Geodrill Q4 2023 Earnings Call Transcript

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March 4, 2024

There are 5 speakers on the call.

Operator

Good morning, ladies and gentlemen. Thank you for standing by. For today's call, participants are in a listen only mode. Following the presentation, we will conduct a question and answer session and instructions will be provided at that time for you. I would like to remind everyone that this conference call is being recorded on Monday, March 4, at 10 am Eastern Time and is being broadcast live via the Internet.

Operator

During today's call, management will make statements regarding management's expectations for the company's future financial and operational performance. These statements are considered forward looking statements. Each forward looking statement speaks only as of the date of this call and actual results may differ materially from management's expectations for a variety of reasons, including market and general economic conditions and the risks and uncertainties detailed from time to time in the company's SEDAR filings. I will now turn the call over to the President and CEO of GeoDrill Limited, Mr. Dave Harper.

Operator

Please go ahead, sir.

Speaker 1

Thank you, operator. Good morning, and welcome to GeoDryl's quarter 4 and 2023 fiscal year results. I will begin with an overview of our operations and performance for the fiscal 2023, after which our CFO, Greg Bors, will discuss present and present a detailed analysis of our results. Additionally, I will provide some insight into our outlook for quarter 1, 2024 and beyond. In the latter half of the year, GeoDrill encountered significant challenges.

Speaker 1

However, we firmly believe that the underlying fundamentals of our industry provide us with a strategic perspective. The market forces that affected overall performance over the past two quarters are, in our assessment, independent of the sustained development for resources in growing production economies. This demand is expected to persist over the long term. Operationally, we'll repose hurdles related to rig repositioning following our exit from Burkina Faso. South America also posed unexpected delays impacting both revenue and costs.

Speaker 1

Specifically, the winter shutdown in the region affected rig utilization, while operational costs remained high as we remained maintained readiness for Q4 ramp up. On the financial front, in fiscal 2023, our auditors enforced IFRS 9 due to an enduring aging debtor situation. This resulted in a non cash provision totaling US5.4 million dollars in profit for the year. Despite these challenges, Geodal remains resilient. As we pivot away from junior exploration companies, we recently secured a number of multiyear contracts with Tier 1 Miners, including First Quantum Rio JV in Peru, Hampton, Augusta, Barrick JV in Chile.

Speaker 1

And in West Africa, we secured a number of multi rig, multi year contracts with Q1 customers. Teodrill has operated in West Africa for 25 years and has invested a significant amount of capital into its drilling fleet. We believe Deuodel is poised to navigate the complexities of our industry, with its termination, adaptability and an active and experienced management team. I will now turn the call over to Greg, our CFO, to review the financial highlights for fiscal 2023 and quarter 4 in detail. Thank you.

Speaker 2

Thank you, Dave. As a reminder, all figures are reported in U. S. Dollars. We generated revenue of $130,500,000 for 2023, representing a decrease of $8,100,000 or 6 percent when compared to $138,600,000 for 2022.

Speaker 2

In Africa, our 3 primary countries in which the company operates being Ghana, Cote D'ivoire and Egypt, revenue increased on a year to year basis by 6,700,000 dollars Notably, in Burkina Faso, revenue decreased by approximately $11,200,000 on a year to year basis. GeoDrill made a prudent decision to wind up its drilling programs due to the security concerns and redeployed the rigs to other countries. In Chile, revenue increased by $4,000,000 However, revenue decreased by $1,800,000 in Peru as the company only recommenced drilling in Peru in the latter part of the third quarter. Overall, gross profit for 2023 was $30,600,000 being 23% of revenue compared to a gross profit of $40,600,000 being 29% of revenue for 2022. EBITDA for 2023 was 20,600,000 dollars or 16 percent of revenue, compared to EBITDA of $38,400,000 or 28 percent of revenue for 2022.

Speaker 2

The net income for 2023 was 3,800,000 dollars or $0.08 per share compared to net income for 2022 of $18,900,000 or $0.41 per share. We ended the quarter with net cash, excluding right of use liabilities, up $3,700,000 With the gold price well above $2,000 we are optimistic that global exploration spending will continue to be strong and will provide strong fundamentals for the mineral drilling industry going forward. At this point, I will turn the call back to Dave.

Speaker 1

Thank you, Greg. As we transition to the Q and A segment, I will now share an outlook and highlight growth opportunities for the remainder of quarter 1, 2024 and beyond. We commenced 2024 on a positive trajectory. Our operations in Ghana and Egypt continue to excel, bolstered by partnerships with Tier 1 Mining Companies and robust multiyear contracts. Also notably, our utilization in South America has increased and currently stands at 85%.

Speaker 1

Our 2024 outlook is robust with a strong order book in our core regions. South America, in particular, is poised to be a significant contributor to our revenue. Turning the corner, we firmly believe the changing quarters are now in our rearview mirror and our strategic adjustments and resilience positions us for a positive trajectory. We continue to leverage our experience drawing upon decades of industry experience, and we remain committed to operational efficiency and allow our seasoned approach to guide us. Our business philosophy embraces flexibility within the day to day realities, while our commitment to our core values ensure shareholders is unwavering.

Speaker 1

This concludes our prepared remarks on our financial calls. And I'll hand over to the operator to commence the Q and A. Thank you.

Operator

Your first question will be from Gordon Lawson at Paradigm Capital. Please go ahead.

Speaker 3

Hey, good morning. Good morning, everyone. Good morning. My questions mostly revolve around modeling and helping to forecast some sort of EBITDA multiple here for valuation purposes. So are you able to expand on your outlook for 2024 in terms of regional growth and perhaps what we should expect for total revenue?

Speaker 2

Sure. Regional growth, it's kind of the same right now. What we do, we're continuing as I mentioned in my commentary, West Africa is we're doing extremely well in West Africa. The 3 our 3 primary countries being Ghana, CI and Egypt. We're continuing to add rigs for clients there.

Speaker 2

We're also securing new jobs. We're securing larger jobs, multi rig jobs, few more on the horizon that hopefully we can announce later in this quarter or in Q2. So very strong foothold in West Africa and we expect that to continue in 2024. The Peru Egypt again, Egypt, we do extremely well in Egypt and we're actually in the process of adding rigs there also for clients, existing clients and new clients. In South America, South America was challenging for us in 2023.

Speaker 2

We were really impacted by the weather, the winter shutdown. We made the decision to keep our staff there, keep our infrastructure, keep everything. Really 2023, we needed to invest in South America. And what Dave said now, what you're seeing, we're busy in South America. We're drilling both in Chile and Peru, and we're looking at a few more opportunities.

Speaker 2

So we're optimistic geographically that our existing markets will continue to improve, we'll continue to add rigs. And for South America, we think we have that one Starting 2024 and as we get through Q2, Q3, Q4, we're a lot more optimistic on South America this year than we were in 2023.

Speaker 3

Yes. I mean, I understand 'twenty 3 had some certain political issues, pulling out of countries and that's seeing your costs increase through the year. Can we expect that to return to levels maybe not perhaps as high as 2022 where your gross profit was 29%. But would a midpoint between this year's 2023 and 2022's number be a reasonable assumption?

Speaker 2

Yes. If you look at the we target a gross margin between 25% to 30%. And if you go back years, it was 26%, 26, 26. It spiked up to 29% in 2022. And I think we've tried to tell everyone 2022 was a record year for us.

Speaker 2

Revenue went up 20% over 2021. We went from $115,000,000 all the way up to about $139,000,000 So that's why you really saw that, call it, an average of about 25%, 26%. 2022, we got up to 29%. 2023, we were below our expectation. We were below 25%.

Speaker 2

And we talked about the reasons. The South America is 1, I won't revisit that, but the pulling out of Burkina, pulling out of Burkina was strategic decision we made and it's for the long term of the company. It's truly an investment. We had significant revenue in Burkina. We had very good accounts in Burkina.

Speaker 2

We did well in terms of drilling and profitability, but it just it wasn't safe. The security concern in Burkina, it just we had to move those rigs. And you just don't move rigs. It takes multiple quarters. But what we try to communicate in the MD and A and when we're talking to analysts, investors, we're out of Burkina.

Speaker 2

We are totally out of Burkina. Those rigs have all been moved now. They've all been redeployed and most of them are out drilling in other countries for other customers. So, we really have Burkina Faso behind us now.

Speaker 1

Yes. I'll just quickly jump in there, if you don't mind, Gordon, and just add just a little bit more color to what Greg is saying. And that is that in taking that decision strategically to pivot away from Burkina, We also looked at our customer spread and realized that a lot of our problems were coming from, as we alluded to on the call, the fact that we have to take a provision for some problematic customers in terms of not being able to raise capital and so on and so forth. So whilst making this big adjustment, this big pivot that we did through quarter 2, 3 and 4, We've also really focused our marketing efforts towards the Tier 1s. And we've been very successful.

Speaker 1

We've actually come away following that exercise with probably one of the largest haul of contracts that I have ever seen in the history of this company. A lot of these things are still being inked. We have provisional letters of intent in place and rigs are actually currently mobilizing. But we'll be talking more about that a little later, probably some ways around when we announce our Q1, I guess, because we'll have everything inked and rigs will be mobilized and we'll be turning an earning. Then and only then we'll truly have an idea of what that margin is going to look like.

Speaker 1

But you can appreciate that working for a junior and an intermediate versus working for a Tier 1 on a 3 to 5 year contract with double digit numbers comes with margin compression. You appreciate that, I'm sure. But the offs on the flip side of that, we're working for cash generating customers that are not beholden to the capital markets. And this literally secures our future for the next wave of growth. So I'm really, really excited to be talking about that in a small part now, but we'll be able to expand on that commentary as the year progresses.

Speaker 3

And in the past, you've provided separate press releases on major contracts. Is that something we should expect in the coming quarter or 2?

Speaker 1

Yes.

Operator

Next question will be from Brad Verbitsky at Equinox Partners. Please go ahead. Good morning, Brad.

Speaker 4

Hi. Good morning. How are you guys?

Speaker 1

Good. Good morning.

Speaker 4

Hi, Brad. Thanks for taking my questions. One question regarding the receivables. So there are $15,000,000 of receivables that are 90 days or greater. And I guess the $5,000,000 provision you took, so I'm curious if that's like a company that's now defunct and the remaining $15,000,000 is with companies that are still around or is there just $20,000,000 of receivables with a bunch of different companies that you're taking a provision assuming that you're just taking some provision there because 90 days or greater.

Speaker 4

I'm just wondering if there's any sort of more color you can give around those receivables and sort of the probability that they get paid?

Speaker 2

Yes. It's actually it's the latter, the last one you it's what we're we have to look at this on a portfolio. We disclose it on a portfolio basis. So you're seeing overall, but within that, there's different companies. We management goes through an exercise where we look at the company, what is the expectation for us to get paid from that company, are they a junior, are they going to need to raise capital, We look at, are they a private company versus a public company.

Speaker 2

Some are even larger, some are producers that are just taking longer to pay. So it's not just one company, Brad, and it's we do a probability analysis. We put a lot of time and effort into this and we update our models every quarter. So it's and we monitor and we have discussions with them. So a quick answer is, it's just not one company.

Speaker 2

It's kind of a basket of all of our receivables. We look at all of our receivables. Some we don't have any provisions for. Some may actually pay early and they want a discount. There are these few companies that are taking longer and it's skewing our agents, so we've taken a provision on them.

Speaker 4

90 days and greater, are there any that are 180 days or greater or 360 days or greater?

Speaker 2

Well, yes, some are old. We just disclose them at over 90 and then we have to take our percentage on that. But yes, we're working through, you can tell that kind of just I think we started really we disclose this every year. So we had the over 90 last year. Some get paid.

Speaker 2

Most pay the older balances and then if we're still drilling for them, we'd switch to current, if you can follow that. But yes, there are some that are over well over 90 days.

Speaker 4

And how what's your rule in terms of when you write them off? Like are they written off completely after a year? Obviously, you still go after

Speaker 2

them, but

Speaker 4

what's your rule around that?

Speaker 2

Well, it's when do you fully provide for them. And that's when we have an expectation that we don't think we're going to get paid, we may then have to involve our corporate lawyers. Some of them just they're not they don't have the ability to pay. Some of them what's happened in most of these situations is, if it's a junior, we'll take a deposit and we'll drill. Sometimes they go slightly over.

Speaker 2

And some of these ones are older ones that we drove for years. And I think their expectation at the start of 2023 was that they would be continuing to raise money. And that wasn't as easy as they thought. So, this has really been a 2023 problem. If you look at GeoDrill 'twenty one 'twenty one, 'twenty two, we did not have significant provisions or be the odd one, but we really saw in 2023 and mainly with the juniors in the past accounts that would raise money and drill and raise money and drill, etcetera, go through that cycle, they weren't actually able to raise that money.

Speaker 2

So, we're continuing to work through these. We some were talking about being creative, others we have on the small payment plans, but it's just it's bit of a function of 2023. And I think the capital markets and as Dave said, we're moving away from these kind of accounts and it's I think everyone is because they're the capital markets for juniors are pretty tough and it's easier for us to get the larger accounts that have the ability to pay the producers they want to pay early, etcetera. So, but yes, there are some receivables that we're continuing to work

Speaker 4

with. So, have you changed your rule in terms like it seems like it would be prudent for you going forward to change in terms of how you decide to I don't know, just change how you're deciding to get paid or maybe you're not going to pay like I'm just curious what have you changed there?

Speaker 1

These days, Brad, in cash we trust. And as we take on a new client these days, we'd like to see their financials. If they're a private company with intentions of going public, it's cash upfront. At least 50% of the contract will be upfront before we mobilize. And that puts us in a situation where we have revenues coming in we wouldn't have worked out that 50% by the time the account is due.

Speaker 1

And so if the account is not paid within our standard 30 day terms, I would just turn the rig off in sensible demobilize. Now we're not going to find ourselves in a situation like we found ourselves in 2023. The 2023 problem is we've been operating for 25 years. So as Greg mentioned, we've only had 1 or 2. 2.

Speaker 1

It's a rare occasion when we have to take a provision. Last year, 2023, we were hit left, right and center. And what's just look out the window, what's happening out there? Capital markets are in a mess. Mining is not sexy.

Speaker 1

Very, very difficult for our customers to raise capital. So what are we doing about it? Well, first of all, you haven't got You can't demonstrate you can't come with a story that you're raising capital. That just doesn't work for us anymore. It's cash upfront and we turn the rig off when you stop paying.

Speaker 1

The other thing, of course, is that we've pivoted away from the junior end of town and even the mid tiers to an extent and focusing on those large names. Those large names 20 I think today's price $2,100 an ounce with an all in sustaining price of $1100, $1200 an ounce, which would be the average across our customer base. So they're churning cash out. They're not having any problem at all drilling and paying. And so that's where we plan to be and that's where we're going to settle for now.

Speaker 1

That's what we're doing. That's what we're doing. We're not sitting around waiting for this problem to sort itself out. We're fixing it. And to do that and to take that decision that we're going to pivot away, it's not a 5 minute exercise.

Speaker 1

It takes time. You have to winning a job with a Tier 1, it can take from the time of bid to the time of mobilization, it's a 6 month process.

Speaker 2

So and Brad,

Speaker 4

on the amount

Speaker 2

like if you look at our balance sheet, we have $110,000,000 in shareholders' equity. Even one of the we look at our accounts receivable, even after the provision, our trade receivables were 32,700,000 dollars Our payables are only $23,400,000 So we still like we've had these collection issues and these collection problems, but in terms of GeoDryl and the strength of our balance sheet in our 25 year history, we made the decision to pivot away from the juniors unless they can give us a significant deposit. But we'll get over this. It's not a it's something that we've dealt with in 2023 and we'll continue to we'll always continue to support the juniors and drill for the juniors. It's just they have to pay a significant amount of the drill program, if not at all upfront now.

Speaker 2

So, and then if you look at the rigs, look at our rigs, just the strategy of moving towards Tier 1s, there's less rigs available for the juniors. So it we're working on it and I think as we get through 2024, we'll continue to work its way out for us.

Speaker 4

Okay. Thanks for that color. Just one more question for me is, when I'm thinking about your SG and A for this year, obviously, you had the $5,000,000 I guess $5,400,000 write off last year in it. If I were to

Speaker 3

think if I were

Speaker 4

to model it going forward, it would be the 2023 number minus the $5,000,000 or is there other costs in there that should be lower or how should I think about that?

Speaker 2

Yes. No, we're able to keep that's a good question, good point. The SG and A was skewed significantly by the allowance provisions. We try to model our SG and A at about 10%, 11% of revenue, okay? So we're hoping our SG and A is exactly what you said.

Speaker 2

We're hoping that the revenue get the revenue up and only increase the SG and A incrementally.

Speaker 4

Okay. That's it for me. Thank you. Thanks, Brad.

Operator

And at this time, since we have no other questions registered, it does conclude your conference call for today. We would like to take time to attend to thank you for attending today's call and ask that you please disconnect your lines. Have a good day.

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Earnings Conference Call
Geodrill Q4 2023
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