Major Drilling Group International Inc T.MDI

Alternate Symbol(s): MJDLF

Metals & Mining Industrial Metals & Minerals

Major Drilling Group International Inc. is a Canada-based drilling services company primarily serving the mining industry. It provides a complete suite of drilling services, including surface and underground coring, directional, reverse circulation, sonic, geotechnical, environmental, water-well, coal-bed methane, shallow gas, underground percussive/longhole drilling, surface drill and blast, and a variety of mine services. It maintains field operations and offices in Canada, the United States, Mexico, South America, Asia, Africa, and Australia. The Company has two categories of customers: junior exploration companies and a diversified portfolio of senior/intermediate companies, for which the Company provides greenfield exploration drilling and/or drilling at operating mines. The Company has invested in a fleet of digitized mobile underground drills that allow less dependence on client resources, as well as increased ability for automation and versatility.

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Major Drilling Group International Inc

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Post by retiredcfon Mar 06, 2023 8:34am

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Post# 35320851

TD 2

Major Drilling Group International Inc.

(MDI-T) C$11.17

Activity Levels Solid; 2023 Primed for Strong FCF Generation Event

MDI reported Q3/F23 (ending January 31) EBITDA of $20.5mm, 8.0% above TD's $19.0mm estimate (consensus: $19.3mm, excluding outliers), reflecting slightly higher revenues and margins (EBITDA margins: 13.7%; TD: 13.0%).

Impact: SLIGHTLY POSITIVE

Q3/F23 results were solid in what is typically MDI's seasonally slowest quarter due to the holiday shutdowns. Revenue increased 7.5% y/y to $149.2mm (1.9% above TD), reflecting strength in Australasia & Africa and flattish results in North America and South/Central America. Gross margins increased 49bps y/y to 25.3%, reflecting higher productivity and increased pricing. Interestingly, management highlighted an acceleration in the shift towards copper/ battery metals drilling, with gold falling to only 38% of MDI's revenue mix versus >50% over the past several years. As a reminder, the economics of drilling are the same, irrespective of commodity.
Capital allocation: MDI has been generating strong FCF in recent quarters and now has ~$74.1mm of net cash. Management noted that it does not have intentions to reinstate the dividend in the near term, with M&A and organic growth investments remaining the key priority.
Outlook: Management indicated that the outlook for calendar 2023 is very strong, reflecting increased exploration budgets by its senior gold customers and growing demand for copper/battery metals related to the broader electrification transition. Strength in these areas is mitigating pockets of softer demand from junior gold customers, which is being affected by weaker capital markets conditions. However, management noted that it is still having a lot of conversations with juniors, and is optimistic that H2/C23 will see a recovery in activity levels; if this occurs, we anticipate that it will be very positive for industry pricing and margins as there are already rig shortages in many jurisdictions.

TD Investment Conclusion

Our BUY recommendation and $14.50 target price remain unchanged. We have made only minor revisions to our model, with the current operating environment largely stable, with healthy demand. We continue to believe that we have entered a new drilling cycle after years of underinvestment by both base and precious metal miners, and we see Major as well-positioned to capitalize, given its strong balance sheet, specialized drilling capabilities, and demonstrated ability to recruit/ train operators.