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Posted 10 July 2012 - 02:11 PM
“The U.S. shale revolution is here to stay. We’re in the early innings right now.”- Brian Shinn, CEO of US SilicaI just sold naked puts on SLCA Aug 10 at 55 cents with underlying at 10.50. Implied volatility is 58. Options don’t trade well, use limit, AON or just buy stock. This would be for half a position if exercised, and I am prepared to buy more aggressively.Silica (SLCA) was a new IPO in January that came at 17, and subsequently is trading below 11. It has been a target of the one-trick pony risk on-risk off trade with 14.8% shorted. There was a cluster of three insider buys for 130k worth of stock in May. Stock is under followed, as only four analysts estimate 1.40 for 2012, and 2.05 for 2013. Production is being ramped up by 35% in the next year.Silica (pure white quartz sand) is a prime industrial material used in liquid shale drilling. A thorough write up is available here, and it describes a classic re-industrialization play with high barriers of entry. The company is active in the five most active shale regions.The greatest challenge to developing the shale fields is bringing necessary supplies (including silica) cheaply. To that end BNSF and Silica set up rail and storage facility from Illinois mine into Eagle Ford. This key event has been largely ignored. Recently CP and SLCA signed a deal to deliver silica into the Bakken.
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