Industry Description
The sand & gravel mining industry in the U.S comprises the extraction and quarrying of construction and industrial sand, gravel, clays, and ceramic and refractory minerals (NAICS 21232). The industry also engages in beneficiation processes, including washing and screening, to refine and prepare these mined materials for various applications.
The following are some basic characteristics of the sand & gravel mining industry:
- Sand & Gravel Mining industry has a combined revenue of $17.2 billion, with a growth rate of 1.1% in 2019-2024
- There are approximately 1,600 businesses as of 2019
- The sand & gravel mining industry employs approximately 99,000 people
Industry Trends
The sand & gravel mining industry is highly fragmented and has low levels of market share concentration, with the top four industry operators comprising approximately 25% of industry revenue in 2019. The largest players have numerous locations across the US, while small players are typically independently owned and operated in 1-2 states. Some key external factors that influence this industry are (i) demand for the products from the construction sector, (ii) reliance on the oil and gas industry, and (iii) sustainable practice. Each of these is described in further detail below.
Demand for sand and gravel has significantly increased due to the rise in construction activities in the Great Lakes regions. In 2022, sand and gravel produced about $5.7 billion in value. This reflects the extent to which aggregate demand from building and infrastructure projects has attracted miners. Sand is vital in road building, landscaping, and concrete production. This heavy demand indicates that the sand and gravel mining industry will continue to play a crucial role in the construction sector.
Demand for sand from the oil and gas industry has significantly impacted the sector. Sand is increasingly used in hydraulic fracturing, which entails injecting a mixture of water, chemicals, and sand into the ground to extract oil and gas from shale formations. Over 73.0% of all industrial sand mined in the US was used in fracking operations in 2018. Hydraulic fracturing boomed between 2014 and 2017, resulting in substantial production levels in the sand and gravel mining industry. Despite reduced activities since 2017, the demand for sand by the oil and gas industry remains prominent, with its revenues tied closely to fluctuations in oil and gas production.
Sustainable practices are crucial to the sand and gravel mining industry. Mining operations cause topographic changes and disperse contaminants. These impacts lead to companies adopting sustainable practices. Examples of sustainable practices include using sand substitutes, geosynthetics for site restoration, and biodiversity-positive mining. Adopting sustainable practices is needed to mitigate the risks associated with mining operations.
The sand and gravel mining industry in the U.S has been influenced by external factors such as the demand for sand and gravel in the construction sector, increased use of sand in the oil and gas industry and sustainability practices. Industry growth is closely tied to rising construction projects and the ongoing need for sand in hydraulic fracturing, but increased advocacy for more sustainable practices in response to environmental and health concerns presents challenges. As these demands evolve, industry players will need to adapt by balancing profitability with responsibility.
Key Performance Metrics
In evaluating the sand & gravel mining industry, the following metrics can provide useful information in comparing a subject company to guideline companies and transactions.
- Energy consumption
- Material recovery rate
- Production volume
- Reclamation rate
- Reserve life
- Water usage
Industry Organizations & Publications
The following organizations publish useful information:
- Leadership in Energy and Environmental Design (LEED)
- National Stone, Sand & Gravel Association (NSSGA)
- U.S. Geological Survey (USGS)
- U.S. Green Building Council (USGBC)
Guideline Information: Private Purchase Transactions
Most sand & gravel mining companies are privately owned. While there are publicly traded companies, data regarding the sale of 100% of closely held and & gravel mining companies is generally the best source of information to appraise a subject company.
The following are typical appraisal multiples from sale of sand & gravel mining companies:
- Revenue multiples between 0.8 and 3.5 times
- Gross Profit multiples between 1.4 and 10.9 times
- EBITDA multiples between 9.3 and 21.6 times
In selecting guideline transactions, it is of critical importance to select transactions that are similar to the subject company. Unique factors for any subject company must be considered to yield credible results. Additionally, industry economic conditions also vary over time, which must also be considered.
Guideline Information: Publicly Traded Companies
Most sand & gravel mining companies are privately owned; however, there are a few that are publicly traded, meaning it is possible to compare a subject company based on industry metrics and appraise using industry multiples. However, as with the guideline transactions described above, it is of critical importance to select publicly traded companies that are similar to the subject company. Also be aware that multiples of certain publicly traded companies may not accurately reflect a subject company.
The three largest publicly traded U.S sand & gravel mining companies ranked by market capitalization are:
- Martin Marietta Materials, Inc. (MLM) – $32.2 billion market capitalization
- Summit Materials Inc. (SUM) – $6.7 billion market capitalization
- Granite Construction Inc. (GVA) – $89.5 million market capitalization
The Price-to-Earnings (P/E) ratios of these three companies range between 17.7 times and 46.7 times.
Appraisal Rules of Thumb
Please note you should never use a Rule of Thumb in place of a professional appraisal. You will never see a competent professional appraiser do their work using a Rule of Thumb. The professional standards that govern professional appraisal practice, which all professional appraisers should follow, specifically prohibit the use of Rules of Thumb.
Sand & gravel mining companies are businesses sold based on sound economics. These economic considerations can be measured using the key performance indicators described above, but such economics cannot be accurately summarized in these simple formulae.