Fracture sand king Fairmount Santrol said Monday it has secured a 40-year lease for 3,250 acres of reserves in the Permian Basin near Kermit, TX, with a 165 million ton mining facility that would be able to produce about 3 million tons/year.
The Chesterland, OH-based operator said the Permian facility should be ready by mid-2018. Fairmount also has reopened its Shakopee, MN northern white sand mine, shuttered in 2015, because of increased customer demand.
The Winkler County, TX facility includes “contiguous reserves of fine mesh sand, water availability and prime access to existing roads, make this an excellent opportunity for Fairmount Santrol to expand our broad product offering by providing a low-cost, in-basin solution to meet the changing requests from some of our customers," said CEO Jenniffer Deckard.
“By leasing the reserves instead of an outright purchase, we will enhance our net return on investment and ensure greater financial flexibility.
Over the past several months, Fairmount has ordered equipment and started to prepare the Kermit property for building. Total leasehold interest payments and capital expenditures are estimated at $100-110 million over the next year. An average royalty of less than $3/ton, including water rights, would be paid over the term of the lease on sand sold from the facility, with no minimum annual royalty.
When fully ramped up, the Shakopee plant, with access to the Union Pacific railroad, would have annual capacity of 700,000 tons. The plant should be operational by the end of September.
For the Kermit and Shakopee facilities, the company is in the process of finalizing customer commitments for most of the tons that would be mined and processed. The company also expects to receive prepayments from customers that sign long-term volume contracts to secure tonnage.
Fairmount plans to provide additional information during its second quarter conference call scheduled for Aug. 3.