Master Drilling spreads out via Sweden

MASTER Drilling has set its sights on Europe and Turkey as a platform to launch into the Middle East. This forms part of its search for geographical diversity and opportunities to reduce its exposure to commodities.

Master Drilling, based in Fochville on the edge of a gold belt stretching from Randfontein, Gauteng, to beyond Carletonville, has retained a strong order book of $100m this year, despite turmoil in global mining that has seen its exploration drilling work dry up.

The total order book stood at $225m, including this year and the next few years, chief financial officer Andre van Deventer said last week, after the company reported annual results.

“We are in a better position than we’ve been in the past two or three years. It’s tough out there, but there is definitely work available,” he said, pointing out that the bulk of the company’s order book was in copper and gold.

Most of the projects Master Drilling had were in the production stage of development, with no new inquiries for exploration-drilling contracts, CEO Danie Pretorius said last week.

Many companies had debt-heavy balance sheets and were, in some cases, unable to fund their capital demands from cash flows, keeping their focus on generating money from their assets, rather than expanding or starting large new projects.

Master Drilling is buying Sweden-based Bergteamet Raiseboring Europe, the world’s fifth-largest drilling company, and will use the purchase to leapfrog into European and Middle Eastern jurisdictions in its pursuit of geographical diversity.

With the purchase, came entry into the Scandinavian markets that were close to inaccessible to companies outside the region, Mr Pretorius said.

“The plan is to use that company to get into Europe, and the southern portions in Spain and Portugal, and from there, to get into Turkey to use as a base to access countries like Iran and others in that area,” Mr Pretorius said.

A Stockholm-based raise-bore and diamond-core drilling company called Drillcon that operated in Portugal was seen as a major competitor, and one Master Drilling was keen to compete against for contracts, he said.

Master Drilling has paid €5m for a 40% stake in Bergteamet, and has a three-year period in which to buy the balance. It can sell back the 40% stake if it opts out of the deal by May next year, giving Master Drilling time to understand the business fully and obtain a seat on the board.

“By taking them out and buying their Chilean business at the start of the year, it’s one less competitor in the market,” Mr Pretorius said of the Swedish company. It had an extremely efficient business model and reduced its costs and labour complement per drill, he said.

A pressing question for investors in JSE-listed Master Drilling, which began trading in 2012, is when the company will start paying dividends.

Master Drilling generated $28m in cash and has $2m in net debt.

Master Drilling had a number of growth projects including an innovative giant boring machine that could sink 10m diameter shafts to a depth of 1.3km, and it wanted to keep its cash intact for these projects, Mr van Deventer said.

“First we’ll see what capital we need, but if we come to the end of the year sitting on a pile of cash we can’t utilise, then we’ll declare a dividend,” he said.

Master Drilling wanted to reduce its commodity exposure to 70% over the next three years, from 100% now, with hydroelectric and civil projects making up the balance, and contracts being sought with Chinese companies, Mr Pretorius said.