Master Drilling invests to cash in on boom of commodities

MASTER Drilling yesterday told its shareholders in its annual report that it continued to show resilience in its growth path notwithstanding a challenging year due to the pandemic’s lasting effect on the global economy.

Last month, the company posted its results for the year ended December 31, 2021. The group posted record revenue in US dollars, up 40 percent to $171.8 million (R2.55 billion), while cash from operating activities increased by 27.5 percent to $32.5m.

“Free cash was invested sensibly with the long-term growth plan in mind. We are pleased with the group’s financial position, as this will help us confidently face the uncertainty of future trading conditions,” chief executive Danie Pretorius and Hennie van der Merwe said in their statements in the annual report. In the report, the group said the African region, including South Africa, performed well in 2021.

“The South African operations have maintained steady growth with the addition of a few smaller projects adding to the order book for 2021.

“Our exposure to coal remains negligible given developments around environmental, social and governance matters and uncertainty around the commodity’s future,” it said.

South Africa was well endowed with palladium and gold, and both commodities were in demand due to the move to a greener economy as well as the continued economic uncertainty. The changing of the tide eased concerns investors might have had regarding an over-investment in the region, the group said.

“Despite the challenges brought by a lacklustre operating environment over the last decade, we continued to invest in operating machinery, which expanded the total number of rigs to 150 by the end of 2021.

“The investments were largely driven by a belief in the market recovery, as we have positioned the group to take advantage of the recovery and growth in the mining industry. In the past 10 years, 80 rigs were added to the fleet. Despite the down cycle, we invested in the future, positioning Master Drilling to gain an upside during the commodity upturn,” the drilling firm said.

Analysts expect that commodity prices will trend higher than historical prices. This is driven by green policy implementation to combat global warming. The demand for battery minerals like lithium, cobalt, nickel, copper and zinc will increase. Prices are also supported in the short term due to supply chain constraints, according to the company.

“Master Drilling has exposure on awarded work of 27 percent in gold, 26 percent in silver, lead, zinc, 18 percent in copper and 13 percent in PGMs. The iron ore price is currently very volatile and is affected by the war in Ukraine and the disruption of supply, and China shutting down smelters and power supply constraints. Iron ore has now risen significantly.”

The company said gold prices remained high but were expected to start cooling down in the medium term or by the end of 2022 as the world recovered from Covid-19.

“However, the ‘safe haven’ demand following the Russian/Ukrainian conflict may have the opposite effect. Palladium and rhodium prices are predicted to do well in the next two years, especially with an ever-increasing focus on carbon dioxide emissions and carbon tax.

“This will stand the mines in good stead where their PGMs basket is rich in palladium and rhodium, such as in the northern limb of South Africa,” it said.