Geodrill Limited

Good morning, everyone, and welcome to Geodrill's Q3 2024 results conference call. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question and answer session. Instructions will be provided at that time for you to queue up for questions. If anyone has difficulties here in the conference, please press star zero for the operator. I would like to remind everyone that this conference call is being recorded today, November 11, 2024. Before we begin, certain statements made on today's call by management may be forward-looking in nature and as such are subject to various risks and uncertainties. Please refer to the company's press release and MD&A for more details on these risks and uncertainties. I will now turn the call over to Mr. Dave Harper, President and CEO of Geodrill. Please go ahead.

Thank you, operator, and good morning, everyone. Thank you for joining us today to discuss General's third quarter results. Joining me also on the call today is Greg Vorst, our Chief Financial Officer. In the third quarter of 2024, we delivered another solid financial performance. Some of the highlights were revenue increased 13% year over year, EBITDA also increased 22% year over year. Net income of $0.06 for 8% of revenue, which compares favorably to a $0.06 loss for the same quarter in 2023. And we further strengthened our balance sheet, which is now underpinned by more cash than debt. all of which we believe elevates the success of our financial planning. We also believe these results are a testament to our operational and strategic planning success. For context on this latter point, recall 2023, our strategic decision to transition our rig fleet from Burkina Faso to more attractive jurisdictions. This has proven to be the right move, evidently. And while this decision initially impacted our revenue in fiscal 2023, we've now bounced back and we're stronger than ever. This business is all about contracts. Our success in securing multiple REIT contracts in new jurisdictions has significantly boosted our revenue visibility and profitability which demonstrates our commitment to financial stability. Also recall, earlier in the year we secured contracts totaling $150 million USD in our core jurisdictions. These works are now well underway and strongly contributing to revenue and profitability and will do so for the next three to five years. Meanwhile, additionally, subsequent two contracts the quarter end, we have secured new contracts in Chile, totaling circa 50 million USD. These include two very significant multi-rig, multi-year contracts, the new Tier 1 customer, and we also secured a multi-rig contract extension with an existing customer. With our strong portfolio of long-term contracts with Tier 1 customers, favourable pricing and a robust pipeline of opportunities, we are now confident in delivering exceptional value to our shareholders and establishing a strong platform for growth going forward. At this point, I'll turn the call over to Greg Borsk for a detailed review of our financial performance. Thank you, Greg.

Thank you, Dave. The company generated revenue of $34.1 million for Q3 2024, an increase of $3.8 million or 13% when compared to $30.3 million for Q3 2023. The increase in revenue for Q3 is primarily due to the successful win of two significant multi-rig, multi-year contracts earlier in the year. These contracts have not only bolstered our revenue, but they have also reinforced our market presence and operational capabilities. The gross profit for Q3 2024 was $8.4 million, being 24% of revenue compared to a gross profit of $5.8 million, being 19% of revenue for Q3 2023. Ebitda for Q3 2024 was 7.6 million or 22% of revenue compared to only 600,000 or 2% of revenue for Q3 2023. Q3 2023 was impacted by a 3.6 million non-cash credit loss provision relating to the aging of the company's trade receivables. Excluding the provision EBITDA would have been 4.2 million or 14% of revenue for Q3 2023. The net income for Q3 2024 was 2.6 million or six cents per share compared to a net loss for Q3 2023 of $3 million or a loss of $0.06 per share. We ended the quarter with net cash excluding right-of-use liabilities of $3.5 million. Building on Dave's comments, the record high gold prices are driving robust global exploration spending, which in turn solidifies the strong fundamentals for the mineral drilling industry moving forward. At this point, I will turn the call back to Dave.

Thank you, Greg. So just to recap, our strategic focus on securing long-term multi-rig multi-year contracts with Tier 1 miners has provided us with a stable and predictable revenue stream, which is crucial in navigating the cyclical nature of the mineral drilling services business. This approach has optimised our resource allocation and operational efficiency, in turn significantly boosting our profit availability. The synergy between our strategic long-term contracts and the robust gold and copper market positions us exceptionally well for continued growth and success. We are poised to deliver exceptional value to our shareholders and establish a formidable foundation for future growth. At this point, I'd like to extend our gratitude to our dedicated stakeholders, including our team, our shareholders and our loyal clients. Your unwavering support has been integral in our success. We remain committed to maintaining our high standard of service and furthering our position as an industry leader. This concludes our prepared remarks. I'll now turn the call back to the operator if anyone has a question. Thank you.

Thank you, ladies and gentlemen. We will now begin the question and answer session. Should you have a question, please press star, followed by the one on your touchtone phone. You will hear a three-tone prop acknowledging your request, and your questions will be pulled in the order they are received. Should you wish to decline from the polling process, please press star, followed by the two. If you are using a speakerphone, please lift the handset before pressing any keys. One moment, please, for your first question. Your first question comes from Gordon Lawson with Paradigm Capital. Your line is now open.

Hey, good morning. Congratulations on another good quarter. Your year-over-year revenue growth was once again impressive. I'm just wondering if this is mostly growth in Chile or has there been some outperformance in the African segment? Any disclosures you can provide on drill types and margins would also help.

The revenue, the year-over-year or the year-to-date, if you look at that, most of that growth is coming directly out of Africa. What we've disclosed, Gordon, in the Q2, the significant contracts in Chile, they're going to take effect starting in Q4, and they'll roll for three years through 25, 26, and 27. So what we have here today, mainly that's coming from Africa. Okay, that's fantastic. You had a question on the margins, too. I think on the margins, if you look at where we are year-to-date, significant margins, if you look, we were able to increase revenue year-to-date by 9%, so from, let's call it $101 million to $110 million. And I think it's important to point out, just in today's inflationary environment, etc., Key to that, not only were we able to increase revenue by 9%, we were able to maintain our gross margin. So if you look at the gross margin year to date, 2023, the gross margin was 26%. We were able to match that in 2024. We were able to, year to date, we also have a gross margin of 26%. Okay, that helps.

Thanks very much. Moving further down the financial statements here, your CapEx was a little higher this quarter than expected. Is that related to a higher volume of drill upgrades, or is this more in line with the expected run rate going forward?

The higher CapEx is for the contracts that we signed in Chile, which will be starting to turn in Q4. So we're ahead of that. A lot of the CapEx was spent in Q3, and it will be spent in Q4 also.

Okay. Thank you very much.

Thanks, Gordon. Cheers. Cheers.

Ladies and gentlemen, as a reminder, should you have a question, please press star followed by the one. Your next question comes from John Sars with Viking Capital. Your line is now open.

Good morning. So, Dave, I thought your opening remarks were very good. The only thing missing was, I think you should have said, quote, the board is therefore reinstating the dividend, unquote. Yes.

Yeah, you took the words right out of my mouth, actually, and we just had a lengthy discussion. We just finished up a board meeting this week, and perhaps Greg Borsk might prefer to comment on that.

Yeah, I think, John, we do have a few levers to pull. As you're aware, we also have the NCIB. We haven't used that yet. Typically, we use that when the share price is depressed. So I think the share approaching three, that doesn't really make sense. We also have a lot of institutional funds that are buying and looking to get into the stock. In terms of the dividend, we discuss the dividend. We look at it. even though we're net cash, we do have, we do have debt in, in, on the books. It's, it's expensive debt, 9.35%. So there's a lot of opportunities for, for the cash we generate from operations. And, uh, you know, as Gordon said, also, you know, there, we, we've signed some big contracts, uh, where, where we're operating the, the demand for drilling services is, is, you know, we're keeping up, but, uh, you know, our clients are constantly looking for more. So it's a balance, if you will. It's a balance between growth, you know, increasing the top line, continuing to add rigs, and then key is keeping the customer happy. And then, you know, we will continue to look at any excess cash and what best to do with it. And dividends does come up, but... you know, as I mentioned earlier, we had significant capex to get ready for some of these ramp-ups that we're going to have in 2025 and 2026.

Okay, thank you. I still think you should reintroduce the dividend, but it's up to you. Have a nice day. Thanks.

No, no, no. I appreciate your comments, John, and it's a work in progress, believe me, but we've just gone through a really heavy period of of CapEx to tool up and, you know, what happens when you sign a contract is the first thing you get is the costs are all front-loaded, front-end loaded. You know, we've just got to get the rigs in the field, get them turning and earning and the free cash will follow and you can be assured the dividend will imminently be reinstated, just not immediately. I'm on it. We're working on it.

Your next question comes from Jesus Sanchez with Caspinar Investment. Your line is now open.

Hi, and congrats for another great quarter. I have a question about the book order that we have. We mentioned or you mentioned that we achieved new contracts of $150 million plus $49 million in Chile after this recent order. So that will add year to date an addition of $200 million in contracts. Can you disclose the total order book value?

Jesus, sorry, maybe this is confusing. That $49 million will be spread out. The new contracts, the $49 million that we signed subsequent to Q3, they will be spread out over three years. So they will not be year-to-date, if that was the question. And same with the $150 million. The $150 million that we announced early in the year, Q1, Again, those are multi-rig, multi-year contracts.

Yeah, thank you for the clarification. I understand that. But they were signed this year. So this year we have signed $200 million in contracts that will be recognized as revenue in the following three to five years. I got that. My question is, how much do we have before how much is our order book?

We don't disclose that. And then maybe it's something we can look at disclosing going forward. We have long-term contracts, five-year contracts that were disclosed three years ago. We don't disclose that in the MD&A, but if analysts and investors would like to know the order book going out over time, we could definitely consider that going forward.

That would be great because, personally, that gives me some visibility about the revenue that is coming. My second question is a piggyback of the previous one that the other analyst made about dividends and buyback. Why do you will be favoring dividends over buyback at this price of the share?

The buyback we, in the past, we've typically viewed it as like a floor. kind of if the stock gets too low, we will put in a bid so that, you know, we use the buyback years ago. And what we were finding years ago when there was not a lot of volume in the stock, a small amount of shares being sold could dramatically, you know, impact the price of the stock. So when we were using the NCIB years ago, it was kind of to put in a bit of a floor on the stock. You're not able to move your stock up by your NCIB. You're able to kind of match the current bid. And what we found in the last three years is that there's been enough demand from investors and institutional funds, et cetera, where they're looking for stock. So it really didn't make sense for us. And the stock was... increasing. You know, we went from a low of less than two to up to, I think, 365 or getting close to four. So putting in the buyback didn't make sense. It was what we decided was more prudent to actually implement dividends as a return of capital. And then this is all tempered by what Dave said earlier. taking care of your customer and continuing to have that growth capex, et cetera, is kind of, you know, it's definitely in our balance of, you know, where do we spend our operating cash flow.

Perfect. Thank you very much, Craig and Dave, for your...

And Jesus, if I can just jump in for a second just to add to Greg's comments. We get the whole thing about share buyback. We get the whole thing about dividends. You know what the best thing is we can do with our free cash at the moment is just keep adding rigs because we have an ever-increasing demand for our services. As our rig fleet reaches 70% utilization, we automatically start looking at how much cash we've got and what we need to be buying to add into an ever-increasing demand for our services now. And that's pretty much what we're doing at the moment. We've just had a bit of a purple patch in terms of signing contracts. Let's get these all into work, start generating some free cash. And then the decision between whether we go dividends, whether we do share buyback or a combination of those will simply be a great problem to have. And it's coming, you know, it's coming imminently. Not immediately, but imminently.

Yeah, for what is worth, I totally agree with that strategy. We are in growth mode. We're still investing in CapEx, NewRix, Spanning, and time will be where we can give dividends or think about buybacks, but right now we are with our growth hat on. Thank you very much. Thanks. You're welcome, please.

Your next question comes from George Mella with MKH Management. Your line is now open.

Thank you. Thanks for taking my question. I'm fairly new to this story. I have two questions. One relates to rig relocations. I understand that you moved some rigs from West Africa to South America last year, maybe earlier this year. So I try to understand if that's largely done or if you have some rigs that you still need to relocate. And the second question relates to the seasonality of the business. I'm just trying to understand what is the seasonality and maybe if you could take that by geography. Thank you very much.

Thanks. So, yeah, we took a strategic decision in quarter two last year to reposition our, you know, we had competing priorities, if I can put it that way. We had opportunities in other jurisdictions and we were operating in a jurisdiction where we just saw better opportunities afar. And so we took the decision to relocate, redeploy REITs from one region Some were absorbed into West Africa. In fact, most of them were absorbed into other countries in West Africa. I think maybe... I'm not sure that any of them actually went to South America. South America has effectively been pretty much a standalone operation. It's, you know, it started and it started to generate its own free cash and from its own free cash, it's been growing nicely on its own. You know, we've grown that fleet from... We started five years ago with three or four rigs, and today we're up to 13 rigs that will be operating in that region, which is effectively being funded from cash generated from operations. So we're doing quite well. So the two businesses are going to continue to run, but run independently, and as and where we need to if we believe that their spare capacity in West Africa, which there doesn't tend to be at this point in time. But should it be the case that we have spare capacity in West Africa, then I'm sure it will be absorbed into either North Africa or South America.

Okay, great. Thank you. It was about the seasonality of the business.

The seasonality, just if you look at the quarters, Q1 and Q2 are typically our strongest quarter. Q3 in certain regions in West Africa were impacted by wet season. So typically Q3 is our slowest quarter. And then Q4, we pick up again, and then we're only impacted in Q4 by the holidays. A lot of the larger Tier 1 clients, they will shut down in advance of Christmas, and then they will not start up until maybe the, you know, a week after the new year. So, but that's, you know, we've been doing this for a long time. We know... Q1, Q2, we start ramping up for Q1 and Q2 in like Q3 of this year. We're ready for it. We know those are the two busy quarters. Q3, typically we have rigs come in. You know, if they need an upgrade or a service, that's what we use Q3 for. And then Q4, again... we know we're going to slow down a bit in around the new year, just before and just after. But that allows our staff to get rested, take their break, and gear up for a very busy Q1 and Q2. And that's what you see. And that's what we communicate every quarter. So that's it. And we were very pleasantly surprised with Q3 2024. when we used to kind of budget almost a break even, you know. But now that we've moved to Tier 1 miners and significant clients that drill more consistently, Q3 is now a profitable quarter for us. And you can see that where we were able to – not only reinvest into the fleet and the equipment, we were also able to generate profits here in Q3 of six cents a share. So it was a very, very good quarter, very strong Q3 for the group.

Great. Thank you so much for your explanation.

Thank you, George. Thank you.

Cheers. No further questions at this time. I will now turn the call over to management for closing remarks.

Okay, if there's no other questions, thank you, everybody, for being on today's call, and have a great day.

Thank you. Ladies and gentlemen, this concludes your conference call for today. We thank you for participating, and as I say, please disconnect your line.