Master Drilling defers dividend owing to Russia/Ukraine war

‘I think the more you diversify, obviously the less the risk becomes if you can do business globally’: CEO Danie Pretorius.

FIFI PETERS: We’ve been hearing a lot about the good times in the mining sector. Soaring commodity prices are benefiting the industry. [Miners are] getting a whole lot of export earnings as a result, and South Africa’s fiscus is also benefiting from the higher taxes that Sars is getting from the increased profits from the industry.

Another company benefiting from the good times that seem to be rolling on in the mining sector is Master Drilling, which provides drilling solutions to companies in the mining sector, among other industries. This is from Canada to Australia, the DRC and Ghana, as well as South Africa. We have the CEO of Master Drilling, Danie Pretorius, on the line for more.

Danie, thanks so much for your time. Your profits [have been] growing quite strongly in the past year. I’m interested in how much of the increased profits that you reported to your shareholders today are from the mining sector and the increased activity there.

DANIE PRETORIUS: Fifi, they are essentially [an] opportunity. Well, 98% probably comes from the mining sector. Other exposure to civil construction is minute. We’ve got a little bit of civil construction work up in Sweden that we are currently doing. But the bulk is coming from the mining sector.

FIFI PETERS: Just based on what you saw in the past year and what the order pipeline for the mining sector is looking like presently, how long do you think that the current commodities boom cycle, as it were, still has to run?

DANIE PRETORIUS: That’s a difficult question. What I can share with you [from] my experience is the winters are much longer than the summers. You know, we’ve been picking up the tailwinds from the early 2020s, and we are now going into the third year. So who knows? I must admit, I think from the …… 1:45 are quite sound. If you just look at the copper yesterday, ……1:49 South America, and the uncertain …… certainly go.

So I think generally the outlook is not bad, but again we are in the third year, and I’m not sure if [it’ll be] another two or three years.

FIFI PETERS: Talking about copper, which I believe the group does have exposure to itself, as well as nickel, where you guide that you’ve got some plans to ramp up activity here, as it were, just talk to us about the plans for your copper and your nickel assets.

DANIE PRETORIUS: [With regard to] the copper exposure currently, certainly in South America and Chile specifically, we are ramping up nicely in Peru and obviously the DRC. I think those are the three hot spots for copper in our business today, which we obviously would like to ramp up. And then if you talk about nickel, certainly up in Canada the Raglan and Voisey’s Bay projects [are] also ramping up, so we should be getting good revenues from that area.

FIFI PETERS: What we have seen previously is the higher commodity prices that have benefited the sector have not necessarily led to new investments being made by the mining sector; maybe a lot of mergers and acquisitions, but not new investments and not more or new exploration activities that have happened. Have you seen anything different this time around, particularly in the past month where commodity prices have literally shot through the roof as a result of the geopolitical tensions?

DANIE PRETORIUS: Difficult to answer the last one. I think the uncertainty, certainly with Ukraine and Russia, [makes it] difficult to comment on that. But what I can share with you, if you look at the total capex spend of the miners from, let’s call it 2012 to 2016, and where we are today, I recall the number was round about $100 billion spent in 2011/12. That declined to 2016 to round about, I think, $58 billion. Today it’s up to $80-odd billion. So in the last five/six years I think a sizeable amount of the capex [was] spent in the growth space for the miners, and that should be coming through in a mixed batch – maybe expansion, current ops, and maybe some greenfields, for all we know.

FIFI PETERS: What are you doing, or what have you started doing differently just in the wake of Covid-19 that has caused disruptions across industries and has accelerated the level of digital innovation? I do know Master Drilling played and invested quite heavily in the technology space [previously], but has the pandemic led to an acceleration in the kind of investments that you were making previously in your digital offering?

DANIE PRETORIUS: I wouldn’t say we are doing a lot differently. What we took from Covid is most certainly the way we run our businesses, and specifically fixed cost in the business. I think that’s one of the lessons that we’ve learned; fixed cost as a service provider contractor is very important to manage. I think that’s the one.

Two is the amount of labour. I think that’s probably the second one. Obviously the first one which we got right by hook or by crook the past 30-odd years is to diversify the business. I think the more you diversify, obviously the less the risk becomes if you can do business globally. So I think that’s on a high level what we took from Covid.

If you look at the mining sector specifically again, what I said earlier on, I think the miners are desperate for ways and means to access ore bodies, and I think we need to try and fast-track some of the R&D work to give the miners more tools from the box to get [more quickly] to some of these reserves.

FIFI PETERS: Accessing those ore bodies is not a task [without] danger, especially if you’re using traditional labour, which your technology actually helps to offset in terms of risk. But South Africa is also a country in which unemployment is too high, and there is that fear that the robots are going to take over the jobs. My question to you is: when it comes to mining and the innovation that is coming from the sector in going deeper and drilling deeper, beyond what ordinary workers can go in a safe manner, are you also seeing green shoots however, in terms of new jobs being created as a result of embracing the technological offering?

DANIE PRETORIUS: Look, the answer is simple. The robots – well, not never – but I think it’s hard to replace normal skilled people with robots in totality. So I think that’s not going to happen. What I can share with you that’s my view, more projects will become feasible if we can squeeze down the timing of these projects and hence more mines should be up and coming in the short to medium term if we can really just roll out technologies to access those ore bodies quicker. That’s my short answer.

I really think that it’s all about timing and the reduction in skills or amount of people on a project is not necessarily relevant. I think there’ll probably be more people employed in time to come if we can get that right.

FIFI PETERS: All right. Danie, we are three months into 2022. What can your shareholders look forward to for the rest of the year?

DANIE PRETORIUS: Look, with the current outlook I believe it should be okay. I don’t think we will shoot the lights out. I think the order book pipeline is solid ……7:19. Utilisation for the larger end of the fleet is north of 80%. Covid seems to be disappearing off the radar. So, unless something happens with the Russia/Ukraine issue that’ll impact on mining and commodities, I think we should have a good year.

FIFI PETERS: All right. Good to know. Danie, we’ll leave it there. Thanks much for your time. Danie Pretorius is CEO at Master Drilling.

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