DDH1, Mitchell build capacity in hot market

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ASX-listed drilling contractor DDH1 continues to upscale its equipment fleet.
Australian drilling contractors report solid H1 results

Large Australian mineral drilling contractors DDH1 and Mitchell Services posted strong half-year results to end the week but a flat local sharemarket yawned. Acquisition and organic growth in a booming market also hasn’t saved the two companies from circa-10% falls in their share prices so far in 2022.

DDH1, which has just put to bed its scrip-acquisition of Swick Mining Services, reported a 47% year-on-year gain in net profit after tax to A$19.7 million and 27.6% better EBITDA of $42.8m on 19.2% higher revenue of $168.7m for the six months to December 31, 2021.

Post the end of the year, DDH1’s Swick union gives it a combination of surface (c60%) and underground (40%) business lines with 176 drill rigs and operations in Australia, North America and Europe.

Mitchell’s revenue for the first half of FY22 was up 3% yoy at $103m, while EBITDA climbed 41% to $17.5m. The company reaffirmed full-year EBITDA guidance of $40-44m with revenue at $200-$220m.

Mitchell cut its net debt by 12% in the period to $22.2m but expects its borrowings to increase while it expands its fleet over the coming months.

“Post [execution of the] organic growth strategy and with a forecast rig count of 103 rigs by 30 June 2022, the business will have capacity to generate EBITDA of $50-$60m,” the company said.

“Peak debt at the end of FY22 is expected to be $40-$45m [from $32.6m at the end of 2021] with a focus in FY23 on cash generation and debt reduction.”

Mitchell derives all of its revenue in Australia; 55.6% from the gold sector, 32.9% in coking coal, and 7.4% copper.

DDH1 says it’s not exposed to coal: its commodity exposure is led by gold (34%), iron ore (19%) and copper-gold (15%). “Demand and activity relating to battery metals, including nickel and copper, is gaining momentum [combined 28%],” it said.

DDH1 had net cash of $6.5m at the end of 2021 and is paying a A2.51c/share interim dividend.

“The company performed very strongly, delivering record half-year revenues, boosted by robust macro-economic drivers,” CEO Sy van Dyk said. “Accordingly, rig utilisation and revenue per rig also increased, with a further record achieved for metres drilled during the period.

“The Swick transaction is a key highlight. This transformative acquisition enhances our operational capacity and capabilities. Importantly, it sets DDH1 up for long-term organic growth within Australia and internationally.”

DDH1 has a current market value around $431m. Mitchell Services is at $78m.


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