Correspondence 0001529628-24-000016 from Smart Sand, Inc. (SND) (CIK 0001529628) (SND)
Smart Sand, Inc. (SND) (CIK 0001529628)
Date: Feb. 8, 2024 · CIK: 0001529628 · Accession: 0001529628-24-000016
AI Filing Summary & Sentiment
File numbers found in text: 001-37936
Referenced dates: January 26, 2024
Letter
VIA EDGAR United States Securities and Exchange Commission Division of Corporation Finance Attention: Craig Arakawa, Accounting Branch Chief Office of Energy & Transportation Re: Smart Sand, Inc. Form 10-K for the Fiscal Year Ended December 31, 2022 Filed February 28, 2023 File No. 001-37936
Dear Messrs. Arakawa and Coleman:
Set forth below are the responses of Smart Sand, Inc., a Delaware corporation (the “Company,” “we” or “our”), to the comment letter received from the staff of the Division of Corporation Finance (the “Staff”) of the Securities and Exchange Commission (the “Commission”) by letter dated January 26, 2024 with respect to the Company’s Annual Report on Form 10-K, File No. 001-37936, filed with the Commission on February 28, 2023 (the “Form 10-K”).
For your convenience, each response is prefaced by the exact text of the Staff’s comment in bold, italicized text.
Securities and Exchange Commission
February 8, 2024
Page 2
Form 10-K for the Fiscal Year Ended December 31, 2022
Item 2. Properties, page 40
1.We note your response to comment 1. Please include the point of reference and the price used to demonstrate the reasonable prospect of economic extraction with your New Auburn/Hixton mineral resource table, as required by Item 1303(b)(3) of Regulation S-K.
Response: We acknowledge the Staff’s comment and respectfully advise the Staff that for several reasons, including the fact that our recently acquired Blair, Wisconsin facility commenced operations in the second quarter of 2023, future filings will not include reference to the New Auburn and Hixton sites as mining properties and will not quantify mineral resources at these sites.
The New Auburn site is not part of our ongoing operations. We have not completed an analysis of the prospect of economic extraction at the New Auburn facility, which is idle and would require significant additional investment to commence operations. The mineral deposit at the New Auburn site is not consistent with current market demand, and it is not located favorably with respect to rail service. In addition, we expect that the recent commencement of operations at our Blair, Wisconsin facility will allow us to meet our sand needs for the foreseeable future without the New Auburn site being operational. For these reasons, we do not consider the mineral deposit at New Auburn as a “mineral resource” or “mineral reserve” as defined under Item 1300 of Regulation S-K.
The Hixton site is also not part of our ongoing operations. We have not completed an analysis of the prospect of economic extraction at the Hixton facility, which is a greenfield site with no buildings or facilities on the property and would require significant additional investment in order for us to extract and process the mineral deposit located there. Additionally, we expect that the recent commencement of operations at our Blair, Wisconsin facility will allow us to meet our sand needs for the foreseeable future without the Hixton site being operational. For these reasons, we do not consider the mineral deposit at Hixton as a “mineral resource” or “mineral reserve” as defined under Item 1300 of Regulation S-K.
Annex A hereto reflects an example of the revised disclosure that we will include in future filings which omits disclosure of mineral resources at New Auburn and Hixton. Please note that such example disclosure is based on the prior year’s information and such disclosure will be updated in future filings with current information.
Item 15. Exhibits, Financial Statement Schedules
Exhibits 10.25, 10.26, & 10.28, page 97
2.We note your response to comment 6 and we reissue the comment with respect to Exhibits 10.25, 10.26, and 10.28. This is required information in the technical report summary. Please confirm that you will revise subsequent technical report summaries to include at least one cross-section and one stratigraphic column of the local geology as required by Item 601(b)(96)(iii)(B)(6)(iii) of Regulation S-K.
Securities and Exchange Commission
February 8, 2024
Page 3
Response: We acknowledge the Staff’s comment and respectfully advise the Staff that we will revise subsequent technical report summaries to include at least one cross-section and one stratigraphic column of the local geology as required by Item 601(b)(96)(iii)(B)(6)(iii) of Regulation S-K.
Item 15. Exhibits, Financial Statement Schedules
Exhibit 10.27, page 97
3.We note your responses to comments 6, 7, 11, 12, and 13 and we reissue the comments with respect to Exhibit 10.27. Please consult with your qualified person and obtain a revised technical report summary that addresses all comments, including comment 10.
Please note that an initial assessment that supports the disclosure of mineral resources must, at a minimum, include all of the information specified in paragraphs (b)(96)(iii)(B)(1) through (11) and (20) through (25) of Item 601(b) of Regulation S-K. Please address all required paragraphs in the revised report. We suggest including or identifying the corresponding paragraphs in your revised technical report summary.
All mineral resources must include the qualified person's estimates of cut-off grades based on assumed costs and prices that provide a reasonable basis for establishing the prospects of economic extraction, as required by Item (601)(b)(96)(iii)(B)(11)(iii) of Regulation S-K. Absent a cut-off grade for a sand deposit, minimum quality and/or API specifications with assumed costs and grades may also be considered provided the qualified person describes how the project will distinguish between material sent to the processing facility and material sent to waste.
Response: We acknowledge the Staff’s comment and respectfully advise the Staff that future filings will not include reference to the New Auburn and Hixton sites as mining properties and will not quantify mineral resources at these sites for the reasons set forth in our response to comment #1 above.
Exhibit 10.27 - Smart Sand Resource Properties New Auburn Proppant Sand Property and Hixton Greenfield Property will not be included in future filings.
Annex A hereto reflects an example of the revised disclosure that we will include in future filings, which omits disclosure of mineral resources at New Auburn and Hixton. Please note that such example disclosure is based on the prior year’s information and such disclosure will be updated in future filings with current information.
* * * * *
Please direct any questions or comments regarding the foregoing to our counsel at Latham & Watkins LLP, Ryan J. Lynch, at (713) 546-7404.
Very truly yours,
Smart Sand, Inc.
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CORRESP 1 filename1.htm Document February 8, 2024 VIA EDGAR United States Securities and Exchange Commission Division of Corporation Finance 100 F Street, N.E. Washington, D.C. 20549-4628 Attention: Craig Arakawa, Accounting Branch Chief John Coleman, Mining Engineer Office of Energy & Transportation Re: Smart Sand, Inc. Form 10-K for the Fiscal Year Ended December 31, 2022 Filed February 28, 2023 File No. 001-37936 Dear Messrs. Arakawa and Coleman: Set forth below are the responses of Smart Sand, Inc., a Delaware corporation (the “Company,” “we” or “our”), to the comment letter received from the staff of the Division of Corporation Finance (the “Staff”) of the Securities and Exchange Commission (the “Commission”) by letter dated January 26, 2024 with respect to the Company’s Annual Report on Form 10-K, File No. 001-37936, filed with the Commission on February 28, 2023 (the “Form 10-K”). For your convenience, each response is prefaced by the exact text of the Staff’s comment in bold, italicized text. Securities and Exchange Commission February 8, 2024 Page 2 Form 10-K for the Fiscal Year Ended December 31, 2022 Item 2. Properties, page 40 1.We note your response to comment 1. Please include the point of reference and the price used to demonstrate the reasonable prospect of economic extraction with your New Auburn/Hixton mineral resource table, as required by Item 1303(b)(3) of Regulation S-K. Response: We acknowledge the Staff’s comment and respectfully advise the Staff that for several reasons, including the fact that our recently acquired Blair, Wisconsin facility commenced operations in the second quarter of 2023, future filings will not include reference to the New Auburn and Hixton sites as mining properties and will not quantify mineral resources at these sites. The New Auburn site is not part of our ongoing operations. We have not completed an analysis of the prospect of economic extraction at the New Auburn facility, which is idle and would require significant additional investment to commence operations. The mineral deposit at the New Auburn site is not consistent with current market demand, and it is not located favorably with respect to rail service. In addition, we expect that the recent commencement of operations at our Blair, Wisconsin facility will allow us to meet our sand needs for the foreseeable future without the New Auburn site being operational. For these reasons, we do not consider the mineral deposit at New Auburn as a “mineral resource” or “mineral reserve” as defined under Item 1300 of Regulation S-K. The Hixton site is also not part of our ongoing operations. We have not completed an analysis of the prospect of economic extraction at the Hixton facility, which is a greenfield site with no buildings or facilities on the property and would require significant additional investment in order for us to extract and process the mineral deposit located there. Additionally, we expect that the recent commencement of operations at our Blair, Wisconsin facility will allow us to meet our sand needs for the foreseeable future without the Hixton site being operational. For these reasons, we do not consider the mineral deposit at Hixton as a “mineral resource” or “mineral reserve” as defined under Item 1300 of Regulation S-K. Annex A hereto reflects an example of the revised disclosure that we will include in future filings which omits disclosure of mineral resources at New Auburn and Hixton. Please note that such example disclosure is based on the prior year’s information and such disclosure will be updated in future filings with current information. Item 15. Exhibits, Financial Statement Schedules Exhibits 10.25, 10.26, & 10.28, page 97 2.We note your response to comment 6 and we reissue the comment with respect to Exhibits 10.25, 10.26, and 10.28. This is required information in the technical report summary. Please confirm that you will revise subsequent technical report summaries to include at least one cross-section and one stratigraphic column of the local geology as required by Item 601(b)(96)(iii)(B)(6)(iii) of Regulation S-K. Securities and Exchange Commission February 8, 2024 Page 3 Response: We acknowledge the Staff’s comment and respectfully advise the Staff that we will revise subsequent technical report summaries to include at least one cross-section and one stratigraphic column of the local geology as required by Item 601(b)(96)(iii)(B)(6)(iii) of Regulation S-K. Item 15. Exhibits, Financial Statement Schedules Exhibit 10.27, page 97 3.We note your responses to comments 6, 7, 11, 12, and 13 and we reissue the comments with respect to Exhibit 10.27. Please consult with your qualified person and obtain a revised technical report summary that addresses all comments, including comment 10. Please note that an initial assessment that supports the disclosure of mineral resources must, at a minimum, include all of the information specified in paragraphs (b)(96)(iii)(B)(1) through (11) and (20) through (25) of Item 601(b) of Regulation S-K. Please address all required paragraphs in the revised report. We suggest including or identifying the corresponding paragraphs in your revised technical report summary. All mineral resources must include the qualified person's estimates of cut-off grades based on assumed costs and prices that provide a reasonable basis for establishing the prospects of economic extraction, as required by Item (601)(b)(96)(iii)(B)(11)(iii) of Regulation S-K. Absent a cut-off grade for a sand deposit, minimum quality and/or API specifications with assumed costs and grades may also be considered provided the qualified person describes how the project will distinguish between material sent to the processing facility and material sent to waste. Response: We acknowledge the Staff’s comment and respectfully advise the Staff that future filings will not include reference to the New Auburn and Hixton sites as mining properties and will not quantify mineral resources at these sites for the reasons set forth in our response to comment #1 above. Exhibit 10.27 - Smart Sand Resource Properties New Auburn Proppant Sand Property and Hixton Greenfield Property will not be included in future filings. Annex A hereto reflects an example of the revised disclosure that we will include in future filings, which omits disclosure of mineral resources at New Auburn and Hixton. Please note that such example disclosure is based on the prior year’s information and such disclosure will be updated in future filings with current information. * * * * * Please direct any questions or comments regarding the foregoing to our counsel at Latham & Watkins LLP, Ryan J. Lynch, at (713) 546-7404. Very truly yours, Smart Sand, Inc. Securities and Exchange Commission February 8, 2024 Page 4 /s/ Lee E. Beckelman Lee E. Beckelman Chief Financial Officer Cc: Ryan J. Maierson, Latham & Watkins LLP Ryan J. Lynch, Latham & Watkins LLP Securities and Exchange Commission February 8, 2024 Page 5 ANNEX A Overview of our Properties and Logistics As of December 31, 2022, we owned and operated two frac sand mines and related processing facilities in Oakdale, Wisconsin and Utica, Illinois. Also, in addition to the onsite transloading capabilities at our Oakdale mine, we have nearby transloading facilities to each of our mines and three leased in-basin transload facilities in Van Hook, North Dakota, Waynesburg, Pennsylvania, and El Reno, Oklahoma. On March 4, 2022, we entered into the Purchase Agreement with HCR and Blair, pursuant to which the Company acquired all of the issued and outstanding limited liability company interests of Blair from HCR for aggregate cash consideration of approximately $6.5 million, subject to customary purchase price adjustments as set forth in the Purchase Agreement. Entities affiliated with Clearlake Capital (“Clearlake”), who collectively own approximately 11% of the Company’s outstanding common stock, as of December 31, 2022 also own a significant portion of the outstanding common stock of HCR, and representatives of Clearlake serve on our board of directors and HCR’s board of directors. The primary assets of Blair consist of an idle frac sand mine and related processing facility located in Blair, Wisconsin. The Blair facility has approximately 2.9 million tons of total annual processing capacity and contains an onsite, unit train capable rail terminal with access to the Class 1 Canadian National Railway. The Blair mine was not operational in 2022, but we expect to bring on the Blair facility in the second quarter of 2023. In addition to these currently operating facilities, we also acquired an idled mine and processing facility in New Auburn, Wisconsin as part of the Eagle Proppants Holdings acquisition in 2020, which contains a higher concentration of coarser sand deposits. We do not consider this site to be a mining property as we have no immediate plans to resume processing frac sand operations at this facility, though its administrative facilities and proximity to our Oakdale facility allow us to utilize the property to create synergies with our existing operations in Wisconsin. We also own approximately 959 acres in Jackson County, Wisconsin (“Hixton”). The Hixton site is fully permitted to initiate operations and is available for future development. Based on our preliminary testing, we believe there are sufficient quantities on these sites to establish reserves in the future. We have no immediate plans to further develop this site. We have two long-term surface mining leases for properties located in the Permian Basin in Texas that are available for future development. The first site consists of 1,772 acres in Winkler County, Texas. This location is adjacent to the Texas & New Mexico Railway (TXN) short line with direct access to State Highway 18. The second site consists of 2,447 acres in Crane County, Texas. This location has direct access to Interstate Highway 20. Based on our preliminary testing, we believe there are sufficient quantities on these sites to establish reserves in the future. We have no immediate plans to further develop these sites. We lease a 56,000 square foot facility in Saskatoon, Saskatchewan, Canada where we manufacture our SmartSystems wellsite proppant storage solutions. Securities and Exchange Commission February 8, 2024 Page 6 The map below shows the locations of our mine sites, rail terminals and transload facilities, manufacturing facilities and administrative facilities. Summary Overview of Mining Operations Information concerning our material mining properties in this Annual Report on Form 10-K has been prepared in accordance with the requirements of subpart 1300 of Regulation S-K, which first became applicable to us for the fiscal year ended December 31, 2021. As used in this Annual Report on Form 10-K, the terms “mineral resource”, “mineral reserve”, “proven mineral reserve” and “probable mineral reserve” are defined and used in accordance with subpart 1300 of Regulation S-K. As of December 31, 2022, our individually material mining properties, as determined in accordance with subpart 1300 of Regulation S-K, were the Oakdale, Wisconsin mine and processing facility (“Oakdale”), Utica, Illinois mine and processing facility (“Utica”), and the currently idle Blair, Wisconsin facility (“Blair”), which we believe is probable that we will begin operations in 2023. The information that follows related to the Oakdale, Utica and Blair facilities is derived, for the most part from, and in some instances is an extract from, the technical report summaries (“TRSs”) related to such properties prepared in compliance with the Item 601(b)(96) and subpart 1300 of Regulation S-K. Portions of the following information are based on assumptions, qualifications and procedures that are not fully described herein. Reference should be made to the full text of the TRSs, filed as exhibits to this Annual Report on 10-K. As of December 31, 2022, we had two operating mines and related processing facilities, one additional idle facility expected to be operating in 2023. Securities and Exchange Commission February 8, 2024 Page 7 Oakdale, Wisconsin We, through Smart Sand, Inc. and SSI Oakdale, LLC, its wholly-owned subsidiary, operate a surface mine and silica sand processing plant near Oakdale, Wisconsin. The Oakdale mine includes a total of 1,256 acres that are owned outright by Smart Sand, Inc. This ownership includes subsurface mineral and water rights. The site has no leased property. Royalties are paid in the amount of $0.50 per ton of 70-mesh and coarser substrate. Our Oakdale facility is a surface mining operation involving heavy equipment and the hydraulic transfer of material to the processing plant. The processing plant uses natural gas, propane, and electricity to produce various grades of high-quality Northern White Sand. Our premium sand is used as proppant used to enhance hydrocarbon recovery rates in the hydraulic fracturing of oil and natural gas wells and for a variety of industrial applications, including glass, foundry, building products, filtration, geothermal, renewables, ceramics, turf & landscape, retail, and recreation. The Oakdale facility operations are predominantly regulated by Monroe County, Wisconsin through the non-metallic mining and reclamation permit. Air emissions are regulated by the Wisconsin Department of Natural Resources, Bureau of Air Management. All required permits are secured, and the site is operating in full compliance. Utica, Illinois We, through Northern White Sand LLC, a wholly-owned subsidiary of Smart Sand, Inc., operate a surface mine and a silica sand processing plant near Utica, Illinois. The Utica mine includes a total of 819 acres that are owned outright by Smart Sand, Inc. This ownership includes subsurface mineral and water rights. The site has no leased property. There are no royalties associated with this property. Our Utica facility is a surface mining operation involving heavy equipment and the hydraulic transfer of material to the processing plant. The processing plant uses natural gas, propane, and electricity to produce various grades of high-quality Northern White Sand. Our premium sand is used as proppant used to enhance hydrocarbon recovery rates in the hydraulic fracturing of oil and natural gas wells and for a variety of industrial applications, including glass, foundry, building products, filtration, geothermal, renewables, ceramics, turf & landscape, retail, and recreation. The Utica facility is regulated by the Illinois Department of Natural Resources, which requires a Surface Mining Permit and Reclamation Plan. The mine reclamation plan is submitted to both the LaSalle County, Illinois and Village of Utica, Illinois Boards. Air emissions are regulated by the Illinois Environmental Protection Agency. All required permits are secured, and the site is operating in full compliance. Blair Wisconsin (Idle) The Blair mine was not operational as of December 31, 2022. It is an idle silica surface mine and processing plant in Blair, Wisconsin. The Blair mine includes a total of 1,285 acres that are owned outright by Smart Sand Blair, a wholly-owned subsidiary of Smart Sand, Inc. This ownership includes subsurface mineral and water rights. The site has no leased property. Royalties are estimated to be paid on certain grades of silica sand in the amount of $1.75/ton with certain minimum annual payments. Our Blair facility will use a surface mining technique to produce high-quality Northern White Sand when it is operational. The processing plant will use natural gas, propane, and electricity to make various grades of high-quality Northern White Sand. Our premium sand is used as proppant used to enhance hydrocarbon recovery rates in the hydraulic fracturing of oil and natural gas wells and for a variety