Owner of Minnesota's largest frac sand mine files for bankruptcy

Frac sand heavyweight Covia Holdings, owner of several mines in Minnesota and Wisconsin, has filed for Chapter 11 bankruptcy protection, felled by structural changes in the oil industry compounded by the coronavirus-induced economic crisis.

Covia, based in suburban Cleveland, filed Chapter 11 late Monday in Texas, saying it could no longer handle its debt load and railcar lease payments.

Last week, Houston-based Hi-Crush, another big frac sand miner, disclosed that it also planned to file Chapter 11, which allows companies to continue operating while shielded from litigation and creditors' claims.

"What we are seeing is the industry adjusting to new economic conditions," said Kent Syverson, a geology professor at the University of Wisconsin-Eau Claire and a sand industry consultant.

Hi-Crush has four mines in western Wisconsin, while Covia has three Wisconsin mines and three more in Minnesota. Several of both companies' mines have been shuttered, at least temporarily, for months.

In November, Covia idled its Kasota mine near St. Peter — by far Minnesota's largest frac sand producer — declining to say if it's closed for good. The company's nearby smaller Ottawa mine, which also produces industrial sand, continues to run. Covia's Shakopee sand mine is also idle, and Syverson said he does not expect it to reopen.

The Midwest, particularly Wisconsin, is home to the highest quality frac sand, Northern White. It's almost entirely quartz, notably strong, and spherical, two essential traits for fracking, which entails blasting sand, water and chemicals into oil wells.

All that new sand production created a supply glut.

Covia, which had $1.6 billion in sales last year, was created in 2018 just before the sand market shifted. The company resulted from the merger of Belgium's Unimin, longtime owner of the Kasota mine, and Fairmount Santrol, respectively the first and third largest frac sand producers at the time, according to a bankruptcy filing.

Covia and the rest of the frac sand industry was already tottering when COVID-19 emerged. Global lockdowns sapped oil demand, sending crude prices to historic lows and causing, as Covia said in a bankruptcy filing, a "sudden and severe drop" in frac sand volume.

All of the sand and oil market forecasts that underpinned the debt-fueled Covia merger are now "just gone to the wind," Syverson said.

The company said in a bankruptcy filing that its $100 million in annual debt service payments need to be reworked, as does its roughly $90 million in annual rail car lease payments.