Canadian Drilling Companies Weathering Recession

Canadian exploration drilling companies are beginning to see light at the end of the recessionary tunnel, with one reporting increased fourth-quarter earnings and another claiming to have weathered the economic downturn.

New Brunswick-based Major Drilling posted quarterly revenue of $109.5 million, up 75 percent from the same quarter in 2009, CEO Francis McGuire reported in September.

The better financial picture is mainly attributable to higher utilization of drilling rigs, says McGuire, who noted that drill rig capacity may tighten in some of the company’s key regions, putting upward pressure on prices.

“Looking at the rest of fiscal 2011, if customers move forward with their stated plans, we expect to see continuing growth,” he says.

The news caused Major Drilling’s share price to leap nine percent on the TSX, having announced a profit of $5.1 million for the three months ended July 31, compared to a $3.3- million loss in the same period of 2009.

McGuire says the company, which acquired North Star Drilling in July, noticed the strongest growth occurring in North, Central and South America, where intermediate and junior mining companies have advanced-stage drilling projects requiring several years of multi-rig drilling.

The picture dims with respect to early-stage exploration projects, however, with many companies experiencing difficulties in getting financing, according to McGuire.

Drilling companies like Major Drilling were hit hard by the recession, when many mining companies cut back on exploration work to rein in cash expenses.

Conversely, as the mining sector begins to recover, the activity level of drilling companies can be seen as a bellwether of future growth.

Another Canadian company that appears to have survived the downturn and is even poised for expansion is Foraco.  Headquartered in Marseille, France, in 2006 the company set up a facility in North Bay, Ontario — a mining hub north of Toronto that is home to about 60 companies working in mining and miningrelated services.

The strategy appears to have worked. In four years, sales have gone from $40 million to over $200 million, with revenues of $178 million in 2009. The company recently acquired Adviser  Drilling SA out of Santiago, Chile, which operates in Mexico, Peru, Argentina and Chile, and Foraco is looking to expand into Brazil, says Tim Bremner, Senior Vice President and General Manager of Foraco Canada.

Bremner says that although Foraco’s business is 50 percent down in Canada, the North Bay operation has been protected because it supports the company’s other operations in 20 countries.

“As the ability of our customers to raise money changes, and that change is linked to metal prices obviously, so does our business,” says Bremner. “However the fact we’re in North Bay has really helped Foraco grow its business and support those operations around the world.”

Foraco is somewhat insulated from economic downturns because it has diversified into water well drilling, the only Canadian drilling services company to do so, according to Bremner. When mining is down, Foraco draws from its inventory of equipment — which totals 170 diamond, rotary and combination drill rigs — to drill for drinking water instead of core samples.

“There’s nothing better than doing 400-500 wells for a village in Niger,” says Bremner. “We drill a hole, put a solar panel in place, hook up the pumps and basically turn the water on. It’s an absolutely great business and we’re very proud of it.”

The uptick in drilling activity has translated into more orders for global mining equipment manufacturer Atlas Copco, according to Jeff Hagar, General Manager of Atlas Copco Exploration Products, also based in North Bay, Ontario.

The company produces a large selection of products for the exploration drilling industry, including diamond drill bits, in-the-hole (ITH) tools, and surface drill rigs.

Hagar says Atlas Copco’s volume of business has recovered to 75 percent of its peak in 2008, which he said reflects the increase in metals prices across the board, especially gold and copper.  “South America has been very strong.”

He also notes that despite the recession, Atlas Copco did not cut back on product development, with the company recently rolling out a new range of diamond core drill bits, new drills and new ITH tools.

Jim Savage, of the Canadian Diamond Drilling Association, says anecdotal evidence from the group’s 140-odd members suggests that drilling activity is picking up.

“It is rebounding; there’s no question about it,” he said. “You talk to a lot of these companies and they’re looking for people, which means they have places for them on drills.”

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