important risk disclosures.
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