Frac Sand Miners Annihilated

This week frac sand miner Hi-Crush Partners (ticker:HCLP) suspended their distribution. This follows the suspension of distrbutions by Emerge Energy (ticker:EMES) last week.  These were the 2 MLPs that are dependant upon frac sand for their revenues–although Emerge has some other businesses, frac sand is by far and away their biggest business.

To say that these securities have been crushed would be an understatement–units of both partnerships are down by over 90% in the last year.

When these new issues came out we wrote that they would be losers—but we didn’t anticipate that investors would drive prices way, way up before the slaughter took place. EMES traded as high as $145 13 months ago–now it is at $4.16.  It has been one heck of a ride.

Hi-Crush announced earnings this week and of course they were poor–but if 1 time items were removed the company would have remained profitable, but it is likely that the situation will worsen some from this level as crude oil and natural gas prices remain at rock bottom levels.  Emerge will announce earnings next week and they should mirror those of Hi Crush.

We no longer consider these securities income issues for conservative investors–BUT they could turn out to be great longer term speculations.  We believe it will be a minimum of 6-9 months before the energy market can firm up and that is an optimistic guess as crude oil inventories continue to build globally every day. We think that the speculation in the frac sand miners is one for capital gains–not resumed distributions–so it not likely we will be involved.