Frac Sand - HCLP vs EMES vs CVIA - And the big EMES Pump.

Yesterday, 4/29/2019, I was doing some hard core bashing on the StockTwit boards of ticker symbol EMES (Emerge Energy Services). A lot of it was serious, some of it was in jest, but I found it very ironic to watch what was essentially a complete pump of the stock by which the pumpers didn't even know they were pumping it at essentially the exact right time to pump the stock based on the industry news cycle.

In full disclosure, I had two trade on last week for EMES. One at .31-34 that executed in seconds for a nice profit and then I bought shares right before close on Friday night in after-hours very late. I had to overpay to get all the shares and moved the bid up to the ask to get them all from .37- 38, but since I caught wind of the pump job I figured there was no harm in following them in and diversifying my own sand holdings albeit just temporarily. I quickly closed that out on Monday for a nice gain at .46.

On Monday it got interesting as EMES rocketed up 70%. While no doubt the pump was effective. These pumpers were going crazy on the board. What they don't know is they may have pumped at exactly the right time and were just extra plain old lucky with their timing.

You see, sand is at a possible turning point. It has been in a funk for the back half of 2018 with a great change in the business model during all of 2018. Q4 earnings were poor but offered a glimpse of a turnaround. Now Q1 earnings will give great visibility to exactly where the sand market is going, whether it has stabilized and even turned. Silca (SLCA) is the first company to report earnings on 5/1/2019 before the bell. SLCA is one of the big boys and they are diversified beyond just sand and have an industrial business that is about the same size of the sand business. For this reason they seem like a terrible buyout candidate as the buyer would likely have to spin off the industrial business. But it would be nice to see some consolidation in the industry with Permian companies like Anadarko getting bought at lofty prices.

A little EMES history. In early March I warned that EMES was in trouble and on 4/22/2019 it finally came to the head with the stock falling from $1.60 = $.37. Basically they announced a restructuring that was NOT shareholder friendly and indicated they really wanted to wipe out the existing class of unitholders. This was troubling to me because it also meant that maybe nobody was interested in a pure-play sand player. You have to think that someone like a Halliburton would want to diversify their services in the Permian Basin with sand and it seems like a drop in the bucket decision at EMES current share price. Now maybe this is just a negotiation tactic on the part of EMES. Maybe this is trying to get someone like a HAL to pay a better price. I have no idea. I don't really know how much goes into starting up a frac sand operation and whether they would just choose to do so themselves.

Regardless, the pumpers were just pumping at possibly the right time. Traditional sand plays have risen into earnings. Nobody really wants to be short if the sand picture (very volatile) all of sudden turns in a big way. Since the companies are low-float and thinly traded they often times have days of slow and steady continuation causing large rises in the price of the stock. Just take a look at what CVIA did before earnings last month.

Relentless CVIA buying into earnings
Six big green days
Nonetheless, I found it incredibly ironic that these pumpers were pumping EMES which as it stands looks like a dead company. One thing they were pumping was earnings, earnings, earnings. Look, EMES hasn't even report Q4 2018 earnings so no they aren't releasing earning today as far as anyone knows. The pumpers were just pumping false information. Now of course they are just pumping and playing for a dead-cat bounce and I am not exactly sure how much of the pump is self-fulfilling prophecy and essentially fraud versus how much EMES finally covering and not taking any chances before SLCA earnings report on 5/1. No doubt the EMES shorts have been short for a long time, likely north of $8 and are not in danger of being squeezed, more just moving on to the next opportunity. But yes the pump corresponded well timing wise as it could have spooked some EMES shorts in regards to SLCA earnings.

Despite all my bashing and warning people that they were buying into an MLP. It was clear they weren't even aware they were buying into a MLP. Now buying into MLP isn't a big deal for real investors / traders but for small position holders but it is a big hassle just to make a couple of dollars. The added complexity will far outweigh any reward and that is before factoring in the risk.

Even though, long-term. the company EMES is dead on its current path, there is some possibility of major news and rumors causing a rapid price increase in the stock. The sellers today of EMES might as well at least wait one more day IMHO to see what SLCA news is but these traders don't really care about sand. The underlying company just doesn't matter. I just find it ironic that they spread fake news about earnings when SLCA earnings is almost as big as EMES earnings itself.

But what is really ironic, is that the pumpers could have caused a real short-squeeze by betting on HCLP or CVIA. The stocks are so thinly traded and there are so many short-sellers that it could easily cause a panic in those names. HCLP may be best of breed pure sand play with a large diversification of Northern White Sand (NWS) and Permian Pearl, along with a focus on long-term contracts with big E&P players, and the logistics to get all that sand to them. It trades at a dirt cheap PE and earnings expectations continue to tick up as analysts quietly raise their expectations. All the downgrades are likely in the stock but the upgrades haven't even started coming which has allowed shorts to cover before a huge price movement forward.

 With HCLP reporting on May 7. The pumpers could have easily caused a squeeze of HCLP from $4 => $8 and even done it with options for some even bigger gains. Those gains would have well surpassed that of EMES with far less risk. The risk / reward ratio is one of the most important things a trader can pay attention to and the risk / reward ratio is approaching a maximum positive ratio at these prices for EMES. If Silca reports positive sand news we could see shorts scramble and be another bump for EMES with the pump + regular sand buyers. We could see heavy bidding into earnings driving up the share price inthe likes of HCLP and CVIA.

Lastly, if you want to learn about investing beyond just trading I would encourage you to pick up a copy of The Intelligent Investor. It is an oldy but a goody.

Nothing in here is an offer or recommendation to purchase securities. Invest at your own risk and do your own due diligence. I am long sand.