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U.S. Silica to Build Second Frac Sand Plant in Permian Basin

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U.S. Silica Holdings, Inc. (SLCA - Free Report) said that it intends to construct a second frac sand mine and plant in West Texas to cater the fast-growing Permian Basin. The state-of-the-art facility is expected to produce around 2.6 million tons annually.

The facility, located about 60 miles north of Midland, near Lamesa, TX, is part of U.S. Silica’s earlier announced plan to add roughly 8-10 million tons of new brownfield and greenfield capacity to address rising frac sand demand. The 3,500-acre site has more than 30 years of reserves of fine grade 40/70 and 100 mesh sand.

U.S. Silica noted that it has secured customer commitments for the purchase of 1.2 million tons of sand annually. Construction works are expected to start immediately with initial production slated in March 2018.

The company plans to finance the $150 million project using cash on hand and cash flow from operations. U.S. Silica had $598.5 million in cash and cash equivalents at the end of the second quarter of 2017.

U.S. Silica continues to evaluate opportunities for greenfield expansions in the Permian Basin and is also expanding production capacities and efficiencies across some of its existing facilities. The company is also executing many cost improvement projects throughout its supply chain.

U.S. Silica has underperformed the industry it belongs to over a year. The company’s shares lost around 34% over this period, compared with roughly 20.4% gain recorded by the industry. An uncertain sand demand environment poses a concern for the company.

U.S. Silica is a Zacks Rank #5 (Strong Sell) stock.

Stocks to Consider

Better-ranked stocks in the basic materials space include Kraton Corporation (KRA - Free Report) , Koppers Holdings Inc. (KOP - Free Report) and Orion Engineered Carbons, S.A. (OEC - Free Report) , all sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Kraton has expected earnings growth of 7.2% for the current year.

Koppers has expected long-term earnings growth of 18%.

Orion Engineered Carbons has expected earnings growth of 19% for the current year.

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