Main Drilling Group Worldwide Inc. (OTCPK:MJDLF) Q3 2022 Outcomes Convention Name March 4, 2022 9:00 AM ET
Firm Individuals
Chantal Melanson – IR
Denis Larocque – President and CEO
Ian Ross – CFO
Convention Name Individuals
Daryl Younger – TD Securities
James Vail – Arcadia Advisors
Maggie MacDougall – Stifel
Operator
Good morning, girls and gents, and welcome to the Third Quarter 2022 Outcomes Convention Name. I might now like to show the assembly over to Chantal Melanson. Please go forward, Ms. Melanson.
Chantal Melanson
Thanks, and good morning, everybody. As talked about, we want to welcome you to Main Drilling’s convention name for the third quarter of fiscal 2022.
On the decision, we may have Denis Larocque, President and CEO; and Ian Ross, our Chief Monetary Officer.
Our outcomes had been launched yesterday after market shut and may be discovered on our web site at www.majordrilling.com. We additionally invite you to go to our web site for additional data.
Earlier than we get began, we’d wish to warning you that in this convention name, we might be making forward-looking statements about future occasions or the longer term monetary efficiency of the Firm. These statements are forward-looking in nature, and precise occasions or outcomes could differ materially from these at present anticipated in such statements.
I’ll now flip the presentation over to Denis Larocque. Please go forward.
Denis Larocque
Thanks, Chantal, and good morning, everybody, and thanks for becoming a member of us right now.
As soon as once more, I’m happy to report that we’re seeing sturdy proof of an trade upcycle, most clearly demonstrated by Main Drilling’s finest third quarter efficiency in 10 years. In November, we noticed elevated exercise ranges that continued nicely into December, till the standard vacation shutdowns. And regardless of the Omicron variant inflicting minor delays, January acquired off to a a lot earlier begin than in earlier 12 months and than anticipated. I have to credit score our groups that labored extraordinarily long and hard hours over the vacation interval to get rigs repaired and deployed within the area. Thanks for all of your efforts to make sure continuity of operations for each, Main Drilling and our prospects.
We continued to see elevated demand for our specialised companies, as prospects flip to more difficult drill packages because the upcycle progresses. I’m actually happy to see that our proactive workers coaching and retention efforts have allowed us to assist this early begin to the 12 months and ship dependable service and worth to our prospects. Our technique of holding rigs and stock prepared for fast deployment to prospects additionally continues to ship outcomes because the trade offers with provide chain disruptions.
In the course of the quarter, we benefited from each, new contracts and contract renewals, with incrementally favorable phrases, which greater than offset the impacts of our annual upkeep and overhaul work carried out over the vacation interval. Inflationary headwinds continued to impression our trade on each, the labor and provide fronts. Nevertheless, we now have made mitigation efforts by way of our new contracts and renewals which have taken this into consideration and don’t anticipate to see impacts on margins within the close to time period.
With all of this in place, we had been capable of develop our EBITDA by 110% and turned a revenue of $5.7 million in a historically gradual quarter.
With that, Ian will stroll us by way of the quarter’s financials after which, I’ll come again to debate the outlook. Ian?
Ian Ross
Thanks, Denis.
Income for the quarter was $138.8 million, up 38% from income of $100.4 million recorded in the identical quarter final 12 months, as drill packages continued later into December and began up early in January in our greatest areas. The unfavorable overseas trade translation impression on income for the quarter when evaluating to the efficient charges for a similar interval final 12 months was roughly $3 million, with a minimal impression on internet earnings.
We’re happy to see continued year-over-year high line progress, because the Firm has demonstrated the power to answer buyer calls for amidst favorable market situations. The general gross margin proportion for the quarter, excluding depreciation, was 24.2% in comparison with 20.3% for a similar interval final 12 months. Margins are usually decrease within the third quarter because of seasonal slowdowns and important scheduled upkeep. Nevertheless, this 12 months, there was much less impression in North America, as many drill packages minimized their vacation shutdown plans. Australasia encountered typical seasonal slowdown, whereas the South and Central American area was negatively impacted by seasonality in addition to ramp-up prices in sure jurisdictions as exercise ranges started to recuperate from the impacts of the pandemic.
G&A prices had been $14.1 million, a rise of $2.4 million in comparison with the identical quarter final 12 months. The rise was pushed by the addition of Australian operations, inflationary wage changes and the resumption of some journey as COVID-19 restrictions loosened in most jurisdictions. The earnings tax provision for the quarter was $1.3 million in comparison with nil for the prior 12 months interval. The rise within the earnings tax expense was associated to an total progress in profitability.
Web earnings had been $5.7 million or $0.07 per share for the quarter in comparison with a internet lack of $1.5 million or $0.02 per share for the prior 12 months quarter.
EBITDA was $18.4 million in comparison with $8.7 million within the prior 12 months quarter. Sturdy EBITDA progress within the quarter versus the identical quarter final 12 months is a direct results of the elevated exercise degree and illustrates the operational leverage potential, as income ranges proceed to develop.
The quarter noticed a robust money era because the stability sheet stays a aggressive benefit for us within the trade. After taking over debt to finish the McKay acquisition in June of 2021, we’re happy to see the return to a internet money place of $6.1 million after producing $36 million in money in the course of the quarter. We’ve achieved this money era whereas spending $12.2 million on capital expenditures in the course of the quarter, including 5 new drill rigs and assist gear for present rigs being deployed within the area. We additionally disposed of 8 older, less-efficient rigs, bringing the full rig depend to 600. To be able to reply to present market demand and keep forward of provide chain challenges, we anticipate to take possession of not less than 8 drills subsequent quarter. These rigs might be instantly deployed within the area.
The brand new breakdown of our fleet and utilization factoring in seasonality is as follows: 302 specialised drills at 44% utilization, 117 typical drills at 40% utilization, 181 underground drills at 56% utilization, for a complete of 600 drills at 47% utilization.
As talked about earlier than, specialised work in our definition will not be essentially carried out with a specialised drill. Moderately, it’s work that requires that we meet the rigorous requirements of our prospects when it comes to technical capabilities, operational and security requirements, and different associated components. Over time, we anticipate these requirements to be more and more necessary to our prospects.
Within the third quarter, income from specialised work accounted for 62% of our complete income, down barely from the earlier quarter, however specialised work is often liable to extra seasonality. So, we anticipate this proportion to develop shifting ahead as we proceed to see elevated demand for our specialised companies. Typical drilling made up 10% of our income for the quarter, primarily pushed by the elevated demand for work from junior mining firms. And eventually, underground drilling income was up barely in comparison with final quarter and 28% of complete income. Underground initiatives usually have much less seasonality, as most working mines decrease our vacation shutdowns to maintain producing.
Juniors proceed to boost cash to fund their drilling packages, evidenced by our evolving income combine. They now account for 28% of our income within the quarter as many juniors stored drilling late into December. Senior and intermediates make up the remaining 72%.
By way of commodities, gold initiatives represented 54% of our income, whereas copper was at 16%. We proceed to see gold dominate our income combine, whereas copper lags barely from historic norms. We’ve seen a rise in our nickel income in current months, as the necessity for battery metals continues to supply sturdy tailwinds for the trade.
With that overview on our monetary outcomes, I’ll now flip the presentation again to Denis to debate the outlook.
Denis Larocque
Thanks, Ian.
The early begin to operations we noticed in January supplies us sturdy indication of elevated exercise as we transfer into the calendar 2022, which is reinforcing the market backdrop and pointing to thrilling instances forward for us at Main Drilling. Going ahead, we anticipate our new pricing to offset price inflation of provide and labor, whereas competitors for expert drilling crews continues to be a problem throughout the trade, notably in probably the most operationally intense market.
Provide chains proceed to face disruptions in lots of industries around the globe, however are magnified within the drilling trade because it enters a fast progress part. Nevertheless, our technique of utilizing Main Drilling’s sturdy stability sheet to stockpile stock early has allowed us to remain forward of delays on consumables, which retains drills turning for our prospects. We’ve skilled some minor delays on new drill orders. Nevertheless, as we’ve been proactive in putting orders, we’ve minimized the impression and have seen no impact on the enterprise.
We’re seeing most senior firms rising their definition drilling efforts on present discoveries on each, gold and base metals, as nicely the quantity of financing raised over the past 12 months by junior firms, we’ve seen a substantial enhance in exploration exercise by these prospects because the mining trade continues to try to substitute depleting reserves. As of right now, there are quite a few constructive drivers influencing the outlook for Main Drilling and the broader trade. Once you take a look at issues just like the gold value that’s at excessive ranges as reserves stay low and mining firms proceed to battle to exchange useful resource depletions, you’ve acquired copper costs which have greater than doubled over the past two years and have not too long ago reached all-time highs, at a time the place the world is accelerating its efforts in the direction of decarbonization, which would require an unlimited quantity of copper, which received’t assist clear up the projected provide deficit.
Nickel costs are up greater than 40% over the past 12 months, because the world races to safe provides for electrical car batteries. You’ve acquired the dearth of exploration all through the current trade downturn that has led to depleting reserves. And eventually, it takes 10 to fifteen years to deliver a mine into manufacturing, whereas new mineral deposits will come from areas tougher to entry, which would require extra specialised drilling.
So, with all these fundamentals in place, the outlook for the Firm and the pricing setting by way of our fiscal fourth quarter and past stay extraordinarily encouraging.
Lastly, Kelly Johnson, Senior Vice President, Operations for North America and Africa, has introduced his lengthy deliberate intention to retire in June of this 12 months. Mr. Johnson will retain his place as Senior Vice President, persevering with to help within the strategic administration of operations of the Firm till June, which is able to — after which, he’ll present invaluable consulting companies to the Firm.
Kelly began within the drilling trade in 1978 with Midwest Drilling till its acquisition by Main Drilling in 1998 and he held a broad vary of management roles throughout the Firm’s operations. With a profession that spans greater than 4 many years with the Firm, his management has made a major contribution to Main Drilling’s success, and he has definitely left his mark on the trade by way of his expertise and data.
Kelly has been a mentor to many within the Firm, together with myself, and his affect has made an enduring impression on generations of individuals. He leaves his publish with a powerful managed management workforce absolutely ready to answer future challenges and to fulfill the rising expectations of our loyal prospects. Going ahead, the regional administration of North America might be reporting on to the CEO.
With that, we will open the decision to questions. Operator?
Query-and-Reply Session
Operator
[Operator Instructions] The primary query is from Daryl Younger from TD Securities.
Daryl Younger
Good morning, gents. Congrats on a great quarter.
Denis Larocque
Thanks.
Daryl Younger
First query is across the capital self-discipline by a few of the senior miners that we’re seeing and dedication there to handle margins. Are you seeing any pushback on pricing, or is that — it sounds such as you’re capable of get price will increase pushed by way of. After which, secondly, has it modified the best way they’re bidding jobs with drillers? Are they searching for longer-term contracts, or something there? Any shade you possibly can present there?
Denis Larocque
Sure. Nicely, first on — when it comes to — you talked about price self-discipline and every little thing. What we’re seeing in our discussions will not be as a lot give attention to value any extra, extra about delivering service. There’s been — final 12 months, there’s a number of firms — nicely, many firms that weren’t capable of obtain the quantity of drilling they needed to do after they began the 12 months for various causes. Both — I imply, you had COVID, but additionally, both they didn’t have the standard they wanted or issues like that. And so, this 12 months, that explains the early begin for one, as a result of they need to make certain they get the drilling — their drilling budgets drilled.
So, when we now have discussions this spherical, the discussions have been extra with operational folks than it’s been with the buying division. And actually, that’s been actually good as a result of we’re having conversations about getting the job executed, and that’s the principle focus, which actually helps — it’s not simply pricing. It helps on the productiveness as nicely as a result of then, you get full cooperation and also you get the perfect outcomes for each. And that reduces when issues go nicely and productiveness is sweet. It reduces their total prices as a result of they get extra meters for his or her {dollars}.
So, from that perspective, I wouldn’t say that there’s been a strain on pricing. It’s been extra, like I say, extra about working collectively to ship.
By way of searching for long-term, they at all times — it was extra early on when pricing was higher. We had been getting requests to lock these costs for 5 years as a result of they knew what was coming. Currently, we do get these conversations, however these conversations, once more, should not essentially about value. It’s about, okay, can I make certain I’m going to have these rigs for the subsequent two years, as a result of I’ve acquired heaps to do, and I need to make certain I’m going to have the rigs. So it’s extra these kinds of conversations when it comes to long run than pricing, so.
Daryl Younger
Bought you. Okay. After which, only one different query. With reference to greenfield exploration budgets, monitoring a few of the senior gold exploration finances, it seems like they’re comparatively flat year-over-year. Are you able to simply give us a bit bit extra shade on the place a few of the actually strong demand is coming from? We’re definitely seeing it throughout the complete trade. All of the drillers are seeing it. However simply attempting to reconcile the gold — the flat gold budgets with the actually strong outlook?
Denis Larocque
Sure. On pure greenfield exploration, you’re proper. The seniors, from the seems of it, didn’t enhance their effort by a lot going into calendar 2022. However, what we’re seeing is we’re including rigs to present initiatives on definition, on defining present initiatives that they’ve, and so they’re ramping up their efforts when it comes to attempting to deliver mines into manufacturing over the subsequent few years.
So, that’s the place the drilling efforts are happening the senior facet. We’re seeing an uptick on that facet. And that facet, after they get going, it’s extra intense and it takes years to outline deposits and issues like that. So, that’s one a part of the uptick that we’re seeing.
After which, you’ll — Ian gave you the numbers. Juniors is up 28%. And only a 12 months in the past, we had been beneath 20% of our income — of our complete income and a a lot smaller income numbers. So, due to this fact, juniors are doing much more as nicely, and since they’ve raised cash and so they’re going out. They usually’re going to be those which are going so as to add to the exploration. So, when S&P International come out with their numbers for 2022, in a 12 months from now, I believe that it’s going to be a lot greater when it comes to progress of exploration {dollars}, a lot greater than the — what seniors have been projecting as a result of the juniors are going to select up the slack on that half.
Daryl Younger
Bought it. Okay. That’s terrific. I’ll flip the decision over to another person.
Operator
The subsequent query is from James Vail from Arcadia Advisors.
James Vail
You discuss availability extra key. You discuss lack of latest copper provide, gold, et cetera, et cetera. It appears to me, this cycle is setting you as much as have extraordinarily higher margins than you probably did within the final upcycle. Is {that a} moderately good assumption?
Denis Larocque
I imply, we’re nonetheless a good distance from the place we had been in 2012 when it comes to the height of the cycle. However the outlook, whenever you look — it takes — once more, the secret’s it takes 10 to fifteen years to deliver a mine into manufacturing. That’s the half that it is advisable take a look at. And we’re nonetheless — we’re solely in a 12 months, like, two of this upcycle. Within the final upcycle that went from 2004 to 2012, actually lasted 8, 9 years. So, there’s an extended runway forward of us, however I received’t provide you with that — there’s definitely a chance of us having higher margins than the final peak. At this level, our margins are already higher than they had been within the second 12 months of the final upcycle. So, that’s — I’ll allow you to draw your personal conclusion on what that could possibly be for the longer term.
James Vail
Nice. After which, only a second query. You went by way of the utilization charges of all of your completely different rigs. In all practicality, what’s the highest utilization you will get to? I imply, you possibly can’t go to 100%, however is 47% — there lots left to go in from these numbers, or are you getting near the place you’re primarily at full utilization?
Denis Larocque
Sure. We’ve at all times mentioned the best utilization, the best way we depend utilization, as a result of it’s — not all people counts it the identical method. The way in which we depend utilization is that if a rig is incomes its maintain. So, each quarter, you will have rigs which are shifting round, being mobilized, demobilized. Plus, we now have rigs which are within the Arctic that may solely work six months of the 12 months. So, for these causes, 75% is sort of the max. On the very peak, when there was nothing out there, we had been at 78%. That’s the best we’ve ever achieved, and I feel that’s the best that we will in all probability obtain as utilization.
The 47% is — nicely, for the third quarter, so this was decrease than what we had within the earlier two quarters. And in addition, it’s indicative of — we’ve entered the quarter with that 47%, however issues are choosing up week by week. And so, I feel you’re going to see that utilization continue to grow as we undergo the 12 months.
Operator
[Operator Instructions] The subsequent query is from Maggie MacDougall from Stifel.
Maggie MacDougall
So, should ask a query for those who’ve acquired any publicity to Japanese Europe that we must always concentrate on or that we ought to be pondering by way of if there’s a provide chain impact from that or something of that nature. That is clearly actually troublesome state of affairs in that a part of the world proper now.
Denis Larocque
Sure, very unlucky what’s happening there. And on our half, we don’t see a lot impression on our operations. We don’t have any operations in Russia or Japanese Europe. Our closest operation can be in Mongolia, which is a small operation for us. However, even there, the provides are coming from different instructions that shouldn’t be impacted from what’s happening.
So, for us, we don’t see — until issues change on the planet after which all bets are off. However, we don’t see an impression on our operation.
Maggie MacDougall
Okay. Thanks. And it sounds as if you might be in a terrific place, as a number of folks have highlighted right here, on the demand facet and as regards to pricing, given commodity inflation and simply usually, a scarcity of latest reserve additions over the past decade. On the flip facet, we’re seeing gas prices at virtually again to peak ranges final seen in 2006, 2007. It’s potential that they overshoot simply with what’s happening on the planet. And I’m questioning, on the consumable facet, the gas facet, and towards a backdrop of the constructive discussions you’ve been having together with your shoppers, are you in any respect pondering forward about place your self within the occasion that inflation and enter does grow to be considerably uncontrolled and maybe start to outpace pricing?
Denis Larocque
Sure. On the gas facet, we now have escalation clauses particular to gas in all of our contracts. And in a number of circumstances, the gas is equipped by the mines themselves. So, that one shouldn’t be a problem going ahead.
On the consumables, we now have in our pricing, we expect — we began the 12 months anticipating inflation on consumables with every little thing happening. And our pricing — our final spherical of pricing is reflective of that. However, we do have escalation clauses in there as nicely, ought to it transcend a sure proportion. So then, we now have mechanism to take a seat down with our prospects and revise our pricing.
So, proper now, after we say that we’ve renewed contracts with favorable phrases, these are the phrases that — within the downturn that we weren’t capable of get in our contracts, whereas now, we’re capable of put escalation clauses to ensure that we’re lined for issues like that.
Maggie MacDougall
Okay. Good. And whenever you look out round at your rivals, how do you are feeling going into one of these setting? It does appear as if you will have ready for the upcycle for a while, each when it comes to stock, simply getting the fleet prepared. And with the stability sheet that you simply’ve maintained in a really clear form, do you assume that there might be some who discover themselves sort of inventory, locking stock, maybe with out applicable pricing pass-throughs? I wouldn’t thoughts listening to your feedback on that as a result of it does seem to be it’s possible you’ll be in a robust aggressive place, each for natural market share features, however then additionally, for those who had been to see somebody struggling for some tuck-in acquisitions?
Denis Larocque
Nicely, on the provision, we’re already seeing ourselves — we’re already seeing points when it comes to delays on every little thing, which is why we stocked up. So, we now have that buffer. And the best way we function is we — we’re not letting that buffer go. In different phrases, as we take one thing off the shelf, we place with the intention to substitute on the shelf to exchange that buffer, and that’s how we’re managing.
When you don’t have that buffer and you need to put rigs within the area, it’s fairly a battle proper now as a result of every little thing — there’s delays on every little thing, after which you need to wait, which, to your level, it’s a — I feel it’s a nice aggressive benefit by having that additional stock available.
On the acquisition entrance or — I imply, we get — we — identical to earlier than, we proceed to get telephone calls from firms, for probably the most half, the small personal firms seeking to promote. For us, it at all times — it comes right down to high quality of apparatus. It wants to suit our technique, specialize or underground or — and in addition, must have good folks that comes with it. And for us, that’s what we take a look at. And in addition, there’s typically, additionally valuation, the — we’ve had folks, they have an inclination to ask to have massive valuation as a result of they need to promote on the longer term. And for us, there must be one thing for our shareholders if we’re going to make these. So, that’s all I’m going to say. I imply, the — we get these telephone calls frequently. We’ve been getting these for the final three years, and it’s simply when the time is true, when it is sensible, then we sit down and take a look at it. However proper now, McKay is the final one which made sense for us.
Maggie MacDougall
Sure. Final query for me. I’m watching the 10-year yield fall like a stone right now. And we’ve talked lots about how the bottom metals copper cycle is doubtlessly going to be the large one. Nevertheless, it seems like within the close to time period, gold could possibly be a very good place to be. What has been type of the scuttlebutt amongst your shopper base? Are you seeing extra exercise in a single versus the opposite?
Denis Larocque
The gold continues to be — apparently, I might have thought that shifting into 2022 that we’d see an even bigger uptick on base steel, however gold has stored up with base steel when it comes to the demand or the elevated demand that we’ve seen going into this 12 months. So, all — just about all commodities are doing extra. All of them have reserve points as a result of they’ve all reduce on exploration by way of the final six years.
So, I wouldn’t say that there’s yet one more than the opposite lately. They’re all busy going out searching for stuff in the meanwhile.
Maggie MacDougall
Okay. Nicely, thanks a lot in your time. I’ll get again within the queue if I’ve additional questions.
Denis Larocque
Thanks.
Operator
Thanks. There are not any additional questions registered right now. I’ll return the decision again to Mr. Larocque.
Denis Larocque
Okay. Thanks. And we’ll be speaking subsequent quarter.
Operator
Thanks. The convention has now ended. Please disconnect your strains right now. And we thanks in your participation.
