Shares of fracking sand supplier Hi-Crush Partners (NYSE:HCLP) are up 26.5% as of 2 p.m. EDT today. The share-price gain comes on the heels of the announcement of several developments including an acquisition, a distribution increase, a new supply contract, and a second sand mine in the Permian Basin.
Apparently, when it rains news from Hi-Crush Partners, it pours, because the company's press releases today were loaded with announcements. The first one was that the board of directors approved a distribution increase to $0.75 per share for the quarter, or $3 on an annualized basis. That would give Hi-Crush's stock an absolutely absurd distribution yield of 22%.
On top of that, Hi-Crush announced that it had agreed to acquire sand logistics equipment manufacturer FB Industries for $60 million. Hi-Crush, alongside a couple of other companies, has been using last-mile sand logistics as a differentiator between it and competitors. Last-mile services have been shown to significantly expand operating margins.
Then there was the announcement that the company had signed a new supply agreement with a supermajor exploration and production company. The demand for frack sand has been so great that the new agreement is supporting an 850,000-ton-per-year expansion of one of the company's Northern White mines in Wisconsin, as well as a 3-million-ton sand mine in Kermit, Texas.
This is a lot of news to digest all at once. The company plans to announce earnings next week, so we're likely to get a little more detail about each of these moves. One thing is pretty clear, though: All of it is great news for Hi-Crush, and it supports the idea that the frack sand industry is back in full swing.
The one thing that is a little concerning here is that the company is electing to raise the distribution significantly while also increasing capital spending. Those were the kinds of moves that got the company in trouble last time when oil prices tanked and demand for frack sand dried up quickly. The one saving grace this time is that all of this new capacity expansion is supported by a long-term supply agreement with what appears to be a larger Permian Basin producer.
I have a feeling that when it reports earnings next week, we could see even more good news coming out of Hi-Crush.