[miningmx.com] – MASTER Drilling Group is providing some good news in a mining market dominated by shrinkage and austerity. The JSE-listed drilling company has racked up an order book of $200m in the first six months of this year, double its entire revenue line for the last financial year.
“Some of that revenue is over three years but we’re not seeing any contraction yet,’ said Danie Pretorius, CEO of Master Drilling Group of the mining market. Mining exploration globally is being reined-in, but most of Master Drilling Group’s contracts are part of production in the development of orebodies.
“If we see any effect on the market we won’t feel it for two to three years,’ said Pretorius. It was for this reason the company was constantly seeking new markets. It is currently trying to find a way into China and India as well as other parts of Asia.
Master Drilling Group, due to close its books on the interim period shortly, bucks the trend of other mining services companies globally.
Stockholm-based Atlas Copco, the world’s largest maker of air compressors, posted first quarter net income below analyst expectations owing to caution by mining firms. Sandvik, the world’s biggest maker of metal cutting tools reported a decline in first quarter profits while Caterpillar, the dominant mining equipment maker, cut its 2013 profit forecast.
They all cited poor economic outlooks as lower GDP growth in China has led to a decline in commodity prices. This has, in turn, pushed mining companies into reconsidering ambitious capital projects. Commentators have called an end to the so-called super-cycle in the mining sector.
Master Drilling listed on the JSE in December amid almost no fanfare but it is well supported with some 30% of the stock scooped up by Investec and Coronation Asset Managers. Afena Capital also owns the shares. In fact, so well supported is Master Drilling that for general investors, securing shares is tough.
That could change in the coming years. In the meantime, it’s worth picking up some themes on why Master Drilling could provide access to the long-term prospects of extractive industries without the short-term cycle risks.
The company was founded by Pretorius who noticed while at Murray & Roberts there was potential in the drilling industry if only because it was deemed somewhat non-core to the civil engineering sector.
Having secured the drilling contract at De Beers Premier mine, Pretorius had the bones for a business that really benefits from scale. The first few years were difficult, but after securing 15 to 18 machines, the rest was just about discovering new markets.
Today, with about 90 machines under its belt, about half of Master Drilling’s work is overseas which makes the company a useful rand hedge, especially as its costs are denominated in rands.
The company makes all its own drills at its Fochville offices west of Johannesburg. Pretorius’ offices sit in close proximity to the workshops and within driving distance of many of its clients – the gold mines of Carletonville and the like.
Some $40m or R320m was raised at listing of which R190m had already been committed. The rest is being kept as a healthy cash balance. Pretorius approach is conservative, but not insular.
“We follow the mines around wherever they are operating. So we’re now looking at working in Saudi Arabia. India is opening up. Investors like the idea of being first movers in a region,’ said Pretorius.
Surprisingly, Master Drilling was operating in South America before it really established a foothold in Africa. For instance it first touched down in Peru 15 years ago just before the economy “exploded’, says Pretorius. It has some 90% of the market share in that country in its niche.
The importance of the geographic spread is that it derisks the company somewhat from the normal mining cycle. The fact Master Drilling also offers services across all commodities also spreads the risk.
