Geodrill Limited

Good morning, ladies and gentlemen. Thank you for standing by. For today's call, participants are in a listen-only mode. Following the presentation, we will conduct a question and answer session, and instructions will be provided at that time for you. If anyone has any difficulties hearing the call over the phone, please press star zero for operator assistance at any time. I would like to remind everyone that this conference call is being recorded on Monday, March 4th at 10 a.m. Eastern Time, and is being broadcast live via the Internet. During today's call, management will make statements regarding management's expectations for the company's future financial and operational performance. These statements are considered forward-looking statements. Each forward-looking statement speaks only as of the date of this call, and actual results may differ materially from management's expectations for a variety of reasons, including market and general economic conditions, and the risks and uncertainties detailed from time to time in the company's CDAR filings. I will now turn the call over to the President and CEO of Geodrill Limited, Mr. Dave Harper. Please go ahead, sir.

Thank you, Operator. Good morning and welcome to Geodrill's quarter four and 2023 fiscal year results. I will begin with an overview of our operations and performance for the fiscal 2023. After which, our CFO, Greg Voss, will discuss present and present a detailed analysis of our results. Additionally, I will provide some insight into our outlook for quarter one, 2024 and beyond. In the latter half of the year, CEDAW encountered significant challenges. However, we firmly believe that the underlying fundamentals of our industry provide us with a strategic perspective. The market forces that affected overall performance over the past two quarters are, in our assessment, independent of the sustained development for resources in growing production economies. This demand is expected to persist over the long term. Operationally, we'll replace hurdles related to rig repositioning following our exit from Burkina Faso. South America also posed unexpected delays, impacting both revenue and costs. Specifically, the winter shutdown in the region affected regularization, while operational costs remained high as we maintained readiness for Q4 ramp-up. On the financial front, in fiscal 2023, our auditors enforced IFRS 9, due to an enduring aging debtor situation. This resulted in a non-cash provision totaling 5.4 million US dollars in profit for the year. Despite these challenges, Geodule remains resilient. As we pivot away from junior exploration companies, we recently secured a number of multi-year contracts with Tier 1 miners, including First Quantum, First Quantum Rio JV in Peru, Antony Augusta Barrack JV in Chile, and in West Africa, we secured a number of multi-rig, multi-year contracts with tier one customers. Geodrill has operated in West Africa for 25 years and has invested a significant amount of capital into its growing fleet. We believe Geodrill is poised to navigate the complexities of our industry with determination, adaptability, and an active and experienced management team. I'll now turn the call over to Greg, our CFO, to review the financial highlights for fiscal 2023 and quarter four in detail. Thank you.

Thank you, Dave. As a reminder, all figures are reported in U.S. dollars. We generated revenue of $130.5 million for 2023. representing a decrease of 8.1 million or 6% when compared to 138.6 million for 2022. In Africa, our three primary countries in which the company operates, being Ghana, Cote d'Ivoire, and Egypt, revenue increased on a year-to-year basis by 6.7 million. Notably, in Burkina Faso, revenue decreased by approximately 11.2 million on a year-to-year basis. Geodrill made a prudent decision to wind up its drilling programs due to the security concerns and redeployed the rigs to other countries. In Chile, revenue increased by 4 million, however, Revenue decreased by $1.8 million in Peru as the company only recommenced drilling in Peru in the latter part of the third quarter. Overall, gross profit for 2023 was $30.6 million, being 23% of revenue compared to a gross profit of $40.6 million, being 29% of revenue for 2022. EBITDA for 2023 was $20.6 million or 16% of revenue compared to EBITDA of $38.4 million or 28% of revenue for 2022. The net income for 2023 was $3.8 million or $0.08 per share compared to net income for 2022 of 18.9 million, or 41 cents per share. We ended the quarter with net cash, excluding right of use liabilities, up 3.7 million. With the gold price well above 2000, we are optimistic that global exploration spending will continue to be strong. and will provide strong fundamentals for the mineral drilling industry going forward. At this point, I will turn the call back to Dave.

Thank you, Greg. As we transition to the Q&A segment, I'll now share an outlook and highlight growth opportunities for the remainder of quarter one, 2024 and beyond. We commenced 2024 on a positive trajectory. Our operations in Ghana and Egypt continue to excel, bolstered by partnerships with T1 mining companies and robust multi-year contracts. Also, notably, our utilization in South America has increased and currently stands at 85%. Our 2024 outlook is robust with a strong order book in our core regions. Excuse me. South America... In particular, it was poised to be a significant contributor to our revenue. Turning the corner, we firmly believe the changing quarters are now in our rear view mirror. Our strategic adjustments and resilience positions us for a positive trajectory. We continue to leverage our experience drawing upon decades of industry experience and we remain committed to operational efficiency and allow our seasoned approach to guide us. Our business philosophy embraces flexibility within the day-to-day realities while our commitment to our core values ensure shareholders is unwavering. This concludes our prepared remarks on our financial calls and I'll hand over to the operator to commence the Q&A. Thank you.

Thank you, Mr. Hopper. Ladies and gentlemen, if you would like to ask a question at this time, please press star followed by one on your touchtone phone. You will then hear a three-tone prompt acknowledging your request. And if you would like to withdraw from the question queue, simply press star followed by two. And if you're using a speakerphone, you will need to lift the handset before pressing any keys. Please go ahead and press star one now if you have any questions. And your first question will be from Gordon Lawson at Paradigm Capital. Please go ahead.

Hey, good morning, everyone. My questions mostly revolve around modeling and helping to forecast and sort of even a multiple here for valuation purposes. So are you able to expand on your outlook for 2024 in terms of regional growth and perhaps what we should expect for total revenue?

Sure. Regional growth, it's kind of the same. Right now, what we do, as I mentioned in my commentary, West Africa, we're doing extremely well in West Africa. Our three primary countries being Ghana, CI, and Egypt. We're continuing to add rigs for clients there. We're also securing new jobs. We're securing larger jobs, multi-rig jobs. A few more on the horizon that hopefully we can announce later in this quarter or in Q2. So, very strong foothold in West Africa, and we expect that to continue in 2024. Egypt, again, we do extremely well in Egypt and we're actually in the process of adding rigs there also for existing clients and new clients. In South America, South America was challenging for us in 2023. We were really impacted by the weather, the winter shutdown. We made the decision to, you know, to keep our staff there, keep our infrastructure, keep everything. Really, 2023, we needed to invest in South America. And what Dave said now, what you're seeing, we're busy in South America. We're drilling both in Chile and Peru, and we're looking at a few more opportunities. So we're optimistic now. geographically that our existing markets will continue to improve, will continue to add rigs. And for South America, we think we have that one. Starting 2024 and as we get through Q2, Q3, Q4, we're a lot more optimistic on South America this year than we were in 2023.

Yeah, and I understand 23 had some certain political issues pulling out of countries, and that's seeing your costs increase through the year. Can we expect that to return to levels, maybe not perhaps as high as 2022, where your gross profit was 29%, but would a midpoint between this year's 23 and 2022's number be a reasonable assumption?

Yeah. If you look at the We target a gross margin between 25 to 30%. And, you know, if you go back years, it was 26, 26, 26. It spiked up to 29% in 2022. And I think we try to tell everyone 2022 was a record year for us. Revenue rose. went up 20% over 2021. We went from $115 million all the way up to about $139. So that's why you really saw that, call it an average of about 25%, 26%. 2022, we got up to 29%. 2023, we were below our expectation. We were below 25%. And we talked about the reasons. The South America is one I won't revisit that, but the pulling out of Burkina. Pulling out of Burkina was a strategic decision we made, and it's for the long term of the company. It's truly an investment. We had significant revenue in Burkina. We had very good accounts in Burkina. We did well in terms of drilling and profitability. But it just wasn't safe. The security concern in Burkina, we had to move those rigs. And you just don't move rigs. It takes multiple quarters. But what we tried to communicate in the MD&A and when we're talking to analysts and investors, we're out of Burkina. We are totally out of Burkina. Those rigs have all been moved now. They've all been redeployed. and most of them are out drilling in other countries for other customers. So we really have Burkina Faso behind us now.

Yeah, I'll just quickly jump in there, if you don't mind, Gordon, and just add just a little bit more color to what Greg is saying, and that is that in taking that decision strategically to pivot away from Burkina Faso, We also looked at our customer spread and realised that a lot of our problems were coming from, as we alluded to on the call, the fact that we have to take a provision for some problematic customers in terms of not being able to raise capital and so on and so forth. So whilst making this big adjustment, this big pivot that we did through quarter two, three and four, We've also really focused our marketing efforts towards the tier ones and we've been very successful. We've actually come away following that exercise with probably one of the largest haul of contracts that I have ever seen in the history of this company. Now, a lot of these things are still being inked. We have provisional letters of intent in place and rigs are actually currently mobilising But we'll be talking more about that a little later, probably some ways around when we announce our Q1, I guess, because we'll have everything individually mobilised and we'll be turning and earning. Then, and only then, we'll truly have an idea of what that margin is going to look like. But you can appreciate that working for a junior and an intermediate versus working for a tier one on the you know, a three to five year contract with, you know, double digit numbers comes with margin compression. You appreciate that, I'm sure. But on the flip side of that, we're, you know, working for cash generating customers that are not beholden to the capital markets. And this literally secures our future for the next wave of growth. So I'm really, really excited to be talking at about that in small part now, but we'll be able to expand on that commentary as the year progresses.

And in the past, you've provided separate press releases on major contracts. Is that something we should expect in the coming quarter? Yes, in a way. Okay. Excellent. Thank you very much.

Thanks, Gordon.

Thank you. Next question will be from Brad Verbitsky at Equinox Partner. Please go ahead.

Good morning, Brad. Hi. Hi. Good morning. How are you guys? Good. Good morning. Thanks for taking my questions. One question regarding the receivables. So there are $15 million of receivables that are 90 days or greater. And I guess the $5 million provision you took, so I'm curious if that's like a company that's now defunct and the remaining $15 million is, you know, with companies that are still around, or is there just $20 million of receivables with a bunch of different companies that, you're taking a provision and assuming that, you know, you're just taking some provision there because 90 days are greater. I'm just wondering if there's any sort of more color you can give around those receivables and sort of the probability that they get paid.

Yeah, it's actually the latter, the last one you mentioned. We have to look at this on a portfolio. We disclose it on a portfolio basis, so you're seeing overall. But within that, there's different companies. Management goes through an exercise where we look at the company, what is the expectation for us, for us to get paid from that company. Um, you know, are they a junior? Are they going to need to raise capital? Uh, we look at, you know, are they a private company versus a public company? The, you know, some are, some are even larger, you know, some are, some are producers that are just taking longer to pay. So it's, it's not just one company, Brad. And, and it's, um, We do a probability analysis. We put a lot of time and effort into this and we update our models every quarter. We monitor and we have discussions with them. A quick answer is it's just not one company. It's kind of a basket of all of our receivables. We look at all of our receivables. Some we don't have any provisions for. Some they actually pay early and they want a discount. There are these these a few companies that are taking longer and it's skewing our agents. So we've taken a provision on them.

Are there, you know, 90 days and greater, are there any that are 180 days or greater or 360 days or greater?

Well, yeah, some are, some are, some are old. Um, we just, we just disclose them at over 90 and then we have to take our percentage on that. But, uh, Yeah, we're working through – you can tell that kind of just – I think we started really – we disclose this every year, so we had the over 90 last year. Some get paid. Most pay the older balances, and then if we're still drilling for them, we'd switch to current, if you can follow that. But, yeah, there are some that are well over 90 days. Okay.

What's your rule in terms of when you write them off? Are they written off completely after a year? Obviously, you still go after them, but what's your rule around that?

Well, it's when do you fully provide for them? When we have an expectation that we don't think we're going to get paid, we may then have to involve our corporate lawyers, some of them They don't have the ability to pay. What's happened in most of these situations is if it's a junior, we'll take a deposit and we'll drill. Sometimes they go slightly over. Some of these ones are older ones that we've drilled for years. And I think their expectation at the start of 2023 was that they would be continuing to raise money. And that wasn't as easy as they thought. So, you know, this has really been a 2023 problem. If you look at Geodrill 2021-22, we did not have significant provisions. It would be the odd one. But we really saw... in 2023 and mainly with the juniors in the past accounts that would raise money and drill and raise money and drill, et cetera, go through that cycle. They weren't actually able to raise that money. So we're continuing to work through these. We, you know, some, some we're talking about being creative, others we have on, you know, small payment plans, but, It's just a bit of a function of 2023, and I think the capital markets, and as Dave said, we're moving away from these kind of accounts, and I think everyone is, because the capital markets for juniors are pretty tough, and it's easier for us to get the larger accounts that have the ability to pay the producer's they want to pay early, et cetera. So, um, but yeah, there, there are some, uh, receivables that we're continuing to work with.

So, um, have you changed your rule in terms of what, like, it seems like it would be prudent for you going forward to, to change in terms of how you, uh, decide to, to, uh, I don't know, just change how you're deciding to, um, get paid or maybe you're not going to get paid? I'm just curious.

What have you changed there? These days, Brad, in cash we trust. And as we take on a new client these days, we like to see their financials. If they're a private company with intentions of going public, it's cash up front. At least 50% of the contract will be up front before we mobilize. And that puts us in a situation where we have revenues coming in and we wouldn't have worked out that 50% by the time the account is due. And so if the account is not paid within our standard 30-day terms, I would just turn the rig off. It's that simple. Demobilize. Now, we're not going to find ourselves in a situation like we found ourselves in 2023. You know, the 2023 problem is, you know, we've been operating for 25 years. For 25 years, as Greg mentioned, we've only had one or two. You know, it's a rare occasion when we have to take a provision. Last year, 2023, we were people left, right and centre. Now what's, you know, just look out the window. What's happening out there? You can Capital markets are in a mess. Mining is not sexy. Very, very difficult for our customers to raise capital. So what are we doing about it? Well, first of all, you haven't got money. You can't come with a story that you're raising capital. That just doesn't work for us anymore. It's cash up front, and we turn the rig off when you stop paying. The other thing, of course, is that we've pivoted away from at the junior end of town and even the mid-teens to an extent and focusing on those large names. Those large names, you know, producing gold at 20, I think today's price, $2,100 an ounce with an all-in sustaining price of $1,100, $1,200 an ounce, which would be the average across our customer base. So they're churning cash out. They're not having any problem at all. drilling and paint. And so that's where we plan to be, and that's where we're going to settle for now. That's what we're doing. That's what we're doing. We're not sitting around waiting for this problem to sort itself out. We're fixing it. And to do that, and to take that decision that we're going to pivot away, it's not a five-minute exercise. It takes time. Winning a job with a tier one... It can take from the time of bid to the time of mobilization. It's a six-month process.

If you look at our balance sheet, we have $110 million in shareholders' equity. We look at our accounts receivable, even after the provision, our trade receivables, we're $32.7 million. Our payables are only $23.4 million. So we still, like, we've had these collection issues and these collection problems, but in terms of Geodrill and the strength of our balance sheet and our 25-year history, we've made the decision to pivot away from the juniors unless they can give us a significant deposit. But, you know, we'll get over this. It's not a – it's something that – you know, we've dealt with in 2023 and, uh, you know, we'll continue to, we'll always continue to, to support the juniors and drill for the juniors. It's just, they have to pay a significant amount of the, of the drill program, if not at all up front now. So, uh, and then if you look at the rigs, you know, look at our rigs, just the strategy of moving towards the tier ones, there's, there's less rigs available for the juniors. So, um, We're working on it, and I think as we get through 2024, we'll continue to work our way out for us.

Okay. Thanks for that, Culler. Just one more question for me. When I'm thinking about your SG&A for this year, obviously you had the $5 million, I guess $5.4 million read out last year in it. If I were to model it going forward, it would be you know, the 2023 number minus the $5 million, or is there other costs in there that should be lower, or how should I think about that?

Yeah, no, we're able to keep it. That's a good question, good point. The SG&A was skewed significantly by the allowance provisions. We try to model our SG&A at about $11 million, 10, 11% of revenue. Okay, so we're hoping our SG&A is exactly what you said. We're hoping that the revenue, get the revenue up and only increase the SG&A incrementally.

Okay. That's it for me. Thank you. Thanks, Brad.

Once again, ladies and gentlemen, if you do have any questions, please press star followed by one on your touch-tone phone. And at this time, since we have no other questions registered, it does conclude your conference call for today. We would like to take time to thank you for attending today's call and ask that you please disconnect your lines. Have a good day.