U.S. Silica (SLCA) To Buy Sand Producer For $210 Million

U.S. Silica Holdings Inc. (NYSE:SLCA) has agreed to acquire the NBR Sand unit of New Birmingham Inc., a privately-owned industrial minerals and logistics company for $210 million, subject to closing adjustments. The deal will be financed 57% by cash on hand and 43% through restricted stock. The transaction is expected to close in Aug 2016.

The NBR Sand unit operates a single sand mine and plant with a capacity of over two million tons of fine-grade frac sand per annum. The unit is located in Tyler, TX, and provides its products to customers drilling and completing wells in the region. This acquisition will enable U.S. Silica to expand its product offering and capacity in the regional sands market, and enhance customer satisfaction.

Currently, the NBR Sand unit produces 40/70 Mesh and 100 Mesh Silica Sand on roughly 1,400 acres. A low-cost manufacturer, the unit operates 12 storage silos with a capacity of more than 10,000 tons. With the integration, U.S. Silica aims to combine its own powerful distribution network and long-standing customer relationships to optimally utilize the complete potential of the unit.

U.S. Silica is optimistic about the growth of the regional sand market and is looking to create a strong foothold in the same. The company is also in the process of identifying further acquisition options that will fit its strategy. As energy markets recover and the demand for regional sand increases, the company is ready to take advantage of further identified opportunities and maximize customer satisfaction.

Recently, U.S. Silica also bought additional reserves in Ottawa, IL. The company purchased fully permitted 327 acres of land adjacent to its existing facility from a privately-owned mining company. The property is expected to add a 30 million ton proven reserve of high-quality Ottawa White sand. The company’s strong balance sheet helps it take advantage of such opportunities.

In first-quarter 2016, U.S. Silica reported an adjusted loss of 19 cents per share, as compared to profit in the prior-year quarter, due to lower volumes and prices in the Oil and Gas segment. However, the reported figure was narrower than the Zacks Consensus Estimate of a loss of 28 cents per share. Revenues of $122.5 million declined 40% year over year in the quarter and missed the Zacks Consensus Estimate of $125 million.

U.S. Silica ended the first quarter of 2016 with a cash balance of $463.4 million, up 83.5% year over year. The company issued 10 million common shares in the quarter worth $186.2 million to strengthen its balance sheet. Management aims to reduce costs and manage the business efficiently as the company is highly exposed to the unstable oil industry. These steps are expected to help the company return to profitability when the market conditions reverse. For 2016, management expects capital expenditure to be between $15−$20 million.

U.S. Silica currently sports a Zacks Rank #1 (Strong Buy).

Some other well-ranked stocks in the mining space include Rio Tinto (LON:RIO) plc (NYSE:RIO) , Spartan Silvercorp Metals Inc. (OTC:SVMLF) and Coeur Mining, Inc. (NYSE:CDE) , all sporting a Zacks Rank #1.