Geodrill Limited GEODF

TD

[retiredcf]

Have a $4.75 target. GLTA

Geodrill Ltd.

(GEO-T) C$3.37

Q1/23 First Look: Results In Line with Strong Start to 2023 Event

Geodrill reported Q1/23 adj. EBITDA of $10.5mm, in line with TD's $10.3mm estimate, reflecting largely in line revenue and EBITDA margins (27.8%, TD: 27.7%).

Impact: NEUTRAL

Q1 results marked a strong start to 2023 with Geodrill harvesting the benefits of years of investment in rig fleet growth and diversifying its customer base to include a healthy mix of seniors and juniors. Additionally, Geodrill continues to expand geographically, adding another rig to its operations in Chile this quarter, while also diversifying its commodity mix away from primarily gold historically.

• Revenue of $37.6mm increased 12.4% y/y (effectively in line with TD), reflecting the benefits of GEO's more diversified geographic presence in Egypt and Chile, as well as continued strong results in West Africa. However, management noted that it is not currently drilling in Peru but maintains its operating base. As at May 8, 2023, Geodrill owned a total of 77 drill rigs (up from 76 rigs as of December 31, 2022), and rented an additional four rigs, bringing the total to rig count to 81.

• Gross margins of 32.4% were above TD's estimate of 28.4% and increased 305bps y/y reflecting less of an impact from seasonal shutdowns and inflationary pressures than expected. However, GEO's stronger-than-expected gross margins were effectively offset by higher SG&A costs (up ~240bps y/y as a percent of revenue).

• FCF (pre-w/c) was $6.0mm (-$0.6mm after w/c), above TD's $4.7mm estimate, primarily reflecting lower cash taxes.

• Balance sheet: Net cash (incl. leases): $8.2mm (cash: $17.2mm, debt: $9.0mm), down modestly from $8.6mm as at Q4/22 reflecting negative w/c movements. Excluding leases, net cash was $9.2mm.

• Outlook: With strong gold prices (GEO's primary commodity), Geodrill continues to see a robust mining and exploration cycle, which it is optimistic will continue throughout 2023. Furthermore, Geodrill continues to take market share through its expanded geographic footprint, with its operations in Egypt and South America performing well. Management's views are consistent with our view that the gold industry has pivoted and is demonstrating a growing appetite to increase production as well as reserves following the multi-year period of reserve/resource attrition and flat/declining production profiles.