Master Drilling’s Chile darling proves biggest disappointment
Management is turning its focus to debt reduction as it pins its future on two new key technologies to build mines faster in the future
Master Drilling had a difficult year in its normally solid operating base in South America, which contributed towards a fall in annual profit, while fears about the Covid-19 viral outbreak prompted the board to withhold dividends.
Master Drilling, which operates in 11 countries, is one of the world’s major operators of large drilling machines for the mining industry. It is based in Fochville, about 70km west of Johannesburg.
South America was the biggest “disappointment” for the company that listed on the JSE in 2012, said CEO Danie Pretorius, who owns 52.5% of Master Drilling.
“The Chilean business been the darling of the group for the past 20 years. Last year, the wheels just came off,” he said at the release of the company’s annual results to end-December.
Mining in Chile was disrupted during 2019 by social unrest, labour problems, water shortages in one of the country’s worst droughts, and elections.
“The South American business was not great for 2019,” said Pretorius, adding that unprofitable contracts in neighbouring Peru had been renegotiated and the workforce restructured, running up a $1.5m (R26.4m) bill for Master Drilling.
Post-tax profit fell to $15.4m from $17.5m.
South America's contribution to revenue of $148m, which was nearly $10m higher from the previous year, fell to 34% from 42% before. Central and North America's revenue jumped by about $10m.
The key focus for management in the next three to four years was to cut debt in the company, said CFO Andre van Deventer.
Current debt was $12.3m and longer-term debt was $39m. Cash had fallen to about $20m from $34m.
Master Drilling is pinning a lot of its future on its patented mobile tunnel boring machine, which is deployed at JSE-listed Northam Platinum’s Eland mine to develop a 1.5km long decline.
There is a lot of interest in the machine, which makes tunnel development quicker, safer and opens up ore deposits faster.
Master Drilling was working on two engineering solutions for the tunnel borer, said Koos Jordaan, who spearheads the company’s new technology.
The second innovative project Master Drilling is working on in a risk-avoiding joint venture with SA’s Industrial Development Corporation is a hard rock shaft-sinking system, the first phase of which has been successfully proved in rock as hard as mild steel near Fochville. A vertical hole 10m deep and 4m in diameter was sunk to prove the technology, and to show potential clients.
If the completed drilling system can create shafts at 1m per hour it would offer mining companies a viable, safe, productive solution to the traditional labour-intensive method of sinking shafts, which is one of the most dangerous tasks in building a new underground mine.
Of concern to the group was the relatively low utilisation rate of its 143 large drilling machines, reaching just 64%, staying stubbornly in the lower 60% range for the past few years despite efforts to lift utilisation into the mid-70s.