Q&A: MASTER DRILLING - JSE MAGAZINE

Q&A: MASTER DRILLING

Danie Pretorius, CEO of Master Drilling, on strategic acquisitions, the importance of local knowledge and the influence of mechanisation

Q&A: MASTER DRILLING

Q: Briefly, what is the history of Master Drilling and what services do you offer?
A:
Master Drilling was established in SA in 1986 and listed on the JSE in December 2012. We are a leader in specialised global drilling solutions, providing raise boring and exploration drilling together with specialised in-house drilling equipment design, manufacturing, training and maintenance capabilities that support our clients’ unique needs. We count blue-chip major and mid-tier companies in the mining, civil and construction and hydro-energy sectors – across a number of commodities and geographies – as our clients.

Q: What was your strategy behind listing on the JSE?
A:
We experienced significant growth prior to listing. This growth was not sustainable with the working capital available at that stage. We had to make the decision to slow down our growth or go to the market for capital to support growth. Rather than an offering to the general public, the company resolved to do initial placements with selected institutions, after which the shares would be available to the general public. A pre-condition to the private placements is, in fact, the listing of the company in order to render the shares freely tradeable.

Q: You been quoted as saying you plan to more than double your market cap ‘in a few years’. How does your 40% acquisition of a Scandinavian drilling company in December fit into that target?
A:
The key to increasing market cap is a function of shareholder trust and value creation. If you over-deliver on your promises to the market, investors will believe in the business and the private equity will tell the story. When we talk about value creation, it’s important to understand that Master Drilling is not a service provider, we sell solutions. We started the business by looking at the industry issues and developing the solutions for it – ‘challenge the status quo’, as our strategic statement refers. Our strategy on acquisitions has been to look at select M&A opportunities in the geographies where we do not have exposure and that are considered a strategic fit. This acquisition gives us access to new markets that will contribute towards geographical diversification and euro-based income.

Q: The majority of your operations revolve around raise boring. Why is that?
A:
We started the business in 1986 by assessing industry needs and designing drilling solutions to fit them. We had some great successes mainly related to raise boring, so we then established ourselves as a market leader in this regard. Raise boring addresses the mechanisation demand in the mining industry, which is seen as a high-tech service that will be influential in future mining requirements. In recent years the business has diversified into other drilling services to address current client needs.

Q: How many drill rigs does master Drilling own?
A:
Thus far our manufactured capital consists of 100 rigs, 47 of which are slim-drill rigs, which are different from raise bore rigs. An additional 18 raise bore rigs have been acquired from the [Scandinavian] acquisition.

‘The development of fully automated and remotely operated rigs puts us in a strong position’

Q: How many countries are you active in?
A:
So far, 11 countries. The company’s international raise bore operations as managed abroad include entities in Latin America, Africa and Europe. The Chilean, Peruvian, Brazilian, Mexican and Zambian entities maintain both operational and engineering facilities. The international footprint now also includes operations in Guatemala, Ecuador, Colombia, DRC and Mali. We recently established business in the US as well as Ghana. The current China manufacturing business has been expanded to include drilling services.

Q: What, in your experience, has been the best country, from a regulatory point of view, to operate in?
A:
Every country has its own set of requirements with regard to regulation and is unique in certain areas. Successful operations in every country revolves around in-depth local knowledge and consultation on regulatory matters.

Q: Australia is the only continent where master drilling does not have a presence. Why is that?
A:
Master Drilling has focused on more attractive opportunities in developing countries by applying the ‘first mover’ concept. The Australian market is seen as very competitive and the nature of operations utilises high-skilled, high-cost and low quantities of personnel very much similar to the Scandinavian and Canadian markets. The recent acquisition supports an operational culture change to consider a more aggressive approach towards these markets.

Q: How has the commodity downturn affected your African operations?
A:
In SA, our clients have felt the downturn, which impacted the SA business. The devaluation of the rand impacted our dollar earnings that we report in. We expect the SA operations to stabilise in the short-term given the larger projects in the pipeline. In Zambia, where the majority of our projects are in the Glencore stable, we’ve seen some cut-backs due to poor copper demand. Similarly to SA, the Zambian operations face the risk of the local currency (kwacha) devaluating against the dollar, which is our reporting currency. In the rest of Africa we believe the impact has not been felt that hard. Our current projects are continuing and we [anticipate] new projects coming online soon, which will be good for our business. We still are optimistic about the Africa growth story.

Q: How do SA hard-rock mining conditions differ from a drilling operational point of view, compared to the rest of the world?
A:
Hard-rock mining conditions are different in all geographical areas and we simply adapt our drilling solutions as these conditions change. In our 30 years in the drilling industry, we have made some significant improvements to our cutting tools to address the various rock conditions.

Q: Sonic drilling is one of the packages you offer. In a nutshell, how does that differ from conventional drilling?
A: Sonic drilling is a method of drilling used in extracting ground or soil samples in very consolidated ground formations. We do not currently have an active sonic drilling project as we’ve seen a significant reduction in exploration drilling opportunities.

‘We started the business by assessing industry needs and designing drilling solutions to fit them’

Q: How is technology changing the drilling industry?
A:
Continuous improvement and cost pressure in mining required many of our clients to consider changes in technology and labour, to regain profits in a volatile market. In Southern Africa, electricity supply shortages, and the consequent requests for industrial users to cut back on usage, will continue its negative impact on the mining industry. Labour unrest has forced mining producers to re-evaluate the way in which they do business and look for new technologies to move from labour-intensive mining operations to mechanised operations.

Most of our clients are cost- and time-sensitive, and in response to their circumstances our automated rigs are 30% more efficient than conventional rigs, saving time and reducing labour. Automation is a global trend in the industry, and Master Drilling is committed to increase mechanisation and automation that with it brings increased safety, efficiency and productivity.

Q: What sorts of new technology are you hoping to introduce soon?
A:
In the shaft sinking industry, we have noted some challenges in introducing mechanisation and we believe that we can potentially play a role here. At the Mining Indaba in February 2016, we plan to introduce our blind shaft boring system to the market. This system and technology will create access for man-, material- and ventilation shafts of up to 13m in diameter and up to 2 000m deep in hard-rock applications.

The system will be suitable for greenfield and brownfield underground mining applications. While current shaft drilling or raise-boring services require bottom – or underground – access, this new system could be applied in areas where there is no such access or in greenfield projects, where shaft boring is required from the surface. There is significant value in this system, as it provides faster access to underground ore bodies. The potential impact of such a shaft boring system is significant as feasibility projects could now pass capital hurdle rates due to cost and time savings.

Q: You plan on automating your entire rig fleet within four years. Why?
A:
The development of fully automated and remotely operated rigs puts us in a strong position to provide mechanised operations, thus assisting our mining clients in furthering these objectives. Another phase in the roadmap to automation is the capability to remotely monitor the rigs onsite during operations. Automation control and remote operation for drill rigs are innovations that improve operating efficiencies and significantly improve the safety of onsite employees – 24% of Master Drilling’s drill-rig fleet is already fully automated.

Fully enabled automated insertion and removal of drill rods, and remote control spanners are used in 4% of our projects and represent the next phase of future automation development. Automated machines are up to 30% more efficient than conventional machines. A data collector, connected via satellite, allows the user to monitor the machines in real time and act quickly in response to any event. Automated machines have a range of sensors and controls that guarantee the appropriate penetration and eliminate risks for personnel by minimising man-machine contact during the connection of the components.

By Patrick Farrell
Image: Matina Steyn