Major Drilling Confirms Market Update
MONCTON, NB, May 18 /CNW/ – Major Drilling Group International Inc. (TSX: MDI) (the "Company") is confirming the disclosure it made in its third quarter press release dated March 3, 2009.
In that press release, we stated:
"In January, due to the uncertainty in the economy, many customers delayed or cancelled their exploration drilling plans, which impacted the quarter's results compared to last year. Delays and cancellations will continue to have an impact through at least the first half of calendar 2009. In addition, lower levels of demand have significantly increased competitive pressures, which will impact pricing", said Francis McGuire, President and CEO of Major Drilling.
"The current economic environment has impacted, and will continue to impact, drilling in the short to medium-term, particularly on base metal projects where the Company expects to see a significant slowdown in activity in 2009. Senior and intermediate base metal companies that are leveraged have also reduced their exploration spending for 2009, in order to conserve cash. Many gold producers have delayed exploration plans due to the uncertainty in the economy. Sources of funding for junior mining companies are limited, and as such many junior projects, both in the base metals and gold sectors, have been delayed or cancelled", said Mr. McGuire.
"All of this uncertainty limits the Company's visibility for the short- term. Fourth quarter revenue will be significantly impacted by cancellations and delays, and revenue could potentially fall by more than half as compared to the same quarter last year."
As expected, the fourth quarter of fiscal 2009 proved difficult as the current economic environment impacted drilling worldwide, particularly on base metal projects. Many of our largest senior customers cut their exploration programs significantly to conserve cash. A large number of specialized projects, which tend to be more costly for customers than conventional projects, and where the Company has historically placed its main focus, have either been cancelled or very heavily cut back. Five of our largest worldwide customers alone have postponed various projects that generated revenues of approximately $40 million in the second quarter of fiscal 2009. We also chose not to retain some contracts where new pricing would have lowered margins to the point that the contracts would not have been profitable.
As a result of these and other cancellations and delays, as well as general pricing pressures created by the current environment and ongoing geopolitical issues in some of our locations, revenues for the quarter will be impacted slightly more than we had anticipated at the time of our March 3, 2009 press release, down approximately 60% when compared with Q4 of fiscal 2008. Due to this decrease in revenues, lower margins, and restructuring charges the Company will record a moderate net loss for the quarter.
We believe that the current economic environment will continue to impact drilling in the short to medium-term. Some of our large global competitors have issued guidance making similar statements and predicting similar impacts on results. However, the Company is beginning to see marginal increases in demand for its drilling services. If customers move forward with their stated plans, we should see gradual gains as each month goes by. While we expect some continued improvements as the year goes on, calendar 2009 will remain difficult. In calendar 2010, we expect many of the supply issues, which face most commodities, to resurface and that even with moderate growth in the world economy, the need to explore and develop mines will increase, which should increase demand for specialized drilling.
The Company remains in an excellent financial position, being debt-free, net of cash. Total cash level, net of long-term debt, stood at close to $20 million at quarter-end. Despite the difficult environment, the Company expects operations to generate positive cash flow for the quarter ending April 2009 and for the fiscal year ended April 30, 2010.
Full financial results for the fourth quarter and 2009 fiscal year will be released on June 8, 2009.
Some of the statements contained in this press release may be forward-looking statements, such as, but not limited to, those relating to worldwide demand for gold and base metals and overall commodity prices, the level of activity in the minerals and metals industry and the demand for the Company's services, the Canadian and international economic environments, the Company's ability to attract and retain customers and to manage its assets and operating costs, sources of funding for its clients, particularly for junior mining companies, competitive pressures, currency movements, which can affect the Company's revenue in Canadian dollars, the geographic distribution of the Company's operations, the impact of operational changes, changes in jurisdictions in which the Company operates (including changes in regulation), failure by counterparties to fulfill contractual obligations, and other factors as may be set forth, as well as objectives or goals, and 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 21 to 24 of the 2008 Annual Report entitled "General Risks and Uncertainties", as updated by the section entitled "General Risks and Uncertainties" in the discussion on pages 8, 9, 10 and 11 of the Company's third quarter 2009 MD&A, and such other documents as 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, and Africa. For further information: Denis Larocque, Chief Financial Officer, (506) 857-8636, Fax: (506) 857-9211, [email protected]