Stronger rand takes chunk out of Master Drilling’s profit
The drilling services provider’s interim revenue rose to end-June but profit fell with SA’s elections holding back investment decisions
Global drilling company Master Drilling said on Tuesday that a stronger rand resulted in an 8.3% drop in operating profit for the six-months to end-June, but it received a revenue boost from its acquisition of SA-based Atlantis.
Master Drilling, which is based in Fochville to the west of Johannesburg and has 150 drilling machines in its fleet, one of the largest in the world, said conditions in SA remained constrained as it reported a 14.7% drop in interim profit after tax to $8.3m.
The company’s foreign exchange movements on revenue was less than its impact on cost, resulting in profit after tax decreasing 14.7% to $8.3m. Revenue in dollars rose 3.8% during the period, however, boosted by its acquisition of Atlantis, which has operations in SA, India, Brazil and Zambia.
Master Drilling, which gets a third of its revenue from Africa, said local conditions remain challenging, and it is continuing with its strategy of diversifying across geographies and sectors.
“The domestic macro-economic environment remained mixed in first half of 2019, with market players, businesses and investors holding back decisions ahead of the national elections in May,” the statement read. “Although the elections yielded the anticipated result, the new dispensation’s work to place the economy on the recovery track is extensive.”
Master Drilling CEO Danie Pretorius said on Tuesday that the group is seeking to grow its presence in Russia and Australia, but cited volatility in global trade as a headwind. “It is heartening that in this uncertain environment our pipeline of new business remains strong, as does interest in our innovative technology,” he said.
Master Drilling was in the running to drill 500m-deep holes into an oilfield in Russia and was vying to win a tender in “the ‘Stans’,” the name given to the belt of companies south of Russia that includes Kazakhstan and Uzbekistan, he said.
Two major new technologies are being tested: one is a mobile tunnel-boring machine at Northam Platinum’s Eland mine, where a 1.5km long trial is underway, to prove the innovative machinery that can drill 150m to 200m a month, which is three or four times as fast as conventional drilling and blasting, he said.
A second customer is about to sign a contract for the mobile tunnel borer, Pretorius said, adding there are big lessons coming from the Eland mine trial, particularly with how to set up the underground chamber to start the machine.
The other technology, which will be tested near Fochville, is a vertical boring machine that will accelerate the development of mining shafts that are traditionally drilled and blasted, taking years to sink. The first phase of the testing will be completed in coming months, Pretorius said.
The biggest setback for Master Drilling was the loss of its drilling contract with Anglo American subsidiary Kumba Iron Ore’s Kolomela mine, a site where it had been for six years. While Master Drilling had secured a new contract on Anglo's coal mines in SA and retained the drilling of Kumba’s Sishen mine’s dumps, these do not match the Kolomela contract.
Master Drilling had a committed order book of $198m by the end of June, up from $114m in the prior period, and a pipeline of potential orders of $297m.
André van Deventer, group CFO, said the order book stands at $72m for the second half of 2019 and another $20m worth of work is awaiting decisions from prospective clients.