Perth-based contractor Swick Mining Services (ASX: SWK) has continued its recovery post-industry downturn with a spike in earnings for the three months to December 2018.
The company posted an unaudited drilling business revenue this week of $37.7 million (up 8% on the previous corresponding period); earnings before interest, tax, depreciation and amortisation of $9.5 million (up 109%); and earnings before interest and tax of $4.6 million.
Contract selection and cost reduction were cited as the main drivers, with the company shifting drill rigs onto better performing contracts or new projects during the period and reducing its operating and non-operating costs.
Swick also benefited from improved short-term rates (to March 2019) at underground drilling contracts for Newmont Mining at Tanami and Mt Charlotte gold mines, where 11 rigs are currently deployed.
These reduced rates will apply to March 2019, and allow for a competitive tender process for long-term contracts which Swick is participating in.
Pattern of recovery
The quarterly results continue a pattern of recovery for Swick after being adversely affected by slowed activity in the sector.
Managing director Kent Swick said the company’s turnaround strategy has been twofold – securing long-term relationships with existing underground operators and identifying the best opportunities for clients in a competitive landscape.
“The earnings rebound of our drilling business shows how we can unlock our potential when we target the right projects for the right clients and ensure we deliver value for money,” he said.
The company’s improved margins comprise a mix of adjusted rates and a 6% year-on-year reduction in underground operating costs per shift achieved by reviewing manning levels, consumables usage, procurement processes and inventory management.
“We have systematically worked through contract renewals so that each project is profitable on a standalone basis,” Mr Swick said.
“Our clients understand that we could not continue as a business without significant pricing adjustments.”
Also making an early mark on financials has been the acquisition of mineral technology business Orexplore, in which Swick originally had a 70.5% stake and in 2017, opted to acquire all of the minority shareholders for $2.9 million cash.
Orexplore owns a patented and portable X-ray mineral scanner which allows for accurate, real-time assay and structural analysis in the field.
The product has the potential to perform rapid, exact analyses of elemental composition in ores, greatly reducing sampling lead-times and bringing economic and environmental benefits at the prospecting stage.
Since the acquisition, Orexplore signed its first commercial agreement with Saturn Metals (ASX: STN) in July, contributing revenue in the same quarter.
Mr Swick said demand for underground diamond coring continues to remain high, with the company “closely monitoring” utilisation and fleet capacity over the next six months.
He said Swick had increased its banking facilities during the quarter by $8 million to provide flexibility for new contracts and contract renewals in the near-term.
“This is an interesting time in the drilling industry,” he said.
“Although there are signs on a macro level that exploration and mining investment may be improving, keeping our attention on servicing brownfield operating mines is what protected us in the prolonged downturn and is now creating opportunities as our clients increase output to take advantage of recovering prices,” he said.
At midday, shares in Swick were up 16.67% to $0.245.