Mitchell Services Limited

Good day and welcome to the Mitchell Services Conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press the star followed by the number one on your telephone keypad. If you would like to withdraw your question, press the star one again. For operator assistance throughout the call, please press star zero. And finally, I would like to advise all participants this call is being recorded. Thank you. I would now like to welcome Nathan Mitchell, Executive Chairman, Andrew Els, Chief Executive Officer, and Greg Svitala, Chief Financial Officer and Company Secretary. I would now hand over to Andrew, our first speaker, to start off the presentation. Andrew, over to you.

Thanks very much and good morning everybody. Thank you for joining us and thanks for the interest in Mitchell Services. I'll just move through the first few slides and take the disclaimer as being read and move straight to page four, market profile. So obviously the two main points here, Nathan Miguel our Executive Chairman and Major Holder with us here today and we'll certainly open up for questions at the end of the presentation and feel free just to address your questions to Nathan. And then obviously Scott Tunbridge, 7.3% holder, dream challenge and that was the business we acquired back in 2019, Deepcorp on the board there as well. So just moving to the business summary on page five, I'll just run through these boxes at a higher level and we'll get to it more as we move through the presentation. So this is obviously the half year summary, revenue up and heading in the right direction capex down as we've finished our major capital investment program now. All 12 of those rigs have been delivered, ramped up, transported to site and are now working and generating a return with global major miners. The average operating rig count, whilst it did tail off toward the end of the calendar year, was strong in that first half and certainly is improving again at the current point in time. debt has peaked and reduced materially in the first half and will continue to do so towards our target at the end of calendar year 2024. Obviously the share buyback has been on foot and was $1.5 million in buyback payments as at the end of December and that number is around about $1.8 million as at today and it's still on foot. So just on to page six, this is a slide that we put out there previously, and we expect a material increase in revenue on EBITDA in FY23. And even though we had a couple of challenges in the first half, we stand by this at the current time, notwithstanding factors that could impact us that may be out of our control, such as weather or other things. But certainly on the revenue side, we're looking good, and then EBITDA is certainly coming as we move forward. But I certainly think the business is in a wonderful position is continuing to grow and use the high quality assets that we do have. Just on page 7, again I won't run through that list of customers but worth noting a majority of our revenue is from those global mining majors, approximately 90%. The commodity prices are still high. There is a strong demand for drilling particularly in the steel making coal sector and certainly we have had some minerals contracts slow down or reduce and coal contracts start up and increase. So a little bit of a pivot within the business that did impact the EBITDA which ramped up, ramped down to move roots across into coal and where that stronger demand was. Obviously people would be aware that the utilization is pretty good at 81. Obviously there's opportunity to further improve that as we move forward. There's obviously been inflationary factors within the business as well. But those two factors combined are providing us with an opportunity to coming back and Nathan will probably talk a little bit about that as we move through the preso. The capital investment program is complete. The rigs are out and generating returns. That's been a very successful project for us and we can talk more to that as we go through the presentation. But those rigs already are around about $200,000 more each to buy now than what we pay for them. interest rates are a lot higher than what we locked our fixed interest finance payments at, all those rigs when we bought them. I think the board and the team made a very good decision in that investment. Then the last point there, obviously, the high-quality revenue streams, 90% from the majors. We split 50-50 surface underground. Gold's around about 50% and obviously 80% of the revenue is from mine sites and things like that. And just while I'm on this page, Nathan, I don't know if you've got any views or comments on the market or other things maybe? Yeah, thanks Andrew.

I think certainly timing is everything. Looking back now, the decision that we made to buy that new fleet at the low interest rates before the inflation really grabbed hold has been excellent. timing is so important to everything we do in this industry. The ups and downs, obviously we've seen coal really accelerate over the last couple of years and we're still seeing that growth in the energy sector and I think with what's happening in Ukraine and the war, that's probably going to stay reasonably high for the foreseeable future. It's certainly... a lot of interest coming back in that sector. Again, thankfully we run across the board between minerals and energy. We're not focused on one or the other. We probably don't see the highs of the highs in the mineral sector as some other contractors do and we don't see the lows in the low. So the ability to be able to switch from one or the other. Obviously inflation, you're probably hearing a lot of that and we're all seeing it in our day-to-day lives. Inflation does bite, has bitten a lot of us in wages and in blockchain and fuel. Luckily, we don't pay for a lot of fuel. Our clients pay for fuel. But still, those costs have increased significantly. Flights, as we all know, travelling around Australia, have certainly increased significantly, exclusively with Qantas. and those costs have gone up. But luckily for us, those costs obviously increased probably 12 months ago or six months ago, but we are seeing rollover, and Andrew will speak to that more, we're seeing rollover of contracts and we're getting those price increases to offset those inflationary costs. But like everything, it's about timing. your input costs don't always equal your increase in invoices. So there is a lag period and I think some of that you'll see in these figures today plus the one-offs that we've had issues with. But overall I think December is always a tough month with wet weather, always has been and I think we're going back to traditional sort of wet weather that we've seen over the years. But I think it's looking fairly good going forward from now on. We're pretty happy with the rest of the year at this stage with the reflating count. But overall, I think the mining industry as a whole looks pretty good.