The following presentation was given by Joel Schneyer, Managing Director at Headwaters MB at the SME 4th Annual Current Trends in Mining Finance Conference in New York, NY.

1. Case Study: Private Equity Investment in Frac Sand
SME’s 4th Current Trends in Mining Finance Conference
New York, USA
Joel Schneyer – Managing Director
jschneyer@headwatersmb.com
303.619.4211
April 26, 2016

2. Proppant demand is expected to increase over the next decade
because:
• Operators are using longer laterals
• Overall increase in frac sizes per stage
• Increased number of frac stages per well
• More sand per stage (overpacking), and
• Closer well spacing
2
Secular Demand Drivers for Proppants

3. Source: C.L. Dake, Univ of Missouri School of Mines & Metallurgy Bul. Tech. Ser., Vol. 6, No. 1 August 1921
3
40/70 & 100 mesh
20/40, 40/70 & 100 mesh
Sand Supply - St Peter the Patron Saint of Frac Sand

4. 4
State
Q2 ‘15
Mine Count
Market
Share %
WI 54 32%
TX 38 23%
MO 16 10%
IL 11 7%
OK 9 5%
MN 8 5%
Rest 31 19%
Sand Supply - Origin Locations

5. Note - Active proppant mines are defined as sand mine locations reported to MSHA with active operating
hours. If not hours are reported for the quarter, than the mine is deemed as not active for the time period.
5
109
118
122
125
132
150
154 155
149
167
0
20
40
60
80
100
120
140
160
180
Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015
CountofMineswithActiveOperatingHours
Sand Supply – Active Proppant Mines

6. • Of the ~ 85 million tons
of sand available, about
66% of the production
capacity is held by the
top 10 sand suppliers
• Unimin, holding the
largest market share of
capacity represents
12.6% of the total
market, while US Silica
has recently surpassed
Santrol (FMSA) to
represent 11% of the
total market
6
Source: NavPort Presentation (April 2015), Canadian Frac Sand Logistics & Market Forecast Summit in Calgary
Sand Supplier Market Share (% Capacity)

7. 7
Demand - Historical Proppant Consumption by Basin (Billions of
lbs.)

8. 8
Source: EnerCom Analytics (August 6, 2015) Shale Production Growth Rates Starting to Wane
? March-2016 ($1.50/MMBtu, $35.00/Bbl)
Returns for U.S. Shale Projects

9. 9
Sources: NavPort Presentation (April 2015), Canadian Frac Sand Logistics & Market Forecast Summit in Calgary
Years 2015 & 2106 HIS/PacWest website published Dec 11, 2015
Demand – Forecast by Basin
Concurrent with the drop in oil price in 2015, proppant demand fell from 110.1
billion pounds (55.1 million tons) consumed in 2014 to an estimated 79.6 to
85.2 billion pounds (39.8 to 42.6 million tons) in 2015

10. • Revenue per ton for resin coated (Fairmont Santrol) peaked in Q3 2014
• Revenue does not equal profitability and does not tell the full story!
1
0
Sources: SEC Edgar, Yahoo Finance, US Energy Information Administration
$41.95$46.42
$57.85
$48.54
$73.16
$97.78$103.35$98.75$97.34
$105.84
$94.10
$94.34
$0
$20
$40
$60
$80
$100
$120
$140
$160
2015Q42015Q32015Q22015Q12014Q42014Q32014Q22014Q12013Q42013Q32013Q22013Q1
Revenue / Ton of Sand Sold
Hi-Crush Emerge US Silica Fairmount Santrol WTI (average)
Sand Supplier - Revenue

11. Sand Supplier – EBITDA Margins
Sources: SEC Edgar, Yahoo Finance
• Increasing amounts of sand coupled with lower demand has reduced sand margins
• EBITDA margins has dropped 80% from “peak” $35 per ton in Q3 2014 to $7 per ton Q4
2015
1
1
$6.85
$8.67
$14.73
$24.83
$31.34$34.97$30.14$27.11$26.22$28.91$23.34$25.94
$41.95$46.42
$57.85
$48.54
$73.16
$97.78
$103.35
$98.75$97.34
$105.84
$94.10
$94.34
$0
$20
$40
$60
$80
$100
$120
2015Q42015Q32015Q22015Q12014Q42014Q32014Q22014Q12013Q42013Q32013Q22013Q1
Adjusted EBITDA / Ton of Sand Sold
Hi-Crush Emerge US Silica Fairmount Santrol EBITDA / Ton Sold (average) WTI (average)

12. FOB MINE
Q3 2014 = $35 EBITDA/t
Sand
Producer
1
2
Source: modified from Raymond James, Global Research Report, August 2014
IN BASIN SALE
Q4 2015 = $7 EBITDA
Frac Sand Delivered Cost to Well Site

13. 1
3
Diaz,
UP/BNSF
$58/ton
Lacrosse
CP/BNSF
$62/ton
Mankato
UP
$52/ton
Lacrosse
CP/BNSF/+
$62/ton
$66/ton
$69/ton
Shift To “In-Basin” Sales

14. 1
4
Sector Focus TEV /LTM EBITDA
E&P Companies 7.3 – 8.6x
Large Cap Integrated Field Services (4 companies) 11.6x
Small / Mid Cap Integrated Field Services (10 companies) 7.3x
Contract Drillers (7 companies) 5.1x
Oilfield Equipment Manufacturers (9 companies) 7.7x
Sand & Proppant Producers (5 companies) 10.2x
Basin TEV /LTM EBITDA Daily BOE Production
Bakken (12 companies) 7.3x $34,118
Eagle Ford (15 companies) 7.9x $30,557
Marcellus (14 companies) 7.9x $34,243
Niobrara (17 companies) 6.8x $28,356
Permian (16 companies) 8.6x $28,582
Utica (14 companies) 7.8x $29,025
Notes: valuation date March 10, 2016
Source: TEV / EBITDA from Cap IQ
Oilfield Trading Metrics - Median TEV / EBITDA Multiples

15. • TEV multiples have dropped 75% from 23.4x “peak” in 2Q 2014 to 5.8x
“trough” in 3Q 2015
• The TEV multiple in Q4 2015 stands at 9.0x
1
5
Sources: SEC Edgar, Yahoo Finance
9.0
5.86.1
8.1
8.7
13.2
23.4
18.4
15.5
0
5
10
15
20
25
30
35
2015Q42015Q32015Q22015Q12014Q42014Q32014Q22014Q12013Q4
TEV / LTM (Adjusted) EBITDA
Hi-Crush Emerge US Silica Fairmount Santrol TEV / LTM (adjusted) EBITDA Multiple
Sand Producer - Trading Multiples

16. • The Implied Frac Sand Industry TEV has dropped 87% from $33.0
billion “peak” in 2Q 2014 to $4.2 billion “trough” in 3Q 2015
• The Implied Frac Sand Industry TEV in Q4 2015 stands at $4.4 billion
1
6
Sources: SEC Edgar, Yahoo Finance
9.0
5.86.18.18.7
13.2
23.4
18.4
15.5
$4.4$4.2
$6.6
$13.4
$17.1
$25.4
$33.0
$21.1
$15.6
$6.85
$8.67
$14.73
$24.83
$31.34
$34.97
$30.14
$27.11$26.22
0
5
10
15
20
25
30
35
40
2015Q42015Q32015Q22015Q12014Q42014Q32014Q22014Q12013Q4
Sand Producer Metrics
TEV / LTM (adjusted) EBITDA Multiple Implied Frac Sand Industry TEV (USD Billions) EBITDA / Ton Sold (average)
Sand Producer - Metrics

17. 1
7
• Valuation-to-EBITDA multiples at the very high level
M&A Transaction Multiples (All Industries)

18. 1
8
Source: Company and
Private Equity press
releases and websites
Notable Private Equity Activity In the Frac Sand Space Since
2010

19. Source: Private Equity Analyst as cited in Probitas Partners - Private Equity Forecast & Desk Book for 2015
1
9
Commitments to U.S. Private Equity Partnerships by
Sector

20. 2
0
• Fundraising reached record level in 2015, with 62 funds raising a total of
$62.6 bn
Sources: Preqin Natural Resources Online
Annual Natural Resources Fundraising

21. 2
1
• Energy-focused funds continue to be the main driver of fundraising with
76% of all funds closed (47) and 91% of total aggregate capital raised
Sources: Preqin Natural Resources Online
Breakdown of Natural Resource Fundraising in 2015 by
Strategy

22. 2
2
• Spike in average transaction size in Q4 2015 hints at considerable
consolidation at upper end of the space
Median & Average Energy Deal Size

23. 2
3
Source: GF Data
• The so-called “size premium” the reward given to larger businesses over
comparable smaller ones remains high
5.0
5.5
6.0
6.5
7.0
7.5
8.0
8.5
9.0
9.5
2011 2012 2013 2014 2015
TEV 10-25 TEV 25-50 TEV 50-100 TEV 100-250
Valuation Overview – The Size Premium

24. 2
4
Source: GF Data
• Buyers continue to place premiums on size, on above average financial
performance, and on institutional ownership prior to purchase
• The reward is much greater though for larger business (at $100-250 mm
TEV 24% pickup in valuation 9.0x to 11.2x)
Valuation Drilldown (2015) – The Quality Premium

25. In response to the oil downturn and squeeze on their profit margins, sand
producers have:
Final Observations
Page | 25
Idled their high cost production
Reduced transportation costs by utilizing “plus size” unit trains
Developed their own in-basin terminals
Pushed the technology envelope and expanded their product
platform

26. Global Liquid Supply Cost Curve
2
6
Source: Rystad Energy
USD/bbl cost curve

27. Closing Thoughts
• Shift in sales from FOB mine to “in-basin” sale point has caused
rationalization of the sand supply chain
• TEV / EBITDA multiples have dropped 75% from 23.4x “peak” in 2Q
2014 to 5.8x “trough” in 3Q 2015
• Private Equity likes the alternative investment space and has lot of dry
powder
• Size (>$100 mm TEV) and quality do matter and are rewarded M&A
premiums
Headwaters MB named Investment Bank of the Year for the second consecutive
year
INVESTMENT
BANK
OF THE YEAR
INVESTMENT
BANK OF
THE YEAR
2015