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Master Drilling reports growth, but falls shy of expectations

4th September 2014

By: Tracy Hancock

Creamer Media Contributing Editor

  

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JOHANNESBURG (miningweekly.com) – JSE-listed Master Drilling on Thursday reported a 20.6% increase in revenue to $65.2-million for the six months ended June 30, from the $54.1-million recorded in the previous comparable period, while its profit was up 20.9% from $7.7-million to $9.3-million compared with the 2013 period.

In its unaudited interim report released to the market, the drilling services provider also noted that profit attributable to equity shareholders rose by 10.4%, from $7.6-million to $8.4-million, when comparing the same periods. 

Headline earnings per share (HEPS) in rand were up by 29.2% from 47.2c to 61.0c, with US dollar HEPS increasing by 11.8% from 5.1c to 5.7c.

“We are happy, but I still believe we are a bit shy of where we wanted to be – between 15% and 20% dollar base is closer to what we thought the company should deliver,” Danie Pretorius told Mining Weekly Online in a telephone interview.

He attributed the shortfall to Chilean State-owned copper miner Codelco’s capital cut from the Chilean government, which resulted in six machines being taken out of the fleet, which was idle for most of the first half of the year.

In addition, on the back of the silver price, Master Drilling’s contract with the Del Toro silver mine, in Mexico, 100% owned by First Majestic Silver Corp, was suspended until the end of the year. But Pretorius expected to establish site in the first quarter of next year.

Things were not smooth sailing at home either. As a result of the 11-week platinum strike in South Africa, one of Master Drilling’s large machines was idle on site with platinum producer Lonmin, which paid the company a retainer to keep the machine on site.

Another challenge denting Master Drilling’s revenue stream was experienced last month, when the progress of machines for the expansion of the company’s capital fleet was slow and, as a result, would not come online as quickly as Master Drilling had thought.

Pretorius stated that the reason behind the delay was restructuring of the company’s Chinese operation. “New management delayed the machines coming through. They were not equipped to deal with the magnitude of the order,” he explained, adding that logistical and system issues were also to blame. “But that has subsequently been sorted and we are back on track.” The company expected its capital fleet to be deployed in 2015.

GROUP ACTIVITY
As at June 30, the group's activities included active operation of 158 drilling rigs across Africa, Latin America and Europe, with most of the rigs owned or leased by Master Drilling.

Despite the protracted platinum strike in South Africa, Master Drilling noted that key contracts performed as planned and new contracts were in the pipeline. This included the establishment of new sites and the ramp-up of projects in the second half of the year.

Pretorius revealed that work had not started to increase in the platinum sector, but “I do believe that we will see work pick up in the latter part of the year. Lonmin has sent us some enquiries, Impala Platinum is struggling to get their ducks in a row and Anglo American Platinum is still unsure, but there have been some enquiries from the miner’s Twickenham mine [in Limpopo].”

As at June 30, the company had also diversified into new industries, commodities, services, equipment, markets and countries, while achieving organic growth targets in Latin America in line with its strategic objectives and expectations.

Master Drilling further stated that automated machines also operated successfully and improved efficiency globally, while additional automated machines were rolled out and a fast production method machine was development, “with efficiency and safety top of mind”.

The group believed that its current commodity exposure, primarily gold, followed by iron-ore and copper, stabilised the operating environment during the period and was complemented by production-stage drilling, which generated the majority of current revenue. 

Production-stage drilling accounted for 77% of revenue in 2014, capital 19% and exploration 4%, compared with 2013 when production brought in 78% of revenue, capital 13% and exploration 9%.

Looking at revenue by jurisdiction for the year, 49% was derived from Latin America, 36% from South Africa, 13% from the rest of Africa and 2% from the rest of the world. In 2013, Latin America accounted for 60% of revenue, South Africa 31%, the rest of Africa 8% and the rest of the world 1%.

In terms of commodities, gold accounted for 31% of 2014 revenue, up 10% compared with 2013, iron-ore 21%, up 8%, copper 16%, down 3%, polymetallic 15%, up 4%, platinum 7%, down 4%, and other 10%, down 15%. 

ORDER BOOK

As at June 30, Master Drilling’s committed order book was more than $200-million for the second half of 2014 and beyond.

Pretorius expected the split between the mining stages for the 2015 order book to remain the same as 2014, noting that Master Drilling would try to maintain the ratio so as not to expose the company too much to the exploration cycle, which was prone to cost cutting.

“Our order book for 2015 onwards reflects the success of our business model, particularly our strategy to diversify across commodities and mining stages,” the company commented.

Meanwhile, Master Drilling believed growth into the rest of Africa would be achieved from its solid South African base and in partnership with major blue-chip mining companies. 

With regard to the company’s focus in Africa, Pretorius said: “Things haven’t changed in the last six months. We are ramping up the operation in Zambia as we speak. The first half of the year didn’t really present any expansion opportunities; however, at the end of the year we should be on target to [achieve our goals for the country].”

He highlighted mining and commodities trading major Glencore's presence in the south of the Democratic Republic of Congo (DRC), noting that Glencore’s order had just been amended for another six months or a year. “We still believe there is a lot of opportunity in the south of the DRC, so we would like to focus on the area.”

Gold miner Randgold Resources' Kibali gold mine, in the DRC, was also ramping up in the last couple of months, Pretorius said, noting that it was pretty much on target and a “nice contributor”. In Mali, he noted that Master Drilling was servicing an operation that was “going well”, pointing out that there was a strong possibility that the contract would be extended and amended to include more machines.

“Therefore, for the next 6 to 12 months that is going to be our focus,” explained Pretorius.

GROWTH BEYOND RAISEBORING
To sustain the company’s growth, Master Drilling believed it was imperative to expand its services beyond raisebore drilling. “To this end, we have made significant progress by diversifying our service offering in presenting solutions to the challenges faced by our customers. 

“We also believe that ongoing research into and the development of mechanisation, automation and remote drilling services continuously improve the quality of our service offering,” commented the company.

Going forward, “it’s going to be business as usual,” Pretorius told Mining Weekly Online.

He said Master Drilling was raising $15-million to service the capital expansion programme this year and would probably do the same next year to service the requirements and needs of 2015.

Based on the information available to it, the Master Drilling board of directors believed that the group remained a going concern.

Edited by Creamer Media Reporter

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