Western Australia-based contractor Swick Mining Services (ASX: SWK) has followed up its December performance with strong unaudited results for the first three months of 2019, driven by a strategy of re-setting market rates and targeting lower operating costs.
The company’s drilling business posted a 58% increase in earnings before interest, tax, depreciation and amortisation (EBITDA) of $7.3 million from $4.6 million in the previous corresponding period.
Revenue for the business was also up on the previous period by 7%, from $32.9 million to $35.1 million
At a group level, Swick reported a consolidated EBITDA of $6.4 million (unaudited) – up 58% from $4 million in the previous corresponding period – and an EBIT of $1.2 million (unaudited), up from a small loss.
Cash from operations for the period was $7 million – up 77% increase on the previous period and representing a 110% conversion of EBITDA to cash at the group level.
The group secured $210 million in renewals and new contracts during the period, boosting its order book to $295 million at target margins, and providing it with a strong platform for earnings growth in 2020.
The new contracts are at sites including the Pogo gold mine in Alaska owned by Northern Star Resources (ASX: NST), the Olympic Dam polymetallic mine in South Australia (BHP Group, ASX: BHP), and the Cosmo gold mine in the Northern Territory (Kirkland Lake Gold, ASX: KLA).
Managing director Kent Swick said the strong performance is a result of shifting drill rigs onto better-performing contracts or new projects, reducing operating and non-operating costs, and ensuring each contract is profitable on a standalone basis.
“These [new contracts] have provided a strong base for our business, with many rigs moving from low-margin, long-term work to target-margin, long-term work,” he said.
“Our ability to secure rate adjustments where necessary as well as locking in fixed shift contract rates at projects where production may be at risk for various reasons, has been key in significantly de-risking our business on a commercial basis.”
Fixed shift rates are quoted when productivity cannot be accurately predicted, such as in deep drilling or challenging ground conditions.
“Each mine site is unique, which means we sometimes look at fixed shift contract rates to ensure we do not overpromise to clients,” Mr Swick said.
“What we can guarantee is mechanical uptime, crew utilisation, safe and skilled crews, and the most powerful and versatile drill rigs [and] we have had good feedback on this approach.”
Full year results
Swick said it was targeting a 2019 full-year revenue from its drilling business of around $143 million and an EBITDA of up to $29.5 million.
A transition of rigs during the next quarter, plus short-term rates concluding as planned at two prior contracts, are expected to result in the company’s earnings for the second half of 2019 being lower than the first half.