MASTER Drilling’s 75% drop in profits in the six months to the end of June was due to auditors forcing the company to take write-downs on equipment that management believed were unjustified.
This is the case according to CEO Danie Pretorius. He comments: “We had a pretty good six months and this write-off was unexpected because our auditors required us to write off assets that we were not using.”
Pretorius considers the write-offs to be unjustified, as the equipment concerned – reverse circulation (RC) drilling rigs and mobile tunnel boring rigs – are to be used again in the future.
The RC equipment is not currently used in operations in North and Central America, but there are plans to relocate the equipment to other mining sectors elsewhere in the world.
The mobile tunnel boring machine was impaired because “there is currently no formal agreement in place to protect future cash flows due to uncertainty about commodity prices in the target industry of this machine.”
Pretorius commented: “I think we have had a pretty good run over the last six months: cash flow has been OK, working capital has been OK, but we have no impact on impairments.”
“We will definitely find new orders for these machines. We hope to have the drilling machine under contract early next year, but as long as there is nothing in writing, that’s it. There are international inquiries about the reverse circulation machine, but here too the auditors wanted to write it off as long as there is nothing in writing.”
Depreciation is a non-cash item that impacts the calculation of basic earnings per share. As a result, Master Drilling’s basic earnings per share in Rand terms decreased by 78% from 171.3 ca shares to 37.5 ca shares for the first six months of 2023.
In terms of share-level earnings, profit in rand terms fell just 0.5% from 169.5 cay shares to 168.6 cay shares after Master Drilling increased its revenue for the six months to $127 million ($108.2 million).
Pretorius – who is always conservative in his business outlook – says: “Master Drilling is confident of delivering good results. We are following the transition to the green economy and I think a lot will come out of it.”
“Due to our corporate structure, we are well positioned to benefit from this. Our long-term contracts provide a stable foundation for our business and we are well diversified.
“We have expanded our presence across different regions, commodities, currencies and industries. This strategic approach mitigates risks and positions us for success in a complex global environment.”
Pretorius said that in discussions between Master Drilling and the major mining companies, the focus had changed in recent years and this had influenced its business strategy.
“Five years ago it was all about cost. You had to reduce costs. Now it’s about ‘how can you help us get to ore faster’. I think all our efforts have achieved that goal.
