Geodrill Ltd

TSX:GEO

Earnings Call Transcript

[Operator]

Good morning, ladies and gentlemen, and welcome to Geodrill's Fiscal 2024 Results Conference Call. [Operator Instructions] I would like to remind everyone that this conference call is being recorded today, March 3, 2025.

Before we begin, certain statements made on today's call by management may be forward-looking in nature and, as such, are subject to various risks and uncertainties. Please refer to the company's press release and MD&A for more details on these risks and uncertainties.

I will now turn the call over to Mr. Dave Harper, President and CEO of Geodrill. Please go ahead.

[David Harper, executive]

Thank you, operator, and good morning, everyone. Welcome to Geodrill's Fiscal 2024 Conference Call. Joining me on the call today is Greg Borsk, our Chief Financial Officer. Let me begin. 2024 was a transformative year for Geodrill in which we strategically pivoted into new higher potential markets with lower risk jurisdictions. This approach has mitigated risks, but also allowing us to tap into new opportunities with the ultimate aim of driving growth for our shareholders.

In 2024, we achieved several significant milestones. We have effectively mitigated risk by building a diverse client portfolio of well-funded top-tier mining companies in safe jurisdictions. This strategic move has fortified our position in the industry and enhanced our resilience. Despite operating in a highly inflationary period with rising costs, we've achieved record revenues, strengthened our balance sheet and remain highly profitable. These accomplishments underscore our financial discipline and our operational excellence.

One of our most significant achievements has been securing multi-rig contracts across both of our core markets in West Africa and our expanded markets, mainly Egypt and South America. These contracts have substantially boosted our revenue visibility for the next 3 to 5 years, demonstrating our commitment to financial stability. Geodrill has always thrived by operating where opportunities exist. Our track record of balancing opportunity and risk has been validated by today's results.

Going forward, we remain confident in our ability to deliver value to our shareholders by establishing a strong platform for future growth. Our commitment to excellence and strategic foresight will continue to drive Geodrill's success in the years ahead.

I'll now turn the call over to Greg Borsk, our CFO, who will review our financial performance in detail. Thank you, Greg.

[Gregory Borsk, executive]

Thank you, Dave. I am pleased to report the financial performance for fiscal 2024. The company generated revenue of $143.1 million for 2024, an increase of $12.5 million or 10% when compared to $130.5 million for 2023. The increase in revenue is the result of the increase in demand for Geodrill's drilling services and a robust gold price.

With the majority of our clients mining for gold. The gross profit for 2024 was $34.7 million, being 24% of revenue compared to a gross profit of $30.6 million or 23% of revenue for 2023. The gross profit increase is a result of the increase in revenue and as Dave mentioned, despite inflationary pressures facing the mining sector and mining services providers, Geodrill has been able to increase its gross profit margin for 2024 compared to 2023.

EBITDA for 2024 was $31.1 million or 22% of revenue. This compares to $20.6 million or only 16% of revenue for 2023. The net income for 2024 was $9.1 million or $0.20 per share compared to net income of $3.8 million or $0.08 per share for 2023. We ended the year with net cash excluding right-of-use liabilities of $2.8 million. In 2024, we generated $21 million in cash flow from operations and we invested almost this entire amount back into property, plant and equipment as we expect an extremely busy 2025 and have scaled up our fleet. We ended the year with 95 drill rigs.

Building on Dave's comments, the record high revenue is fundamentally driven by 2 key drivers. One, the newly secured multi-rig, multiyear contracts and the sustained record high gold prices. The tier one contracts have been instrumental in boosting our financial performance throughout the year and the robust global exploration spending driven by high gold prices further underscores the strong fundamentals and positive outlook for the mineral drilling industry moving forward.

At this point, I will turn the call back to Dave.

[David Harper, executive]

Thank you, Greg. As we look to the future, we recognize the importance of staying agile and adaptable. The mining industry is continually evolving, and we must stand ready to navigate new challenges and seize emerging opportunities. Our outlook remains strong and promising. We are actively tendering new contracts in emerging regions to set ourselves up for the next phase of growth.

The synergy between our strategic long-term contracts and the robust gold market positions us exceptionally well for continued growth and operational success. With 2024 a wrap, I take this opportunity to extend my gratitude to all Geodrill stakeholders, including our hard-working team, our patient shareholders and our loyal customers. Their unwavering support has been integral to our success. We remain committed to maintaining our high standard of service while furthering our position as an industry leader in the mineral drilling services sector.

And with this, this concludes our prepared remarks on our financial results. I will now pass back to the operator for the Q&A session, if anyone has a call. Thank you.

[Operator]

[Operator Instructions] Your first question comes from Gordon Lawson with Paradigm Capital.

[Gordon Lawson, analyst]

Congratulations on your performance. Are you -- are you able to elaborate on which segments are you seeing the highest growth in terms of Chile versus Egypt and where your margin improvement is seeing the highest boost?

[Gregory Borsk, executive]

Yes, where we're actually seeing the highest growth is in our primary countries, Gordon, so that's West Africa, there's the 3 countries. We're operating in West Africa being Ghana, Cote d’Ivoire and recently were in Senegal. So we've done extremely [indiscernible] in those 3 countries. Continuing with Africa, Egypt, we're also doing extremely well, and we're seeing continued growth in Egypt. Again, that's backed by -- we have a large multi-rig, multi-year contract there, and we've been able to leverage that with probably about 5 or 6 additional clients. So we're doing well in Egypt also.

In terms of South America, I think we put out our press release, I think it was in Q3 with the new -- we signed a new multi-year multi-rig client in Chile. So we're going to be extremely busy in Chile in 2025. And we have our -- the other existing clients are continuing to drill also in South America. So we're fortunate. What we're seeing is -- we're seeing actually growth in all areas. Each of the countries when Dave and I do our forecast and budgets for 2025, we're expecting increases not only in every region, but in each and every country. So -- that's kind of our -- where we're seeing the growth.

And I think that the key also will be just keeping up with our clients and continuing to add new rigs in those areas. So Q1 2025, we're starting that has been off to a very good start. So we're pretty excited about 2025.

[Gordon Lawson, analyst]

Yes, your outlook for '25 does look promising. And I realize that you won't be able to break this down as much as I'd like, but are you able to disclose what sort of -- or what level of growth rate you're modeling either by segment or just in general for 2025?

[Gregory Borsk, executive]

Yes. We don't disclose that. But I think if you look at last year. Last year, we were able to grow the top line by about 10%. So again, Geodrill, we -- Dave started with one rig, where we've only grown organically. So I think if we're able to get -- add another 10%, 10% to 15%, we'd be -- we'd be doing well. If you look at some of our competitors, and I don't want to name them, but some of the competitors are actually having their revenues declining year-over-year and here's Geodrill '23 to '24, we were able to increase our top line by $12.5 million or 10%.

And one thing we pointed out is, we've decided in '23 and '24 to pull out of 2 high-risk unsafe countries in West Africa. In 2023, we pulled out of Burkina and in 2024, we've pulled out of Mali. So not only have we been able to have a record year. So those rigs that were in Burkina and Mali, they've all since been redeployed and they're in our primary countries, and they're actually drilling. So we've -- we've done a better job on risk profiling Geodrill, and it hasn't cost us any revenue. We were able to increase revenue by 10%, and we're also expecting a good 2025.

[David Harper, executive]

Gordon, if I may just jump in just quickly, just to add to Greg's comments there. As he was saying, we don't like to guide. But I think if you just look at historically where we've come from, we tend to put on about 10% year-over-year each year. And I will tell you that we will do that in 2025. Very comfortable to sit here right now and say that we will -- we should achieve at least that, okay? It's going to be a really solid 2025. And actually, what's more interesting, I think, is that we're actually interesting -- we're actually just entering the 4 most interesting years in the -- in the company's history.

Now if we just take 2024 as a benchmark, okay, fiscal 2024. Greg and I were discussing this as we've just come from a board meeting and I put a slide up where we basically if we look at our growth, it tends -- not -- things don't go up in a straight line, right? Not all years go up. But if we look at it for the last 4 years, if we go from 2024 and when we go back to what was that 2021, we were averagely -- we did average revenue of $130 million. If we go back to the 4-year period before that, we did averagely $80 million. If we go back to the 4-year period before that, we did averagely $50 million. So I call that affectionately the 50s, to 80s and the 130s. You don't need to be Nostradamus to work out or a mathematician to work out that this thing is going to keep moving North, and it's going to keep moving north, averagely at about 10% per annum.

So if you just want to -- we'll have trials and tribulations in the next 4 years, no doubt about it. But from what we're seeing right now, I've never been more bullish, never been more bullish, never been more bullis. We've got 3,000 gold or we're knocking on the door of 3,000 gold and copper is in big demand. And we're in the places where all the stuff is being mined. And we're in the markets where it's easy to mine. With the drilling company that operates in the places where other folks don't want to.

In Australia these days, it's very challenging to drill. It's very challenging to drill because of a thing called the Heritage Act. So the drillers that I'm talking to back home -- back in where I come from in Australia. I can't get on -- they can't get the rigs on, they can't drill. Mining companies can't get access to the ground. Similar things going on in North America or at least in Canada as well. And so I think you're going to -- you're going to find that Geodrill is really going to shine over the next 4 years. This is going to -- this will become a cash cow. Mark my words.

[Operator]

Your next question comes from Donangelo Volpe with Beacon Securities.

[Donangelo Volpe, analyst]

First, looking at PP&E or CapEx. Like we saw a little bit of an uptick in Q4. Are we expecting these numbers to kind of normalize in fiscal year 2025. Should we model an uptick compared to historical levels? Or are we holding it relatively in line with about $4 million per quarter?

[Gregory Borsk, executive]

Yes, that's a great question, Don. The -- if you look at the -- just look at the cash flow, as I said earlier, our -- Geodrill's success is organic. And what we make in cash flow from operations, we've been able to reinvest in the business. So if you look at 2024. 2024, the cash flow from operations was just over $21 million. And we were able to invest almost all of that. I think it was $20.5 million or $20.6 million back into property, plant and equipment. So that's just -- that's the proof that we are going to be extremely busy in 2025.

Now we've set this up. We talked about the multi-rig, multi-year contracts that we secured in 2024. And a lot of this CapEx at the $20.7 million that we invested in 2024 will go to support those contracts. So what we will do as we get through 2025, we will continue to -- we keep our clients happy. So we will continue to add rigs hopefully, for existing clients, potentially new clients in some of the jurisdictions we're working on. Because right now, there's a big demand, and we have the ability through our credit lines. We have the ability through our term loans, and we have the ability through the cash flow that we generate from operations to actually continue to increase the fleet.

[Donangelo Volpe, analyst]

Okay. And then just moving over to, I guess, Saudi Arabia, can you talk on the pipeline of activity you guys are seeing there? And kind of what other factors help drive expansion in this region?

[David Harper, executive]

[indiscernible] just registered. And so it's early days. I can't really say a lot more other than we're receiving inquiries and we'll answer those inquiries and proceed with circumspect. We love that region. We love Egypt. We particularly are interested in the Saudi region. And I guess we'll just go where the inquiries lead us, Dan.

[Donangelo Volpe, analyst]

Okay. And then final question for me. Can you guys touch on just revenue by commodity mix for fiscal year '24.

[David Harper, executive]

Yes. So currently, it's about 80% gold, about 20% copper.

[Operator]

Your next question comes from Jesus Sanchez with [indiscernible] Investment.

[Unknown Analyst]

Piggyback on the last question. Should we expect that all cash flow from operations go to CapEx to increase the number of rigs. That's what I take from your comments. At what point should we expect some return to shareholders? At what point do you expect that the cash flow from operations will be bigger than the CapEx required to keep growing.

[David Harper, executive]

It's a very good question, Jesus. And I would just point out to you that I am the largest shareholder, and I'm very keen to reinstitute the dividend program. And it will happen imminently, but not immediately. You'll note that that all of our free cash in 2024 went to growth. And so I've always had a firm position on dividends and that is dividends are great, but not at the expense of opportunity. At the moment, we're absolutely inundated with inquiries and work programs, and we need to keep our customers satisfied. So it's as much defensive as it is anything else at the moment.

We need to keep those customer service. When we reach a situation where -- we have managed to satisfy this rather large slew inbound work programs will look at it. And it's actually something that is constantly comes up at every Board meeting. I can only assure you that it will happen imminently. It just won't happen today. And probably in the back half of this year, we'll reinstitute something. That's what's being discussed at the moment, but yet to be approved by Board. And then next year, I think you can see something a little bit more substantial -- but I would like to get through 2025 and tick the box, okay. And [indiscernible] might just be something nominal for 2025, 2026 is probably going to be more substantial, assuming all things being equal and there's no black swan event. And I hope that answers your question, yes.

[Gregory Borsk, executive]

And Jesus, just in terms of what we're using the cash flow, the $21 million reinvesting. That's to keep the client happy. And that is benefiting the shareholders. If you look at the stock price at Geodrill, the appreciation over the last year, we're getting credit for this. So continuing to increase top line, continuing to have -- we did over $30 million in EBITDA, 22% of our revenue EBITDA percentage. So the strategy that Dave and I have in place, it's a -- it's always to keep our clients happy. But I think it is also bearing fruit for shareholders, not in a direct dividend right now, but surely in the appreciation of Geodrill's share price.

[Unknown Analyst]

Just to make it clear, I am 100% on bore with reinvesting all the cash flow from operations into new rigs and growth. That's the best return on capital. And we should keep doing that while we can get higher return on investments, totally not interested in dividend while we can keep growing the company and making more returns on our cash flows by reinvesting on new rigs. But thank you for all the color. My second question is, you mentioned that you have never been more bullish, and we have seen a lot of junior miners coming back to the market. That somehow indicates that we are very advanced in the cycle, but gold has been extremely, if not the best active, the best asset this year. Gold has been extremely bullish this year. What's your perspective on the cycle of the gold, this is sustainable? How do you see more junior miners coming to you, approaching to you or.

[David Harper, executive]

It's a good question. The gold market moves in cycles, every 5 or so years it has a run, and then it goes up and then it goes down again. We haven't actually had a bull run in gold probably a bit about 10 years. And so the longer that it takes for the ensuing run to come, the longer it usually remains, and it's driven by a number of factors. There's a lot of big geopolitical things going on around the world at the moment. BRICS Nations are all raising their gold holdings, central banks are -- Central Bank net purchases have increased. I'm seeing numbers like they're doubling and tripling at the moment. There's just so much going on around the world at the moment.

And gold is something, which is -- it's a commodity and its mined at the rate of 4,000 tonne per annum. So for the last 20 years, we've been pulling 4,000 tonne out of the ground that we haven't been replacing it. So that replenishment drilling or exploration has not kept pace with depletion for the last 20 years. Now those 2 things just can't keep diverging. And so what we're seeing now is -- it's all coming -- it's all coming back. And I think that there's one thing that we can trust at the moment, it's gold. If you're believing in some of this crypto talk and all this sort of stuff, you're crazy.

Let me tell you with everything that's going on in the world, people are buying gold. Kudos to companies like Costco in the U.S., [indiscernible] where you can actually go down to a thing that looks like a chocolate [indiscernible]. And you can actually buy an ounce or 0.25 of an ounce or 10 grams of gold. And you can just put your debit card in and take the gold out, take it home and put it in the safe. This is what people are doing these days. This is not well advertised. And gold is starting to have its moment, and we drill mainly for gold.

Effectively, what we are, we are a gold derivative. Now how do investors invest in gold? Well, you can buy the gold index, you can buy GLD. You can buy a gold company, you can buy an exploration companies and you should. That's good because they're our customers. We like that. But the other thing that you can do, if you want direct exposure to gold, there's an old saying in a gold rush, you buy the guy who is the picks and shovels, okay? So the driller is the proverbial, who picks and shovels.

Why is that so? Well, that's because drillers speak for the large [indiscernible] of the exploration budgets. All that money that's being raised by junior exploration companies and spent by senior mining companies that are doing depletion drilling, 50% of it is going to a drilling company, be it us or be it another drilling company somewhere. So drillers are a great way, a great derivative story when it comes to gold or copper or whatever takes your fancy. In our case, we just happened to drill mainly for gold because we operate in what was once known as the Gold Coast, and that is West Africa.

And we also operate in other key markets around the world where gold exists in Egypt, for example. And we have exposure to copper as well because the world is not going to stop needing copper. All this electrification that's going on around the world, wherever it exists, whether it exists in the U.S.A. or whether it exists in China, whoever gets the manufacturing has the tariff problems. It's not our problem. We just drill the holes. We're just a piano player. We're just a derivative. And what I can tell you in my space, in my world, it's very, very busy at the moment. So that old saying that the driller is the canary in the coal mine, when the drillers are busy, things are happening.

[Unknown Analyst]

Please keep compounding our cash flow from operations by reinvesting in our company.

[Operator]

[Operator Instructions] Your next question comes from Dave [indiscernible].

[Unknown Analyst]

Congratulations on the results. They look really good. My question originally was on the dividend, but it's been answered. I've been a holder of your stock that was recommended by Keystone Financial, probably at the $0.80 level, so I'm a pretty happy investor. As far as the dividend goes, it sounds like to me that you're considering maybe a little bit of a special dividend by the end of the year and then a real big dividend sometime after that. Is that what I've got from the conversation?

[David Harper, executive]

Yes. I don't want to talk too much about it at this point, but Mr. Jesus on the call was pushing, and I didn't want to walk away by saying without giving some sort of an indication. It is being discussed at this point in time, but it will not be -- it's not on the table for the first half. It's something that could with a high degree of probability happen in the back half of the year. But it will not be -- it won't be substantial. It might be a couple of pennies or something like that. I can't even speak at this point in time because it will need -- it wil need Board approval.

But as I was saying, I'm the largest shareholder, and I'd like to very much be pushing to get that dividend program back on track, at least this year, so I can tick this box. And then as we move into 2026, well, as you alluded to on the call with the other callers, this is not just a 2025 story. We've got 3 years of work -- 3, 4, 5 years of work programs ahead of us at this point in time. And so the numbers that you're seeing today for 2024 are okay. I think they're good numbers. But the best of our work is actually yet to come.

If we look at 2024, [indiscernible] we have within that, there was a couple of quarters that were just okay. Well, I can tell you that I'm looking at the beginning of 2025 at this point in time. Utilization of our fleet is the highest it's ever been, and that's the enlarged fleet. We're actually currently looking at utilization straight out to date. The beginning of the year is 70-plus percent. There's not a drilling company in the world that's looking at that. I saw some numbers the other day from one of our competitors in the 30% or 40%. So we're doing almost -- we're doing much better than anyone else out there.

Now what does that all mean? It basically means that we're going straight into work programs that are going to generate recurring revenues that are going to generate free cash. We still have some rig requirements. But at a point in time, I, as the largest shareholder would really like to see this company back up on the rig numbers and start returning some cash to the shareholders. It will happen, believe me.

[Unknown Analyst]

My last question would be on some of your long-term debt that -- just wondering if you've been able to collect any more on that from previous.

[Gregory Borsk, executive]

Is that on the receivables on the balance sheet?

[Unknown Analyst]

Correct.

[Gregory Borsk, executive]

Yes. Yes. No, we put a note in there, so you can see the significant improvement on collections. The -- and that comes from now more of a focus on the Tier one, the senior miners and the intermediate miners. So the -- our -- the expected credit loss, we actually had a recovery in Q4. So we actually had a pickup. So what we had provided for mainly in 2023, we were able to work with some clients and get some share. So we're extremely comfortable with kind of our receivable balance and the provisions now. It's just -- it's a function of different clientele, less juniors. And when we have juniors, they're required to make an upfront deposit, et cetera. It's just the nature of the industry now with gold at almost 3,000, there's a strong demand for our services. So we're -- we've kind of went up the food chain in terms of who we're drilling for and making sure they have strong financial covenants.

[Operator]

Ladies and gentlemen, there are no further questions at this time. This concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.