Smart Sand Inks $2M Deal For Eagle’s Oil & Gas Unit; Analyst Bullish


Smart Sand (SND) has announced that it has now completed the acquisition of Eagle Materials’ Oil and Gas Proppants Segment for $2 million, consisting of 1,503,759 shares of newly-issued Smart Sand common stock.

The Segment’s primary assets include frac sand mines and related processing facilities in Utica, Illinois and New Auburn, Wisconsin, with approximately 3.5 million tons of annual processing capacity, of which approximately 1.6 million tons has access to the BNSF rail line.

Eagle Materials has also agreed to provide initial liquidity support for the Segment to Smart Sand pursuant to one or more loans in an aggregate amount of up to $5 million, which may be issued during the first twelve months from the closing date of the acquisition.

If funded and not repaid on or before the twelve-month anniversary of the closing date, the loans will mature on September 18, 2024 and will be amortized over the following 36 months.

Charles Young, Smart Sand’s CEO stated, “We are excited about this consolidation opportunity. This acquisition provides direct access to an additional Class I rail line which allows us greater and more sustainable logistics options to continue to broaden our mine to wellsite capabilities for our customers.”

He noted that the additional mining and logistics resources should help secure Smart Sand’s ability to be the preferred provider of Northern White frac sand in the proppants market.

“We believe this acquisition adds valuable assets to our purpose-built portfolio and by financing this transaction with equity, we remain focused on maintaining low leverage levels” Young added.

On, September 18, 2020, Smart Sand has total cash on hand of $10.8 million and no borrowings outstanding on its Credit Facility or under the liquidity support agreement.

Shares in SND have plunged 46% year-to-date, but the stock has nonetheless scored a recent buy rating from B Riley FBR analyst Lucas Pipes. His buy rating comes with a $2.50 price target, indicating significant upside potential of over 80%.

Pipes made the call following 2Q20 earnings results on August 4. SND reported adjusted EBITDA of $15.6M, which came in slightly above his estimate of $14.3M thanks to stronger-than-expected costs of $57.24/ton.

“Smart Sand did not provide any operational guidance for the 2H20 as the industry remains highly volatile. However, management did indicate that it appears that frac sand markets are improving from 2Q20 lows” commented the analyst.

Plus management noted that much of the supply that has been taken offline due to recent bankruptcies would require material investment from operators in order to reopen—especially around logistics. “This will likely force much of the previously curtailed supply to permanently close, helping simplify the frac sand supply picture long term” Pipes told investors. (See SND stock analysis on TipRanks).

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