2. The Company
Recommendation: Buy Price Target - $30.04
Current Price 20.23
52-week range $28.50 – 8.73
Shares outstanding 53MM
Market Cap 1,235.2M
P/E (2013) 15.75
EV/EBITDA (2013) 8X
3. US Silica Holdings “SLCA” is the second largest domestic producer of commercial silica, a specialized
mineral that is a critical input into a variety of end markets. In SLCA’s largest end market, oil and gas
proppants, their frac sand is used to stimulate and maintain the flow of hydrocarbons in horizontally drilled oil
and natural gas wells.
SLCA sales are primarily a function of the price per ton realized and the volumes sold. In some instances,
their sales also include a charge for transportation services, which they provide to customers.
Company Profile
• Founded 113 years ago
• IPO January 2012
• Headquarters: Frederick, MD
• Bryan A. Shinn, CEO
• Operate 15 facilities across the United States and control
307 million tons of reserves
• ~785 employees, ~ 50% unionized
• Sector: Industrial Minerals Supplier
Over 250 products and 1,800 customers
• Oil & Gas Proppants: Frac sand
• Industrial & Specialty: Glass, coatings, found
15 facilities and over 100 years of history
• Flagship Ottawa site home of ‘Ottawa White’
307 million tons of high quality reserves
7.2 million tons sold in FY 2012
FY 2012 Revenues of $441.9MM
4. Two operating segments
• Oil & Gas Proppants
– Drivers:
• Industrial & Specialty Products (ISP)
– Glass, Chemical, Foundry, Building Products, Fillers & Extenders, Recreation,
Industry Filtration & Treatment, Testing & Analysis
– Drivers:
• Housing and automotive markets: glass, building materials, foundry and fillers and extenders
• SLCA anticipates launching into the water treatment market later this year. They
expect to generate at least $10MM in incremental EBITDA from new industrial
products by 2015
Company Profile
Horizontal
Rig Count
Wells per
Rig
Lateral
Length
Stages
per Lateral
Proppant
Per Stage
5. RCS Phase 1
• First quarter of 2013, SLCA’s new resin-coated sand facility became fully operational
• Capacity: 200,000 tons
• Client testing/evaluation underway
• Complete facility expected to resin coat up to 400 million pounds of sand annually and will significantly
expand addressable oil and gas proppant market
During the second half of 2012 SLCA expanded with a Greenfield Mine and construction of a production
facility near Sparta, Wisconsin. Producing high quality northern white sand
Sparta Phase I
• Capacity: 850,000 tons
• This was completed at the end of Q1 (ahead of schedule)
• 70% or greater of this product is already contracted out
Sparta Phase II
• Capacity: 850,000 tons
• Due to market demand, the Board authorized the acceleration of the construction and commissioning
of Sparta Phase II
• SLCA expects the new facility will increase their annual production by 1,700,000 tons when fully
operational
Once this expansion fully comes online later this year, SLCA’s total annual frac sand capacity will be
approximately 4.6MM tons, more than a 50% increase versus 2012
Catalysts
6. • Further expansion of their storage network
• Goal of 25 to 30 transloads online by the end of 2013
– Every transload they add expands their addressable in-basin market by putting them
within driving distance of additional rigs
• Increase in:
– Stages per well
– Wells per rig
– Lateral length
• The longer the lateral wells and the more stages in a well, the more proppant will be
consumed
– Sand spot prices
• M&A
– Moving up the supply chain with acquisitions in mining, processing,
transloads/logistics, and storage
– Increased Scale
• Domestic proppant producers are expected to experience annual increases in
demand of 8.0% through 2016*
• Dividend increase
– Announced quarterly dividend of $0.125 per share (.50 per annually)
Catalysts
* Freedonia report dated October 2012
7. Increased frac sand demand even with flattish horizontal rig count due
to:
• Rig efficiencies
• Well intensity
Catalysts
Source: IHS, RBC Capital Markets estimates
8. • Leader in high quality proppants
− White sand, Resin Coated Sand (RCS)
− Large proven reserves of high quality white sand
• Distribution Capabilities
− Superior logistics strategy
− Multi plant network
− Moving up the supply chain with transloads
− Railroad agreements
− Get the proppant to the right pace at the right time
− Flexibility and responsiveness
• Low cost structure
− Expanding services as low-cost provider to all major basins
• Scale
• Strong contribution margin
• Barriers to entry
• Golden Gate Capital owns 77.8%
Strengths
11. SLCA’s sites are strategically located to provide access to all Class I railroads, which
enables them to cost effectively send product to each of the strategic basins in North
America
Transportation Assets
• Railroad access on BNSF, Union Pacific, CN, CP, and CSX
• Barge Access
• 15 in-basin transloads, many of which can be turned on or off to meet demand
• Anticipate 25-30 transloads by end of 2013
Advantages
• Scale
• Reliability
• Flexibility
• Cost effectiveness
SLCA’s supply chain network and logistics capabilities are a valuable competitive
advantage
Distribution
12. Transload Facility
• 15,000 ton Unit Train Facility in Eagle Ford Basin ($8-10M)
• Has the capacity to put in excess of 500,000 tons per year
• Built in partnership with the BNSF Railroad
• Benefits:
– Reduced cost per ton to deliver (especially to Eagle Ford basin)
– Increased flexibility and responsiveness
San Antonio
13. Completed Phase I and
accelerated to Phase II
Newly completed unit train
& Transload capable site to
service Eagle Ford
Distribution
“..really what our customers are coming to us and talking a lot
about is responsiveness.”1
1: US Silica 2013 Q1 earnings call
15. Barriers to Entry
Mine/Plant Location
Owned/
Leased Area
Proven
Reserves
Probable
Reserves
Combined
Proven
and
Probable
Reserves
2012
Tons
Mined
Primary
End
Markets
Served
(in acres) (amounts in thousands of tons)
Ottawa, IL Owned 1,781 owned 74,095 40,801 114,895 3,217 Oil and gas proppants, glass,
chemicals and foundry
Mill Creek, OK Owned 2,214 owned 15 mineral lease — 19,276 19,276 1,240 Oil and gas proppants, glass,
foundry and building products
Pacific, MO Owned 524 owned 16,496 7,994 24,490 598 Oil gas proppants, glass, foundry
and fillers and extenders
Berkeley Springs, WV Owned 4,435 owned 2,990 — 2,990 414 Glass, building products and fillers
and extenders
Mapleton Depot, PA Owned/
Leased
1,761 owned 194 mineral lease
98 access Lease
5,315 10,000 15,315 691 Glass and building products
Kosse, TX (1) Owned 960 owned 118 mineral lease 12,266 — 12,266 409 Glass, building products and fillers
and extenders
Mauricetown, NJ Owned 1,279 owned 12,669 — 12,669 134 Filtration, foundry and building
products
Columbia, SC Leased 648 lease 204 owned 5,120 1,680 6,800 400 Glass, building products and fillers
and extenders
Montpelier, VA (2) Owned 824 owned — 14,146 14,146 307 Glass and building products
Rockwood, MI (3) Owned 872 owned 6,563 — 6,563 — Glass and building products
Jackson, TN Owned 132 owned 1,250 — 1,250 150 Fiberglass and building products
Dubberly, LA Owned 356 owned 25 tailings lease 4,462 — 4,462 221 Glass, foundry and building
products
Batesville, AR Owned 477 owned — 34,732 34,732 — —
Hurtsboro, AL Leased 117 owned 1,108 mineral lease 1,216 — 1,216 185 Foundry and building products
Sparta,WI Owned 520 owned 33,542 2,740 36,282 358 Oil and gas proppants
Total
175,984 131,369 307,352 8,324
SLCA owns almost all of their facilities
No royalty payments
17. • Operating labor costs represent the largest spend category at approximately 12% of
sales
• Fixed costs, specifically Energy costs directly related to the production of products
represented 5% of total sales during each of the three months ended March 31, 2013
and 2012
• Strong Contribution Margin: ability to withstand price fluctuations, pay dividend, make
acquisitions, etc.
– Increased sales due to logistical and supply advantages should positively impact CM
Sales:
Oil and gas proppants $243,765.00 $107,074.00 $69,556.00
Industrial and specialty products 198,156 188,522 175,397
Total sales 441,921 295,596 244,953
Segment contribution margin:
Oil and gas proppants 107.23% 140,070 56.76% 67,590 43,118
Margin (% Sales) 57.46% 63.12% 61.99%
Industrial and specialty products 53,601 53,013 46,031
Margin (% Sales) 27.05% 28.12% 26.24%
Total segment contribution margin 193,671 120,603 89,149
Margin (% Sales) 43.82% 40.80% 36.39%
Years Ended December 31,
2012 2011 2010
Financials
20. • Execution risks
• Reduction in drilling activity
– Fewer horizontal rigs
– Fewer stages
– Reduced lateral well length
• Lower commodity prices
• Oversupply of proppant
• Negative mix shift to lower margin sand such as 100
mesh
• Increased environmental regulations
• Poor sales in their new RSC proppant
Risks
21. • Low cost/high quality producer
• Superior logistics
• Growth projects
• M&A
– Mining, processing, transloads/logistics, and/or storage
• Increase market share
• Strong Contribution Margin: 44%
• Dividend yield: 2.3%
– Potential increase (motivated by Golden Gate Capital)
• Relative value
– Trading at a discount to peer
• Short squeeze
– 32% Short interest
• Share repurchase program
– ~$10.5MM left of the $25MM initial repurchase program in 2012
Summary