Session III: The Economics of Frac Sand Overseas Markets

Session III: The Economics of Frac Sand

Overseas Markets: Is Sand a Viable Export Product?

A Case Study from the Vaca Muerta Shale Play,

Argentina

Richard Spencer

President & CEO, South American Silica Corp

www.samsilica.com | www.u3o8corp.com

Forward-Looking Statements

& Disclaimer

2

Certain statements and concepts contained herein constitute forward-looking statements that involve substantial known andunknown risks and uncertainties. These forward-looking statements are subject to numerous risks and uncertainties, certain ofwhich are beyond the control of South American Silica Corp. (“SAS”), including, but not limited to, the impact of general economicconditions, industry conditions, geopolitical risks, volatility of commodity prices, risks associated with the uncertainty ofexploration results and estimates and that a resource will be achieved on exploration projects, that the Carina property will bedeveloped as anticipated and frac sand potential is realized, currency fluctuations, the uncertainty of obtaining additionalfinancing and exploration risk, and dependence upon regulatory approvals. Readers are cautioned that the assumptions used inthe preparation of such information, although considered reasonable at the time of preparation, may prove to be imprecise and, assuch, undue reliance should not be placed on forward-looking statements. These forward-looking statements are made as of thedate hereof and SAS. assumes no obligation to update or revise them to reflect new events or circumstances.

Comparisons of SAS’ properties and exploration targets with other frac sand projects are conceptual in nature, and have not beenindependently verified by SAS and information regarding these peer deposits are drawn from publicly available information.Information on SAS and its projects are available on the company’s web site at www.samsilicacorp.com.

Industry and peer information has been drawn from publicly available sources and have not been independently verified by SAS.


http://www.samsilicacorp.com/

World Hydrocarbon Shale Basins:

Markets for N. America proppant producers?

3

Map of basins with assessed shale oil & shale gas formations (May 2013)

Assessed basins with

resource estimate

Assessed basins

without a resource estimate


Vaca

Muerta

Mexico

Argentina

4

• What are the challenges of moving sand over long distances? Is it viable?

• What are the opportunities for exporting to Mexico and Argentina?

• Projected demand growth in Argentine and Mexican markets

• How would a rise in demand from foreign markets impact USA production?

Questions Posed


Illustrated with

a case study

5

• Bottlenecks in infrastructure system eg rail capacity in north-central USA

• Up to 15,000 tonnes (75 rail cars) of frac sand required per well;

• Handling efficiency (minimize handling):

• Specialized containers - mine-site to well-head: same container for rail, road, sea transport

• Health risk posed by respirable crystalline silica (RCS)

Moving Sand:

Is it viable?


Overseas markets require multiple modes of transport (containerized systems)

• Viability depends on:

• The right product (grain size, K value,

specialized proppants etc);

• Health – minimize handling;

• Transport cost;

• Delivery time.

6





Questions Posed


Illustrated with

a case study

There is market potential:Argentina: 3rd in gas, 4th in oil

Mexico: 6th in gas, 8th in oil

7

75

48

32

27

26

18

13

13

9

9

Russia

USA

China

Argentina

Libya

Australia

Venezuela

Mexico

Pakistan

Canada

1,161

1,115

802

707

573

545

437

390

285

245

USA

China

Argentina

Algeria

Canada

Mexico

Australia

South Africa

Russia

Brazil

Shale Oil Rankings by CountryTechnically Recoverable Shale Oil Resources

(billions of barrels)

Shale Gas Rankings by CountryTechnically Recoverable Shale Gas

(trillions of cubic feet)


Source: US DOE Source: US DOE

Vaca Muerta, ArgentinaA guess at frac sand market size

8

OrejanoDow

AguadaFederal

Wintershall

La AmargaChica

Petronas

Loma La Lata YPF-Chevron

Aquila Mora Shell-

Medanito

Rincon de Aranda

Petrobras-Total

Bajo del Choique

ExxonMobil

Los ToldosAmerican Petrogas -

ExxonMobil

Loma Campana

YPF-Chevron

Chihuido de la Sierra

Negra YPF-Chevron

Sierras BlancasShell-

MedonitoForeign Oil Companies

in the Vaca Muerta

2011 Aug ExxonMobil JV with Americas Petrogas

Nov YPF announced 1st shale oil discovery

2012 May YPF nationalized from Repsol

Re-Entry of Foreign Oil Companies:

2012 Dec Pan American Energy (BP) JV with YPF

2013 AprShell-Medanito-Province reports discovery on

Aquila Mora

2013 May

Chevron JV Loma Campana with YPF

• $1.24B initial investment commitment:

• 132 wells planned, drilled 198 by Jun 9/14

• $1.6B follow-on investment commitment:

• 170 more wells planned

2013 Sep Dow Chemical JV with YPF

2013 Sep Petrobras JV with Province

2014 Feb Petronas JV with YPF

2014 Apr Repsol compensated for YPF nationalization

2014 MayExxonMobil reports discovery on Bajo del

Choique concession

Vaca Muerta, Argentina:A guess at frac sand market size

9

Actual and Projected Consumption of Frac Sand, Argentina

• YPF reportedly required 0.65Mt of

frac sand in 2014. 168 wells in

production from unconventional

= 3,800t of sand per well

• Chevron-YPF: Loma Campaña

field – plan to drill 1,500 wells in 5

years – assume 3,800t = 5.7Mt

(~1Mt per year) from one part of

the basin only


Loma Campana

– Loma Lata

field

0

10

20

30

40

50

60

70

80

90

100

Tho

usa

nd

bb

ls/d

YPF Unconventional Oil Production (bbls/d)

0

5

10

Frac sand

de

man

d (M

t)

2014: YPF frac sand imports 650K tonnes

YPF unconventional oil production

YPF discovery of unconventional HC

Lag of 4 years between discovery & 1st

significant production of frac sand = export opportunity from USA

10

• Chubut (Argentina) properties are within 1-day

trucking distance from:

• Vaca Muerta (550 mi x $0.16/t/mi) = $90/t by road;

• San Jorge basin (300 mi x $0.16/t/mi) = $50/t by road;

• Uruguay properties to Vaca Muerta:

• Container by sea ~1,000 mi (1,500Km): $25/t

• Road transport (300 mi x $0.16/t/mi) $50/t

• Total transport / tonne $75/t

• Comparison:

• China - Puerto Madryn $2,500 - $3,000 per container

of 25t = $100/t

• ~55 day delivery

Regional Transport Cost Guidelines:

Vaca

Muerta

San Jorge

Austral -

Magellanes

Chaco

San Antonio del Oeste

deepwater port

Puerto Madryn

deepwater port

Parana

Argentine

sands

Uruguay

sands


0

2

4

6

8

10

12

0 0.2 0.4 0.6 0.8 1

Cru

sh

Str

en

gth

(K

ps

i)

Mesh Size

Chubut 1

Chubut 3

Uruguay 2

Other 2

ISO 13503-02

Target Summary:Crush Test Results from Sands in “vicinity” of Vaca Muerta

11

Target criteria:

• Transport cost to Vaca Muerta

<$100 per tonne;

• Potential for >50 million tonnes;

• Preference for hydro-mining

potential;

• Spread of jurisdictions


16/30 30/5020/40 40/70 70/140

Projects in Chubut Province, Argentina

Potential for near-term production

12

Chubut Project 1 within Trucking Distance

of the Vaca Muerta & San Jorge Basin


Outcropping, friable sand at Chubut Project 1

• Chubut Project 1 is trucking distance from:

• Vaca Muerta (550 mi x $0.16/t/mi) = $90/t by road;

• San Jorge basin (300 mi x $0.16/t/mi) = $50/t by road;

Vaca Muerta

San Jorge Basin Argentine

sands

Puerto Madryn

Port San Antonio Oeste

Chubut Province:

Project 1

13

Characteristic ISO

13503/2

Chubut Project 1 Sample 14528

Sample # 146 147 148 GEL 1101

Fraction 20/40 30/50 40/70 20/40 40/70

% of sand in that

fraction

42% 73% 52% 45% 48%

Sphericity 0.6 0.61 0.63 0.57 0.6 0.6

Roundness 0.6 0.44 0.44 0.38 0.8 0.7

Acid consumption 2% 1.7% 2.0% 2.5%

3% 2.1% 3.9%

Turbidity 250 FTU 102 78 166 193 140

Crush test ISO requirement: 14%

@ 4K

10%

@ 4K

8% @

5K

14%

@ 4K

8% @

5K

4KPsi 8.8% 3% 5.3%

5Kpsi 10.1% 6.4%

6Kpsi 9.4% 9.0%

8Kpsi 7.2%

K Value 8K 5K 9K

• JV with local operator progressing

towards initial production at no cost

to us

• Estimated transport cost to the Vaca

Muerta: ~US$90/t

Chubut Project 3:

14

Characteristic ISO 13503/2 Test

Results -

Sample #

Fraction 30/50

% of sand in that fraction 77%

Sphericity 0.6 0.7

Roundness 0.6 0.6

Acid consumption 2% 1.9%

Turbidity 250 FTU 23

Crush test ISO requirement:

4KPsi 10% 3.7%

5Kpsi 8%

K Value 6K

• Estimated transport cost to the

Vaca Muerta = US$100/t by road

Uruguay Project 2:

15

• Total frac fraction is >95% of bulk

sand

• Location – 290km by road to port

• Hydro-mining

• Estimated transport cost to the

Vaca Muerta: US$95/t

Characteristic ISO 13503-02

Requirement

Test Results (SAS-

042)

Fraction 40/70 70/140

% of sand in that fraction 46% 52%

Sphericity 0.6 0.8 0.7

Roundness 0.6 0.7 0.6

Acid consumption 3% 3.5% 4.5%

Turbidity 250 FTU 71 95

Crush test (% fines) at 5Kpsi Permissible 8% 6%

Test Result 6% 3.3%

40/70 (46%) 70/140 (52%)

Other 2Different jurisdiction

16

35#

Characteristic ISO

Requirement

GEL1100 / FS-BG-

D1

Fraction 20/40 30/50

% of sand in that fraction 72% 89%

Sphericity 0.6 0.8 0.8

Roundness 0.6 0.8 0.6

Acid consumption 2% 0.6 1.5

Turbidity 250 FTU 6 4

Crush test (% fines at 4Kpsi) 20/40:14% @ 4K

30/50: 10% @ 4K

2.5% 4.1%

% fines at 6Kpsi 9.5% 6.7%

K Value 6K 7K

30#

• Total frac fraction is >90% of bulk

sand

• Hydro-mining

• Estimated transport cost to the Vaca

Muerta: US$120/t

Argentina as a JurisdictionImproving investment climate

17

• Argentina spends US$9B / year in energy imports

• Govt sees Vaca Muerta as means of attaining energy

independence & being an economic driver

• Reversed course on YPF nationalization – paid $5B in

compensation to Repsol (April 2014)

• Settled 2001 bond default with Paris Club (May 2014)

• New oil & gas law aims to attract foreign capital – need

$200-$300B to fully develop the Vaca Muerta

• Infrastructure generally very good:

• Very good road system & deepwater ports

• Good oil & gas pipeline network – Vaca Muerta in

production (conventional oil) for 100 years

• High inflation – likely to continue into 2015

• Manage currency devaluation by “buying local” where

possible & price product in US$

• Frac sand is an essential component for development

of the Vaca Muerta

Vaca

Muerta Good Network of

Roads, Pipelines &

Deep Water Ports

in Argentina


Argentina’s frac sand requirements:Can potentially be met from local production

- with appropriate corporate strategy

18

• Minimize transport cost:

• Target cost ~$100/t

• How unique is frac sand in proximity

to the Vaca Muerta?

• Potential tonnage >50Mt

• Range of potential products:

• 20/40

• 30/50

• 40/70

• 70/140

• Health risk – silicosis – mitigated by

Hydro-mining potential in Uruguay

• Spread political risk: Argentina &

Uruguay

Uruguay

Is South America an export opportunity

for frac sands from USA?

19www.samsilica.com | www.u3o8corp.com

Vaca

Muerta

Illinois –Texas $125/t

China – Argentina~$100/t - 55 days

In initial development of these fields, yes, but during start-up only. It is an export market

for specialized proppants.

Vaca Muerta (Argentina): From start-up - imported frac sand from USA, China and Brazil.

Export opportunity until local frac sand supply established

20





• Short-term stress on the international market until local resources brought into

production in those new markets;

• Specialized proppants likely to be a strong market for USA production.

• The bigger opportunity is to establish / invest in the local frac sand industry in

jurisdictions of interest – export the expertise – not the product

Questions Posed


Illustrated with

a case study

Dr. Richard Spencer, President & CEO

[email protected]

Nancy Chan-Palmateer, VP IR

[email protected]

(416) 868-1491

www.samsilica.com

21U3O8 Corp. Investee – TSX: UWE OTCQX: UWEFF | www.u3o8corp.com

Documents

Session III: The Economics of Frac Sand Overseas Markets