Mining services sector gears up for new cycle as funds for resource drilling quadruple in 2021

A FEATURE of the last metals and minerals ‘supercycle’ – in which prices for commodities rose to record levels between 2003 and 2008 – was that mining firms ordered new plant and equipment quicker than the manufacturers could supply them.

It was not uncommon for mining executives to voice their concerns that projects worth millions of dollars were at risk of standstill whilst they waited for delivery of items such as heavy-duty tyres. Those were the days, as they say.

A report last month compiled by UK-listed drilling company Capital Limited said that a combination of the US stimulus efforts, the adoption of public policy sympathetic to decarbonisation, as well as robust China demand, was creating conditions that could create a new ‘supercycle’, for want of a better term.

A new supercycle is also being encouraged by supply concerns as a result of insufficient resource development in the wake of the previous supercycle’s collapse. The exploration boom that is now underway could see a mismatch between replenished drilling budgets and rig availability.

Said Capital Limited: “2021 has already seen record inflows of capital into exploration”. Funds raised by junior and mid-tier mining companies for drilling programmes reached $1.5bn in January 2021 compared to $300m a year earlier whilst the number of fund-raisings has been four times higher.

This is potentially great news for Master Drilling, the JSE-listed firm which competes in the international drilling market with Capital Ltd. It says that in order to compete in the drilling space it needs to gain critical mass.

“The strategy would be to look at an acquisition of a company or some alliance in West Africa,” said Izak Bredenkamp, head of business development for Master Drilling. “There are plans afoot to achieve this, but it is still early stages.”

Master Drilling is also hoping to integrate vertically which in its industry means offering certain geotechnical services – an area where South Africa’s largest independent exploration and development company, Orion Minerals, says there’s a shortage.

“Fortunately, we have been doing the most drilling for the past few years so get a premium client treatment from our drillers,” said Errol Smart, the firm’s CEO. “I can say that securing specialist geophysics is becoming very problematic and that will impact on greenfields exploration.”