x min read

North America Frac Sand Inc (OTCMKTS:NAFS) Gets A Close Look

North America Frac Sand Inc (OTCMKTS:NAFS) Gets A Close Look
Written by
Jarrod Wesson
Published on
June 9, 2017
Copy URL
Share on LinkedIn
Share on Reddit
Share on Twitter/X
Share on Facebook
InsidrFinancial

North America Frac Sand Inc (OTCMKTS:NAFS), the frac sands extraction company, is the latest company to hit record highs on the OTC markets. On May 30, 2017, the stock price went from trading at $0.03 to touch $0.095, which is approximately a 316% return in only one day. On the top of it, the volume was the highest in years; almost 15 million shares changed hands.What is the reason behind such a huge volume?The main reason to justify the volume was the announcement of a "Technical Report" addressing its Eagle Creek Property in Saskatchewan, Canada. Additionally, some market participants seemed to be working behind the scene. The company warned the market about it in a press release. We will tell you the whole story in this article.First have a look at the crazy spike in the share price:SourceWhat does the company own?The company's business is the extraction of frac sand, which is sold to the oil and gas industry to be used as a proppant to increase the production of oil from wells. The strategy is interesting, as the demand for this product has dramatically increased in the last ten years since the fracking techniques has been developed:SourceThe key to understand its demand is that frac sand is used to produce oil from places where the hydraulic pressure in the well is not sufficient to extract it naturally. As the oil price increases, and the oil and gas supply diminishes, these techniques and the use of frac sand have dramatically increased. NAFS is the owner of approximately 30,000 acres of mineral leases, about 30 kilometers east of Saskatchewan, Canada, called the Eagle Creek leases. On August 29, 2016, the company obtained these leases. We found an interesting table showing these assets in the annual report:

Lease

Description of Lease Lease Rate

# 1

Section 11, NE ¼ of Section 2, N (½) of Section 3, in Township 38, Range 10, West of the 3 rd Meridian, as to the surface rights referenced in the Certificate of Title.Up front payment of $3,000. Ten-year lease dated July 17, 2015, automatically extended for second 10 years if royalties are being paid. Lease rate is $1 per acre per year. Royalty rate is $5.00 per ton of processed ore sold at $80 per metric ton or less, and $5.00 plus the 10% of the difference between sales price greater than $80 and $80 per metric ton.

# 2

West ½ of Section 2, Township 38, Range 10, West of the 3 rd Meridian, portion of NW (¼) of Section 35 on Township 37, Range 10, West of the 3 rd Meridian, as to the surface rights referenced in the Certificate of Title.Ten-year lease dated June 21, 2008, automatically extended for second 10 years if royalties are being paid. Lease rate is $1 per acre per year. Royalty rate is $3.00 per ton if 25% waste, $4.00 per ton if 20% waste, and $5.00 per ton if 15% or less waste.SourceWhat made the share price spike?The company signed the leases last year, but the share price spiked just this month. What happened? The reason for the spike was the release of a NI43-101 Report on NAFS Saskatchewan frac sand deposit. The most important information contained in the report was the following:

"Following Norwest's development of the mineral resource model, an in-place sand resource of commonly used frac sand size fractions in the tested area was calculated. A bulk density of 1.5 g/cm3 was used. Totaling 7,799 K Tonnes, (8,597 K Tons) the inferred mineral resource for each size fraction is:20/40: 3,758 K Tonnes (4,142 K Tons);40/70: 3,155 K Tonnes ( 3,478 K Tons);70/140: 886 K Tonnes ( 977 K Tons)."

Is it too technical? The company responsible for the report explained:

"It is Norwest's opinion that the drill hole and test pit distribution and obtained assay data of the Eagle Creek Project is sufficient to indicate reasonable potential for economic extraction. Based on all available data, Norwest classifies the mineral resources as Inferred." Source

What does it mean? The company exhibited that the resources owned in the Eagle Creek Project can be extracted economically.Stock PromotionThe news was extraordinary, but can the price spike and the increase in volume be only justified by the announcement of Norwest's opinion? The spike seems to have also been created by several stock promoters that used the news to tout the stock. On June 5, 2017, the company released a press release noting the following:

"On May 30, 2017, the Company became aware of certain third-party promotional activities touting the Company and encouraging investors to purchase its shares." "These promotions appear to have caused a significant increase in the trading volume of our common stock. Please be advised that the Company has not engaged any third-party person or entity to conduct any promotional activity regarding our Company or its securities." Source

Does it mean that the news is less important? Not really. The financial information is still very relevant.ConclusionNAFS provides a product that is in high demand at the moment. The new technical report on its frac sand deposit in the Eagle Creek Project showed that it can be exploited economically. The news made the stock price spike. However, the company reported that some of the volume and the returns may also be justified by the work of some stock promoters that touted the stock. We don't believe that the promotion diminished the work of the company, but recommend to stay on top of the latest news from the company. We will be updating our subscribers as soon as we know more. For the latest updates on NAFS, sign up below!Disclosure: We have no position in NAFS and have not been compensated for this article.

Discover Hidden Gems

Don't miss the next big opportunity. Subscribe for timely alerts on potential market movers.