Gold, copper price run to lead Master Drilling out of 2020 doldrums as firm eyes West Africa

Danie Pretorius, CEO, Master Drilling

MASTER Drilling expected trading conditions to remain “negative” for the remainder of its 2020 financial year as Covid-19 disruption continued to wreak havoc among customers.

Commenting in an interview, Master Drilling CEO, Danie Pretorius, said however the recent breakout of the gold price, as well as the copper price would lead to a recovery next year. “We debate this often, but we see ourselves benefiting from these improvements within 12 to 18 months,” he said.

Pretorius said the focus in the meantime was on preserving cash and weathering the market. Although unique given the impact of the Covid-19 pandemic, Pretorius said tough market conditions were not unfamiliar: “This is nowhere near as bad as we’ve seen,” he said, referring to conditions during the global financial and economic crisis in 2012.

Master Drilling was consequently chasing new business in West Africa’s gold sector as well as prioritising potential customers in commodities that have remained robust through the Covid-19 crisis such as iron ore and platinum group metals (PGMs), including Zimbabwe’s PGM sector. “We’ll take it one step at a time in West Africa,” said Pretorius. The region was politically unstable given the recent toppling of Mali’s president, he said.

It was also seeking “a small” merger and acquisition opportunity with a technology partner that could help grow into mining digitalisation. Master Drilling is essentially a technology business and therefore welcomed the mining mechanisation, but digitalisation was an area for the business that could be accelerated through M&A. “We could probably grow into it, but perhaps we could do a small M&A or some bolt-on deal,” said Pretorius.

For the six months ended June, however, Master Drilling had a tough ride. Lower revenue, down 18% year-on-year in dollar terms, resulted in a 40.7% decline in headline earnings to 3.2 US cents/share. Rand based headline earnings were 30.5% lower declining to 53.3 cents/share. As expected, Master Drilling passed the dividend.

The company had taken the step of deferring expansionary capital expenditure at the beginning of the financial year. “If we spend more than $5m, it will be a lot,” said Andr√© van Deventer, CFO of Master Drilling.¬†Cash on hand as of June 30 increased to $11.1m compared to $5.5m at the June 30 interim close last year.

Master Drilling’s established base was in South America, Africa, and North America. Of these regions, the firm’s Peru business continued to struggle, but it would press ahead with the establishment of a Colombia office as gold and copper mining developments offered potential.

Africa was the group’s best performing region during the period. The company had signed a contract to drill in Botswana on the Khoemacau Copper-Silver project. South African business was diminishing: it provided “isolated opportunities” but it was “shrinking in overall terms” as new capital expenditure was “not forthcoming”, the company said.

Master Drilling was now chasing down business in central Asia, Australia and Russia. “Opportunities in Kazakhstan and neighbouring states are also being actively worked on,” the company said.