UPDATE: Major Drilling Falls To Lowest Levels In More Than 2 Years On Q3 Net Loss
Major Drilling Group International Inc. (MDI.TO), which fell 4% to near a year low $8.50 on Friday, has fallen to its lowest levels in more than two years today after it posted third quarter revenue of $123.2 million, down 32% from the same quarter last year; gross margin percentage for the quarter was 23.8%, compared to 25.9%; net loss was $4.3 million or $0.05 per share for the quarter, compared to net earnings of $9.6 million or $0.12 per share.
The company said it is still in an "excellent" financial position with a total net cash position (net of debt) of $30 million. It has declared a semi-annual dividend of $0.10 per share to be paid on May 2, 2013.
"As stated in our press release dated January 23, 2013, subsequent to the holiday season, there have been increased delays in the decision making process on the part of many of the Company's senior customers in regards to their 2013 exploration drilling programs. Also, November did not have the benefit of the program extensions we had last year. This has led to reduced activity levels as compared to Q3 last year, and produced a seasonal loss as anticipated," said Francis McGuire, President and CEO.
"Quarter results were also impacted by $0.9 million of severance costs as the Company reduced costs in certain regions and a $1.0 million withholding tax charge on an inter-company dividend paid from Mongolia in contemplation of possible changes to the tax treaty between Canada and Mongolia.
"As we started our fourth quarter, there continued to be a number of projects for which decisions had not yet been made regarding start dates and exact drilling meterage. This has resulted in reduced activity in February as compared to our previous expectations and will continue to result in reduced activity for the balance of the fourth quarter. In a number of jurisdictions, uncertainty as to the policies of host governments or issues of land tenure are adding to the uncertainties. These factors, combined with the fact that sources of funding for junior mining companies remain limited, has led to pricing pressures in certain regions. As a result, fourth quarter revenue is expected to be significantly impacted as compared to the record revenue that the Company realized in the same period last year. Due to the ongoing volatility in the sector, it is too early to make an assessment beyond the fourth quarter.
"The Company continues to have a variable cost structure whereby most of its direct costs, including field staff, go up or down with contract revenue. In addition, a large part of the other expenses relate to variable incentive compensation based on the Company's profitability. The Company continues to consider potential cost saving measures on a branch by branch basis as local market conditions require.
"Capital expenditures for the quarter were $20.0 million as we purchased 28 rigs, while retiring 15 rigs through our modernization program. Included in this, we purchased the Canadian and Mongolian assets of Landdrill International Limited. Through this, we acquired 15 compatible rigs that are less than three years old, as well as ancillary equipment and inventory for a total purchase price of approximately $4.0 million. This will help reduce our capital expenditures for fiscal 2014 by some $10 million. While capital expenditures are expected to decline going forward, we still have 11 rigs on order, seven of which are dedicated to the underground, a sector of the market where we are seeing opportunities.
"In terms of our financial position, we continue to have one of the most solid balance sheets in our industry and are now debt free net of cash. Our total net cash position, net of debt, was at $30 million at the end of the quarter. Going forward, despite a more challenging environment, we expect operations to continue to produce healthy cash flows by generating cash from operations, reducing capital expenditures, and closely monitoring and reducing costs as appropriate.
"Given the Company's ability to generate healthy cash flows, the Company is pleased to announce that its Board of Directors has declared a cash dividend of $0.10 per common share payable on May 2, 2013 to shareholders of record as of April 5, 2013. This dividend is designated as an "eligible dividend" for Canadian tax purposes."
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