EVEN without the onset of the COVID-19 lockdown, Master Drilling CEO, Danie Pretorius, says the sun is slowly going down on the firm’s South African business in favour of new opportunities in developed economies, as well as in other parts of Africa and in South America.
Master Drilling, listed on the Johannesburg Stock Exchange, provides specialised drilling and logistics management to mining and exploration companies. Its headquarters are in Fochville in Gauteng province, just down the road from Potchefstroom, a small ‘city’ in North-West province.
It is a uniquely South African company, but with few prospects in the country; more so, since news last week that Northam Platinum had cancelled work on an innovative mobile tunnel boring machine, according to an article by BusinessLive.
“We have had a run in the South African space owing to platinum group metals and if not for COVID-19 we might have had another couple of years of good runs. A capital commitment from Northam Platinum gave us a lot of runway in this space,” said Pretorius in an interview last month before hearing of the cancellation.
“But it’s very clear to us from what people such as Neal Froneman has said (CEO of Sibanye-Stillwater) that the future is away from South Africa. Coal is not in our game plan and the diamond industry we don’t think offers a lot, but beyond Northam there’s not too much we can offer actually,” he said.
In any event, Master Drilling is facing something of a strategic overhaul. “There are two things we can be sure of: volatility and uncertainty. It is part of our lives today. The way we set up the company and the way we manage the company will be critical in the future,” said Pretorius.
“We need to look at the amount of people in the business and we are getting to the point where we need to consider the layers of management that we have. Call them overheads. And then there’s the capex being spent in the group. We need to rethink and look again.”
Master Drilling reported a 3.7% decline in dollar-denominated headline share earnings of 10.3 cents for its 2019 financial year. It passed the dividend and cut maintenance capital to about $3m from about $15m in previous years.
Deciding to pass the dividend had also saved the company about $2.6m, said Pretorius. “There are levers we can pull. The first step was not to declare a dividend. We will now relook at out capital planning and spend only when necessary,” he said.
Pretorius said at the interim stage the company was unlikely to pass the dividend, demonstrating the speed with which business conditions have changed.
Master Drilling reported cash of $19.5m as of December 31 which the company described as adequate and compares to $33.3m at the close of the previous financial. Debt was reduced slightly to $51m from $57.8m, but the gearing ratio, including cash, increased to 22.5% from 16.2% in the 2018 financial year.
