Master Drilling navigates tough conditions to record solid results

24th March 2020 By: Tasneem Bulbulia - Creamer Media Reporter

Master Drilling navigates tough conditions to record solid results

Mobile Tunnel Borer

JSE-listed Master Drilling Group recorded an increase in revenue of 6.9% to $148.3-million for the year ended December 31, and a slight decrease in operating profit of 5.1% to $22.4-million, owing to adverse global market conditions and an uncertain operating environment.

“No one can run away from a challenging operating environment, but we can look for ways to mitigate this and other risks. One way to do this is through diversification, which has always been a part of our strategy and I am pleased that we remained on track with this in 2019,” said Master Drilling CEO Danie Pretorius.

“Our team continued to explore opportunities for the expansion of our presence, services and exposure, through our foray into new markets and our search for business acquisitions that would integrate well into our value chain and provide increased revenue and profits.”

Factors that had to be contended with, and which continue to pose challenges, include the global economy slowing down, volatile commodity prices and the impact of Covid-19.

The company continued to develop and test new machines during the period.

The commissioning of the mobile tunnel borer (MTB) got under way, with Phase 1 executed for Northam Platinum in the second half of 2019; as did the first phase of commissioning of the shaft boring system.

Pretorius said the period was characterised by volatile markets, including commodity, currency and equity markets.

Despite this, the company continued to maintain a stable order book of $142.1-million and a pipeline of $297-million, Master Drilling CFO Andre van Deventer indicated.

In the period, earnings a share decreased by 9% to $0.101, while headline earnings a share  decreased by 3.7% to $0.103.

The company continued to stringently manage cash resources to cater for emerging opportunities that require specific design, planning and investment.

Master Drilling's capital spend was 88.8% on expansion and 11.2% on sustaining the existing fleet.

The partnerships that were set up to help Master Drilling in its quest for expansion are said to be yielding results.

The company’s earlier Bergteamet acquisition showed progress, giving it access to Scandinavia and the rest of Europe.

Recently, the Competition Commission approved Master Drilling’s acquisition of Geoserve Exploration Drilling, a private company specialising in exploration and drilling services.

“The transaction will augment our expertise and global reach, as well as provide a platform for horizontal integration in the mining industry, which has been under pressure in the past few years, necessitating consolidation,” said Pretorius.

Through the transaction, Master Drilling will acquire the total number of issued shares of Geoserve from MOGS Mining Services and have sole control of Geoserve.

Geoserve’s footprint and pipeline is expected to reinforce Master Drilling’s capacity and income profile through increased exploration drilling, reverse circulation drilling, geotechnical investigations and grade control drilling services.

With regard to the global spread of Covid-19, the company is in close communication with all its clients to assist them in taking the appropriate measures to mitigate the spread of the virus at all sites.

In view of currently prevailing global volatility and uncertain economic conditions, the board deemed it advisable that cash resources should be protected and, in March, there should be no declaration of a dividend in respect of the 2019 financial year, with a commitment to consider the continuation of the company's dividend history in future financial periods, once circumstances permit.

OUTLOOK AND PROSPECTS

Diversification across regions, commodities, currencies and industries remains a key part of the company’s long-term strategy.

Master Drilling noted good demand with increased enquiries across the various regions and commodities, with this expected this to continue.

With volatility and uncertainty likely to prevail in global markets in the foreseeable future, the company remains cautiously optimistic that the resolution, or the minimisation of geopolitical factors as well as a measured, rather than significant slowdown in the global economy will create a favourable operating environment in time.

Various opportunities in first-world countries such as Australia, Canada and the US are coming to fruition and are expected to increase the group's footprint across the world in the near future.