Recent letter to shareholdersDear shareholders,
There have been several changes in the North American silica sand market over the past few weeks with a big supplier, Covia filing for Chapter 11 with the intent to abandon several thousand loaded rail-cars as well as Hi-Crush’s Chapter 11 filing for creditor protection. In addition over a month ago Vista Proppants, a Texas and Oklahoma based regional sand supplier in the US also filed for Chapter 11. We expect this trend to continue to impact heavily indebted silica sand suppliers until the North American fracturing operations pick up pace (and subsequently demand for silica sand). Consolidation and operational rationalization of sand suppliers are likely long term outcomes of the intense downturn the industry is currently experiencing. The impact this will have on CPS’s potential in the proppant supply market is very difficult to predict however opportunities often emerge from the ashes of a severe downturn and management will be paying close attention as things unfold. CPS continues to possess a logistics and cost advantage over current Tier-1 suppliers in the Canadian market.
CPS’ preliminary plant and equipment design was completed by Hi-Crush earlier this year and incorporates portable plant equipment manufactured through one of its subsidiaries, OnCore
TM Processing Solution. Hi-Crush has communicated to CPS that it will continue its normal course of business as it goes through the proceedings. The manufacturing timeline and availability of OnCore units is unaffected through this process. As such, we have full confidence in Hi-Crush’s ability to provide the required equipment and design expertise to support development of the Wanipigow project. However, should the need arise, we have received solicitations from other emerging portable equipment suppliers in the market that would be able to provide modular and/or portable equipment to suit Wanipigow needs.
With respect to 3
rd party silica sand sales, Hi-Crush is operating at reduced capacities in Wisconsin and Texas. Due to the devastating slowdown in drilling and completions activities in North America it remains to be seen what the frac proppant demand for the remainder of 2020 will look like. If we receive large orders from our customers, we expect to be able to meet those orders through Hi-Crush, although with a longer lead time than usual with expectations of reduced pricing from our client base.
The CPS management team has been diligently working on quantifying alternative markets for the high quality silica sand resource at Wanipigow. Due to the challenges facing the oil and gas markets, management is in the process of investigating suitability of Wanipigow for the industrial silica market including high-specification glass-making. Wanipigow sand is unique in its high silica purity and low iron content. Additional testing and discussions with equipment suppliers is underway to determine the best silica processing approach to be utilized to produce a high-grade low iron industrial silica product. Such a silica product would potentially have wide applications in production of borosilicate glass for test tubes and ultra-clear glass for solar panel covers. Once the additional testing is complete, offtake discussions with potential customers will take place.
Over the past few weeks, CPS obtained the necessary permit and extracted approximately 15 tonnes of raw silica sand. This raw sample is on its way to a potential industrial customer for analyzing suitability of use in manufacturing of glass covers for solar photovoltaic panels. If Wanipigow silica sand proves viable in this application there exists potential to supply large quantities of our sand to the manufacturer. We continue to engage with the customer and perform additional laboratory processing and testing of Wanipigow silica sand.
When we emerge out of the Covid lockdown, management intends to have a diversified business plan with a focus on industrial silica sales (in addition to Oil and Gas sales) as well as exploring potential value-added manufacturing capabilities utilizing our high quality silica. We continue to work towards bringing the Wanipigow project to a Final Investment Decision.
On behalf of the CPS family, we appreciate your support and interest in CPS as we navigate these challenging market conditions. Hope everyone is safe and healthy.
Sincerely,
