Select Sands Corp. announced financial and operational results for the first quarter of 2017. The company achieved the ability to produce commercial quantities of frac and industrial sand and as a result, commercial production commenced at the start of the quarter.
Total revenue for the quarter was $1.5 million; comprehensive loss was $2.8 million, or $0.04 basic and diluted loss per common share, including $2.2 million in non-cash share-based compensation.
Net investment in property, plant and equipment was $3.3 million, including $1.3 million for the purchase of the Bell Farm Property with 49.6 million tons of Inferred Mineral Resources.
As of March 31, 2017, cash and cash equivalents were $6.8 million. Warrants and option exercises generated cash of $1.1 million during the quarter. Inventory on hand at the end of the quarter was $0.8 million.
The company:
• Delivered first truck shipment of frac sand for the oil and gas sector in January and rail shipments began in February.
• The first nine rail cars arrived in February increasing to a total of 67 cars by March. Continued escalation of rail car count is expected for the remainder of 2017.
• Signed first long-term supply agreement that included quarterly price adjustments during the term of the agreement. Shipments started in March with 1 million ton commitments in 2018 and 2019.
The company expects second quarter 2017 total frac and industrial sand sales volumes to increase between 40 to 60 percent over the first quarter. The impact on production and related shipments from flooding during an approximate two-week period earlier in the second quarter is factored in.
Zig Vitols, president and chief executive officer, commented, “Overall, we were pleased with our 2017 first quarter results and are encouraged to have all our products favorably received by the oil and gas sector. As expected, start-up costs and low initial volumes had a significant impact on the first half of the quarter, but by March our gross margin had turned positive. I am very appreciative with the efforts of our management team and particularly our production personnel in reconfiguring plants and maintaining a quality standard, considering that shipments to the oil and gas sector started less than a month after closing the Ozark acquisition. Meanwhile we have had no less than ten training sessions to instill a strong safety culture as we further assemble our team.”
Since closing on the Ozark Premium Sand asset acquisition in December, the company has been re-commissioning previously idled assets such as dryers and wet plants and acquiring additional operating assets, including the Newport Rail Loading Facility where the company can load 25 rail cars within 24 hours. The Ozark Operations now consist of six operating components: Sandtown Mine, Bell Farm Holdings, Freeze Farm Wet Plant, Maple Springs Wet Plant, Possum Grape Dry Plant, and Newport Rail Loading Facility.
During the first quarter of 2017, Select Sand focused on transitioning the Ozark Operations from a brown sand excavation based process to a drill and blast quarry operation to mine premium Northern White frac sands. Improvements were also made in rail logistics, increased plant capacity and efficiencies.
A partial list of the enhancements includes:
• Track mounted crushers installed at Sandtown.
• Installation of an additional cyclone and pump for capacity increases at Freeze Farm.
• Refurbishment of previously dormant dryer with a new burner and re-flighting at Possum Grape Dry Plant.
• Additional transfer bunker capacity at Possum Grape and wet product storage at Freeze Farm.
• Lease to purchase of Newport Rail Facility.
Because of the substantial physical production capacity and the sustained production of commercial quantities of frac sand, management determined that commercial production had commenced. Accordingly, the capitalization of development costs ceased and the capital costs were transferred to property, plant and equipment. Revenue and expense from its operations are now recorded in operating results for the quarter.
The company advised that the production decision on the Sandtown deposit was not based on a Feasibility Study of mineral reserves, demonstrating economic and technical viability, and, as a result, there may be an increased uncertainty of achieving any level of recovery of minerals or the cost of such recovery, including increased risks associated with developing a commercially mineable deposit. Historically, such projects have a much higher risk of economic and technical failure. There is no guarantee that production will occur as anticipated or that anticipated production costs will be achieved.