MONCTON, NB, Sept. 9, 2013 /CNW/ – Major Drilling Group International Inc. (TSX: MDI) today reported results for its first quarter of fiscal year 2014, ended July 31, 2013.

Highlights

• Earnings before taxes for the quarter, excluding restructuring charges, were $5.8 million.
  
• Cash on hand at quarter-end was $61.1 million while total debt was $30.6 million, for a net cash position of $30.5 million.
  
• Major Drilling posted quarterly revenue of $108.2 million, down 54% from the $237.6 million recorded for the same quarter last year.
  
• Gross margin percentage for the quarter was 32.5%, compared to 34.2% for the corresponding period last year.
  
• General and Administrative costs are down 25% from the same quarter last year and 15% from the previous quarter three months ago.
  
• Net earnings (including a restructuring charge of $2.0 million) were $1.5 million or $0.02 per share for the quarter, compared to net earnings of $31.9 million or $0.40 per share for the same quarter last year.
  
• Given the Company’s financial strength, the Board of Directors has declared a semi-annual dividend of $0.10 per share to be paid on November 1, 2013.

“With the uncertainty around economic matters impacting the mining market, we continued to see some customers delaying or cancelling their exploration drilling plans. In a number of jurisdictions, uncertainty as to the policies of host governments or issues of land tenure also continues to have an impact on activity levels. These factors, combined with the fact that sources of funding for junior mining companies remain limited, have led to decreased activity in all regions. Lower levels of demand have significantly increased competitive pressures and will likely continue to have an impact for the rest of calendar 2013. Despite lower pricing levels, we maintained good margin performance thanks to the improved productivity of our crews and to the cost-cutting measures that we have implemented. However, going forward, further reductions in pricing will be more difficult to offset by gains in productivity,” said Francis McGuire, President and CEO of Major Drilling.

“The Company continues to have a variable cost structure whereby most of its direct costs, including field staff, go up or down with contract revenue and a large part of the Company’s other expenses relate to variable incentive compensation based on the Company’s profitability. In fact, in the last twelve months, staffing is down by 45% or 2,300 positions. During the quarter, we incurred additional restructuring costs of $2.0 million relating to a further reduction of staff. Also, senior management’s salaries and directors’ fees were reduced during the quarter. At the same time, the Company’s financial strength allows it to continue to invest in safety, to maintain its equipment in excellent condition, and to retain skilled employees, all of which are essential to react quickly when the industry recovers.”

“Despite the difficult environment, we expect operations to generate positive cash flow in fiscal 2014. Major Drilling remains in excellent financial position with $61.1 million in cash and total debt of $30.6 million at the end of the quarter, for a net cash position of $30.5 million. During the quarter, our net cash decreased by $8.2 million as we paid our semi-annual dividend of $7.9 million and also paid last year’s annual employee profit-share of $6.4 million, which varies year-to-year. The Company will continue to focus on cash management by limiting capital expenditures, by reducing inventory and by closely monitoring costs. Capital expenditures for the quarter were $5.2 million as we purchased three rigs and support equipment, while retiring seven rigs. During the quarter, the Company also paid down $11.2 million of its revolving bank loan in order to reduce its finance costs.”

“The current economic environment will continue to significantly impact drilling in the short to medium-term, particularly on gold projects where the Company has a significant presence. Also, lower levels of demand have increased competitive pressures, which will impact pricing going forward. With the number of projects being either delayed or cancelled around the world, we believe that in the medium-term, most commodities could face an imbalance between supply and demand, and that the need to develop resources in areas that are increasingly difficult to access will increase, which should increase demand for specialized drilling,” said Mr. McGuire.

“Given the Company’s financial strength, the Board of Directors has declared a semi-annual dividend of $0.10 per common share, which will be paid on November 1, 2013 to shareholders of record as of October 10, 2013. This dividend is designated as an “eligible dividend” for Canadian tax purposes.”

First quarter ended July 31, 2013

Total revenue for the quarter was $108.2 million, down 54% from the record revenue of $237.6 million recorded in the same quarter last year. Uncertainty around economic matters impacting the mining market caused some customers to delay or cancel their exploration drilling plans, which impacted the quarter’s results compared to last year. In a number of jurisdictions, uncertainty as to the policies of host governments or issues of land tenure also had an impact on quarter results. Also, many junior customers have scaled back or suspended drilling activities as compared to last year.

Revenue for the quarter from Canada-U.S. drilling operations decreased by 53% to $53.4 million compared to the same period last year. Although Canadian revenue was down 43% compared to the same quarter last year, U.S. operations were more affected, in part due to the scale down of its environmental division.

South and Central American revenue was down 69% to $21.7 million for the quarter, compared to the same quarter last year. All of the countries in this region, particularly Mexico, Chile and Argentina, were affected by a reduction in work by juniors and the cancellation or reduction of projects. Additionally, in Colombia, geopolitical factors have slowed exploration efforts of many mining companies.

Australian, Asian and African operations reported revenue of $33.1 million, down 40% from the same period last year. Three main factors affected the region’s revenue: 1) Australia, where projects have been cancelled due to high costs being incurred by mining companies and new mining taxes, 2) Mongolia, which is affected by political uncertainty around mining laws, and 3) Tanzania, where the Company is closing its operations.

The overall gross margin percentage for the quarter was 32.5%, down from 34.2% for the same period last year, but still a historically strong margin. Reduced pricing due to increased competitive pressures and delays impacted margins, however the Company has been able to recapture some of this loss through productivity gains and cost cutting.

General and administrative costs were down 25% from last year at $13.0 million for the quarter compared to $17.3 million in the same period last year. With the decrease in activity, the Company has reduced its general and administrative costs by implementing reductions of salaried employees, restructuring certain branches, and reducing management salaries.

Other expenses for the quarter were $1.1 million, down from $5.3 million in the same quarter last year, due primarily to lower incentive compensation expenses given the Company’s decreased profitability.

During the quarter, the Company incurred a loss on exchange of $1.2 million compared to a gain on exchange of $1.4 million last year. This year’s loss on exchange was primarily due to monetary items in Chile, Australia and Argentina where currencies had significant variances during the quarter.

The Company recorded a restructuring charge of $2.0 million consisting primarily of retrenchment costs following additional staff reduction initiatives implemented during the quarter across the Company.

The Annual and Special Meeting of the shareholders of Major Drilling Group International Inc. will be held at The TMX Broadcast Centre, Gallery, The Exchange Tower, 130 King St. W., Toronto, Ontario, on Wednesday, September 11, 2013 at 3:00 pm EDT. This will be followed by a shareholder engagement meeting, where Directors of the Company will be available to address any shareholder issues. The meeting will be held by teleconference at 647-427-7450 (please mention Major Drilling – Shareholder Engagement Session) and in person at Global Prime Office, 130 King St. W., Suite 1800, at 4:15 pm EDT. If you plan on attending in person, please RSVP to Chantal Melanson at [email protected] or call 506-857-8636.

Non-GAAP Financial Measure

In this news release, the Company uses the non-GAAP financial measure, EBITDA. The Company believes this non-GAAP financial measure provides useful information to both management and investors in measuring the financial performance of the Company. This measure does not have a standardized meaning prescribed by GAAP and therefore it may not be comparable to similarly titled measures presented by other publicly traded companies, and should not be construed as an alternative to other financial measures determined in accordance with GAAP.

Forward-Looking Statements

Some of the statements contained in this press release may be forward-looking statements, such as, but not limited to, those relating to worldwide demand for gold and base metals and overall commodity prices, the level of activity in the minerals and metals industry and the demand for the Company’s services, the Canadian and international economic environments, the Company’s ability to attract and retain customers and to manage its assets and operating costs, sources of funding for its clients, particularly for junior mining companies, competitive pressures, currency movements, which can affect the Company’s revenue in Canadian dollars, the geographic distribution of the Company’s operations, the impact of operational changes, changes in jurisdictions in which the Company operates (including changes in regulation), failure by counterparties to fulfill contractual obligations, and other factors as may be set forth, as well as objectives or goals, and including words to the effect that the Company or management expects a stated condition to exist or occur. Since forward-looking statements address future events and conditions, by their very nature, they involve inherent risks and uncertainties. Actual results in each case could differ materially from those currently anticipated in such statements by reason of factors such as, but not limited to, the factors set out in the discussion on pages 16 to 18 of the 2013 Annual Report entitled “General Risks and Uncertainties”, and such other documents as available on SEDAR at www.sedar.com. All such factors should be considered carefully when making decisions with respect to the Company. The Company does not undertake to update any forward-looking statements, including those statements that are incorporated by reference herein, whether written or oral, that may be made from time to time by or on its behalf, except in accordance with applicable securities laws.

Based in Moncton, New Brunswick, Major Drilling Group International Inc. is one of the world’s largest metals and minerals contract drilling service companies. To support its customers’ varied exploration drilling requirements, Major Drilling maintains field operations and offices in Canada, the United States, South and Central America, Australia, Asia, and Africa.

Financial statements are attached.

Major Drilling will provide a simultaneous webcast of its quarterly conference call on Tuesday, September 10, 2013 at 9:00 AM (EDT). To access the webcast please go to the investors/webcast section of Major Drilling’s website at www.majordrilling.com and click the attached link, or go directly to the CNW Group website at www.newswire.ca for directions. Participants will require Windows MediaPlayer, which can be downloaded prior to accessing the call. Please note that this is listen only mode.

MAJOR DRILLING GROUP INTERNATIONAL INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED JULY 31, 2013 AND 2012 (UNAUDITED)
(in thousands of Canadian dollars, except per share information)

1. NATURE OF ACTIVITIES

Major Drilling Group International Inc. (“the Company”) is incorporated under the Canada Business Corporations Act and has its head office at 111 St. George Street, Suite 100, Moncton, NB, Canada. The Company’s common shares are listed on the Toronto Stock Exchange (“TSX”).  The principal source of revenue consists of contract drilling for companies primarily involved in mining and mineral exploration. The Company has operations in Canada, the United States, South and Central America, Australia, Asia and Africa.

2. BASIS OF PRESENTATION

Statement of compliance
These Interim Condensed Consolidated Financial Statements have been prepared in accordance with IAS 34 Interim Financial Reporting (“IAS 34”) as issued by the International Accounting Standards Board (“IASB”) and using the accounting policies as outlined in the Company’s annual Consolidated Financial Statements for the year ended April 30, 2013.

Basis of consolidation
These Interim Condensed Consolidated Financial Statements incorporate the financial statements of the Company and entities controlled by the Company. Control is achieved where the Company has the power to govern the financial and operating policies of an investee entity so as to obtain benefits from its activities.

The results of subsidiaries acquired or disposed of during the period are included in the Consolidated Statement of Operations from the effective date of acquisition or up to the effective date of disposal, as appropriate.

Intra-group transactions, balances, income and expenses are eliminated on consolidation, where appropriate.

Basis of preparation
These Interim Condensed Consolidated Financial Statements have been prepared based on the historical cost basis except for certain financial instruments that are measured at fair value, using the same accounting policies and methods of computation as presented in the Company’s annual Consolidated Financial Statements for the year ended April 30, 2013, with the exception of the impact of certain amendments to accounting standards or new interpretations issued by the IASB, which were applicable for fiscal years beginning on or after January 1, 2013. The adoption of these amendments and standards has not had a material impact on the accounting policies, methods of computation or presentation applied by the Company.

3. FUTURE ACCOUNTING CHANGES

The Company has not applied the following new and revised IASB standards that have been issued but are not yet effective:

The adoption of the above standards is not expected to have a significant impact on the Company’s Consolidated Financial Statements.

4. KEY SOURCES OF ESTIMATION UNCERTAINTY AND CRITICAL ACCOUNTING JUDGMENTS

The preparation of financial statements in conformity with International Financial Reporting Standards (“IFRS”) requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods. Significant areas requiring the use of management estimates relate to the useful lives of property, plant and equipment for amortization purposes, property, plant and equipment and inventory valuation, determination of income and other taxes, assumptions used in compilation of share-based payments, fair value of assets acquired and liabilities assumed in business acquisitions, amounts recorded as accrued liabilities, and impairment testing of goodwill and intangible assets. 

The Company applied judgment in determining the functional currency of the Company and its subsidiaries, the determination of cash generating units (“CGUs”), the degree of componentization of property, plant and equipment, and the recognition of provisions and accrued liabilities.

5. SEASONALITY OF OPERATIONS

The third quarter (November to January) is normally the Company’s weakest quarter due to the shutdown of mining and exploration activities, often for extended periods over the holiday season, particularly in South and Central America.

6. PROPERTY PLANT & EQUIPMENT

Capital expenditures for the three months ended July 31, 2013 were $5,204 (2012 – $23,401). The Company did not obtain direct financing in either quarter.

7. INCOME TAXES

The income tax expense for the period can be reconciled to accounting profit as follows:

The Company periodically assesses its liabilities and contingencies for all tax years open to audit based upon the latest information available. For those matters where it is probable that an adjustment will be made, the Company records its best estimate of these tax liabilities, including related interest charges. Inherent uncertainties exist in estimates of tax contingencies due to changes in tax laws. While management believes they have adequately provided for the probable outcome of these matters, future results may include favorable or unfavorable adjustments to these estimated tax liabilities in the period the assessments are made, or resolved, or when the statutes of limitations lapse.

8. EARNINGS PER SHARE

All of the Company’s earnings are attributable to common shares therefore net earnings are used in determining earnings per share.

The calculation of the diluted earnings per share for the three months ended July 31, 2013 excludes the effect of 2,815,212 options as they were anti-dilutive. There were no anti-dilutive options for the three months ended July 31, 2012.

The total number of shares outstanding on July 31, 2013 was 79,161,378.

9. SEGMENTED INFORMATION

The Company’s operations are divided into three geographic segments corresponding to its management structure, Canada – U.S., South and Central America, and Australia, Asia and Africa. The services provided in each of the reportable segments are essentially the same. The accounting policies of the segments are the same as those described in the Company’s annual Consolidated Financial Statements for the year ended April 30, 2013. Management evaluates performance based on earnings from operations in these three geographic segments before finance costs, general corporate expenses and income taxes.  Data relating to each of the Company’s reportable segments is presented as follows:

*General and corporate expenses include expenses for corporate offices and stock options. Amounts presented in the previous period under general corporate expenses have been allocated to other segments consistent with current year presentation.

Canada – U.S. includes revenue for the period ended July 31, 2013 of $38,345 (July 31, 2012 – $67,025) for Canadian operations.

Canada – U.S. includes property, plant and equipment at July 31, 2013 of $93,718 (April 30, 2013 – $97,110) for Canadian operations.

10. RESTRUCTURING CHARGE

Restructuring charge of $2,034 consists of employee severance charges relating to the restructuring plan implemented in some of the Company’s operations in the previous quarter and continued in the current quarter.

11. FINANCIAL INSTRUMENTS

There are no significant changes to financial instruments compared to the Company’s annual Consolidated Financial Statements for the year ended April 30, 2013 except for the following:

Fair value
The carrying values of cash, trade and other receivables, demand credit facility and trade and other payables approximate their fair value due to the relatively short period to maturity of the instruments.  The following table shows carrying values of long-term debt and contingent consideration, which approximates their fair values, as most debts carry variable interest rates and the remaining fixed rate debts have been acquired recently and their carrying value continues to reflect fair value.  The fair value of the interest rate swap included in long-term debt is measured using quoted interest rates.

Credit risk
As at July 31, 2013, 85.1% of the Company’s trade receivables were aged as current (April 30, 2013 – 86.0%) and 3.8% of the trade receivables were impaired (April 30, 2013 – 3.1%).

The movement in the allowance for impairment of trade receivables during the three month periods were as follows:

Foreign currency risk
The carrying amounts of net monetary assets that: (i) are denominated in currencies other than the functional currency of the respective Company subsidiary; (ii) cause foreign exchange rate exposure; and (iii) may include intercompany balances with other subsidiaries, is USD $1,777 as of July 31, 2013.

If the Canadian dollar moved by plus or minus 10% at July 31, 2013, the unrealized foreign exchange gain or loss recognized in net earnings would move by approximately $178.

Liquidity risk
The following table details contractual maturities for the Company’s financial liabilities.

Non-derivative financial liabilities:

SOURCE MAJOR DRILLING GROUP INTERNATIONAL INC.

For further information:

Denis Larocque, Chief Financial Officer  
Tel: (506) 857-8636
Fax: (506) 857-9211
[email protected]