DOWN TO EARTH - JSE MAGAZINE

DOWN TO EARTH

By targeting small contracts during its early years, Master Drilling has become something of a giant in today’s mining services industry. Founder and CEO Danie Pretorius says the company continues to expand while staying true to its core focus

DOWN TO EARTH

‘Coming through a global down cycle and remaining on not just a growth path but also on the continued radar of some of the world’s major mining companies, means we have being doing something right,’ says Danie Pretorius, CEO of Master Drilling.

Rather a lot of ‘right’ things it seems. Despite being in a closed period, Master Drilling has no reason to anticipate its forthcoming figures being dramatically different from the continued growth path the company has been experiencing since Pretorius started the business in 1986, and which ultimately culminated in its JSE listing just over four years ago.

The listing is one of the highlights of the three-decade-old business. ‘Two things resulted, which at the time we had given little thought to. First was that we received much more attention from international clients, and second was the highly skilled class of employees we began to attract. Even the banks looked at us differently.’

Despite the current downswing in commodity prices that have resulted in shrinking margins for many mining-related services businesses, Master Drilling’s last reported figures (June 2016) present a picture that almost belies the continent’s struggle: ZAR revenue was up by 15.4%, assisted by the weakening rand and a steady increase in its 2016 order book (some $209 million). Its profit margins, profit after tax margins and headline earnings per share for both SA and the US all increased, except for the latter, which remained constant.

According to Pretorius, there are no secrets underscoring Master Drilling’s success but there are certainly some key aspects that deserve to be highlighted. For example, the business is niche, supplying raise bore and slim drilling services and engineering support for the group’s subsidiaries. Master Drilling’s raise boring capability offers advantages over other conventional drilling methods including reduced costs, increased speed and safety. In SA, Master Drilling has no competitors other than two large generic mining suppliers, which have smaller divisional operations that offer similar services but tend generally to focus only on big contracts.

The opposite is true of Master Drilling – in the early years, its focus was on small-scale projects where it gained a considerable reputation for finding solutions through technological advancement. Its strong commitment to technology development in creating drilling and bore-equipment solutions has led to somewhat of an industry in-joke, ‘in that we are not really a drilling company but a technology one’, says Pretorius.

‘We have developed drilling machines that are a first in the global arena, so certainly the international market took note.’ So much so in fact, that Master Drilling was inspired to open entities in Latin America – Chile, Peru, Brazil and Mexico – Africa, Europe and, more recently, China.

In line with our strategic plan, we diversified further into the renewable energy market by completing projects in both Colombia and Ecuador. The newly acquired European business has a large focus on providing services to the hydro-energy sector.

Down-to-earth-PQ1

2016 was a significant year for Master Drilling in terms of its diversification programme. The acquisition of the assets and operations of Bergteamet Latin America SpA and the security of a five-year extension of a key AngloGold Ashanti contract in South America – along with its first blind-shafting contract in the US – have enabled further cash resources so that the company can continue with its global footprint expansion, with thoughts turning to Canada.

‘In Africa, we are already in most of the mining countries, from South Africa to Zambia, Tanzania, the DRC, Mali and Sierra Leone,’ says Pretorius.

Master Drilling goes where many fear to tread and has earned a formidable reputation for operating in risky areas. Pretorius explains that with high risk comes high reward. ‘We’ve operated in Saudi Arabia, Yemen, Iran, Guatemala, even Colombia. If we can ensure the safety of our people, the only thing left is to properly guarantee the assets, which I can assure you we do.’

When considering a joint venture partner, the focus lies in the alignment of its sustainable strategic objectives and culture fit. Thereafter, Master Drilling evaluates the value-creation potential considering the margin growth, return on investment, free cash-generation capability and balance-sheet ratios.

Further success for Master Drilling is also linked to the vertical integrated model that the firm applies. ‘We design, manufacture, operate and maintain our machines – we don’t sell them. In this way, we do not overly expose our intellectual property,’ says Pretorius. ‘It also means that our clients have come to value the efficiency of our products, bearing in mind that we are in the business of ensuring mechanisation so that drilling can be a 24/7 operation.

‘Efficiency and productivity are crucial to mining, especially in the greenfield environment. So if we can remotely control our operations on-site, we are helping mines to have ongoing production.’

By Kerry Dimmer