Master Drilling’s results for the six months to June are nothing to shout about. Revenue in US dollar terms is up just 3.8% and earnings are down 14.3%.
What’s more impressive is the project pipeline, sitting at about $300 million, and a solid order book at just short of $200 million.
The margins on some of the business concluded over the last year were not great, particularly in the US, but what may be more important is it now has a track record and a foot in the door of a potentially huge market. Only one third of revenue comes from Africa, the rest from South and North America, Asia, Europe and more recently Australia. The recent recovery in certain commodity prices will no doubt help the business going forward.
The business is diversified across commodities, with most of its tunnelling work associated with copper and gold, followed by silver, lead and zinc and then iron ore.
A year ago it bought another ‘raise boring’ business called Atlantis for R107.5 million, giving it exposure to markets in India, Zambia and Brazil.
This also deepened its exposure in SA.
It is an unusual business, with about 150 raise bore rigs, and a further 30 ‘slim’ rigs scattered across the globe. The business was set up in 1986 and listed on the JSE in 2012. Much of the technology used was developed locally and can mean the difference between a mining project’s viability or failure. The utilisation of the raise bore rigs is sitting at 62%, down from 69% two years ago.
Speaking at the results presentation in Rosebank on Tuesday, CEO Danie Pretorius gave an update on the company’s Mobile Tunnel Borer (MTB), a giant machine in the final stages of development that will scour a shaft 11.5 metres in diameter and up to 2km in length.
This could be a game-changer for mines in need of shaft sinking. The speed and cost at which shafts can be sunk can make a massive difference to project viability, and Master Drilling intends to position itself squarely in this debate. More important to the business is horizontal tunnelling, which accounts for about 70% of all mine tunnelling work.
SA gold mines are generally considered too deep and expensive to mine, but Pretorius argues that the technology exists to extract the vast untapped resources lying at depths of 4km or even 5km below ground. “What’s needed is a change in the mindset of miners,” he says.
These resources are too deep for humans, but not for the kind of automated mining rigs now being rolled out in many parts of the world.
The company tends to eat capital during the project set-up phase, with the returns filtering through later in the project. Gearing is relatively benign at 18.9%, and more attention is going to debt collection to assist cash generation.
New orders, new markets
In SA, activity in the mining sector remains subdued, though the company was recently awarded a contract for a 1.4km hoisting shaft. In Botswana, new opportunities have presented themselves in gas and exploration drilling. The order book in Scandinavia has started to fill up, with new projects coming on stream in Spain, Turkey, Finland and Norway. New markets are opening up in Africa, particularly the Democratic Republic of Congo, Sierra Leone and Ghana with its Obuasi Gold Mine. In South America the order book is filling up, and newer projects are being taken on at better margins. New markets in Russia and Australia, two traditionally strong mining areas, offer exciting growth potential.
The bulk of its capital spend is on capacity expansion, some of which has begun to yield positive results, such as in remote drilling technology.
It completed the testing of this technology in SA, and has now deployed it in Mexico and Peru.
“The commissioning of the MTB is currently underway, with underground drilling having already commenced, while the first phase of the shaft boring system – a new shaft sinking system – is also in the process of commissioning,” said the company in a statement.
“While political and economic factors continue to shape our operating environment, at Master Drilling we continue to spearhead technological development, stabilise our global footprint and explore new business opportunities,” said Pretorius. “As a result, the business remains stable and well positioned to benefit from an improved global economic climate.”
The key figures for the six months to June 2019:
- Revenue up 3.8% to $70 million
- Rand headline earnings per share up 5.6% to 76.7 cents (compared to the same period last year)
- US dollar earnings per share down 14.3% to 5.4c
- Net cash generation down $9.3 million
- Debt increased slightly to $61.3 million and gearing sits at 18.9%
- Operating profit decreased 8.3% to $11.8 million.