Regardless of the industry, companies that fail to diversify in the midst of a hot new trend often spell their own demise. Take Blockbuster video, for instance. When Netflix arrived on the scene with a robust catalog of downloadable movies, Blockbuster held fast to its traditional brick-and-mortar business model. As the video download trend grew, Blockbuster eventually launched an online service, but the company was too late to the party. Blockbuster filed for bankruptcy on September 23, 2010, and closed its last stores in January, 2014.
Video rentals and frac sand may be worlds apart in every respect, until they are analyzed through the lens of market share. Percentages are universal, and just as Blockbuster Video misjudged the evolution of its market, there are companies in the mining industry that may be missing out on an industry trend that could be a foreshadowing of what mining will look like over the next 10 to 20 years. To coin a phrase, they may be ‘blockbustering’ themselves out of the marketplace. If Blockbuster Video teaches industry anything, it’s to seize the opportunity to diversify when it presents itself, since no one knows precisely what the future will hold.
With the demand for frac sand on the rise and the ore markets taking a temporary nosedive, it would behoove mining companies with the resources to venture out of their copper, nickel, or precious metals markets and start shoveling a bit of sand. Before the frac sand boom of recent years and America’s drive toward energy self-sufficiency by 2020, mining companies that previously thought of shale deposits as just a barrier between their drills and their ore now find themselves courting a lucrative commodity. Harvesting this white gold, however, does not necessarily come easy.
When CRU makes a prediction on metals, every sector of the mining industry takes notice. CRU has been consulting the mining, metals, and fertilizer industries for over 40 years, so when they announced an impending downturn in the nickel market through 2015, Canada’s Victory Nickel took heed and acted swiftly. Victory Nickel is Canada’s premier mid-tier nickel producer with mines in Manitoba, northwestern Quebec and, as fortune would have it, a substantial frac sand deposit at its Minago project North of Winnipeg. Ambition has been the driving force behind Victory Nickel’s success in the ore market, so its foray into frac sand has been no less enterprising.
But drive and determination are not enough to make this transition. Victory Nickel, operating under the name, Victory Silica, is facing a long-term, billion dollar project of such an imposing breadth that it needs to be divided into three complex phases. Though the recent news is certainly optimistic, it only marks the completion of Phase 1 of the company’s overall frac sand plan: the opening of a 5,000 ton-per-annum frac sand processing plant. Though a high-capacity processing plant positions Victory Silica as an important player in the Canadian frac sand market, the company is depending on the successful completion of Phases 2 and 3. Phase 2 involves a joint venture with its current suppliers with access to Wisconsin’s Jordan Formation to construct a wet plant/sand concentrator near its Minago mine in exchange for vending permits at some of Wisconsin’s top-producing sand mines. Phase 3 completes the plan with the construction of a 1,000,000 ton-per-annum dry plant at Winnipeg, Manitoba. So nothing is yet written in stone, as it were.
Victory Silica intends to invest the next 18 to 24 months in seeing the overall plan through. Though there are risks involved with any venture of this magnitude, the company believes they are minimal and calculable. Says Victory Nickel’s CEO RenéGalipeau, “[t]his is a very exciting time for Victory Nickel and Victory Silica. It is important to remember, though, that this is only the first step in our three-phased plan to enter the frac sand market. The immediate goals are to expand sales and marketing activities and to continue to implement Phases 2 and 3.” But however cautious these next steps may be, Victory Nickel/Victory Silica has no intention of being crowded out of a market that it is fully capable of competing in, no matter how difficult the transition. At the moment, however, breaking into the frac sand market appears to be a pretty painless process for a company like Victory Nickel, but what about a smaller company with limited capital?
Bryan Rock Products
With Minnesota being part of the epicenter of the frac sand industry, it should stand to reason that a mining company operating in that state would already have a firm foothold in the industry. There are a few stragglers, but Bryan Rock Products is making moves that would take them out of that category. A leader in limestone mining for decades, Bryan Rock discovered a substantial frac sand cache completely by accident just three years ago.
“We drilled too deep,” said company CEO Bill Bryan when describing how they struck frac sand. At the time, there was no reason for optimism, though. “We just didn’t understand the market until a few years ago.” Bill Bryan understands the frac sand market now, and he also understands the fortunate position his company finds itself in.
When the housing bubble burst in the mid 2000s, the demand for limestone decreased dramatically. With revenue dipping and its sole market at a standstill, Bryan Rock was in need of a big-time opportunity just to remain solvent. That opportunity presented itself while drilling past a limestone deposit into a bed of pure silica sand. At the time it was just an oversight, but since the frac sand boom of recent years, this discovery has turned out to be a lifesaver for Bryan Rock. What makes this discovery particularly fortunate is that it is located on the Union Pacific railroad line, making it possible to extract the sand, process it, and ship it all from one location. Many companies need to mine the sand, ship it to a distant processing center, and once again ship it to market, a cycle that consumes millions of dollars annually. Being able to accomplish the entire mining/processing/shipping cycle in one location stands to save Bryan Rock a fortune, making a multi-million dollar investment in equipment upgrades a lot easier to bear for the cash-strapped enterprise.
But if it were just a matter of money in making the transition from traditional mining to frac sand mining, there should be more companies like Victory Nickel and Bryan Rock Products lining up to claim a stake of this hot new market. It’s not so simple. It does take more than money, a lot more, as DeWitt, Ross and Stevens will attest to. This law firm holds the definitive document on frac sand mining and regulations in the State of Wisconsin, which is loosely based on Federal EPA regulations, making the language therein practically universal from state to state.
There are contracts that need to be drafted between mining companies, construction firms, and landowners. There are zoning approvals to obtain, as well as state-approved mining permits, emissions- and water-related testing to conduct, and state fees and taxes that could amount to hundreds of thousands of dollars. So no, just because a company has operated in the mining field for generations does not mean that the transition into the frac sand industry is easy or sure; certainly not as easy as an entertainment company like Blockbuster transitioning into the world of video downloads. But there is one universal truth held by all companies, regardless of whether they deal in movies or minerals: standing pat is very often a step in the wrong direction.