Darrell Rader or Energold Drilling updates us on what’s
going on in the business, or at least their version of the
business. Currently equipped with almost 80 lightweight
rigs that are positioned mainly in Mexico, but also
throughout Brazil, Peru and increasingly moving to Af-
rica where the big gold discoveries are being made, their
fleet is currently has only 10 of its 80 rigs turning. But
then once you get to know the business, you understand
that this is the quiet time of year, just after Christmas
when things always go quiet and then big mining compa-
nies and juniors alike work on their budgets for the year
and then work progresses.
It was a very quiet environment for much of the last
few months, but now Rader suggests things look like
they are going to start perking up and he wouldn’t be sur-
prised if they are not 75% busy by the end of the second
quarter. Much of this has to do with the renewed interest
in the gold sector where suddenly money has become
available and everyone’s out to start looking to see if
they really do have that next big gold discovery...or not.
For sure, they need rigs to drill to prove that they have
it...or not.
Currently trading at less than working capital in the
till, right now roughly 50% of their drilling is directed
through gold, but still a good chunk of their other pro-
jects represent the range of commodities from iron ore,
which is 10% to 15% (big companies like Vale and the
like, that are looking at huge iron ore projects, can’t
just up and stop exploration programs based on fluc-
tuations of ore prices—they have to work for years to
come up with resource calculations) 10% for uranium
plus limestone.
While Rader points out that what they are able to
charge for drilling has dropped from prime time of $150
a metre roughly to current levels of $120, margins are
actually quite stable because the cost of steel, fuel and
crews including top-notch drillers has dropped and
suddenly those top-notch drillers are more than avail-
able.
One difference between this ugly cycle so far and
others that we’ve gone through Rader suggests is that
after the Bre-X fiasco when mining companies just
plain stopped drilling and exploring for years, this time
all the big guys realize that sooner or later the world
will probably resume and they just can’t stop big explo-
ration projects in mid-stream.
But for a person looking at an Energold right now
trading for about twenty cents on the dollar from six
months ago, the question remains, how busy will these
rigs be six months from now and if, as some people
suggest, and suddenly three-quarters of their rigs are
busy, Energold’s stock isn’t going to be anywhere near
current depressed levels…(we hope!)
Interestingly, Rader tells us about the typical year in
the drilling business in that when they hit Christmas
time, it’s time for the crews and everyone associated
with the business to take down-time and be with their
families. Then the companies are in the middle of set-
ting budgets for the oncoming year and things gradu-
ally get going in the New Year. But they always start
slow.
We pick up some Energold Drilling because we be-
lieve the excitement being generated by gold now,
means exploration is going to pick up dramatically
around the world and it looks like Energold is in some
of the best places to be looking to explore.
Unlike gold stocks, most of which aren’t anywhere
near their lows these days, the drilling stocks are.