Major Drilling sees Q1 revenue drop 18% year-over-year

VANCOUVER — Major Drilling Group International (TSX: MDI; US-OTC: MJDLF) saw its quarterly revenue drop 18% year-over-year to $69 million in a financial report released in early September, representing the first quarterd of the company’s fiscal 2017.

For the first quarter ended July 31, the company registered a net loss of $9.8 million, or 12¢ per share, and reported a $33-million net cash position. The quarterly results were impacted by over $3 million bought in “inventory in preparation for potential increased activity,” while the company also had $2.8 million in capital expenses.

On a more upbeat note, Major foresees a “resurgence in demand for specialized drilling” in the future. The company noted its first quarter revenue was up 8% compared to the fourth quarter of fiscal 2016, which it attributed to improving market conditions.

“Commodity prices have improved over the last six months, fuelling mineral financings. In fact, in June and July there was an increase in the number of financings on the Toronto Stock Exchange,” president and CEO Denis Larocque said during a conference call.

A Major Drilling rig deployed in China. Credit: Major Drilling International.

“Most mining companies remain cautious in their spending, since 2016 budgets were planned at the end of [last year] when commodity prices were low, but we’ve seen an increase in activity in the last three months,” he said.

In terms of geography, quarterly revenues from Canadian and U.S. drilling operations decreased 14% to $43.8 million, compared to the same period last year. Meanwhile, South and Central American revenue was down 34% to $13.5 million, and Asian and African operating revenues dropped 5% to $11.8 million.

The company noted that gold and copper projects typically account for over 70% of its activity.

Major said that “senior and intermediate” mining companies represented 93% of its revenue for the quarter, while juniors accounted for 7%. Gold projects represented 57% of revenue, while copper accounted for 20% of the quarter.

Larocque said there would be more demand for drilling due to a perceived supply-demand imbalance from dwindling in-ground metal inventories.

The company noted that reserves among the largest gold companies had dropped 30% over the past four years to pre-2007 levels, and that many expect copper markets to be  in deficit in two years due to “lack of exploration to replace reserves.”

Larocque added that “seniors will have discussions internally in terms of where they’re going, and some have already hinted that they want to do more, or they need to do more, to address the reserve problems. As far as juniors are concerned, the spike in financing has really only happened in the last two months, so we haven’t seen a big impact trickle down to the field quite yet.”

Major Drilling shares have traded in a 52-week range of $3.55 to $8.09, and this year jumped 49%, or $2.21, en route to a $6.71-per-share close at press time. The company has 80.1 million shares outstanding for a $528.5-million market capitalization. TD Securities has a “buy rating” on the company and a $9-per-share price target.