SANDcreditsuisse July 20 2017

20 July 2017
Americas/United States
Equity Research
Oil & Gas Equipment & Services
Oilfield Services & Equipment

Research Analysts
COMPANY UPDATE
James Wicklund
214 979 4111
[email protected] Enter Sandman: The Tide Comes In
Jacob Lundberg
212 325 6785 In conjunction with this note, we are hosting a conference call with Aidan
[email protected] Connolly this morning (7/20) at 10:00 AM ET. U.S. dial-in: +1-800-269-9146 /
Grant Hesser International dial-in: +1-706-758-9648 / Passcode: 57822763.
212 538 8444
[email protected]
■ Bifurcating. We are downgrading the more Northern White-levered
proppant companies. We lower FMSA and SND to Neutral (from
Outperform) while maintaining our Outperform ratings on SLCA and HCLP.
As we run our revised NAM rig count and our Sandman cost curve through
our sand models, we cut 2018 EBITDA estimate by an average of 15%
(21% excluding SLCA, which sees an upward revision due to the inclusion
of recent capacity additions). We cut price targets across the group, as we
lower our 2018 trading multiples given uncertainty around price stability in
2018-plus in the face of West Texas capacity coming online.
■ Too Much. Frankly, we are surprised at how much Texas capacity can be
used as proppant and is being developed. We have looked for water in
West Texas for 100-plus years. We only just started looking for sand in
earnest. The Permian, the Eagle Ford, and the SCOOP/STACK look to
achieve regional “self-sufficiency” much more quickly than has been
expected. This limits the duration of any structural arbitrage with non-
Texas/Wisconsin sand. Pricing for sand continues to rise. However, based
on permits filed to date and capacity additions we hear about from our
industry contacts, we could see as much as 45Mtpa of nameplate capacity
identified. We model 32Mtpa of that hitting the market by year-end 2018.
The fact that pricing could decline by year-end 2017 and should decline by
mid-2018 marginalizes Wisconsin sand more quickly than expected.
■ Positive. We understand the bullish case. Sand demand is the fastest-
growing segment of the market. It shows no sign of slowing down yet.
Industry needs all of the sand being found and developed. Not all the
mines will open, or at least not on the timeframe proposed. Some are
undercapitalized. Other issues, such as sufficient water access and the
presence of Dune Sagebrush Lizards, could represent additional barriers.
However, reports of sand deposits and development plans continue. While
increased volumes are needed, the relative locations are disproportionally
affected. Those without financing will be bought by those with it,
accelerating the development timeframe. In the near term, investors should
own Texas-only sand mine companies. But none exist in the public equity
markets. In the long term, exposure to Texas and other basins will prove
positive. Those with all or mostly Wisconsin sand should fare worse.
DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST
CERTIFICATIONS, LEGAL ENTITY DISCLOSURE AND THE STATUS OF NON-US ANALYSTS. US Disclosure: Credit
Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware
that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report
as only a single factor in making their investment decision.
20 July 2017
West Texas Exposure and Ability to Extract Margin Through the Value Chain Makes
All the Difference. On our model, Outperform-rated SLCA and HCLP derive 44% and
22% of their 2018 production from Texas, respectively. Furthermore, they both own last-
mile solutions from which they are able to extract margin along the frac sand value chain,
including that of West Texas sand. In comparison, on our model, Neutral-rated FMSA and
SND derive ~10% and 0% of their 2018 production from Texas, respectively. Neither own
a last-mile solution. As a result, we lower our 2018 EBITDA estimate for SND by 24%, for
FMSA by 23%, for HCLP by 17%, and for SLCA we raise our estimate by 2% (driven by
incorporating recently announced regional capacity additions into our model).
Figure 1: Change to CSe 2018 EBITDA Figure 2: Change to CSe 2018 EBITDA vs Regional
SND FMSA HCLP SLCA 50%
5% SLCA
2% 45%
40%
0%
35%
30%
(5%)
% of Production HCLP 25%
from Texas
(10%) 20%
15%
FMSA
(15%) 10%
5%
(17%) SND
(20%) 0%
(25%) (20%) (15%) (10%) (5%) 0% 5%
(23%) Change to CS 2018 EBITDA Estimate
(25%) (24%)
Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates
Like a Phoenix from the Ashes

Overwhelmed. Sand demand growth has been dramatic and is expected to continue.
(See Figure 4 and Figure 5.) When we first initiated on the industry in our Sandman series,
we understood the cash production costs of the marginal ton (i.e., the market clearing
price) falls every time a lower delivered-in-basin mine was announced. But the likelihood
that enough regional sand would be found to fully displace Wisconsin sand from the
Permian basin was thought to be years away, if ever. The resourcefulness of the industry
is on full display today. We have identified filed permits YTD that represent ~34Mtpa of
annual capacity. We are aware of another 11Mtpa of capacity for which permits have not
been filed. That brings total potential capacity to date to 45Mtpa. Industry believes the total
could be as high as 45-55Mtpa online by year-end 2018. While there are a number of
caveated opinions on when and how much will really be up and running by mid-2018,
there is no argument that the amount of sand capacity found so far has been a surprise.
For example, while our consultant previously expected 10-20Mtpa of West Texas capacity
additions over 12-24 months, he is now hearing numbers as high as 45-55Mtpa. However,
he thinks 25-35Mtpa ultimately comes online. Virtually all of this sand is 100- and 40/70-
mesh (on roughly a 60/40 split, respectively). The 100-mesh can easily displace Wisconsin
100-mesh, but it’s less clear here as to the substitutability of Texas 40/70 versus
Wisconsin 40/70, given difference in crush resistance. We hear that today it’s basically
EOG and private equity using West Texas 40/70. We updated our sand model to account
for 36Mtpa of annual capacity. Figure 3 shows our updated frac sand minegate price
forecast.
Oilfield Services & Equipment 2

20 July 2017
Figure 3: Prior vs Current CS Minegate Frac Sand Price Forecast

45
40
35
30
25
20
15
10
0
1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18
Prior Current
Source: Company data, Credit Suisse estimates
Figure 4: Total US Sand Demand (M Tons) Figure 5: Sand Intensity Continues March Higher
90 85 5,000
4,516
80 4,500 4,197
73
70 4,000
3,422
3,500
60 56
48 3,000
50 2,521
2,500
40 34
30 31 2,000
30 1,485
1,500
20 832 892
1,000
10 500
0 0
FY2012A FY2013A FY2014A FY2015A FY2016A FY2017E FY2018E FY2012A FY2013A FY2014A FY2015A FY2016A FY2017E FY2018E
Sand Demand (M Tons) Sand per well (tons)
Source: Company data, Credit Suisse estimates, PropTester Source: Company data, Credit Suisse estimates, PropTester, RigData
Critical. As long as the Permian and the Eagle Ford use sand from Wisconsin, it will set
the clearing price for sand. A West Texas sand company, with $20/ton cash production
costs can sell at the wellhead for $65/ton and derive a $25/ton profit (assuming $20/ton
trucking costs). For low-cost Northern White with company-owned transload to derive a
$0/$25/ton margin, the all-in delivered price at the wellhead would be ~$80/$105/ton. In
2016, it was assumed Texas and Oklahoma used 60-65% sand from Wisconsin and the
balance from Texas and regional mines. The explosion of sand mines in Texas, at
significantly advantaged economics, shifts that percentage. As the portion from Wisconsin
approaches zero, Wisconsin sand becomes dependent on slower-growth basins, more
gas-directed activity, and greater pricing competition. We previously assumed it would
take at least three to four years to compete away that structural arbitrage. It appears much
sooner than we expected.
Consolidation. We expect continued (and perhaps accelerated) consolidation in the
sector. Companies with minimal exposure to West Texas sand are looking to increase
exposure. There appears to be more sand than there is financial backing to develop it.
Those companies lacking the capital to develop their resources are most likely to be

20 July 2017
acquired. The knowledge of how to build a high-efficiency frac sand mine is specialized.
The requisite equipment is also specialized. The railroads see increased regional
competition and are more flexible on rates now than during the downturn. Finding truck
drivers that can pass a follicle test continues to be the most mentioned “bottleneck."
Having enough water to process the sand is an issue in a state that has spent much of the
past ten years in a drought. These are all issues with can be solved by just spending a
little more money, which means they are surmountable.
Grades. Four years ago, 100-mesh was a waste product. It is now the proppant of choice,
with the industry following in EOG’s footsteps when the first wells used 100-mesh in 2012.
Smaller-mesh has higher crush strength. Texas mines have a higher percentage of fine
mesh, since it is a more weathered and older sand formation. That means as long as fine
mesh remains popular in the Permian basin (i.e., as long as slickwater fracs proliferate),
the West Texas mines have a significant advantage. Wisconsin is generally a coarser
grade sand, though regional companies have done an excellent job of managing yields.
Self Sufficient. In Figure 6, we show an illustrative example of Permian sand supply and
demand in 2019 if Texas production (Winkler County plus Brady) do reach 50Mtpa. At that
level, supply would exceed demand by ~10Mtpa with 100-mesh 1Mtpa short and 40/70
11Mtpa over-supplied. Thinking about the longer-term economics, this structure would
essentially collapse the regional-Northern White arbitrage pricing that regional sand
currently enjoys. Our work suggests the in-basin delivered cash costs of the marginal ton
would be ~$40/ton.
Figure 6: Illustrative Look at S/D in West Texas Sand Market in 2019

Total 100-Mesh 40/70 Mesh
Supply 50 15 35
Dem and 40 16 24
Oversupply 10 (1) 11
Brain Trust. We compiled a propriety database of permits filed for West Texas sand
mines. For those mines whose precise capacity we were unable to track down (~40% of
mines), we assumed a standard 3Mtpa (typical size of a mine with a permit by rule). We
came to 34Mtpa of capacity represented by permitting activity YTD, 80% of which is in or
around Winkler County. We are aware of an incremental 11Mtpa of potential capacity for
which permits have not been filed. This brings the total to 45Mtpa. We believe the majority
of the potential future capacity in Figure 7 is well understood by the market, with the
possible exceptions of High Roller (an entity we are unable to trace back to a known
corporate), the Wilks Brothers, and the 6Mpta from an unknown (to us) participant.
■ High Roller. We and our consultant have been unable to find much information on this
group. A preliminary search indicates they may be individual investors. The fact that
they have filed a permit implies an intention to develop the site, as simply adding a
permit to the property does not meaningfully increase its value in a land sale.
■ SLCA. This SLCA mine is the 4Mpta of greenfield expansion that the company has
publicly announced. The sand deposit in Crane County is generally not as pure as that
in Kermit, but this should not be a meaningful negative.
■ Vista. We have estimated capacity of this mine at 3Mpta. However, the details of the
permit application suggest that perhaps this will be a 1.5-2.0Mtpa facility upon its
opening that may be expanded to 3Mtpa over time.
■ Black Mountain. The company is publicly calling this an 8Mtpa facility (two 4Mtpa
plants). However, our industry contacts have suggested that the company is likely to go
forward with a 4Mtpa first with the second 4Mtpa being held back to see if the market

20 July 2017
remains firm. Our contacts think the second 4Mtpa could be online by mid-2019. We
currently model it coming online in 2Q18.
■ Wilks Brothers. This facility is further north than the majority of the Winkler County
mines we are discussing, close to the New Mexico state line. We hear that equipment
has already been ordered, implying the project is certainly going forward and making
progress. Our sense is that this property will be developed and ultimately sold to a
public frac sand producer.
■ HCLP. This is the Kermit mine that HCLP has publicly announced. One interesting
wrinkle here is that the details of the permit application imply this could be a 4Mtpa
mine. We continue to model it as 3Mtpa, but would not be surprised to see HCLP come
out at a later date and announce it can produce 4Mtpa.
■ NBR. This permit pre-dates the recent gold rush mentality in the area. NBR has been
around for a while and we'd be remiss to not point out that the company already sold a
mine to SLCA. We would not be surprised to see this mine end up in SLCA's hands.
■ Preferred. We do not have a lot of information about these two mines. The mines are
being marketed as 3.3Mtpa each, so there could be upside to our numbers.
■ Unimin. Details are sparse on this mine. We have the press release that states the
mine should be 5Mtpa. We know very little else about this mine including its location.
■ Unknown. We are unaware of the backer or location of this mine. But our industry
contacts suggest there is a yet-to-be-permitted 6Mtpa mine that is not well known in
the investment community.
Figure 7: Potential Future Capacity Represented by 2017 Permit Activity

Entity Mtpa County Nearest City
PERMITTED
High Roller 3.0 * WINKLER KERMIT
SLCA 4.0 CRANE CRANE
Vista 3.0 WINKLER KERMIT
Black Mountain 8.0 WINKLER KERMIT
Wilks Brothers 4.0 WINKLER KERMIT
HCLP 3.0 WINKLER KERMIT
New Birmingham 3.0 CULBERSON VAN HORN
Preferred Sands 3.0 ECTOR MONAHANS
Preferred Sands 3.0 ECTOR NOTREES
NO PERMIT FILED YET
Unimin 5.0 N/A N/A
Unknow n 6.0 N/A N/A
*Credit Suisse estimate of capacity
If You Build It… An unknown (to us) portion of the potential capacity represented in
Figure 7 is being built in the absence of contracts. We believe solid long-term, take-or-pay
contracts will become increasingly difficult to secure, given the vast quantity of capacity
coming online over the next ~18 months. Having a take-or-pay contract is better than
having a share-of-market or no contract at all. However, in the prior downturn we saw the
public frac sand companies unable to defend those contracts. The value in a take-or-pay is
largely the ability to bring customers to the negotiating table in a downturn.
A Place to Call Home. There may be a place for Northern White 40/70 sand in West
Texas even if all these West Texas mines are able to obtain permitting, capital, execute on
their build plans, and put volumes on the market. It remains unclear if operators in the
Southern Delaware will use West Texas 40/70, which has a lower crush resistance relative
to Northern White. While commentary from operators varies, with some saying they will

20 July 2017
pump regional 40/70 all day while others will tell you they’re not convinced that material
will work in the southern Delaware, the reality is at this point nobody really knows.
A Little of This, a Little of That
We believe West Texas frac sand mines could face a number of issues ramping to
nameplate capacity. Our sense is these bottlenecks are not fully appreciated by the
market. Herein, we discuss the potential issues of which we are aware.
Greatness on the Driving Range Doesn't Always Translate to the Course. Lab results
for specs such as crush resistance do not necessarily represent an entire deposit. So a
deposit whose sample that tests at 6K PSI crush resistance in the lab may not be able to
(1) produce near nameplate capacity while (2) delivering 6K PSI crush resistance. This is
not to say the deposit cannot deliver 6K PSI sand. Rather, the particular mix of sand may
need to be altered to favor more small-grain sands (which having a higher crush
resistance). This would result in a further delta between nameplate capacity and effective
capacity. To the degree this issue is prevalent among West Texas mines, permitted and
stated nameplate capacity may overstate the quantity of volumes that will be brought to
market.
Labor. A common issue we hear about across pressure pumping and land drilling is a
tightening labor market. This is also an issue for frac sand mining and is only accentuated
in West Texas, where the sand mines must compete against highly paid oilfield jobs. For a
West Texas mine, labor represents ~$5/ton of ~$20/ton cash operating costs. Even if labor
costs were to double to $10/ton and the West Texas sand producers were to hold a
$25/ton margin, that represents an in-basin delivered cost of $75/ton vs ~$100/ton for
Wisconsin Northern White.
Water. Perhaps the most significant potential bottleneck to successful execution of a West
Texas frac sand mine is availability of water. In the dunes of Winkler County, water is not
really an issue. However, beyond that area, we hear that sand mine developers are relying
on drilling water wells. A typical mine will require about 1,000 gallons per minute of water.
Our understanding is that most plan to simply drill about ten 100 gallon per minute water
wells. There is a big question mark around how/if this will impact the water table (and
what's the reaction from the local population if it does). Furthermore, much of the water
that can be extracted via this method has a high salinity content. It remains unknown how
wet plant equipment will function using high salinity water.
Lizards. It seems unlikely the presence of dune sagebrush lizards will have any
meaningful impact on sand mine development in West Texas. However, it has recently
emerged as a topic of conversation in the investment community. This is a well understood
issue in West Texas and the location of the dune sagebrush lizard is fairly well
understood. We do not see this emerging as a true barrier to frac sand mine development.

20 July 2017
Smart Sand, Inc. (SND)

Rating (from OUTPERFORM) NEUTRAL [V]
Price (19-Jul-17, US$) 7.87
Target price (US$) (from 20.00) 8.50
52-week price range (US$)
Market cap (US$ m)
21.00 - 7.00
317.48
Coals to Newcastle
Target price is for 12 months.
[V] = Stock Considered Volatile (see Disclosure Appendix) ■ Downgrade. We are downgrading Smart Sand (SND) from Outperform to
Neutral, as the regional sand volumes capacity is expanding much faster
Research Analysts
than had been expected, which shifts the marginal ton on our industry cost
James Wicklund curve to the left. This drives lower pricing and demand for non-Texas mines.
214 979 4111
[email protected] Those companies most exposed to Northern White, and in particular to 100-
Jacob Lundberg mesh Northern White, are the most negatively affected. SND is the poster
212 325 6785 child of this description. We are lowering our price target to $8.5 (from $20),
[email protected] which is 4x our 2018 EBITDA estimate of $86M and represents 8% upside vs
Grant Hesser the current share price. We lower our 2017/18 EBITDA estimates to
212 538 8444
[email protected] $45M/$86M (from $47M/$112M).
■ State of Play. Since coming public in 2016 with one of the most economic
proppant sand mines in the industry, SND has announced expansions of
productive capacity from an original 3.3Mtpa to 5.5Mtpa, as overall demand
for frac sand has already eclipsed the 2014 peak. Furthermore, it is expected
to double from 2016 through 2018. SND has announced and invested in the
decision to expand its rail and logistics infrastructure in Wisconsin as well as
other projects such as basin transload facilities. It sold 1.5M shares at $17.50
in February 2017 to help fund these efforts. (Shareholders sold 4.45M shares
in the same transaction.) Key risks to our Neutral rating and $8.50 Target
Price include additional regional capacity announcement and the oil price.
Share price performance Financial and valuation metrics
25 Year 12/16A 12/17E 12/18E
20
EPS (CS adj.) (US$) 0.26 0.51 0.99
Prev. EPS (US$) - 0.53 1.34
15
P/E (x) 29.7 15.4 7.9
10 P/E rel. (%) 142.2 81.7 47.0
5 Revenue (US$ m) 59.2 124.7 169.8
Jan - 1 7 M ar - 1 7 M ay - 1 7 Ju l - 1 7 EBITDA (US$ m) 26.8 45.3 86.0
OCFPS (US$) 0.70 0.36 1.02
SN D .O Q S& P 5 0 0 IN D EX
P/OCF (x) 23.7 22.1 7.7
On 19-Jul-2017 the S&P 500 INDEX closed at 2473.83 EV/EBITDA (current) 9.1 5.4 2.9
Daily Nov04, 2016 - Jul19, 2017, 11/04/16 = US$10.99 Net debt (US$ m) -46 -15 -5
Quarterly EPS Q1 Q2 Q3 Q4 ROIC (%) 10.94 13.00 19.33
2016A 0.01 -0.07 -0.00 0.33 Number of shares (m) 40.34 IC (current, US$ m) 96.72
2017E 0.02 0.13 0.16 0.19 BV/share (Next Qtr., US$) 4.3 EV/IC (x) 2.1
2018E 0.27 0.23 0.24 0.25 Net debt (Next Qtr., US$ m) -43.3 Dividend (current, US$) -
Net debt/tot eq (Next Qtr.,%) -24.9 Dividend yield (%) -
Source: Company data, Thomson Reuters, Credit Suisse estimates

20 July 2017
Smart Sand, Inc. (SND)

Price (17 Jul 2017): US$7.8; Rating: (from OUTPERFORM) NEUTRAL [V]; Target Price: (from US$20.00) US$8.50; Analyst:
James Wicklund
Income Statement 12/16A 12/17E 12/18E Company Background
Revenue (US$ m) 59.2 124.7 169.8 Smart Sand is a pure-play producer of Northern White raw frack
EBITDA 27 45 86 sand.
Depr. & amort. (6) (7) (12)
EBIT (US$) 20 38 74 Blue/Grey Sky Scenario
Net interest exp (9) (1) (1)
PBT (US$) 20 37 73
Income taxes (9) (15) (29)
Profit after tax 10 23 44
Minorities - - -
Reported net income (US$) 10 23 44
Other NPAT adjustments 0 0 0
Adjusted net income 10 23 44
Cash Flow 12/16A 12/17E 12/18E
EBIT 20 38 74
Net interest (9) (1) (1)
Change in working capital 1 (15) (11)
Cash flow from operations 27 16 45
CAPEX (3) (86) (55)
Free cashflow to the firm 24 (71) (10)
Aquisitions - - -
Divestments - - -
Cash flow from investments (2) (86) (55)
Net share issue(/repurchase) 0 24 0
Dividends paid (0) 0 0
Cashflow from financing activities 21 39 (0)
Changes in Net Cash/Debt 45 (31) (10)
Balance Sheet (US$) 12/16A 12/17E 12/18E
Assets
Cash & cash equivalents 48 16 6 Our Blue Sky Scenario (US$) 21.00
Account receivables 6 27 37 Because SND has almost all of its volumes contracted, the company
Other current assets 1 4 5 will need to (1) win new contracted work or (2) see higher activity
Total current assets 65 57 63 levels (which usually trigger higher prices within contracts) in order
Total fixed assets 104 183 226 for our blue-sky scenario to be realized.
Investment securities - - -
Total assets 173 242 291 Our Grey Sky Scenario (US$) (from 11.00) 5.00
Liabilities Given the large percentage of contracted volumes, SND is less
Total current liabilities 14 20 24 subject to industry risk of potential over-supply in the market and
Total liabilities 31 52 56 subsequent lack of pricing. For our grey-sky case to be realized,
Shareholder equity 142 190 235 SND will need to lose the majority of its spot market sales, relative to
Total liabilities and equity 173 242 291 our model.
Net debt (46) (15) (5)
Per share 12/16A 12/17E 12/18E Share price performance
No. of shares (wtd avg) 38 44 44
CS adj. EPS 0.26 0.51 0.99 25
Prev. EPS (US$) - 0.53 1.34
Dividend (US$) 0.00 0.00 0.00 20
Free cash flow per share 0.63 (1.60) (0.22)
15
Earnings 12/16A 12/17E 12/18E
Sales growth (%) 24.2 110.6 36.1 10
EBIT growth (%) 22.9 85.6 95.4
Net profit growth (%) 125.2 122.2 95.4 5
EPS growth (%) 125.2 92.3 94.7 Jan - 1 7 M ar - 1 7 M ay - 1 7 Ju l - 1 7
EBITDA margin (%) 45.3 36.3 50.6
EBIT margin (%) 34.4 30.3 43.6
SN D .O Q S& P 5 0 0 IN D EX
Pretax margin (%) 33.0 30.0 43.2
Net margin (%) 17.1 18.0 25.9
Valuation 12/16A 12/17E 12/18E On 17-Jul-2017 the S&P 500 INDEX closed at 2459.14
EV/Sales (x) 4.54 2.41 1.82 Daily Nov04, 2016 - Jul17, 2017, 11/04/16 = US$10.99
EV/EBITDA (x) 9.0 5.4 2.8
EV/EBIT (x) 13.2 7.9 4.2
P/E (x) 29.4 15.3 7.9
Price to book (x) 1.9 1.6 1.3
Asset turnover 0.3 0.5 0.6
Returns 12/16A 12/17E 12/18E
ROE stated-return on (%) 13.9 13.5 20.7
ROIC (%) 10.9 13.0 19.3
Gearing 12/16A 12/17E 12/18E
Net debt/equity (%) (32.1) (7.7) (2.1)
Interest coverage ratio (X) 2.4 75.7 110.6
Quarterly EPS Q1 Q2 Q3 Q4
2016A 0.01 -0.07 -0.00 0.33
2017E 0.02 0.13 0.16 0.19
2018E 0.27 0.23 0.24 0.25

20 July 2017
■ The Problem. At issue is that 100% of SND’s sand supply is from Wisconsin and 40%
of it is 100-mesh. We see regional, primarily Texas, supply coming into the market over
the next ~18 months that will significantly reduce demand for Northern White
Wisconsin sand in the Permian, the Eagle Ford and to some extent, the Scoop/Stack.
SND sells sand to OFS companies, such as its Master Product Purchase agreement
with Liberty Oilfield Services and others. Much of its sand is sold on long-term (~3Y)
contracts. However, we see regional capacity expansion happening faster than had
been expected, with the significant transportation arbitrage having a greater negative
affect on Wisconsin sand supply sooner than had been expected. We understand SND
is actively looking for diversification of its sand capacity into more regional
opportunities.
■ Reality. We understand the myriad of issues with regional sand hitting the market on
schedule as well as the quality differences. The emergence of finer- and 100-mesh
sand as one of the most desirable grades has had a negative impact on Wisconsin
sand mines in general, with their coarser grades. But SND had done an excellent job of
maximizing fine mesh yield. In the end, the trends favor finer mesh, adequate quality
and lower costs, all of which serve at some level to economically marginalize
Wisconsin production, which is currently 100% of SND’s reserve base.

20 July 2017
Fairmount Santrol Holdings, Inc. (FMSA)

Rating (from OUTPERFORM) NEUTRAL [V]
Price (19-Jul-17, US$) 3.87
Market cap (US$ m)
12.97 - 3.22
866.66
Breadth Losing Out to Focus
[V] = Stock Considered Volatile (see Disclosure Appendix) ■ Established. FMSA is a diversified provider of sand to the oil & gas industry
as well as the industrial sector, established for almost 40 years. It has built a
Research Analysts
network of sand mines and delivery points with exposure in the US and
James Wicklund Canada. The 742M tons of proven and probable reserves is the largest in
214 979 4111
[email protected] the industry, with 8 of its 10 sand processing facilities operating capable of
Jacob Lundberg 16.8Mtpa of annual capacity. At year-end 2016, FMSA had 41 proppant
212 325 6785 distribution terminals and a fleet of about 10k railcars with unit train
[email protected] capability at 4 production facilities and 9 in-basin terminals. Total volumes
Grant Hesser sold in 2016 were 8.9M tons, of which 72% was oilfield proppant. We
212 538 8444
[email protected] downgrade FMSA to Neutral (from Outperform) and lower our price target to
$4 (from $12), which is 5x our 2018 EBITDA estimate of $313M and
represents 3% upside vs the current share price. We lower our 2017/18
EBITDA estimates to $213M/$313M (from $220M/$409M).
■ Upstart. The macro issue for the industry is the rapid and significant
continued announcements of additional Texas sand available for the fastest-
growing basins of the Permian, the Eagle Ford, and the Scoop/Stack. The
impact of this expansion in Texas regional sand lowers the industry’s cost
curve and puts non-Texas sand at an economic disadvantage. While early
estimates were for the additional of 1-15Mtpa, industry sources indicate it
could be 45-55Mtpa announced by year-end 2017. Even if the actual start
dates are pushed back and nameplate capacity falls short, it would appear
that the concerns about a surplus in sand supply were well founded, and to
the detriment of non-Texas sand. FMSA has seven US mining operations in
Illinois, Wisconsin, Missouri, and Ohio. It has one mine in Texas. Key risks
to our Neutral rating and $4 Target Price include additional regional capacity
announcement and the oil price.
13 Year 12/16A 12/17E 12/18E
11 EPS (CS adj.) (US$) -0.45 0.32 0.52
9 Prev. EPS (US$) - 0.35 0.80
7 P/E (x) -8.7 12.2 7.5
5 P/E rel. (%) -41.5 64.4 44.4
3 Revenue (US$ m) 535.0 962.1 1,237.0
Sep - 1 6 N o v - 1 6 Jan - 1 7 M ar - 1 7 M ay - 1 7 Ju l - 1 7 EBITDA (US$ m) -4.9 212.7 312.9
OCFPS (US$) -0.04 0.67 0.86
FM SA .K S& P 5 0 0 IN D EX
P/OCF (x) -321.6 5.7 4.5
On 19-Jul-2017 the S&P 500 INDEX closed at 2473.83 EV/EBITDA (current) -306.2 7.1 4.8
Daily Jul19, 2016 - Jul19, 2017, 07/19/16 = US$6.46 Net debt (US$ m) 649 551 406
Quarterly EPS Q1 Q2 Q3 Q4 ROIC (%) -5.04 13.41 16.91
2016A -0.07 -0.17 -0.11 -0.09 Number of shares (m) 223.94 IC (current, US$ m) 900.06
2017E -0.05 0.04 0.15 0.18 BV/share (Next Qtr., US$) 1.1 EV/IC (x) 1.7
2018E 0.16 0.14 0.10 0.11 Net debt (Next Qtr., US$ m) 632.2 Dividend (current, US$) -
Net debt/tot eq (Next Qtr.,%) 248.3 Dividend yield (%) -

20 July 2017
Fairmount Santrol Holdings, Inc. (FMSA)

Price (17 Jul 2017): US$3.75; Rating: (from OUTPERFORM) NEUTRAL [V]; Target Price: (from US$12.00) US$4.00; Analyst:
James Wicklund
Income Statement 12/16A 12/17E 12/18E Company Background
Revenue (US$ m) 535.0 962.1 1,237.0 FMSA is one of the largest providers of proppant to the oil and gas
EBITDA (5) 213 313 industry. The company mines and delivers high quality sand and
Depr. & amort. (72) (77) (75) resin-coated products. FMSA has an industrial products division that
EBIT (US$) (78) 124 226 supplies sand to non-oil and gas customers.
Net interest exp (65) (50) (48)
PBT (US$) (138) 74 178 Blue/Grey Sky Scenario
Income taxes 58 (3) (62)
Profit after tax (80) 71 116
Minorities (0) -0 -0
Reported net income (US$) (140) 71 116
Other NPAT adjustments (60) (0) 0
Adjusted net income (80) 71 116
Cash Flow 12/16A 12/17E 12/18E
EBIT (78) 124 226
Net interest (65) (50) (48)
Change in working capital 23 (11) (9)
Cash flow from operations (7) 151 194
CAPEX (31) (49) (49)
Free cashflow to the firm (37) 102 145
Aquisitions - - -
Divestments - - -
Cash flow from investments (26) (48) (49)
Net share issue(/repurchase) 446 0 0
Dividends paid 0 0 0
Cashflow from financing activities 450 (5) 0
Changes in Net Cash/Debt 417 98 145
Balance Sheet (US$) 12/16A 12/17E 12/18E
Assets
Cash & cash equivalents 194 281 415
Account receivables 79 143 152
Other current assets 28 7 7 Our Blue Sky Scenario (US$) (from 14.50) 11.00
Total current assets 354 528 680 Among the three large sand companies, FMSA has the greatest
Total fixed assets 728 706 680 exposure to value-add proppants (e.g., resin coated sand and propel
Investment securities - - - SSP), which sell at a higher price. A meaningful uptick in resin
Total assets 1,203 1,354 1,479 demand would meaningfully benefit FMSA and bring the company
Liabilities closer to our blue-sky scenario.
Total current liabilities 74 137 961
Total liabilities 952 1,019 1,017 Our Grey Sky Scenario (US$) (from 6.50) 3.00
Shareholder equity 251 335 462 Although great progress has been made over the past year, FMSA
Total liabilities and equity 1,203 1,354 1,479 is still inhibited by its balance sheet. The company isn't in a position
Net debt 649 551 406 to invest in or buy a last-mile logistics solution. It is possible that the
Per share 12/16A 12/17E 12/18E lack of a last-mile solution will cost FMSA market share. In addition
No. of shares (wtd avg) 180 224 224 to market share loss risk, FMSA is subject to industry risk of
CS adj. EPS (0.45) 0.32 0.52 potential over-supply in the market and subsequent lack of pricing.
Prev. EPS (US$) - 0.35 0.80
Dividend (US$) 0.00 0.00 0.00 Share price performance
Free cash flow per share (0.21) 0.46 0.65
Earnings 12/16A 12/17E 12/18E 13
Sales growth (%) (35.4) 79.8 28.6
11
EBIT growth (%) (213.3) 258.7 82.0
Net profit growth (%) (913.9) 188.6 62.5 9
EPS growth (%) (842.2) 171.1 62.4 7
EBITDA margin (%) (0.9) 22.1 25.3
5
EBIT margin (%) (14.6) 12.9 18.3
Pretax margin (%) (25.9) 7.7 14.4 3
Net margin (%) (15.0) 7.4 9.3 Sep - 1 6 N o v - 1 6 Jan - 1 7 M ar - 1 7 M ay - 1 7 Ju l - 1 7
Valuation 12/16A 12/17E 12/18E
EV/Sales (x) 2.78 1.45 1.01 FM SA .K S& P 5 0 0 IN D EX
EV/EBITDA (x) (300.7) 6.9 4.7
EV/EBIT (x) (19.0) 11.2 5.5
P/E (x) (8.4) 11.8 7.3 On 17-Jul-2017 the S&P 500 INDEX closed at 2459.14
Price to book (x) 2.7 2.5 1.8 Daily Jul20, 2016 - Jul17, 2017, 07/20/16 = US$6.15
Asset turnover 0.4 0.7 0.8
Returns 12/16A 12/17E 12/18E
ROE stated-return on (%) (147.7) 24.2 29.0
ROIC (%) (5.0) 13.4 16.9
Gearing 12/16A 12/17E 12/18E
Net debt/equity (%) 258.4 164.6 87.9
Interest coverage ratio (X) (1.2) 2.5 4.7
Quarterly EPS Q1 Q2 Q3 Q4
2016A -0.07 -0.17 -0.11 -0.09
2017E -0.05 0.04 0.15 0.18
2018E 0.16 0.14 0.10 0.11

20 July 2017
■ Impact. The result of a lower cost curve in our Sandman model and running a revising
US drilling rig count through our model, which declines in 2H17 before starting to move
up again in 2Q18 lowers our 2018 EBITDA forecast from $409M to $313M. FMSA has
$834M of long-term debt, the vast majority of which is due September 2019, and
~$200M in cash. FMSA needs an improving market to earn enough to repay the debt
or to be able to refinance the debt. Under our current outlook, those abilities are in
some doubt. We lower our rating on FMSA to Neutral (from Outperform) on our
expectation of non-Texas sand deposits being devalued based on West Texas' mines
relative delivery cost advantage to the Permian basin.
■ The Issue. FMSA is a well established sand company with cutting-edge technologies
in oil & gas and industrial applications. Over the years, it has built up an impressive
range of sand supply resources, with its largest being one of the largest and lowest-
cost producers in the industry in Wedron, Illinois. Over the past several years, this
diversity has allowed FMSA to serve a wide range of oil & gas basins as
unconventional wells increased sand use dramatically. The Voca, Texas, plant,
developed in 2008 and bought by FMSA in 2013 with 190M tons of reserves and an
estimated 50% recoverable factor, gave the company an early edge in the provision of
sand to its local market. Current production is 1.5Mtpa. Several mines shuttered in
2015 have been reactivated. All mines are being upgraded at some level, but at
present, the Voca, TX, plant only provides about 10% of FMSA’s total sand volumes in
2018 on our model, putting 90% of the company's production at economically
competitive risk, especially volumes shipped to Texas and Oklahoma.
■ Derivative. We believe sand coated with material to aid buoyancy in unconventional oil
and gas wells will see significant growth over the next few years, though from what is a
very small base. FMSA has some of the best technology in this field and has coating
capability in several different locations. There is an API Brown grade sand mine under
development in Katemcy, TX, which is just south of Voca, which is itself south of Brady
and in an area of existing sand production though little has been noted about this
deposit by management. The initial baseline air quality monitoring, which was required
to commence one year before any construction, was started in February 2015, but it
appears most all local issues against the development have been resolved. The
coating technology and the ability to increase its Texas sand exposure are potential
positives for FMSA, but neither is enough to reverse the effect of the regional sand on
the overall industry cost curve at present.
■ Numbers. Our revised EBITDA estimates for 2017 and 2018 total $526M and our
capex forecast for the same period is ~$100M. Given current cash on hand, we see
FMSA going into 2019 with $843M due and only $415M in cash on the balance sheet.
While we have not yet published 2019 estimates, it appears the company will fall short
of its amount due almost regardless of the market in that year. Arguably, some sand
capacity delayed coming to market due to capital constraints, worker issues or water
availability will have solved some of those issues making 2019 another year of
additional capacity adds from Texas. Management and investors had expected that
with demand for sand so strong that the company was basically sold out for the past
two quarters. In an industry that has seen spot prices on certain grades more than
double, the environment would be more favorable to renegotiate the outstanding debt.
With FMSA stock down 67% YTD, that is proving difficult and we see no near-term
solution.

20 July 2017
U.S. Silica (SLCA)

Rating OUTPERFORM [V]
Price (19-Jul-17, US$) 34.98
Market cap (US$ m)
59.98 - 31.23
2,837.49
Best in Breed
[V] = Stock Considered Volatile (see Disclosure Appendix) ■ In the Lead. SLCA has been the thought-leader in the sand business,
locking up a last-mile solution in Sandbox that generates significant growth
Research Analysts
and returns as well as leading the industry in adding Texas regional sand to
James Wicklund its supply mix. Both of these distinguish the company as something other
214 979 4111
[email protected] than just another sand company and makes the stock the best-positioned
Jacob Lundberg proppant play in the industry. As our Sandman report today notes, the
212 325 6785 amount of Texas sand being found and developed is surprising the market
[email protected] and resulting in concerns about overcapacity broadly and is impact on the
Grant Hesser industry cost curve, which hurts the ability of the industry to realize better
212 538 8444
[email protected] pricing. The value of non-Texas mines is eroded at some level with every
grain of Texas sand developed. Of all the companies positioned to take
advantage of the structural arbitrage with Northern White and whose local
mine is best positioned to serve a basin, SLCA wins. We maintain our
Outperform rating on SLCA while lowering our price target to $42 (from $65)
by assuming a lower multiple (6.5x vs 10x) on our 2018 EBITDA estimate of
$534M. Our $42 price target and represents 20% upside vs the current share
price.
■ Lots of Sand. We updated our assumptions on Texas sand development.
Since it is all on the low end of the delivered-to-the-wellhead cost curve, we
show sand pricing beginning to decline by 2Q18. Higher-cost and farther
away sand is higher on the cost curve and will be under the greatest margin
pressure, whereas the significantly lower delivered cost of Texas sand allows
for significant margins until Northern White is no longer needed to supply the
Permian and the Eagle Ford. We ran our revised lower US rig count through
all of the sand models. The least impact of these adjustments to the sand
companies' estimates was SLCA owing to the earnings contribution from
SandBox and its industrial business in addition to the counterforce of adding
in recently announced capacity expansion. Key risks to our Outperform rating
and $42 Target Price include additional regional capacity announcement and
the oil price.
60 Year 12/16A 12/17E 12/18E
EPS (CS adj.) (US$) -0.53 1.75 3.27
50 Prev. EPS (US$) - 1.68 3.34
40
P/E (x) -65.5 19.9 10.7
P/E rel. (%) -313.4 105.5 63.3
30 Revenue (US$ m) 559.6 1,315.4 1,976.0
Sep - 1 6 N o v - 1 6 Jan - 1 7 M ar - 1 7 M ay - 1 7 Ju l - 1 7 EBITDA (US$ m) 39.6 350.7 533.8
OCFPS (US$) 0.01 1.24 3.61
SLCA .N S& P 5 0 0 IN D EX
P/OCF (x) n.m 28.2 9.7
On 19-Jul-2017 the S&P 500 INDEX closed at 2473.83 EV/EBITDA (current) 68.0 7.7 5.0
Daily Jul19, 2016 - Jul19, 2017, 07/19/16 = US$35.33 Net debt (US$ m) -196 -43 -99
Quarterly EPS Q1 Q2 Q3 Q4 ROIC (%) -2.00 12.15 18.77
2016A -0.19 -0.16 -0.12 -0.07 Number of shares (m) 81.12 IC (current, US$ m) 1,077.54
2017E 0.09 0.39 0.58 0.69 BV/share (Next Qtr., US$) 15.8 EV/IC (x) 2.3
2018E 0.97 0.87 0.72 0.71 Net debt (Next Qtr., US$ m) -121.2 Dividend (current, US$) 0.25
Net debt/tot eq (Next Qtr.,%) -9.3 Dividend yield (%) 0.18

20 July 2017
■ Still Makes the Cut. Our price target drops to $42 from $65 as a result of our revised
estimates and using a 6x EV/EBITDA multiple for 2018 (down from 10x). Our estimates
assume sand prices decline starting in 2Q18, after seeing price increases through
1H17 and flat pricing in 2H17. We estimate the US rig count will begin to decline and
bottom in 1Q18 before starting to move up again. Clearly these are fairly conservative
projections and there is still enough upside to SLCA to continue our rating of
Outperform.
■ Cyclical Value. The pricing of commodities is, by definition, cyclical. Prices rise on
increased demand and more supply follows. Proppant sand is a commodity. But the
nuances of where the sand is, what is the best access for delivery, what grades and
what percentages, is there enough water, who else is closer to the basin – are all the
individual issues that really affect the business. Today, Texas regional sand has a
structural arbitrage, a price support, provided by the much higher delivered-to-the-well
cost of sand that has to be shipped via railroad. The farther the distance, the greater
the spread. Investors ideally would buy stock in a company that was 100% Texas
sand, but as of now, none exist. Over time, the ability to meet the still-growing demand
in all the other oil & gas production basins will matter and supply closer to the
Marcellus, the Utica, the Bakken, and other basins will be increasingly valuable. Add to
that the ability to monetize the last-mile delivery of sand logistics through Sandbox
gives SLCA another value stream from which to benefit.
■ Regional Arbitrage. SLCA first bought a New Birmingham (NBR) mine in Tyler and
recently announced the acquisition and opening of a facility in Crane County, Texas,
giving it two more options for local Texas supply. We do not expect SLCA to be
finished. The founders of NBR are developing another mine in Culberson County and
could sell. We have spoken to several private companies that are considering
developing facilities or sell the “potential” to a company that is either short Texas sand
in its reserve base or wants to add additional capacity. Right now, that seems to be
everyone. SLCA announced in February it would increase its oil & gas frack sand
capacity to >20Mtpa over the next few years. The recent announcement was part of
that plan, buying an ATV park that was covered in the right kind of sand. We estimate
about 40Mtpa of additional capacity to serve Texas has already been announced in
2017. We could see as much as 45-55Mtpa added. We estimate Permian and Eagle
Ford demand at 39-42M tons and 22M tons, respectively, in 2017. This would indicate
Wisconsin product price support should continue well into 2018 at least.
■ The Numbers. Sand demand is growing significantly, with the horizontal rig count up
156% off the May 2016 bottom. We believe the US drilling rig count will decline in 2H17
and bottom in 1Q18 before beginning to recover. That could take the “customer
urgency” out of sand demand and result in pricing actually falling in 2H17 and into early
2018 before picking up again as we go through 2018, as oil prices will view the rig
count correction as positive. Frac intensity (sand per well or per foot) continues to
increase with no signs yet of diminishing returns. The incremental sand capacity will
likely not be added as quickly as some expect. Clearly, sand demand will grow at a
faster rate than the nominal increase in drilling activity. That does not mean OFS will
avoid any downturn of activity, but that sand is still in the best growth position in the
industry. While the discussion of future pricing and volumes do matter, as of today,
sand demand and sand pricing are continuing to rise and a decline in the US rig count,
while negatively affecting some customers and companies near term, is what the
market needs for oil prices to actually put in a bottom.

20 July 2017
Master Limited Partnerships
Hi-Crush Partners, LP (HCLP)

Rating OUTPERFORM [V]
Price (19-Jul-17, US$) 10.45
Market cap (US$ m)
21.95 - 9.20
951.14
Stature and Scale Are Clear Benefits
Adjusted EV -
■ Evolving. HCLP's own company website notes the issue. Its new sand mine
[V] = Stock Considered Volatile (see Disclosure Appendix) development is helping resolve that. HCLP’s website opens to “a leading
producer, transporter and distributor of premium Northern White frac sand."
Research Analysts
Wisconsin sand volumes are being marginalized at a faster rate than most
James Wicklund
214 979 4111 anyone expected even just six or so months ago. The market is bifurcating
[email protected] into a regional 100-mesh play and a 40/70 coarser Northern White. The
Bhavesh Lodaya Texas sand delivered to the wellsite can have a $40/ton cost advantage. So
212 325 2337 it is a good thing HCLP acted early and bought a low-cost, 100-mesh sand
[email protected]
dune deposit in Kermit, Texas, and can play in both markets. The website
Jacob Lundberg
212 325 6785 needs to change. We maintain our Outperform rating and lower our 2018
[email protected] EBITDA estimate to $205M (from $247M) and lower our price target to $12
Grant Hesser (from $24).
212 538 8444
[email protected] ■ Industry Issue. In our updated Sandman report today, we go through the
various announced, and known but not announced, additions to capacity
that could come on the market over the next ~18 months. It turns out to be a
lot. We are tracking ~45Mtpa of nameplate additions that could reach 45-
55Mtpa on the market by year-end 2018. Some need financing, some need
customer contracts. The current capacity timeline will likely be delayed, but
these are normal situations in a “gold rush.” Before it’s over, properties will
have changed hands, financing will be found, and capacity will be added.
The structural arbitrage advantage Texas sand has over rail-shipped sand
will normalize as local volumes become sufficient to meet local demand. But
that is happening sooner than expected and is not positive for the
fundamentals of the sand industry. Key risks to our Outperform rating and
$12 Target Price include additional regional capacity announcement and the
oil price.
25 Year 12/16A 12/17E 12/18E
20
EBITDA (US$ m) -50 141 205
Distribution/unit- DPU (US$ m) 0.00 0.00 0.00
15
Earnings/unit - EPU (US$) -0.93 1.26 1.86
10 Prev. Earnings/unit - EPU (US$) - 1.00 2.34
5 EPU - consensus (US$) -0.84 0.94 2.58
Sep - 1 6 N o v - 1 6 Jan - 1 7 M ar - 1 7 M ay - 1 7 Ju l - 1 7 Distribution coverage (x) - - -
P/DCF (x) - - -
H CLP.N S& P 5 0 0 IN D EX
Adj. current EV/EBITDA (x) - - -
On 19-Jul-2017 the S&P 500 INDEX closed at 2473.83 DPU (US$) 0.00 Distribution yld (%) 0.0
Daily Jul19, 2016 - Jul19, 2017, 07/19/16 = US$12.12 Units outstanding (m) 91 GP take (%) -
DCF/LP Unit Q1 Q2 Q3 Q4 Net debt current (US$ m) 176.2 Net debt/EBITDA (x) -
2016A - - - - 6-month ADV (000's) 246 Net debt/market cap. (%) -
2017E - - - - Free float (%) 159 Institutional ownership (%) -
2018E - - - - Source: Company data, Thomson Reuters, Credit Suisse estimates

20 July 2017
■ Outlook. We expect the US rig count to decline through 2H17, which will allow oil
prices to bottom and foster a “recovery” through 2018. Rig efficiency, frac intensity,
high DUC counts all point to sand demand continuing to be the best growth segment of
the industry. While macro issues are somewhat negative for Wisconsin sand, the ability
to balance volumes, grades and deliveries from Texas and Wisconsin are clear
positives. Our lower rig count and our more conservative outlook on sand pricing
reduces our 2018 EBITDA forecast from $247M to $205M and our TP goes to $12 from
$24. HCLP is one of the best-positioned companies in the sector, cheap at 6x our
revised 2018 estimate and determined to reinstate the distribution as soon as possible.
We continue our Outperform rating.
■ Overview. There are problems facing the sand industry. The primary sand source, at
least for the Permian and Eagle Ford, is migrating from Wisconsin to Texas where it
turns out we have a plethora of sand. The region has more 100-mesh than Wisconsin
and is significantly closer to the well location. While the region does have some coarser
grades, primarily 40/70, it does not have as much crush strength as its Northern White
equivalent, which may be needed in the Southern Delaware. So the scenario in which
100-mesh for Texas is sourced from Texas and coarser grades come from Wisconsin
provides a pricing arbitrage that will likely skew sand grade demand, with a ~$40/ton
price differential delivered to the wellsite. Of the current public sand companies, HCLP
and SLCA appear best positioned.
■ Money Well Spent. Earlier this year, HCLP completed a unit offering, bringing in over
$400M in cash. The company then used $340M of it and about 3.5M units to buy
Permian Basin Sand Company ($200M cash and 3.5M units), its first Texas sand mine,
in Kermit, TX, the acquisition of the Whitehall Wisconsin Northern White plant as well
as additional properties nearby ($140M), and the remaining 2% interest in the Augusta
mine. The Texas facility is being developed as a 3Mtpa mine, though we understand
the permit can move those volumes up to 4Mtpa. The plant is expected to be
completed by end-3Q17. The mine has more than 55M tons of 100-mesh sand and is
75 miles away from activity in the Midland and Delaware basins. The sand deposit is
basically made up of dunes, with little or no over-burden and should have a very low
cost per ton operating metric.
■ Adding Up. Upon completion of the Kermit plant, the company will own and operate
~3Mtpa of regional frac sand capacity. The mine was acquired for approximately
$275M in the form of $200M in cash and almost 3.5M units, at a time when the units
were trading at ~$17, with the cost of production equipment to be $45-50M. The
company has significant infrastructure in rail cars, transload capability, and one of the
two leading “box” storage and transportation systems in the market. At issue right now
is the outlook for 2018 activity and 2019 pricing. As one of the largest and most
established frac sand companies, HCLP has a significant advantage over most all of
the start-ups. The kick-off of Texas sand capacity was a significant event, even if the
company did pay top dollar for the asset. The company’s ability to manage grades and
deliveries as well as its participation in the “last-mile” logistics are all advantages of the
company relative to most of its peers. So while we are “concerned” about the sand
industry and the stocks, HCLP is one of the most advantaged in the space.
■ Numbers. Our rig count forecast shows activity declining slightly in 2H17, bottom in
1Q18 and move up gradually through 2018. We lowered our rig count forecast, which
affects the number of wells drilled, and have flowed that adjusted rig count through our
earnings model. We adjusted our industry cost curve, with increased regional sand
dropping the marginal Wisconsin supplier’s cost. This results in lower pricing in 2H18
though on higher volumes. Given these issues, our 2018 EBITDA forecast moves from
$247M previously to $205M currently and our TP goes to $12 from $24. Our valuation
for our TP is based off of a 6x multiple, which we see as reasonable for a
production/completion-related services company. With its MLP structure and potential
to reinstate the dividend, it could be low. Our TP adjustment, while significant, is also

20 July 2017
fairly conservative and still represents 15% upside to HCLP’s unit price over the next
year. Reinstating the distribution would be a clear positive for the valuation.

20 July 2017
Companies Mentioned (Price as of 19-Jul-2017)

Fairmount Santrol Holdings, Inc. (FMSA.K, $3.87, NEUTRAL[V], TP $4.0)
Hi-Crush Partners, LP (HCLP.N, $10.45, OUTPERFORM[V], TP $12.0)
Smart Sand, Inc. (SND.OQ, $7.87, NEUTRAL[V], TP $8.5)
U.S. Silica (SLCA.N, $34.98, OUTPERFORM[V], TP $42.0)
Disclosure Appendix
Analyst Certification
James Wicklund, Jacob Lundberg and Grant Hesser each certify, with respect to the companies or securities that the individual analyzes, that (1) the
views expressed in this report accurately reflect his or her personal views about all of the subject companies and securities and (2) no part of his or
her compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report.
3-Year Price and Rating History for Fairmount Santrol Holdings, Inc. (FMSA.K)
FMSA.K Closing Price Target Price Target Price Closing Price FMSA.K
Date (US$) (US$) Rating 18
07-Sep-16 7.70 7.00 N*
07-Nov-16 8.25 11.00 O
04-Jan-17 12.05 13.50 13
09-Mar-17 7.30 12.00

* Asterisk signifies initiation or assumption of coverage. 8
3
01- Oct- 2016 01- Jan- 2017 01- Apr- 2017 01- Jul- 2017
N EU T RA L
O U T PERFO RM
3-Year Price and Rating History for Hi-Crush Partners, LP (HCLP.N)
HCLP.N Closing Price Target Price Target Price Closing Price HCLP.N
22-Aug-14 61.73 80.00 O
10-Nov-14 44.03 60.00 63
08-May-15 31.37 35.00 N
06-Aug-15 17.23 19.00 43
04-Sep-15 14.44 17.50
27-Oct-15 5.16 4.50 23
21-Dec-15 5.44 6.00

3
28-Apr-16 8.14 R
01- Jan- 2015 01- Jan- 2016 01- Jan- 2017
29-Apr-16 7.00 6.00 N
05-May-16 6.51 7.00 O U T PERFO RM
N EU T RA L
01-Jun-16 9.00 12.00 O REST RI C T ED
14-Jun-16 11.93 R
23-Jun-16 12.16 12.00 O
02-Aug-16 11.34 16.00
10-Aug-16 12.87 R
11-Aug-16 12.87 16.00 O
07-Sep-16 16.20 17.00
02-Nov-16 15.05 20.00
04-Jan-17 21.00 24.00
23-Feb-17 20.55 R
24-Feb-17 20.55 24.00 O
26-Feb-17 17.35 25.00
09-Apr-17 17.70 24.00
* Asterisk signifies initiation or assumption of coverage.

20 July 2017
3-Year Price and Rating History for Smart Sand, Inc. (SND.OQ)
SND.OQ Closing Price Target Price Target Price Closing Price SND.OQ
29-Nov-16 12.18 14.00 O*
15-Dec-16 14.00 16.00 20
04-Jan-17 17.50 18.00
17-Jan-17 17.43 R 15
21-Feb-17 19.94 NR
28-Feb-17 17.17 18.00 O 10
16-Mar-17 14.52 19.00

5
09-Apr-17 15.90 17.00
01- Jan- 2017 01- Mar- 2017 01- May- 2017 01- Jul- 2017
12-May-17 12.19 20.00
* Asterisk signifies initiation or assumption of coverage. O U T PERFO RM
REST RI C T ED
N O T RA T ED
3-Year Price and Rating History for U.S. Silica (SLCA.N)
SLCA.N Closing Price Target Price Target Price Closing Price SLCA.N
21-Dec-15 18.20 25.00 O*
24-Feb-16 16.23 22.00
27-Apr-16 26.59 29.00 50
01-Jun-16 29.02 32.00

20-Jul-16 36.54 40.00 30
03-Aug-16 36.99 42.00
07-Sep-16 42.51 49.00
10
07-Nov-16 46.61 52.00
01- Jan- 2016 01- May- 2016 01- Sep- 2016 01- Jan- 2017 01- May- 2017
04-Jan-17 56.87 60.00
26-Feb-17 51.16 68.00 O U T PERFO RM
09-Apr-17 48.55 63.00

25-Apr-17 42.54 65.00
* Asterisk signifies initiation or assumption of coverage.
The analyst(s) responsible for preparing this research report received Compensation that is based upon various factors including Credit Suisse's
total revenues, a portion of which are generated by Credit Suisse's investment banking activities
As of December 10, 2012 Analysts’ stock rating are defined as follows:
Outperform (O) : The stock’s total return is expected to outperform the relevant benchmark* over the next 12 months.
Neutral (N) : The stock’s total return is expected to be in line with the relevant benchmark* over the next 12 months.
Underperform (U) : The stock’s total return is expected to underperform the relevant benchmark* over the next 12 months.
*Relevant benchmark by region: As of 10th December 2012, Japanese ratings are based on a stock’s total return relative to the analyst's coverage universe which
consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and
Underperforms the least attractive investment opportunities. As of 2nd October 2012, U.S. and Canadian as well as European ratings are based on a stock’s total
return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the
most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. For Latin American and non-Japan Asia stocks, ratings
are based on a stock’s total return relative to the average total return of the relevant country or regional benchmark; prior to 2nd October 2012 U.S. and Canadian
ratings were based on (1) a stock’s absolute total return potential to its current share price and (2) the relative attractiveness of a stock’s total return potential within
an analyst’s coverage universe. For Australian and New Zealand stocks, the expected total return (ETR) calculation includes 12-month rolling dividend yield. An
Outperform rating is assigned where an ETR is greater than or equal to 7.5%; Underperform where an ETR less than or equal to 5%. A Neutral may be assigned
where the ETR is between -5% and 15%. The overlapping rating range allows analysts to assign a rating that puts ETR in the context of associated risks. Prior to 18
May 2015, ETR ranges for Outperform and Underperform ratings did not overlap with Neutral thresholds between 15% and 7.5%, which was in operation from 7 July
2011.
Restricted (R) : In certain circumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications,
including an investment recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain other
circumstances.
Not Rated (NR) : Credit Suisse Equity Research does not have an investment rating or view on the stock or any other securities related to the
company at this time.
Not Covered (NC) : Credit Suisse Equity Research does not provide ongoing coverage of the company or offer an investment rating or investment
view on the equity security of the company or related products.
Volatility Indicator [V] : A stock is defined as volatile if the stock price has moved up or down by 20% or more in a month in at least 8 of the past 24
months or the analyst expects significant volatility going forward.
Analysts’ sector weightings are distinct from analysts’ stock ratings and are based on the analyst’s expectations for the fundamentals and/or
valuation of the sector* relative to the group’s historic fundamentals and/or valuation:
20 July 2017
Overweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is favorable over the next 12 months.
Market Weight : The analyst’s expectation for the sector’s fundamentals and/or valuation is neutral over the next 12 months.
Underweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is cautious over the next 12 months.
*An analyst’s coverage sector consists of all companies covered by the analyst within the relevant sector. An analyst may cover multiple sectors.
Credit Suisse's distribution of stock ratings (and banking clients) is:
Global Ratings Distribution
Rating Versus universe (%) Of which banking clients (%)
Outperform/Buy* 44% (65% banking clients)
Neutral/Hold* 40% (59% banking clients)
Underperform/Sell* 14% (53% banking clients)
Restricted 2%
*For purposes of the NYSE and FINRA ratings distribution disclosure requirements, our stock ratings of Outperform, Neutral, and Underperform most closely
correspond to Buy, Hold, and Sell, respectively; however, the meanings are not the same, as our stock ratings are determined on a relative basis. (Please refer to
definitions above.) An investor's decision to buy or sell a security should be based on investment objectives, current holdings, and other individual factors.
Important Global Disclosures
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Target Price and Rating

Valuation Methodology and Risks: (12 months) for Fairmount Santrol Holdings, Inc. (FMSA.K)
Method: Our 12-month target price for FMSA equates to 5.0x our 2018 EBITDA estimate. Our Neutral rating is based on our cautious view of sand
industry fundamentals and FMSA's improved liquidity position.
Risk: Risks to our $4 target price and Neutral rating include: (1) if the current trend of increasing proppant use per lateral foot were to halt or
reverse, (2) if FMSA's customer base were to aggressively build out its own logistics infrastructure, and (3) if customers continue using
lower-quality sand in favor of Northern White frac sand or resin coated proppant. Investment risks for FMSA include the following. Of
FMSA's shares, 37.17% are owned by American Securities, a private equity firm; American Securities holds two of ten board seats. FMSA
operations are subject to the cyclicality of the end markets that it services. FMSA is significantly exposed to the oil and gas industry and
thus particularly exposed to the cyclicality of that industry. FMSA's top ten customers accounted for 43% of its 2015 revenues. The
company is subject to extensive environmental, health, and safety regulations that carry significant compliance costs. Inhalation of
respirable crystalline silica is associated with the lung disease silicosis; related health issues and litigation could have an adverse effect on
the business.
Valuation Methodology and Risks: (12 months) for Hi-Crush Partners, LP (HCLP.N)
Method: Our $12 price target is based on a 6x our 2018 EBITDA estimate. Our Outperform rating is based on HCLP's low cost structure and
secular growth trends in the proppant space.
Risk: Risks to our $12 target price and Outperform rating for HCLP are a decline in the demand for frac sand as the rig count falls, increased
supply of frac sand may negatively impact spot market pricing, the general partner's ability to develop additional mines may impact the
partnership's growth, frac sand price volatility, increased regulation and changes to the tax status of MLPs.
Valuation Methodology and Risks: (12 months) for Smart Sand, Inc. (SND.OQ)
Method: Our $8.5 price target is 4x our 2018 EBITDA estimate. Our Neutral rating is based on limited upside to our price target from current trading
levels.
Risk: Risks to our $8.5 price target and Neutral rating include: (1) successful build-out of a logistics function, (2) successful re-entry into the spot
market, (3) Northern White's continued position as the proppant of choice.
20 July 2017

Valuation Methodology and Risks: (12 months) for U.S. Silica (SLCA.N)
Method: Our $42 target price for SLCA is derived from our 6.5x our 2018 EBITDA estimate. Our Outperform rating is based on upside to our price
target and our relatively positive view of the frac sand market.
Risk: Risks to our $42 price target and Outperform rating include: (1) if SLCA's customer base were to aggressively build out their own logistics
infrastructure, and (2) if the current trend of increasing proppant use per lateral foot were to halt or reverse. Investment risks for SLCA
include the following. SLCA operations are subject to the cyclicality of the end markets that it services. SLCA is significantly exposed to
the oil and gas industry and thus particularly exposed to the cyclicality of that industry. Frac sand could fall out of favor as a proppant in
the hydraulic fracturing process in favor of alternatives such as ceramic proppant. SLCA's top ten customers accounted for 52% of its
2013 revenues. The company is subject to extensive environmental, health, and safety regulations that carry significant compliance costs.
Inhalation of respirable crystalline silica is associated with the lung disease silicosis; related health issues and litigation could have an
adverse effect on the business. During the shale revolution, SLCA has derived a significant portion of its profits from the delivery of sand
to the wellsite. SLCA's customers are increasingly building out their own logistics infrastructure (unit cars and transloads), eating into
SLCA's historical margin. To the degree this trend continues, SLCA may be unable to show the same level of profitability in the future as
over the past few years prior to the current downcycle.
Please refer to the firm's disclosure website at https://rave.credit-suisse.com/disclosures/view/selectArchive for the definitions of abbreviations
typically used in the target price method and risk sections.
See the Companies Mentioned section for full company names
Credit Suisse currently has, or had within the past 12 months, the following as investment banking client(s): HCLP.N, SND.OQ, FMSA.K
Credit Suisse provided investment banking services to the subject company (HCLP.N, SND.OQ, FMSA.K) within the past 12 months.
Credit Suisse has managed or co-managed a public offering of securities for the subject company (HCLP.N, SND.OQ) within the past 12 months.
Within the past 12 months, Credit Suisse has received compensation for investment banking services from the following issuer(s): HCLP.N,
SND.OQ, FMSA.K
Credit Suisse expects to receive or intends to seek investment banking related compensation from the subject company (HCLP.N, SND.OQ,
FMSA.K) within the next 3 months.
A member of the Credit Suisse Group is party to an agreement with, or may have provided services set out in sections A and B of Annex I of
Directive 2014/65/EU of the European Parliament and Council ("MiFID Services") to, the subject issuer (HCLP.N, SND.OQ, FMSA.K, SLCA.N) within
the past 12 months.
As of the end of the preceding month, Credit Suisse beneficially own 1% or more of a class of common equity securities of (FMSA.K).
Credit Suisse beneficially holds >0.5% long position of the total issued share capital of the subject company (HCLP.N).
Credit Suisse beneficially holds >0.5% short position of the total issued share capital of the subject company (FMSA.K).
For date and time of production, dissemination and history of recommendation for the subject company(ies) featured in this report, disseminated
within the past 12 months, please refer to the link: https://rave.credit-suisse.com/disclosures/view/report?i=310044&v=5s9oj6989cfh6cqx6qx9y992j .
Important Regional Disclosures
Singapore recipients should contact Credit Suisse AG, Singapore Branch for any matters arising from this research report.
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does not accept or permit analysts to accept payment or reimbursement for travel expenses associated with these events.
Restrictions on certain Canadian securities are indicated by the following abbreviations: NVS--Non-Voting shares; RVS--Restricted Voting Shares;
SVS--Subordinate Voting Shares.
Individuals receiving this report from a Canadian investment dealer that is not affiliated with Credit Suisse should be advised that this report may not
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the past 3 years.
Principal is not guaranteed in the case of equities because equity prices are variable.
Commission is the commission rate or the amount agreed with a customer when setting up an account or at any time after that.
This research report is authored by:
Credit Suisse Securities (USA) LLC .............................................................James Wicklund ; Jacob Lundberg ; Grant Hesser ; Bhavesh Lodaya
Important disclosures regarding companies or other issuers that are the subject of this report are available on Credit Suisse’s disclosure website at
https://rave.credit-suisse.com/disclosures or by calling +1 (877) 291-2683.

20 July 2017
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20 July 2017

Oilfield Services & Equipment

Like a Phoenix from the Ashes

Oilfield Services & Equipment 2

Figure 3: Prior vs Current CS Minegate Frac Sand Price Forecast

Source: Company data, Credit Suisse estimates

Sand Demand (M Tons) Sand per well (tons)

Oilfield Services & Equipment 3

Figure 6: Illustrative Look at S/D in West Texas Sand Market in 2019

Source: Company data, Credit Suisse estimates

Oilfield Services & Equipment 4

Figure 7: Potential Future Capacity Represented by 2017 Permit Activity

Source: Company data, Credit Suisse estimates

Oilfield Services & Equipment 5

Oilfield Services & Equipment 6

Smart Sand, Inc. (SND)

Oilfield Services & Equipment 7

Smart Sand, Inc. (SND)

Oilfield Services & Equipment 8

Oilfield Services & Equipment 9

Fairmount Santrol Holdings, Inc. (FMSA)

Oilfield Services & Equipment 10

Fairmount Santrol Holdings, Inc. (FMSA)

Oilfield Services & Equipment 11

Oilfield Services & Equipment 12

U.S. Silica (SLCA)

Oilfield Services & Equipment 13

Oilfield Services & Equipment 14

Hi-Crush Partners, LP (HCLP)

Oilfield Services & Equipment 15

Oilfield Services & Equipment 16

Oilfield Services & Equipment 17

Companies Mentioned (Price as of 19-Jul-2017)

09-Mar-17 7.30 12.00

3-Year Price and Rating History for Hi-Crush Partners, LP (HCLP.N)

21-Dec-15 5.44 6.00

Oilfield Services & Equipment 18

16-Mar-17 14.52 19.00

3-Year Price and Rating History for U.S. Silica (SLCA.N)

01-Jun-16 29.02 32.00

09-Apr-17 48.55 63.00

Target Price and Rating

Target Price and Rating

Oilfield Services & Equipment 21

Oilfield Services & Equipment 22

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