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Over the years, Stockhouse readers, viewers and listeners have enjoyed the opportunity to discover thousands of new and established small cap metals & mining companies…from explorers to producers to developers…and everything in-between.
But it’s rare to find a publicly-listed company that’s doing the boots-on-the-ground business of physically doing the drilling.
Geodrill Ltd. (
TSX.GEO,
OTCMKTS: GDLLF,
Forum) is an exploration drilling company operating a fleet of multi-purpose, core, air-core, and grade control drill rigs. The company provides reverse circulation, diamond core, air core, grade control, geo-tech, and water-bore drilling services to major, intermediate, and junior mining companies. Most of its revenues are derived from its drilling services across multiple regions throughout the African subcontinent.
Stockhouse Media’s Dave Jackson met up with Geodrill’s President, CEO and Director Dave Harper – a mining industry veteran with more than 30 years’ experience in the drilling industry, 26 of those years in management, and 23 in West Africa – to discuss the company’s solid year of financial performance, a look ahead to what’s in store for 2021, and how they became the “most profitable drill operator in Africa.”
TRANSCRIPT BELOW:
SH: So first off, for Stockhouse our metals & mining investor audience, can you give us a bit of background about yourself and Geodrill?
DH: Well, so Geodrill, our core business is mineral drilling services, and our roots are in West Africa. I founded the company here 20 years ago with one rig, one contract, and today we are the largest, most recognized brand in West Africa. I run the business from Accra. I know that's where I'm speaking to you from today. And this is where I have lived with my family for the past 25 years.
SH: Can you update our investor audience and your shareholders on any new company developments, especially in the wake of COVID-19?
DH: Well, everyone's been affected by COVID right. For us it wasn't easy, but I think it's fair to say that we've been pretty well. You know, in some ways somehow, we managed to take some, some positives away from it. It enabled us to catch up with maintenance and training. So the thing is that coming out of COVID things are actually getting quite busy now and, and you know, as things start to normalize, we, what we're seeing is if I going to explain it in my terms is what that wound up elastic band effect you've got on it suddenly released. And there was, you know, that was evidenced by a very strong Q4 results that were released yesterday. And, and the good news is rig utilization, which is what drives our, our revenues rig utilization is increasing. So we, you know, we continue to be operationally and financially durable and growth ready coming out of COVID.
Vaccine programs are rolling out across the world. And here in the Accra the program is also rolling out and it's rolling out very nicely. Our workforce is getting vaccinated now The program will probably take a couple of weeks to get everyone done. I myself had my first shot yesterday and my family had their shots too. So yeah, it's I think there's light at the end of the channel. It's been a tough year, but it's a year that we managed to do some good things in. And you know, I think Captain Tom Moore said it best, you know, the a hundred year old guy that raised and wanted to raise a £1000 and raised £33 million for NHIS. I think he said it, he said tomorrow, tomorrow will be a good day, you know. Great. A great motto. It's sad to say that he passed away. Very sad. I watched his funeral service last weekend, the weekend before it's very sad. A hundred years old.
SH: Big news released yesterday, Dave. The company announced its 2020 Q4 and year-end financial results…"capping off a solid year of financial performance” …as your CFO Greg Borsk reported. Can you elaborate?
DH: So it is a fact that Geodrill is probably one of the most profitable drillers in the space. The, you know, it's a great question and I get it a lot and I tend to waffle on for hours because the answer, the answer to the question is there's a lot of answers. But look from the get-go Geodrill was predicated on best in class or best in class model. Now for Geodrill, that means customer centric model powered by a fleet of high-performance drill rigs operated by employees, trained to the highest standards and maintained locally with full-service workshops. So I could go on for hours and hours and hours, but the thing is it's, it's just, it's about doing business the way business ought to be done and what we, what we attempted to do, what the opportunity that I saw when I started Geodrill 22 years ago was that this was a, this was a region that had been overlooked. West Africa missed 50 years of modern exploration, one reason or another.
And it was a massive opportunity. So in starting a drilling company, I didn't want to do what everybody else was doing, which was essentially bringing their worn-out equipment, worn out, depreciated rigs from Australia and America and sending them to Africa. This was like, this is the, the primary market of Geodrill. And so we wanted the best. So I think, I think Rick Rhule said it best when he said you know, I'd rather have a tier one deposit in a tier two jurisdiction than a, you know, a tier two deposit in tier one jurisdiction. So it's all about return on capital.
SH: Your corporate deck states that Geodrill is the “Most profitable drill operator in Africa.” How was the road to that kind of profitability navigated?
DH: Again, another good question, but it all starts with a customer. We're in the customer service business. And so, you know, if you're not, if you're not servicing your customer and the customer, see if you're not listening to your customer and the customer service business they'll go elsewhere. Right. And so, it all begins with providing that service and the customers have options, you know, they could, they could use any one of the dozen other drilling companies that are operating it. He said, how do we differentiate ourselves? And how do we keep that customer satisfied? Here's the thing, when I started Geodrill 22 years ago, our first customer Resolute Mining is still a customer today and their success begets success. Resolute Mining has gone on from being a junior to an intermediate, to a large mining company. And we service them.
And along the way, they've told two friends, who've told two friends, who've told two friends. And so the business has grown. So today our customer base is somewhat more like 20 or 30 customers. Some of them juniors, some of them intermediates and some of the miners. And at some point in time, those juniors will become intermediate and the intermediate to become senior miners. And what we're seeing at the moment, which is quite interesting as it is, is the new arrival of juniors. So it's really, it's really, you know, it really comes down to execution and utilization. If you keep the drills turning, you'll keep them earning. And if you do that, when you, you know, your revenues are going to be up and your costs defrayed across a larger revenue base and you'll be profitable, and that's how we do it, we just keep them turning and we keep them earning.
SH: You’re currently entering new verticals in Africa and expanding into South America. Can you walk us through some of the latest company initiatives?
DH: So South America is all part of our overall strategy and mitigating commodity and country risk. It's early days. We've literally just started our first hole in December, but it's going very well. Peru is interesting because it has the sixth largest exploration budget worldwide. And so it's a very exciting opportunity. The plan is to roll out our operations exactly as we have done in West Africa. You know, it's been it's been an extremely successful model in West Africa. And so we, you know, we can benefit by the blueprint that we've developed here. We'll just simply roll that out. And hopefully, you know, mirror that same success in South America. It's a whole new continent for us. So we're taking it very seriously. I guess the other part of it is that it's, it helps us diversify commodities, you know, in West Africa, we mostly drill for gold.
We do some EV drilling where we're drilling on a lithium and a couple of other players around the place. But for the most part 90 to 95% of our drilling out here is gold. And that's great because gold's good. But copper is also strong and there's not a lot of copper occurrence out here. So what you know, South America is extremely interesting for us, not so much for gold, from a gold standpoint but from, from a copper and a base metals perspective. So that’s South America. Back to West Africa, the other interesting vertical that we've embarked on is drill and blast drilling. So this is it's entering another stage of production drilling. So our business for the last 25 years has been made up of exploration drilling.
And we entered the gateway to production drilling few years ago when we started providing in pit mining services through a service, we call grade control drilling. And the beautiful thing about doing this is that it takes the cyclicality out of the business so much. And production drilling is inextricably linked to mine production. So when the production drilling doesn't occur it’s because the mining doesn't occur, which is never. And so we're basically rolling out a model that will essentially help us to flatten out the cyclicality of the business if that makes any sense. So, yeah, so South America and drill and blast. There are opportunities abound and really, really significant numbers. So we're, we're very excited about that.
SH: Dave, it’s no secret to our audience that the metals & mining sector is booming, and junior exploration companies are getting funded translating into surging demand for drilling. How does it also translate into shareholder growth for your company?
DH: So we've all heard that saying: selling picks and shovels in a gold rush. Right. So it basically refers to derivatives. Geodrill is a derivative. Actually drillers in general are one of the best proxy plays because [Unintelligible] . Approximately half of all exploration funds raised end up going to drilling. So what does that mean for shareholder growth? Well, as, as you know, we need to be successful in getting you know, as much of that market as, as we can. And as gold is strong, budgets are strong. It's you know, it ultimately translates through to shareholder growth.
SH: Speaking of shareholder growth, it would be remiss of me not to mention your stock has had a very nice bump over the past month…up about 25-percent since late January. What can you tell our investor audience regarding the current valuation of your stock and why you think it’s still a good value buy right now?
DH: Well, to be fair, we've been coming off, we're coming off a low base. The reality is that our valuation, even after that bump, we still only traded three and a half times EDITDA TTM. By comparison Major Drilling trades at eight times EBITDA and they have a P/E and 100, a hundred plus times. Our P/E is like 10 times. Major Drilling don’t pay dividends. Geodrill does pay dividends. So, you know, I, and the only thing that we can really attribute this to is the fact that we are smaller. We’re small cap, and apparently that makes us less attractive. But, you know, plans are afoot to address that. I've just given you some, you know, our growth plans. But you know, small means, if small means having less, less rigs then yeah. So I get that we're smaller, but, you know, our rigs are more profitable and our [Unintelligible] is growing, whereas Major’s is shrinking. So yeah, you know, for investing investors looking for growth and dividends, I think it's a great time to buy Geodrill.
SH: Can you explain to our investors how Geodrill’s business model is different from most traditional mining companies, in that you’ve developed a way to mitigate risk and generate and profit by sticking to drilling for the most part?
DH: So our customers are major, intermediate junior mining companies. We provide the full gamut of exploration drilling services. So, so you name it. We drill it and, and this enables us to, to service a wider customer base. Now, why is that important? Well, West Africa, by any measure has had its share of exploration success and mining successes. Most of our customers started as junior exploration companies. They go on to become intermediate and, and then they go on to become miners. Now, what that gives us is a very wide customer base that we need to provide full end to end service for. Now this keeps us busy through the cycles. And I think we touched on them a little early, you know, we have a simple mantra in the company and that is to keep the customer satisfied. It's not rocket science. It's the service you just gotta keep the customer satisfied. That's our mantra.
SH: You’ve said that the highest equipment utilization creates the highest margins. How so, exactly?
DH: Well customer satisfaction results in strong utilization, even in down cycles, strong utilization drives strong margins. It all comes back to our best-in-class philosophy and by keeping the customer satisfied. Essentially, we are the last guys to be fired on the beginning of a down cycle and we're the first guys to get rehired on, on the beginning of an up cycle. And you know, we would hope that we would not be fired at all during the down cycle, that would be unrealistic. So, but just to give you an idea today, the industry global utilization is somewhere around 45%. Geodrill’s currently north of 70. In the ebb global utilization went down to 25%. Geodrill’s really never went below 50. And so the, the benefit to us of having, you know, a high performance you know, well serviced locally, you know manned drilling company has been extremely beneficial.
SH: Dave, can you tell our audience a little bit about your corporate management team along with the experience and innovative ideas they bring to the exploration drilling space?
DH:
So both myself and our COO have strong mechanical and drilling backgrounds. This has really been key to Geodrill in rolling out our hub and spoke maintenance networks throughout the region. Our CFO lives in Toronto. But like most of management spends a good deal of time here as well. So that's actually a big part of this story because management live and work at rock base. We run the business from where the business is and that's West Africa. You know, there's, there's not too many examples of publicly listed companies where the entire C level management team actually live and work at the operation.
SH: Can you discuss the overall long-term strategy for the company moving forward in 2021…and beyond?
DH: Well, you know, we recognize that the need to grow. We recognize the need to diversify. We recognize that our valuation disconnect is, is attributed to these key factors. So the next question is how do we grow while maintaining strong margins? And I just don't believe in growth at any cost. There are numerous examples of large nonprofit drilling companies. We drill for profit period. So the immediate plan is threefold. West African exploration operations, the fundamentals are in place, and that will continue to drive our business. The next thing is we've already discussed that we will begin to roll out our plans to expand into South America and thirdly, the new verticals which I spoke about the drill and blast. So the plans are in motion and of course we do need to execute.
But you know, so the long-term strategy really is to become that next big name. You know, it's, it's, you know, it's really going to be a case of us versus I don't know, Major Drilling [Unintelligible]. So, but in doing so, we need to build, you know, a sustainable model that delivers growth and free cash flow and return shareholders, dividends to our shareholders, even through the cycles. That's, that's really what that's really what we're, you know, front and center for us.
SH: And finally, Dave, if there’s anything else that I’ve overlooked and you’d like to add, the floor is all yours.
DH: Well, yesterday, was the 8th of March, International Woman's Day. We would like to honour all the strong women in our lives. I'd also like to point out that Geodrill supports gender diversity and that we are doing a lot to address this inequality that has existed in this industry. And that's about it.
To find out more, visit
www.geodrill-gh.com
FULL DISCLOSURE: This is a paid article produced by Stockhouse Publishing.