Champion Iron Limited press release
Major Drilling Reports Record Third Quarter Revenue and Profits
TSX - Toronto Stock Exchange · Iron · Aluminium · Manganese · Copper · Zinc · Australia
MONCTON, NB, March 4 /CNW/ - Major Drilling Group International Inc. (TSX: MDI) today reported results for its third quarter of fiscal year 2008, ended January 31, 2008.
Financial Highlights
$ millions of 12 12 Canadian dollars months months (except earnings to to per share) January January 31, 31, Q3-08 Q3-07 YTD-08 YTD-07 2008 2007 Revenue $120.8 $90.1 $420.3 $286.4 $549.4 $375.3 Gross profit 33.7 25.2 136.0 89.6 179.5 115.5 As percentage of sales 27.9% 28.0% 32.4% 31.3% 32.7% 30.8% Earnings from continuing ops 7.7 5.7 49.3 28.7 67.1 38.0 Earnings per share from continuing ops 0.32 0.25 2.09 1.24 2.86 1.65 Cash flow from continuing ops (x) 16.3 14.9 73.8 50.4 98.9 65.1 (x) before changes in non-cash working capital items
Revenue increased over 34 percent in the third quarter to $120.8 million, compared to $90.1 million recorded in the same period last year. This represents the highest level of third quarter revenue in the Company's history.
Weather conditions caused gross margins for the quarter to remain relatively flat at 27.9 percent compared to 28.0 percent for the corresponding period last year. Gross profit for the quarter was $33.7 million compared to $25.2 million for the prior year quarter.
Record third quarter earnings from continuing operations were reported at $7.7 million or $0.32 per share, up over 35 percent from $5.7 million or $0.25 per share for the prior year quarter.
Net earnings for the quarter, after loss on discontinued operations, were $7.2 million or $0.31 per share, up from $5.0 million or $0.22 per share for the prior year quarter.
Cash from operations, before changes in non-cash working capital items, was $16.3 million for the quarter, compared to $14.9 million for the same quarter last year.
"The Company achieved the highest third quarter revenue and profits in its history. Demand for drilling services continues to increase and customers remain anxious to secure rigs and crews," said Francis McGuire, President and CEO of Major Drilling. "Margins for the third quarter, which is always our seasonally weakest quarter, remained relatively flat as compared to last year at 27.9 percent. Our operations were affected by heavy rains in Africa, Australia, Mexico and Ecuador as well as by extreme weather in Canada, whereas last year weather conditions were uniformly favourable. Also, our record performance would have been even stronger if it were not for the impact of foreign translations. For the quarter, the unfavourable foreign exchange translation impact, when comparing to the effective rates for the same period last year, is estimated at approximately $14 million on revenue and $1.7 million on net earnings. As previously mentioned, we continue to make significant investments in training, and we are on track to meeting our goal of expanding our labour force by 20 percent this year." "Going forward, the outlook for the fourth quarter looks strong although weather continued to be challenging throughout February. With our on-going training efforts, we anticipate putting 29 new rigs into service during the fourth quarter, rigs that either arrived in the third quarter or will be arriving during the fourth quarter subject to delivery schedules. Seven of these are replacement rigs. In addition, we have increased our inventory during the quarter by $13 million in anticipation of a busy year as well as to avoid any potential supply shortages," noted Mr. McGuire. "We expect demand from gold and copper projects to continue to be strong in calendar 2008 as prices should remain well above economical thresholds required for sustained exploration. Drilling demand from uranium companies is expected to increase in 2008 given the number of projects moving into the pre-feasibility stage around the world. In addition, most observers believe that a slowdown in the U.S. economy would have only a small impact on the demand for base metals as problems on the supply side and continued demand from China and India should keep prices above levels required for exploration," said Mr. McGuire. "In terms of customer base, most senior and intermediate mining companies, which represent the majority of our customers, have increased their 2008 exploration budgets from 2007. Most of the junior companies that we work for have raised substantial amounts of cash, which should carry their exploration programs through the next six to eight quarters. While financial markets may become more selective in their future support for junior mining, we would expect that projects with good fundamentals will continue to find financing. The need to replace depleting reserves will continue to be the key driver in the industry," said Mr. McGuire. The Company also takes this opportunity to thank Jonathan Goodman, who has stepped down from the Board of Directors, for his strong input over the course of many years and welcomes to the Board Mr. Derek Pannell, former President and CEO of Noranda/Falconbridge and board member of Teck Cominco. Mr. Pannell brings over 35 years of experience in mining and international business to the Company.
Third quarter ended January 31, 2008
Total revenue for the third quarter was $120.8 million, up 34.1 percent from the $90.1 million recorded for the prior year period. Revenue from Canada-U.S. drilling operations was up $4.8 million or 15.8 percent to $35.1 million for the quarter compared to $30.3 million for the same period last year. Additional equipment and improved pricing contributed to the growth in that region. In South and Central America, revenue for the quarter was $38.8 million, up 31.1 percent from $29.6 million recorded in the prior year quarter. Revenue growth was driven primarily by the new acquisitions in Chile and Ecuador, and good internal growth in Mexico. Australian, Asian and African drilling operations reported revenue of $46.8 million, up some 55.0 percent from $30.2 million reported in the same period last year. The African acquisition, better rig utilization in Australia and a new operation in Armenia accounted for most of the region's growth. The overall gross margin percentage for the quarter was relatively flat at 27.9 percent as compared to 28.0 percent for the same period last year. Margin growth was impacted by weather conditions and lower margins in the African operations, which offset the impact of pricing and productivity improvements. General and administrative costs were $11.2 million for the quarter, compared to $8.8 million for the prior year period. The increase was primarily due to the additional administrative costs relating to the acquisitions in Africa, Chile and Ecuador, additions in management to accommodate growth, and overall cost increases due to increased volume. Other expenses were $2.6 million for the quarter compared to $2.0 million for the same period last year, due to higher incentive compensation expenses, given the Company's improved profitability in the current year, and to losses on the disposal of assets. Foreign exchange loss was $0.4 million for the quarter compared to nil for the prior year period. This is due to the strengthening of the Canadian dollar against the U.S. dollar. Short-term interest expense was $0.2 million for the quarter compared to revenue of $0.3 million last year, while interest on long-term debt was $0.6 million compared to $0.7 million for the prior year quarter. Amortization expense increased to $7.0 million for the quarter compared to $5.2 million for the same quarter last year, as a result of increased investment in equipment. The Company's tax expense was $4.0 million for the quarter compared to $3.2 million for the same period last year, reflecting the Company's increased profitability. Earnings from continuing operations for the quarter were $7.7 million or $0.32 per share ($0.32 per share diluted) compared to $5.7 million or $0.25 per share ($0.24 per share diluted) in the prior year period. Loss from discontinued operations was $0.4 million or $0.02 per share compared to $0.7 million or $0.03 per share for the same period last year. Resulting net earnings were $7.2 million or $0.31 per share ($0.30 per share diluted) compared to $5.0 million or $0.22 per share ($0.21 per share diluted) for the same period last year.
Year to date ended January 31, 2008
Revenue for the nine-month period ending January 31, 2008 increased 46.8 percent to $420.3 million from $286.4 million for the corresponding period last year. Canada-U.S. revenue increased by 31.0 percent or $32.3 million to $136.5 million compared to $104.2 million last year with both countries contributing to this growth. Revenue in South and Central America increased by 46.1 percent or $39.8 million to $126.1 million, compared to $86.3 million in the prior year period. Internal growth in Mexico and Chile and acquisitions in Chile and Ecuador accounted for most of the growth, with Venezuela and Argentina also making strong contributions. Revenue in Australia, Asia and Africa increased 64.4 percent or $61.8 million to $157.7 million from $95.9 million in the prior year period. Australia and the new African operations accounted for about two thirds of the growth in this segment. As well, all other countries in the region grew their revenue and the Company commenced operations in Armenia. Gross margins for the nine-month period were 32.4 percent compared to 31.3 percent last year due mainly to an improving pricing environment. With the increase in revenue and improving gross margins, gross profit for the nine-month period increased by 51.8 percent to $136.0 million compared to $89.6 million for the prior year period. General and administrative expenses increased to $32.1 million compared to $23.6 million for the same period last year. This increase is primarily due to additions to the management team to accommodate growth, administrative salary increases and the African and Chilean acquisitions. Other expenses were $10.4 million for the nine-month period compared to $7.1 million for the same period last year due primarily to higher incentive compensation expenses given the Company's improved profitability in the current year, and losses on disposal of assets. Foreign exchange loss was $2.2 million for the nine-month period compared to $0.4 million in the prior year period as a result of unfavourable variation in the U.S. dollar against the Canadian dollar. Short-term interest revenue was $0.4 million for the nine-month period compared to $0.3 million last year, while interest expense on long-term debt was flat at $1.9 million compared to the same period last year. Amortization expense increased to $19.5 million for the nine-month period, compared to $14.6 million for the same period last year, as a result of increased investment in equipment. The provision for income tax for the nine-month period was $21.0 million compared to $13.6 million for the prior year period reflecting the increase in pre-tax earnings. Earnings from continuing operations for the nine-month period were $49.3 million or $2.09 per share ($2.06 per share diluted) compared to $28.7 million or $1.24 per share ($1.22 per share diluted) for the same period last year. Loss from discontinued operations was $0.6 million or $0.02 per share compared to a gain of $12.2 million or $0.53 per share last year. Resulting net earnings were $48.7 million or $2.07 per share ($2.04 per share diluted) compared to $41.0 million or $1.77 per share ($1.74 per share diluted) for the same period last year. On a rolling 12-month basis to January 31, 2008, revenue from continuing operations increased by 46.4 percent to $549.4 million compared to $375.3 million for the prior year period. Earnings from continuing operations, on the same rolling 12-month basis, increased by 76.6 percent to $67.1 million from $38.0 million for the corresponding period last year.
Some of the statements contained in this press release may be forward-looking statements, such as estimates and statements that describe or are with respect to the future price of minerals and metals, the Company's future plans, objectives or goals, including words to the effect that the Company or management expects a stated condition to exist or occur. Since forward-looking statements address future events and conditions, by their very nature, they involve inherent risks and uncertainties. Actual results in each case could differ materially from those currently anticipated in such statements by reason of factors such as, but not limited to, the factors set out in the discussion starting on pages 19 to 22 of the 2007 Annual Report entitled "General Risks and Uncertainties", as filed with the Canadian Securities Administration (available on SEDAR at www.sedar.com). All such factors should be considered carefully when making decisions with respect to the Company. The Company does not undertake to update any forward-looking statements, including those statements that are incorporated by reference herein, whether written or oral, that may be made from time to time by or on its behalf, except in accordance with applicable securities laws.
Based in Moncton, New Brunswick, Major Drilling Group International Inc. is one of the world's largest metals and minerals contract drilling service companies. To support its customers' mining operations and mineral exploration activities, Major Drilling maintains operations in Canada, the United States, South and Central America, Australia, Indonesia, Mongolia, Armenia and Africa.
Financial statements are attached.
Major Drilling will provide a simultaneous web cast of its quarterly conference call on Tuesday, March 4, 2008 at 9:00 AM (EST). To access the web cast please go to the Major Drilling website at www.majordrilling.com and click the attached link, or go directly to the CNW Group website at www.newswire.ca for directions. Participants will require Windows MediaPlayer, which can be downloaded prior to accessing the call. Please note that this is listen only mode.
Major Drilling Group International Inc. Consolidated Statements of Operations (in thousands of Canadian dollars, except per share information) (unaudited)
Nine months ended Three months ended January 31 January 31
2008 2007 2008 2007 TOTAL REVENUE $ 420,314 $ 286,388 $ 120,758 $ 90,092
DIRECT COSTS 284,293 196,838 87,046 64,870
GROSS PROFIT 136,021 89,550 33,712 25,222 OPERATING EXPENSES General and administrative 32,094 23,616 11,238 8,756 Other expenses 10,424 7,076 2,608 1,956 Foreign exchange loss (gain) 2,154 366 449 (47) Interest (revenue) expense (378) (340) 239 (294) Interest expense on long-term debt 1,922 1,931 569 684 Amortization 19,511 14,584 6,973 5,209 65,727 47,233 22,076 16,264
EARNINGS BEFORE INCOME TAX AND DISCONTINUED OPERATIONS 70,294 42,317 11,636 8,958
INCOME TAX - PROVISION Current 19,268 7,472 3,011 (578) Future 1,717 6,099 955 3,799 20,985 13,571 3,966 3,221
EARNINGS FROM CONTINUING OPERATIONS 49,309 28,746 7,670 5,737
(LOSS) GAIN FROM DISCONTINUED OPERATIONS (note 6) (575) 12,248 (434) (735)
NET EARNINGS $ 48,734 $ 40,994 $ 7,236 $ 5,002
EARNINGS PER SHARE FROM CONTINUING OPERATIONS Basic(x) $ 2.09 $ 1.24 $ 0.32 $ 0.25 Diluted(xx) $ 2.06 $ 1.22 $ 0.32 $ 0.24
EARNINGS PER SHARE Basic(x) $ 2.07 $ 1.77 $ 0.31 $ 0.22 Diluted(xx) $ 2.04 $ 1.74 $ 0.30 $ 0.21
(x) Based on 23,541,827 and 23,098,106 daily weighted average shares outstanding for the fiscal year to date 2008 and 2007, respectively and on 23,621,029 and 23,127,430 daily weighted average shares for the quarter ended January 31, 2008 and 2007, respectively. The total number of shares outstanding on January 31, 2008 was 23,671,008.
(xx) Based on 23,882,663 and 23,575,166 daily weighted average shares outstanding for the fiscal year to date 2008 and 2007, respectively and on 24,018,422 and 23,645,789 daily weighted average shares outstanding for the quarter ended January 31, 2008 and 2007, respectively.
Major Drilling Group International Inc. Consolidated Statements of Comprehensive Earnings (in thousands of Canadian dollars) (unaudited)
Nine months ended Three months ended January 31 January 31
2008 2007 2008 2007
NET EARNINGS $ 48,734 $ 40,994 $ 7,236 $ 5,002
OTHER COMPREHENSIVE (LOSS) GAIN Unrealized (losses) gains on translating financial statements of self-sustaining foreign operations (19,429) 7,606 7,823 8,232
COMPREHENSIVE EARNINGS $ 29,305 $ 48,600 $ 15,059 $ 13,234
Consolidated Statements of Retained Earnings (in thousands of Canadian dollars) (unaudited)
Nine months ended January 31
2008 2007
RETAINED EARNINGS, BEGINNING OF THE PERIOD $ 108,438 $ 49,635
Net earnings 48,734 40,994
RETAINED EARNINGS, END OF THE PERIOD $ 157,172 $ 90,629
Consolidated Statements of Accumulated Other Comprehensive Loss (in thousands of Canadian dollars) (unaudited)
Nine months ended January 31
2008 2007
ACCUMULATED OTHER COMPREHENSIVE LOSS, BEGINNING OF THE PERIOD $ (30,383) $ (30,249)
Unrealized (losses) gains on translating financial statements of self-sustaining foreign operations (19,429) 7,606
ACCUMULATED OTHER COMPREHENSIVE LOSS, END OF THE PERIOD $ (49,812) $ (22,643)
Major Drilling Group International Inc. Consolidated Statements of Cash Flows (in thousands of Canadian dollars) (unaudited)
Nine months ended Three months ended January 31 January 31
2008 2007 2008 2007
OPERATING ACTIVITIES Earnings from continuing operations $ 49,309 $ 28,746 $ 7,670 $ 5,737 Operating items not involving cash Amortization 19,511 14,584 6,973 5,209 Loss on disposal of capital assets 1,268 355 265 58 Future income tax 1,717 6,099 955 3,799 Stock-based compensation 1,955 663 388 131 73,760 50,447 16,251 14,934 Changes in non-cash operating working capital items (16,757) (2,252) 1,145 1,660 57,003 48,195 17,396 16,594
Loss from discontinued operations, adjusted for non-cash items (689) (2,706) (437) (212) Changes in non-cash operating working capital items from discontinued operations (803) 3,644 1,923 (84) Cash flow from operating activities 55,511 49,133 18,882 16,298
FINANCING ACTIVITIES Repayment of long-term debt (10,916) (11,508) (2,831) (4,727) Additional long-term debt 10,000 459 10,000 - Increase in (repayment of) demand loans 8,489 (16,721) (7,323) (280) Issuance of common shares 3,829 913 1,180 531 Discontinued operations (3,064) - 32 - Cash flow from (used in) financing activities 8,338 (26,857) 1,058 (4,476)
INVESTING ACTIVITIES Net proceeds from sale of discontinued operations - 28,755 - - Business acquisitions (net of cash acquired) (note 5) (27,429) (13,058) - (13,058) Acquisition of capital assets, net of direct financing (45,401) (24,329) (16,469) (9,250) Proceeds from disposal of capital assets 2,510 2,588 95 876 Discontinued Operations - 1,693 - 1,677 Other 36 - 36 - Cash flow used in investing activities (70,284) (4,351) (16,338) (19,755)
OTHER ACTIVITIES Foreign exchange translation adjustment (334) (1,314) (1,046) (123)
(DECREASE) INCREASE IN CASH (6,769) 16,611 2,556 (8,056)
CASH POSITION, BEGINNING OF THE PERIOD 25,022 11,987 15,697 36,654
CASH POSITION, END OF THE PERIOD $ 18,253 $ 28,598 $ 18,253 $ 28,598
Major Drilling Group International Inc. Consolidated Balance Sheets As at January 31, 2008 and April 30, 2007 (in thousands of Canadian dollars)
ASSETS January April 2008 2007 (unaudited) CURRENT ASSETS Cash $ 18,253 $ 25,022 Accounts receivable 74,630 78,613 Income tax receivable 2,090 1,610 Inventories 69,375 50,976 Prepaid expenses 8,197 6,545 Future income tax assets 2,230 1,730 Assets of discontinued operations (note 6) - 3,253 174,775 167,749
CAPITAL ASSETS 181,303 158,771
FUTURE INCOME TAX ASSETS 2,243 619
OTHER ASSETS 13,735 1,240
$ 372,056 $ 328,379
LIABILITIES
CURRENT LIABILITIES Demand loan $ 8,489 - Accounts payable and accrued charges 55,786 $ 54,484 Income tax payable 8,356 4,121 Current portion of long-term debt 10,690 13,649 Liabilities of discontinued operations (note 6) 1,996 9,463 85,317 81,717
LONG-TERM DEBT 22,009 18,136
FUTURE INCOME TAX LIABILITIES 8,654 7,020
DEFERRED GAIN - 519 115,980 107,392
SHAREHOLDERS' EQUITY Share capital 141,532 137,703 Contributed surplus 7,184 5,229 Retained earnings 157,172 108,438 Accumulated other comprehensive loss (49,812) (30,383) 256,076 220,987 $ 372,056 $ 328,379