HCLP

Prepared by Eric McNew and Michael Schopler 1
Hi-Crush LP
Current Price $36.83 Intrinsic Value $48 Target Price $76 Market Cap 1.1B
Company Profile
Investment Thesis Catalyst
Price Performance
Recommendation
Hi-Crush Partners LP (Hi-Crush) is a pure play, low-cost, domestic producer of premium
monocrystalline sand, a specialized mineral that is used to enhance the recovery rates of hy-drocarbons
from oil and natural gas wells. Its reserves consist of “Northern White” sand, a re-source
existing predominantly in Wisconsin and limited portions of the upper Midwest region
of the United States.
The focus on domestic energy has given rise to E&P firms
resorting to unconventional extraction techniques know as
hydraulic fracturing or “fracking” in the oil and natural gas
industry. Demand for materials or “proppants” used in the
process of extraction have seen a tremendous surge in the
amount required through the extraction process because of
the increases in drilling domestically. The amount of prop-pant
used in fracking is expected to increase substantially
over the next decade. Hi-Crush is in the position to capitalize
from this megatrend.
Given its current price and our valuation , we consider Hi-
Crush to be undervalued and a great investment opportunity
to add alpha to the SMIF.
 Significant increase in demand for proppants
 Ample supply of high quality raw frac sand
 Logistic and infrastructure advantages
 Superior operating cost structures
 M&A possibilities
Prices as of 1/24/14
Key Statistics
$39.08
$16.57
$2.04
5.54%
2.31
15.94
12.50
0.67
.9
42.41%
52 Week High
52 Week Low
Dividend
Dividend Yield
EPS (TTM)
P/E (TTM)
P/E Forward
PEG
Beta
ROE
BUY
Equity Report | January 28, 2014 | NYSE: HCLP
Hi-Crush Partners LP
Aug-12 Dec-12 Apr-13 Aug-13 Dec-13
HCLP S&P 500
Risk
 New proppant innovation
 Regulatory risk
 Energy prices
 Vertical integration risk
 Lack of historical data about Hi-Crush

Prepared by Eric McNew and Michael Schopler
2
Hi-Crush LP
Industry Overview
Proppant Consumed by Volume
The oil and natural gas proppant industry is associated with the businesses of drilling oil and natural gas wells. The process of extracting these fossil fuels involves pumping fluids that are mixed with proppants which are then pumped into the geologic formation to cause fractures and stresses into hydrocarbon bearing rock. These proppant-filled fractures create channels through which the hydrocarbons can flow freely from the well to the surface.
The hydraulic fracturing “fracking” industry has been expe- riencing a boom as a result of oil and natural gas shale exploration domestically. Unconventional fracking, more specifi- cally horizontal drilling, is becoming more and more promi- nent. A well lateral is the mining channel created by horizontal drilling, and as well laterals become deeper, frac sand per well will increase exponentially. Hi-Crush’s frac sand is desired by its customers because of the sand’s high crush strength relative to its cost.
The existing supply of raw frac sand has not kept pace with the exploding demand, which resulted in a supply-demand disparity. Suppliers of frac sand will be dependent on many catalysts to make a profit in the future. The growth in Mar- cellus and Utica shale fields in the NE will be key for the industry, as well as the ability to create a network to distribute this commodity to its customers.
According to Hi-Crush the need for raw frac sand will nearly double from 2011-2021. The drilling activity in the industry is expected to remain flat. However, fracs per well and horizontal drilling are projected to increase, which will increase the demand for raw frac sand. The industry has high barriers for entry with many small players who have limited capabilities. The possibility of vertical integration in the industry remains high.
Company Overview
Hi-Crush had its IPO in mid 2012 and is a master limited partnership (MLP) that produces monocrystalline sand which is a special material used as a proppant in oil and natural gas wells. Hi-Crush owns and operates the Wyeville facility which is located in Wisconsin. Hi-Crush also owns a preferred interest in its sponsor’s Augusta facility which is also located in Wisconsin. Both facilities have proven recov- erable Northern White sand reserves of 54 and 48 million tons, respectively. Hi-Crush wants to be a one stop shop for its customers. Hi-Crush is showing its ability to execute on those statements through their acquisition of D&I, which is its distribution arm for the frac sand. This gives Hi-Crush a competitive advantage over its competitors who are able to produce the frac sand but not at the same effectiveness at which Hi-Crush can.
The frac sand Hi-Crush produces is sold to pressure pumping service companies, which are comprised of subsidiaries of premier North American oilfield companies. The majority of its production is sold freight on board (FOB) at the mine site under long-term, take-or-pay contracts that require customers to pay a specified price for a specified volume of frac sand each month. Hi-Crush maintains adequate supply and flexibility to meet customer needs, with access to different variations or mesh sizes of Northern White raw frac sand.
Hi-Crush’s Wyeville facility has a capacity of mining 1.6 million tons of raw frac sand per year. At both facilities, there are three 5,000 foot rail spurs which connect to Union Pacif- ic rail lines that allow for cost effective transportation to its customers.
Company Expansion
UITY REPORT
Source: Hi-Crush Partners LP.
UITY REPORT

Hi-Crush LP
Proppant Price and Crush Resistance
Hi-Crush
Northern White
Brandy Brown
Resin Coated
Ceramics
0
2500
5000
7500
10000
12500
15000
$- $250 $500 $750 $1,000
Crush Resistance (lbs/in2)
Price($/Ton)
Types of Proppant
Northern White Brandy Brown Resin Coated Ceramics
Northern White frac sand is considered the highest
quality frac sand in the nation, if not the world. This
type of sand generally does not require blasting or
crushing. Relative to the sand’s crush strength, of
between 11,000 - 12,000 psi, Northern White frac
sand is most cost efficient option currently available.
This type of sand is known for its roundness, spheric-ity,
and uniform grains which allow it to capture the
greatest market demand relative to supply.
Brandy Brown frac sand is the least expensive of all
proppants but also has the lowest crush strength.
Brandy Brown sand is less desirable than Northern
White sand in high stress applications but is
How it Works Hydraulic Fracturing
Hydraulic fracturing is used as a means to crack open, or fracture, a
hydrocarbon based reserve in order to allow the hydrocarbons to flow
freely to the surface. Once the rock is fracked, a mixture of water,
chemicals, and proppant is used to greatly increase the flow of hydro-carbons
to the surface. Once the mixture is pumped in, the proppant is
used to hold open these cracks. Since the sand is highly permeable it
allows the flow of hydrocarbons to go to the surface, thereby expo-nentially
increasing the yield from wells. In the case of Hi-Crush,
Northern White sand is the most desired form of proppant because of
its cost and effectiveness.
UITY REPORT
considered high quality frac sand.
Resin-coated sand is sand that has been treated with resin to increase its strength and allow for the fissures to be open
longer increasing the flow of hydrocarbons. It is roughly 5 times the price of Northern White sand as a result of the resin
coating process.
Ceramic is the best proppant in regards to strength, but it also is the most expensive of the three main proppants. On aver-age
it is ten times more expensive than Northern White frac sand and about 50% more expensive than resin coated. Ceramic
sand is man made, so it has been engineered to have the best strength, and porous capabilities because they are almost per-fectly
spherical.

4
Hi-Crush LP
Demand
The demand for raw frac sand through 2016 is expected to grow 7.2% annually and double by 2021. Demand will increase because the number of fracs per well is increasing from 8-12 to 12-16 while the number of new wells being introduced is expected to remain flat. The increase in horizontal drilling is what will be causing the demand of sand per well to increase. Improvements in horizontal drilling tech- nologies will allow for horizontal laterals to go deeper into the rock.
Tons of Proppant / Well
Supply
Hi-Crush’s Facilities
UITY REPORT
Customers
Another factor that affects demand for raw frac sand is a breakeven price of oil and natural gas. The breakeven prices for oil and natural gas vary depending on the shale basin. Utica and Marcellus locations tend to have lower breakeven prices as drilling is more cost effective in these low price environments. Natural gas prices would have to fall to around $2.50 in order to create pressure for companies. Breakeven oil prices vary depending on the region and are anywhere from $50-$80BBl. Hi-Crush customers’ operate in locations such as Eagle Ford and Permian where there are breakeven prices of $65 and $75 respectively.
In 2012 Hi-Crush had 3 customers. Most recently that number has increased eight fold to 25 customers. This growth shows the rapidly increasing demand for raw frac sand in the industry, and particularly Northern White sand which is the type sup- plied by Hi-Crush. Hi-Crush has contracted 90% of its supply to these various customers in order to secure revenue. The remaining 10% is sold in the spot market, which could help the company develop new customers through product place- ment.
For the past few years the under supply of raw frac sand has caused a vast range of prices for raw frac sand because the demand has far ex- ceeded the supply available. As a result of this high margin business, new suppliers have entered the market and are in the processes of being incorporated or are still in the organizational process. Competition is coming into the market but Hi-Crush is the dominant supplier in raw frac sand and will be the company to survive competition through the large barriers to enter the industry because of its current market position. Furthermore, Hi-Crush has two facilities through which they have access to raw frac sand. The Wyeville location is its primary facility that generates 90% of their revenues. Another facility that it has access to is Augusta, in which it owns a preferred interest.
The company’s supply of raw frac sand has limited-to-no overburden and allows it to cut costs in the excavating process. Gerke Excavating is a third-party contractor that is responsible for this process and has contracted agreements with Hi-Crush for every ton of sand that is exca- vated.
UITY REPORT
Augusta Facility
33 Year Life
Wyeville Facility
37 Year Life

5
Hi-Crush LP
Competitive Advantage
Risks and Mitigants
New competition will be entering the market soon but we expect Hi-Crush to be able to stay the dominant market supplier for the following reasons.
Proven Reserves
Based on the research done by a third party independent reserve engineer, Hi-Crush has proven reserves of Northern White frac sand that amount to 54 million tons or an implied 37 year reserve life at its Wyeville facility. Augusta’s facility contains 48 million tons of proven reserves or an implied 33 year reserve life.
Cost Structure
Hi-Crush also has a superior cost structure. This is a result of its most recent acquisition of D&I at the beginning of 2013. D&I, which is a distribution system used by Hi-Crush to transport the sand to its customers directly from the facility, is a major catalyst for this company. Hi-Crush is well on its way to becoming a one stop shop for its customers. Its most recent earnings call reported that it costs the company just $13.10 per ton to produce the sand as compared to $13.28 a quarter earlier showing that the company is becoming more efficient at managing costs.
Transportation
Much of this low cost per ton is attributable to D&I because it does not need to hire trucks to trans- fer the sand to its transportation site which on average adds another $5 per ton. Hi-Crush has a strong relationship with Union Pacific and is able to use “unit trains” to capitalize on just-in-time shipments to its customers.
Contracted Revenue
Hi-Crush’s contracted revenues are also a major intangible. It is advantageous on both sides because it allows for Hi-Crush to better judge its cash flows and its costs as compared to other companies that do not have contracts who would experience large cyclical shifts in its cash flows. It is also advantageous for its customers because all customers are locked in at a much lower price than the current price of Northern White frac sand. Of those contracts, the earliest one is set to expire in the summer of 2014.
Product Innovation
Naturally, there is a possibility in the future that a new product will arise that will take the place of raw frac sand as the preferred proppant. If this new product offers superior crush strength at an even lower cost it would affect Hi-Crush’s future earning potential.
Regulatory Risk
Any litigation that adversely would effect the fracking industry would impact Hi-Crush. There are also health concerns in mining the sand. Hi-Crush hires a third party excavating contractor that is highly skilled in this industry and well trained in safety regulations.
Energy Prices
If oil and natural gas prices fall below break even we would expect there to be a receding trend in the short term. Hi-Crush has mitigated this risk through its contracts that allow for litigation against its customers if they refuse shipments of sand.
Vertical Integration Risk
There are risks from M&A possibilities as well as pressure from its sponsor who holds the majority ownership of Hi-Crush.
Lack of Historical Data
Hi-Crush had its IPO in mid-2012. Therefore there is a lack of financial data associated with this investment.

6
Hi-Crush LP
2012
2013E
2014E
Liquidity
Current
5.19
5.21
5.86
Quick
4.54
4.00
4.26
Solvency
Debt/Equity
0.07
1.05
1.33
Interest Coverage
13.4
15.6
10.0
Efficiency
Receivables Turnover
12.37
8.73
9.37
Asset Turnover
0.74
0.46
0.50
Profitability
Gross Margin %
73%
56%
52%
Operating Margin %
62%
46%
41%
Net Margin %
58%
43%
37%
Financial Health
2012
2013E
2014E
2015E
2016E
Net Margin
58%
43%
37%
39%
38%
Asset Turnover
0.74
0.46
0.50
0.40
0.35
Equity Multiplier
1.07
2.05
2.33
2.29
2.21
Return on Equity %
46%
40%
43%
36%
30%
Time Series DuPont
Liquidity
Financial strength is increasing showing the company is well able to repay its short term liabilities in the future.
Quick ratio is remaining around 4.25x showing that the company is able to repay $4.25 for every dollar of liabilities. The company is in a highly liquid position.
Solvency
Hi-Crush began leveraging returns to common unit holders through the use of debt in 2013. Since the company has no re- tained earnings, the only way to finance its operations is through long term debt or limited partner ownership.
Interest coverage remains high, showing the company is able to repay its interest payments on average 12 times.
Ratio Analysis
Efficiency
Receivables turnover is decreasing which is showing Hi-Crush is collecting from its customers more efficiently.
Asset turnover is decreasing, we expect Hi-Crush to not generate as much sales from its assets but instead focus on high profit margins. This focus leads to a lower asset turnover figure.
Profitability
Margins are decreasing over a three year period because we expect more suppliers to enter the market. Therefore, Hi-Crush’s once astronomical margins will begin to recede. We expect margins to remain at a very respectable level across all metrics in our scenarios.

Hi-Crush LP
Valuation Dividend Discount Scenario
3-Year Price Target Sensitivity Schedule
Methodology
We utilized a dividend discount model (DDM) to evalu-ate
the intrinsic value of Hi-Crush. Since Hi-Crush is an
MLP, 90% of its earnings are paid out as distributions.
Below are different scenarios that could happen to the
stock’s price based on a multi-stage DDM employed to
produce the different scenarios. There are several as-sumptions
in the model:
Risk-Free Rate: We used a 10 year Treasury bond rate
for our riskless rate (3%).
Hi-Crush’s Equity Beta: We evaluated Hi-Crush’s equi-ty
beta based on regression analysis modified for for-ward-
looking convergence. Since there is limited data
we adjusted the equity beta in each scenario to fully
represent a bear, base, and bull scenario.
Equity Risk Premium: We estimated the equity risk
premium at different values in each scenario for the
purposes of our model. See each scenario below for
further explanation.
Value Drivers: Having access to more supplies, secur-ing
more contracts, cutting costs, partaking in M&A
activities.
2013E 2014E 2015E 2016E 2017E
0.00 $2.02 $2.82 $3.55 $4.32 $5.10
14.50 $29.29 $40.89 $51.48 $62.64 $73.92
15.50 $31.31 $43.71 $55.03 $66.96 $79.01
16.50 $33.33 $46.53 $58.58 $71.28 $84.11
P/E 17.50 $35.35 $49.35 $62.13 $75.60 $89.21
18.50 $37.37 $52.17 $65.68 $79.92 $94.31
19.50 $39.39 $54.99 $69.23 $84.24 $99.40
20.50 $41.41 $57.81 $72.78 $88.56 $104.50
$0
$10
$20
$30
$40
$50
$60
$70
Projected Intrinsic Values
$60 (62%)
$48(30%)
$30(-23%)
Bear (Equity Beta: 1.2, Equity Risk Premium: 7%)
In the bear case, we expect that Hi-Crush is not able to meet its target low-double-digit distributions as stated by manage-ment.
We also assume that the expected return on the market expands to 10% because of macroeconomic performance. This
scenario could occur if management does not manage costs well. Moreover, this scenario could be the result of not adding
value to the company through acquisitions of other competitors or other facilities, which will then lead to lower increases in
its distributions. Intrinsic value: $30
Base (Equity Beta: .9, Equity Risk Premium: 6%)
In the base case, we expect that Hi-Crush is able to meet its target distributions of low double digit growth over the next few
years. The equity beta becomes less aggressive than the market to .9, and the expected return on the market decreases to 9%.
In this scenario, Hi-Crush’s management continues to keep costs at current levels and moderately participates in acquisitions
that lead to higher profits, boosting distributions to unit holders. Intrinsic Value $48
Bull (Equity Beta: .8, Equity Risk Premium: 5.5%)
In the bull case, we expect that management increases distributions in the low double digits for a longer period of time and
then to high single digits. We also assume the equity beta decreases even further to .8, and our expected return on the market
decreases to 8.5%. In this scenario, we expect management to actively partake in acquiring other companies that will lower
input and operating costs as well as acquiring and consolidating with nearby facilities that have supply of Northern White
frac sand. The actions will further boost top and bottom line numbers. Intrinsic value $60
$36.83

8
Hi-Crush LP
INCOME STATEMENT ($ MILLIONS)
2011
2012
2013E
2014E
2015E
2016E
Revenues
20,353
75,634
136,141
217,826
261,391
326,739
Cost of goods sold
6,447
20,481
60,000
105,000
118,650
148,313
Gross profit
13,906
55,153
76,141
112,826
142,741
178,426
Operating costs and expenses:
General and administrative expenses
2,324
7,426
13,614
21,783
26,139
32,674
Exploration expense
381
630
58
600
600
600
Accretion of asset retirement obligation
28
72
120
120
120
120
Income from operations
11,173
47,025
62,349
90,323
115,882
145,032
Interest expense
1,893
3,503
4,000
9,000
13,500
20,250
Net income (loss)
9,280
43,522
58,349
81,323
102,382
124,782
Earnings per unit
$1.60
$2.02
$2.82
$3.55
$4.32
INCOME STATEMENT (% OF REVENUE)
2011
2012
2013E
2014E
2015E
2016E
Revenues
100%
100%
100%
100%
100%
100%
Cost of goods sold
32%
27%
44%
48%
45%
45%
Gross Margin
68%
73%
56%
52%
55%
55%
Operating costs and expenses:
General and administrative expenses
11%
10%
10%
10%
10%
10%
Exploration expense
2%
1%
0%
0%
0%
0%
Accretion of asset retirement obligation
0%
0%
0%
0%
0%
0%
Operating Margin
55%
62%
46%
41%
44%
44%
Interest expense
9%
5%
3%
4%
5%
6%
Profit Margin
46%
58%
43%
37%
39%
38%

9
Hi-Crush LP
BALANCE SHEET ($ MILLIONS)
2011
2012
2013E
2014E
2015E
2016E
Current assets:
Cash
11,054
10,498
25,000
30,000
30,000
30,000
Restricted cash
30
0
0
0
0
0
Accounts receivable
4,026
8,199
23,000
23,500
24,000
24,500
Inventories
2,374
3,541
15,000
20,000
25,000
30,000
Due from sponsor
0
5,615
1,615
0
0
0
Prepaid expenses and other current assets
294
393
0
0
0
0
Total current assets
17,778
28,246
64,615
73,500
79,000
84,500
Property, plant and equipment, net
52,708
72,844
112,290
209,065
418,130
689,915
Preferred interest in Augusta
0
0
47,043
47,043
47,043
47,043
Goodwill
0
0
73,598
106,717
106,717
106,717
Deferred charges, net
1,743
1,095
0
0
0
0
Total assets
72,229
102,185
297,546
436,325
650,890
928,175

10
Hi-Crush LP
BALANCE SHEET ($ MILLIONS)
2011
2012
2013E
2014E
2015E
2016E
Current liabilities:
Accounts payable
4,954
1,977
8,000
8,100
8,200
8,300
Accrued liabilities
866
1,755
4,400
4,450
4,500
4,550
Deferred revenue
9,178
1,715
0
0
0
0
Total current liabilities
14,998
5,447
12,400
12,550
12,700
12,850
Long term debt
0
0
138,250
235,025
352,538
493,553
Asset retirement obligation, net
832
1,555
1,643
1,643
1,643
1,643
Total liabilities
61,942
7,002
152,293
249,218
366,881
508,046
Partners' capital:
Limited partner interest
10,287
95,183
135,000
175,000
270,000
410,000
Other equity items
0
0
10,253
12,107
14,009
10,129
Total equity
10,287
95,183
145,253
187,107
284,009
420,129
Total liabilities and partners' capital
72,229
102,185
297,546
436,325
650,890
928,175

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