Master Drilling weathers a difficult year in SA, and braces for more
Global drilling company Master Drilling delivered steady interim results in what management described as a challenging start to the year, particularly in its South African home base.
Master Drilling, which is based in Fochville to the west of Johannesburg, reported profit for the six months to end-June of $9.7m, down slightly from $10m the previous year. Revenue climbed to $67m from $60.5m.
Revenue grew because of the addition of a drilling machine and the purchase of the whole of Scandanavian drilling company Bergteamet. The acquisition pushed up the company’s debt to $46m from $44m.
The international operations were experiencing increased levels of inquiries and interest as the commodity price cycle strengthened, but conditions in SA remained challenging and payments from clients needed careful attention, said CEO Danie Pretorius.
"The challenging conditions experienced in 2017 partly persisted over the six months ending June 2018, as the optimism generated by domestic political developments at the start of the year gave way to the realisation that the economy remains weak and both political and economic prospects uncertain," he said.
SA went through a brief honeymoon period when Cyril Ramaphosa replaced Jacob Zuma as president and in February replaced the tainted and divisive Mosebenzi Zwane as mines minister with Gwede Mantashe.
"Uncertainty continued to prevail in the domestic mining sector over the first half of the year, underpinned by proposed policies that are not business- and investor-friendly, among which is the proposed expropriation of land without compensation and the draft Mining Charter, now in its third draft," Pretorius said.
"Such factors impact on the viability of mining companies and their ability to meet payment commitments.
"Master Drilling continues to monitor these developments closely and to manage working capital as deftly as possible."
Master Drilling’s "debtor days increased due to longer payment cycles as a result of weak economic conditions", he said.
Its purchase of Bergteamet has allowed the company to pursue business in Europe, adding to its contracts in the Americas, Africa and India.
"As expected, the uptick in the global economy and commodity cycle is bearing fruit in our business as we receive new contracts and a steady flow of new enquiries that feed into the pipeline," Pretorius said.
"It is encouraging to note that with the improvement in the international commodity environment, the backlog in capital expenditure … is being addressed and customer projects previously considered nonviable are being revisited, resulting in new opportunities for Master Drilling."
By the end of June, Master Drilling’s committed order book was at $114m, down from $155m at the same period a year earlier, while its pipeline of interest and potential projects stood at $358m, up from $226m.
In SA, Master Drilling was moving into water exploration, adding to its mining and exploration portfolio in the country, while in Colombia it has recently finished a hydroelectric tunnel project.
"Domestically, notwithstanding a difficult and uncertain environment, we continue to maintain our presence in the mining sector where viable opportunities arise, while increasingly the value we can add across other exploration activities is becoming evident, particularly in water exploration," Pretorius said.