Major Drilling Group International Inc.

Q4 2021 Earnings Conference Call


spk_0: the morning ladies and gentlemen and welcome to the fourth quarter two thousand twenty one results conference goal of knowledge to to new meaning over to miss santalla middle phone be glad it's been awful
spk_1: thank you and good morning everyone edmonton we would like to welcome you to leaders rolling conference call for the fourth quarter of fiscal two thousand and twenty one on the call we will have done a lot of president and ceo in iraq or chief financial officer or result were released yesterday evening and can be found on her website at w dot w dot major drilling dot com we all by you to visit our website for further information before we get started we'd like to caution you that during the conference call we will be making forward looking statements about future of and or the future financial performance of the company the statement are forward looking in nature and actual events or results may differ materially from those currently anticipated
spk_2: but statement
spk_1: i will now turn the presentation over to the needed to go ahead
spk_3: that years ago
spk_4: good morning everyone thank you for joining us today due to be continuous improvement inactivity well i'm proud to announce today that for the fourth quarter of twenty twenty one major drawing a few it is that quarterly revenue since two thousand and thirty most of the red rose came from north america which had a very busy ramp up quarter were activity has now well the fat free pandemic level oh project remain the key driver as we felt both feed your really miners increase their activity despite some project timing believe in south america and asia caused by the pandemic revenue for the order increased by forty four percent compared to last year as activity grew steadily during the quarter and beyond which provides with strong indications that we are well into the early days of in mining up cycle the strong growth experience in north america during the quarter impacted margin and with even in previous up bagel due to the ramp up costs related to training mobilization and felt cause to me it's strong pick up in activity other reasons were impacted by delayed and logistic logistical challenges relating to the pandemic looking into the fiscal year despite pandemic related when felt across the industry the company was able to return to profitability and produce it's it's revenue over the last eight years and we're still very early in the minds up cycle which ah this guy when talking about the ago the pigmented a quarter and we analysed the acquisition of mckay rowing poi with operations primarily in western australia a key geographic region in the industry where major drilling that not have a private if highly accreted acquisition is a meaningful part of our growth strategy providing us with immediate cash flow and a strong foothold in an important growth market with high barriers to entry in addition to a fleet of state of the art rate we welcome aboard a highly experienced the in with local knowledge longstanding regional relationship and existing contracts with leading blue chip mining company importantly major ethnic eight a major growing shared similar cultural values operational practices and a dedicated approach it with a double resort developing consistent with our global me if the framework with that ian will walk us through the quarters financial dad my for the gutter market outlook for to before opening up the call for question yet they need total revenue for the corner with a hundred and twenty eight when one million a forty four percent from revenue of eighty eight point eight million recorded in vain order last year a strong demand for drilling services resulted in her best quarterly revenue and twenty thirty the unfavorable foreign exchange translation impact on revenue for the quarter when compared to defect rate for the same period last year approximately eight million at the college eighteen pandemic resulted in significant volatility in foreign exchange markets in the last quarter of the previous you the impact on that earning minimal as expenditures and one jurisdiction tend to be in the game currency of revenue
spk_5: the revenue growth with generated despite to continue challenge the covenant games and jurisdictions whether the majority be them that the countries are beginning to ramp up as restrictions he you're all those magic percentage excluding appreciation for the quarter with eighteen point four percent compared to twenty one point five percent the same period last year the quick start up we saw in january continue through february march at the growth game and a rapid pace resulting in net murder pressure do to increase training mobilization and consumer spending we also encountered a number of covenant game related shutdowns and delays in a quarter as the third wave hit hard our certain regions demobilization day by labour costs not covered by customers lampard which off of in a negative impact on murder the fella caught behind us and coven nineteen restrictions loosening we feel margin should improve moving forward and cycle progress dna cards were up one point four million at twelve point five million when dependency in court last year increased manager the fact that the prior year quarter jenny was reduced by wage subsidies of six hundred thousand and the cave and govern in relationships to insulin back cover nineteen had our at operation the income tax provision for the quarter with two hundred eighty nine doesn't compare to an expensive ten point one million to the prior period the significant decrease with five by ten million dollar direct mission of different that that it's in relation to the unknown impact back nineteen in the prior to it net earnings were two point three million or three cents per share for the quarter compared to a net loss of seventy four point three million or nine two cents per share the crown court
spk_4: prior figures were impacted by goodwill impairment destruction charged for dax way down totaling seventy one point two nine
spk_5: place of federal labor costs and covered nightly will in an impact the company generate even death twelve million compared to seven point three million in the prior quarter the a game strong balance sheet the quarter which enabled us to respond quickly the growth opportunities presented to us men and quarter with net cash condition and six point nine million than selling point three million from previous quarter as i lied in the braves porter capita spending increased to ten point seven million which has caused by delivery dates of drilled ordered and que three that only arrived and cute for for the necessary interesting supported women to meet growing demand during the come during the quarter the company added seven drill as lol retiring nine older inhibition rigs and in the quarter the total breakdown of five hundred meet you with the adrian reason activity level of inquiries from around the globe make better capek budget and fit between twenty two to be approximately fifty million a mention subsequent quarter in the company completed the closing of the acquisition of all the authentic in the catering p t y limited specialized willing company located in western australia the deal structure and of cash portion on clothing of thirty nine point seven million australian dollars or broccoli thirty seven point one million kagan subject to working out cattle just the cash for some with funded using the company's cashed out and death facilities as well as issue with that one point three million common shares to in addition and or know of up to twenty five million australian dollars will be payable in cash of the next three years based on the achievements of certain milestones
spk_4: the twelve month period ending march thirty first twenty twenty one week a generate revenue of approximately sixty million and even bit approximately seventeen million australian dollars
spk_5: in conjunction with the closing that the june seven twenty twenty one the company successfully negotiated an increased with mean credit facility of twenty five million to an aggregate of one hundred and five million of which fifty million is currently used new breakdown of our fleet and utilization is as follows two hundred ninety two specialized drills at forty five percent legalization hundred and twenty conventional drills at thirty nine percent realization hundred and seventy six underground old and fifty nine percent you live nation for a total of five hundred eighty eight drills and forty eight percent you like this as we've mentioned before specialized work and our definition is not necessarily conducted with a specialized earl routed does work the require that we meet the rigorous standards of our customers in terms of technical capabilities operation city centers and other related factors over time we expect these dinner to become increasingly important to our customers in the fourth quarter revenue from specialized work accounted for sixty percent of our total revenue an increase to five percent in the broccoli we expect is trying to continue as long as elevated commodity prices support it a commercial drilling made up alone percent of our revenue which manager by the increased work from junior mine company and finally revenue from our hundred and early drilling operations with that twenty nine percent if we continue to grow at at this diversified fighters do we continue to see junior capital rating the in the field a percentage of junior revenue and maintain nineteen percent of total revenue contributing to the overall growth or business senior and intermediate remained at eighty one percent of the number of our customers that increased budgets for calendar twenty twenty one in terms of the marty gold projects represented fifty two percent of our revenue while copper with an eighteen percent this quarter continuing last orders trend we saw a gold dominate our revenue mix lol copper continue delay from historic norms we've got a is continuing to hold that multi your eyes and government infrastructure spending on the green economy in the works that to see an increase in demand for copper later a jailbroken and in certain regions but that overview on our financial results are now during the call back to the need to discuss the look
spk_6: the and
spk_4: have i mentioned before we're still very early in the sand mining recovery the main factor that has that facilitated growth over the last few months an increase of confidence in the future is that following six years of lack of exploration go replacement i've been identified as a significant challenge by at several vehicle companies with many having already made significant commitment to increase exploration activity and further develop existing projects also gold prices have now risen to a level where junior mining companies at the increase have seen increase success in obtaining funding for her repealed exploration although we have not seen much of an increase in activity from base metal players the prices of copper and iron ore have recently hit historical i which astrid of translate into more exploration activity in the near future as mining companies seek to replenish their depleting reserve at the same time we have seen government across the world and leaving significant stimulus program targeting renewable energy and electric vehicles which will require a huge amount of copper as well as battery metals looking ahead for fiscal twenty twenty two we continue to see an increase in inquiry from all category the customers and if they're by hit and plan progress as advertised we expected the you like they should raise continue to improve as cruz become available availability availability of skilled labor in bit the market continues to present an industry challenge in north america made drilling have increased efforts across are trained fenders with goal is to improve our retention rate for new hires and the qualified candidates for our dweller training program as competition at to attract and retain the most experienced drillers he thought we have also increased wages in certain areas to retain and attract the most experienced rulers which are t a high quality customer service although the shortage of experience joe cruise will put temporary pressure on labor caught and productivity especially air or in our most active market we expect the wider industry shortages and higher you live nation rape to continue to drive a more positive pricing environment and expedite margin recovery as we progress to the bible further offend democrats fiction even south america we expected the an increase in activity at drawing programs resume and place like chile and argentina but we believe that where we are in the early stages of a strong up cycle in the drilling that mid primary do for the strongest right environment and the growing need to mind for copper major growing and by deal elite position to participate in such and up by go for the last two years we've been laser focused on maintaining the condition and efficient theoretically and are strong financial position if that the unique ability to respond to meet our labor our customers the man for rape riding the
spk_5: the melodic with me and acknowledged
spk_4: we believe the investments we have made ahead of the a cycle including the mckay up with june will ensure we meet their customers i have foundered which is key to our ability to remain the leader and specialized drilling and retainer contractor choice that is for major an intermediate producers or approach also ensures the attract and retain the best people at a time when the industry is heading towards
spk_7: the labour crutch
spk_4: finally major drawing more than three thousand employees continue to be integral to our strength as a company and i would like to express our ongoing abbreviation to all we also want to thank our loyal customers for their trust as well we wish to thank our shareholders for your continued support your company could be used to be a unique diversify market proxy for the mineral sector around the globe would a high quality fleet and operation ideally positioned the after the industry up faithful either we look forward to a brighter future with that we can open the call the question operator
spk_8: thank you
spk_0: please best down one at this time you can have a question there will be a ripoff ma participants like just awful questions we thank you for your patience office question is some gordon often some padding capital please go ahead
spk_9: ah will thank you for taking my questions arms the can you elaborate on a milestone achievements related to the mckay acquisition and are your expectations of making it additional payments
spk_5: yet i'm sorry your second question they didn't get your second question
spk_9: on your expectations of making the additional payments i believe it's twenty five million
spk_4: yeah ah well as yeah have the the mckay i put this in ah for us we have we're very happy it's in if it it's a very busy market and a market where we were not ah probably around the world the with canada the top to market in terms of the exploration at the moment
spk_10: so bright that it was a market and we were looking at at as for awhile and and mckay is one of the top industry players in the in in that region and so for us it it made a lot of sense entered the van expectation for the
spk_11: ayman it is
spk_4: it is and are now basically over the next three years based on a certain targets ah achieving certain targets and and and it will be paid the
spk_12: over the next three years said there's if there's a slated for over the next three years i had to be paid again depending on the teething it
spk_13: certain targets
spk_9: okay but yeah
spk_4: you can provide a little more color on that
spk_12: no in terms of is going to target that
spk_9: nope we were not disclose that information okay
spk_4: but the majority of the contracts with mckay are you mansions on that different commodity so are these are iron ore related and of with the commodity prices were they are are you planning on continuing to diversify away from gold yeah i i mean that the western australian market is is that there's a lot of by and or over there so ah just the low more than half of their revenue comes from iron ore and then not the bulk of the rest comes from gold ah solo bradford it give back to your appointed give that they're loaded of diversification from go there with the the iron ore presence over there when you say we located that we be looking to diversified from gold that we we always be we dwell rock the main comes from the which which commodity in is more active and we expect that copper will be ah over the years to come at coppers gonna play a bigger role with the in the shortage in the the big the a deficit that's coming
spk_9: on copper and the fact that there hasn't been much expiration carried out by corporate companies over the last six seven years so we expect copper and other base metal vez wow the that factor in into that which will
spk_0: it decrease or or exposure to go
spk_14: okay great that the for me thank you very much
spk_7: you think you thank you my next question is some damningly off on tv security please go ahead
spk_9: the money years
spk_4: from first question is is around the at the margins in the quarter and and i guess if there's any detail you can give us on the magnitude of of the cost drag by bucket so just a guess what i'm trying to get to it you know what what would a normalized run radio dot margin look like currently i'm if if some of these rigged mobilization and and wrap up costs were stripped out yeah wow i mean the when you look at the margin that we had in our second quarter ah that's probably the the normal where ah where we weren't so you know the doubt that between those two ah would be ah would be that the that that the shortfall he might that see my faith in that shortfall is really impacted ah for example in canada we grew just from the second quarter we grew thirty three percent our the new that's a big job and and and that was done through a quarter as we saw a progression you know february march april and the on so basically what it what happened when feel is when you mobilize those rates you've got mobilization cause that are
spk_15: all expense of right we don't differ cause all know you know that the the the pricing of the job is we were going to make it were going to make that bonyad the job you know better going forward by the with the of the with upfront cause of consumable that are sent to the field mobilization
spk_5: trading people induction all that there's there's heavy and then so when you have those big ramp up all of it felt like i said in canada yeah yeah yeah have my get a thirty three percent that the lot of people like going through
spk_4: the system and that that the again no lot about front paws go to that why did they get a big impact and and while the in south america and in asia we had still cold colvin nineteen impact in terms of god shut down or our delays and there are pros with call vid has been and even with we're old back the clock a year ago we mentioned that were even back in in march last year we mention that are he was retention so we still pay or or people although rigged might be idol
spk_16: so that's another layer of of of cause some time that it with colvin when you and up ah
spk_17: because again retention is key and a said it it's short term pain for long term gain begin with but if we let those people go they'll be they'll be going somewhere else and then when the when we things faith we recovered will be scrambling to find people so
spk_18: so those are all impact that are hit that quarter ah
spk_19: ah
spk_14: so i hope that answers your question yep know that that's good the that it a good contacts thanks
spk_20: am i get that sort of parling into the second part of the question is when i think about south america getting up and running and and you're covered being added to the challenge it sounds like they're against how big is the revenue opportunity and the current pipeline and i you called out show in argentina
spk_16: and are you can see a similar costs drag you ramp up to achieve that pipeline
spk_4: it's america yes part of south america is is a much smaller portion then then there are north american business so the the impact of the ramp up there would be it is smaller plath we already have people in that system
spk_21: i to be able to so we're not at the same point as the or in canada in terms of labor as shortages although it's still
spk_4: a low challenge by it's not the same at the same level so i wouldn't expect to have that much of an impact of we had a with that a ramp up in man in the south america ah and in terms of the the the ramp up on volume ah it is gradual it is improving a week by week ah but that situation they i mean you if you go read that things are still evolving on that corbett restrictions were just lifted in chile
spk_22: heavy restrictions were lifted in may and projects are starting to get organized and things are starting to get out there so
spk_4: so it's gonna be a gradual ah pick up class actually chilean heavily weighted on copper so we're waiting for the copper ah pick up and when copper come a day till you will be a big guy at a little lad
spk_19: basically will will be
spk_23: positively impacted and from that
spk_0: okay that that's great thanks for much on on get back in the queue
spk_5: a gift
spk_4: following question is some and any prof people gmp peace go ahead
spk_16: a good morning i'm just one question for me today sort of a follow on to devils question about normalized run radio but that is there any sort of color you could provide on the expected pace of reckoned you increases and how it winds up with costs
spk_4: yeah lol we we don't get guy and in terms of the at in into the ah by as i mentioned what we've seen through this quarter a ride home road month by month and why did oh okay find it can give you some indication i had a day that that eighteen growth that we've seen over the last in all my by my is continuing as we move through this first quarter
spk_24: and then in terms of course the bulk of the we this quarter with exceptional ah in terms of their level of the level of upfront costs as because we basically we we went from there you know our third quarter and we ran a whole lot
spk_25: rapes all at once in the field which basically have all these caught now if more incremental as we progress
spk_0: going forward so you shouldn't have the same impact on their on margins
spk_14: merging like cube what might have just been non exception than
spk_26: yet okay great thank you so much
spk_16: thank you are following question is some a mad sat from beacon security please go ahead
spk_4: go go morning i rarely couple for quick was for me i just confirming that the current the impact on the cob wine with around their negative eight million
spk_25: image and gotta be a cop
spk_26: draft okay let's great and then just that maybe a follow up on the ramp up the question much of you're able to give us more color but maybe is that across all regions of the you can you can continue to see ramp up my uncle of mine are you for going on top in north america while the other do there are catching up yeah it it's still at it still alive driven by north america by the other in there are improving as well though it is it a the norwegian bowl still at north america is still
spk_4: if if it's still low enough and in don't forget where adding make a that quarter as well push your luck that's good think that he and and and last one for me you mentioned on them and labour mine up put some laid on on productivity as well at labor shortages so if dowager an issue how should we think about your lives easier and and your productivity levels and as a and and and sponsor what the us i guess it's all the not that them back the north america not the other regions you can confirm that as well yeah have the biggest impact on labor shortages in north america but ah going forward our pride thing as we add raise our prices are reflective of that decline
spk_27: where we need a goal is to improve ah the basically improve margins and so it needs that cover productivity and more ah our and going forward so it and in our customers recognize that
spk_4: they they recognize that ah labor is an issue than that wages and so we're having bought the conversation with customers
spk_26: ah when it comes to that end the right now it's more about getting a drill then own then
spk_28: it basically discussions on price although the and authors there's always the price is always that is always part of the discussion but a lot less than it used to be because right now it's more about that
spk_4: you know what
spk_16: how many cruiser rapes can use of lie in and and when so it's it's more about that
spk_29: and i guess what it was starting to get out of that that there's labor shortage hasn't really hit utilization like you would endure had the ball deployment just because you couldn't find skilled labor and he or sworn that hello that this has become an issue writers are sitting in a matter of cost them and agreed to be guys ever been up to two to get going
spk_4: i get the and yeah overall of know but i would say that certain specific regions ah for example certain area in canada that it is that it is an issue it
spk_30: sometimes
spk_16: in terms of that a ability we might not be able to for a specific region in terms of if labour
spk_26: it's not that we can't the firing right away it's said we can't the by it right away it
spk_0: it's more there's a training aspect and finding out that to it in durham though that they're bringing it on so but that's only very specific regions it's not as silly across the board ah across the company it again localized but it is
spk_31: not downplaying the that if it is still an industry issue that there were all facing the that regard through think the me outdoor them back in the kid
spk_32: you
spk_33: thank you once again please dress dar one at this time for any questions or comments
spk_34: following question is some james may all from a cardiac advisors please go ahead
spk_31: thank you the morning guys
spk_5: did you said the south america was small is there any possible negative impact from what's going on in peru
spk_35: ah lower not in peru
spk_36: oh us
spk_0: so for i think there's no impact on that
spk_28: and
spk_37: yeah
spk_4: okay and then a quick follow up you had a positive impact from i would what appears to be a us tax was carried forward in the quarter was it was that one time was at that to continue for a bit no it was a a one time we believe operations in the in the us armed robbery okay thank you thank you following question a farmer ahmad shah from beacon securities please go ahead and so linear one more on on on the catholics plan would you be able to give that maybe some cologne the number of raise apply to add and any specific regions that that it's a big it's number in about eight or seven years
spk_38: they'll did it
spk_34: yeah the word basically projecting fifty million ah
spk_4: the part of that it exists a equipping wraith with that try and and feel repugnant and everything and we put more rate in the feel like as wow ah for example in north america
spk_37: wow we are at the man is is increasing on the underground part so we're looking at adding more underground rate to her fleet and a in as allow for the we're running out of people read
spk_8: in the in canada and we're looking at adding some of those and for the most part all those read that
spk_0: are slated are gonna be going to work right away we've got raped on order right now that will be coming they've been throughout the year and most of those rates are already earmarked
spk_4: to go to work on that the to the contract does it is it possible to give us the again and again why would you expect your end of the school year and two terms of recount no we we don't as we don't go into that that effect it it's gonna be dependent on and really on the market how the market evolves great think that ugly thank you
spk_8: do we have no further questions i just i this time i would not like to china meeting backlit in eastern iowa
spk_0: up a few and n again a i i to have a bank or employees with is that if his or or fiscal year we defended and now it's been

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