1. Click to edit Master title style
TREC
“Natural Energy Resources You Can Trust” Your Specialty Chemical Partner
October 2014
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Safe Harbor
Statements in this presentation that are not historical facts are forward looking statements as defined in the Private Securities Litigation Reform Act of 1995. Forward looking statements are based upon Management's belief, as well as, assumptions made by and information currently available to Management. Because such statements are based upon expectations as to future economic performance and are not statements of fact, actual results may differ from those projected. These risks, as well as others, are discussed in greater detail in Trecora Resources' filings with the Securities and Exchange Commission, including Trecora Resources' Annual Reports on Form 10-K for the year ended December 31, 2013, and the Company‘s subsequent Quarterly Reports on Form 10-Q.
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TREC Snapshot
Share Price & Volume
Ticker
(NYSE: TREC)
Stock Price1
$11.98
52 Week High / Low1
$13.48 / $8.54
Market Cap1
$290 M
Avg. Daily Volume
(3 month)1
50,726
Shares Outstanding
24.2 M
Float
19.1 M
Insider Ownership
20%
Total Debt1
10.0 M
Current Ratio2
3.3:1
1. All market statistics as of October 8, 2014
2. All balance sheet items as of June 30, 2014
050,000100,000150,000200,000250,000300,000350,000400,000$0.00$2.00$4.00$6.00$8.00$10.00$12.00$14.00$16.00 Volume Stock Price VolumeTREC Price
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Natural Gas Liquids: Key to U.S. Cost Advantage
Natural gas liquids, especially ethane, are primary feedstock for chemical-making in the U.S.
Due to vast new NGL supplies, U.S. ethane feedstock is selling at historically low prices
Huge NGL growth predicted; sustained opportunity for U.S. chemical industry
U.S. ranks slightly behind Middle East as the low cost producer
NGL production to double by 2020
Ethane supplies to quadruple by 2025
IHS Report: “America’s New Energy Future: The Unconventional Oil and Gas Revolution and the U.S. Economy – Volume 3: A Manufacturing Renaissance,” Sept. 2013
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US Chemical Industry Capital Investment: Incremental Due to Shale Gas
As a result of the natural gas boom in the US, the chemical industry has announced $100.2 billion in investment over the next 10 years.
Peak year for investment spending: 2016
Billions of 2012 Dollars
Source: ACC analysis
$0
$5
$10
$15
$20
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
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South Hampton Resources: Specialty Chemical Segment
South Hampton Resources – processing facility in Silsbee, Texas with ~175 employees; marketing and sales office in Sugar Land, Texas
75% market share in U.S. for pentanes for key industrial and commercial product manufacturers
Stable customer base of predominantly Fortune 500 players
Strong barriers to market entry
o
Only one competitor currently
o
Limited highly specialized market
o
High capital cost to entry
o
Extended marketing effort required
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South Hampton Resources (“SHR”) is a specialty chemical manufacturer of pentanes, hexanes and blended products.
25%
25%
13%
11%
26%
Isopentane
Normal Pentane
Normal Hexane
Isohexane
Other/Byproducts
Approximate % of Revenue
SHR provides crucial processing components to the manufacturing sector.
South Hampton Resources: Specialty Chemical Segment
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SHR Products & Applications
Product:
Normal Pentane Application:
Blowing Agent
Condensing Agent End Products:
Expandable Polystyrene (EPS) Cup Grade / Polyurethane Insulation Foams
Polyethylene (PE)
Product:
Isopentane Application:
Expanding Agent
Condensing Agent
Catalyst Carrier End Products:
Foam Packaging
Polyethylene (PE)
Catalyst used in production of Polyethylene (PE) and Polypropylene (PP)
Product:
Normal Pentane / Isopentane Blends (Pentane Blends) Application:
Agent used in Blowing / Expanding End Products:
EPS Block and Shape Foams, Polyurethane Insulation Foams, Extraction Solvent
Product:
Normal Hexane Application:
Carrier or Diluents
Catalyst Carrier End Products:
Polyethylene (PE), Polypropylene (PP) and Synthetic Rubber (SR)
Catalyst used in production of PE, PP and SR
Product:
Other Applications / Processes Application:
Geothermal, Adhesives, Elastomers, Agricultural, ROSE Units, and Specialty Fuels
Product:
Isohexane Application:
Carrier or Diluents
Catalyst Carrier End Products:
PE, PP, and SR
Catalyst used in production of PE and SR
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SHR Financial Overview
139.1
199.5
222.9
236.2
0
50.0
100.0
150.0
200.0
250.0
2010
2011
2012
2013
in $ millions
Total Revenue
8.2
16.9
20.9
23.8
0
5
10
15
20
25
2010
2011
2012
2013
in $ millions
Total Adj. EBITDA
46.7
54.3
65.6
85.7
0.0
20.0
40.0
60.0
80.0
100.0
2010
2011
2012
2013
in millions of gallons
Total Volumes Sold
CAGR
19%
CAGR
43%
CAGR 22%
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SHR Penhex Capacity & Utilization
Capacity doubled in 2008 into two independent process units 6,000 B/D feed total
Debottlenecked during 2013 and 2014 to current committed capacity of 7,000 B/D feed total
Capacity to be increased by 60% to 11,000 B/D feed total by YE 2015 with addition of a third process train (approximately $30mm project)
Expected to periodically utilize capacity during 2014
Building to meet the needs of the market
o
Shale Gas has spawned capital investment by our customers
o
Our goal is to keep the market satisfied
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SSI Chusei Acquisition: Specialty Waxes Segment
SSI Chusei – processing facility in Pasadena, Texas with ~75 employees; in-house marketing and sales office
Low cost abundant feedstock with ethylene derivative
Complementary customer base of predominantly Fortune 500 players
Unique proximity to feedstock supply (hydrogen, nitrogen, steam, ethylene)
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Enhancing the Revenue Mix
FOCUSING ON THE CORE SPECIALTY CHEMICAL BUSINESS
Trecora has diversified its revenue mix with a focus on growing its core specialty chemical business while expanding operating margins.
Historical Trecora EBITDA Margins >10%
Chusei Wax EBITDA Margins >20%
Custom Processing EBITDA Margins >30%
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SSI Chusei: Specialty Waxes Segment
SSI Chusei (“Chusei”) respected manufacturer of polyethylene waxes, polyols, resins and custom processed specialty waxes.
Chusei has 4% market share of highly-fragmented market with great opportunity to capture additional market share
Strategic location (Pasadena, TX) provides for competitive advantages
Enjoy higher operating margins
Chusei provides specialty wax expertise and additional custom processing capabilities.
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Chusei Financial Overview
Total Revenue
Total EBITDA
$0.0
$5.0
$10.0
$15.0
$20.0
$25.0
2011
2012
2013
in $ millions
$0.0
$1.0
$2.0
$3.0
$4.0
$5.0
$6.0
$7.0
2011
2012
2013
in $ millions
CAGR 10%
CAGR
17%
Additional information and financials, including the pro forma, will be included in the to be filed 8-K.
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Chusei Capacity & Utilization
Current permitted capacity of 40,000,000 LBS/Y.
Additional plant organization and expansion anticipated
Building to meet the needs of the market
o
Capitalizing on the ethylene resurgence in the U.S
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Custom Processing – Business Models
South Hampton Resources – Build and run dedicated equipment, long term contracts
Trecora Chemical – Flexible equipment – campaign then switch to new product for next customer. Customers may be long term with recurring campaigns or shorter term.
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Custom Processing Overview
Large chemical manufacturers seek toll processing relationships to drive costs down, reduce internal assets and focus more on core R&D/engineering processes.
Contractual take or pay basis with high gross and operating margins
Customers supply and maintain title to their feedstock.
Process feedstock into products based upon customer specifications
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Custom Processing Facilities
Dedicated Custom Processing (Silsbee, TX)
•
White Oils capacity 2,000 barrels/day
•
Aromatic Oil capacity 500 barrels/ day
•
Bio-jet demonstration unit 10,000 gallons/month
•
Para-xylene demonstration unit started up in September 2013
Multi-Purpose Custom Processing (Pasadena, TX)
•
Fixed Bed Reactors
•
Ceramic Line Vessels
•
SS Vessels
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Steam Boilers
•
Short-Path Distillation Unit (WFE)
•
Sandvik Pastillation Belts
•
Buflovak Drum Flakers
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Strategic Objectives: Trecora Resources
Create Near-Term Growth
Maximize utilization of current capacity
Expand Toll Processing customer base
Develop international business
Improve Profitability
Improve margins
Control costs
Position for Future Growth
“D” Train permit issued for additional 4,000 barrels/day
o
Phased startup early 2015, full operation by Q4 2015
Strategic acquisitions to add new products / diversify customer base – done via Trecora Chemical
Add additional custom process capacity at Chusei (Trecora Chemical)
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Investment Highlights
U. S. shale gas expansion will produce
a)
Plentiful, low priced, feedstock supply
b)
Expansion of domestic customer base
Robust sales pipeline and stable customer base
High-margin, growth oriented business
o
Capacity expansion
o
Margin expansion
o
Market share expansion
Proven, experienced management team that have demonstrated their ability to execute
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AMAK Mine Basics
Mining lease are of approximately 44 square kilometers in Saudi Arabia
TREC has 35.25% ownership in AMAK
In operation and profitable since July 2012
New aligned management team is in place
Talc circuit being expanded, operable in 4th quarter- Quality, recovery improvement
Precious metals circuit being modified, operational late 2014- Gold and silver recovery, improvement
IPO currently scheduled for late 2016- Opportunity to monetize, determine value
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Management Team
Nicholas N. Carter - President, CEO and Director: Over 30 years of petrochemical operating experience with South Hampton -involved with TREC for the last seven years. Has a BBA degree in Accounting from Lamar University.
Simon Upfill-Brown – President, South Hampton Resources and Director: Has over 20 years in the Chemical Industry. Has a BS in Mathematical Statistics and Chemistry and an MBA from Stanford Graduate School of Business.
Peter Loggenberg, PhD – President, SSI Chusei: Over 25 years of experience in the chemical industry – with over 15 years at C-level. Has a B.Sc. in Chemistry and Mathematics, B.Sc. (Hons) in Chemistry, M.Sc. in Physical Chemistry and a PhD in Chemistry (Catalysis).
Connie Cook – CFO, Secretary, Treasurer : Has served South Hampton for over 20 years, with a BBA degree in Accounting Lamar University and is a CPA.
Ron Franklin – VP Manufacturing: Has a BS in Electrical Engineering and a Masters in Engineering Management with 30+ years of petrochemical experience.
Mark Williamson – VP Marketing: Has a BBA degree in Marketing and has been with South Hampton over 25 years.