Transcription of The Stock Network Interview with Mitchell Services (ASX:MSV), Chief Executive Officer Andrew Elf
Lel Smits: Mitchell Services operates rigs for miners across Australia and has just recorded record quarterly earnings along with a world first in drilling for BHP Group through its loop decarbonisation business. The driller, a name in Australian mining since 1969, is seeing strong demand from gold and copper miners as high prices lift drilling budgets. I’m joined today by Mitchell Services CEO Andrew Elf to discuss the record September quarter, the BHP well, and the push to put more rigs to work.
Andrew, welcome to the Stock Network.
Andrew Elf: Thanks very much for having me on, really appreciate it.
Lel Smits: Great to have you on and Mitchell Services has reported record earnings for the September quarter with revenue EBITDA and profit before tax all well up on a year ago.
What do you think drove the increase here?
Andrew Elf: Look, it’s a great result and a big shout out to all of our hardworking people in the business that have made it possible. But it’s a lot of hard work over many years. I think that result is the culmination of a lot of good work that’s been done and we had a very good run from an operational perspective.
And what I mean by that is we were productive, we drilled well, it was safe. And importantly, there were no sort of adverse impacts to operations that we couldn’t control like wet weather or other things. Obviously, from a contractual perspective, we’ve had some great wins in recent years.
So a lot of the contract rates have been reset post COVID. And all of those things together, combined with increasing rig count, good commodity prices, higher demand for drilling from clients came together for the result. And I think it really has a good foundation now to deliver a great result for the whole year.
Lel Smits: Wonderful. Now, Luke drilled from inside an open cup kit to hit a vertical well more than a kilometre and a half away. What made that so hard? And also, why is this a world first? And what do you think it could mean for coal miners cutting through methane?
Andrew Elf: Look, it’s very exciting.
I think it’s not very often you see a drilling company have a world first. It’s a very rare thing. But we’ve got a business called Luke, which is a joint venture with some other partners.
And that’s the business that drilled the well for BHP. And thanks to BHP for letting us share that information in the announcement. But really what we’re doing is coal’s got gas in it.
When miners in the open cup mine, the gas goes into the atmosphere. We’re effectively attempting to pre-drain that gas out of the coal, use it for other purposes potentially, and then reduce emissions as the coal is mined. And really this well and the work we’ve done with BHP and others sort of proves the concept that it can be done.
And it can be done in an economical way that will make a difference. And credit to the teams in the field that did a great job. So I think it’s very exciting for the industry as a whole that this business can make a difference into the future.
Lel Smits: And finally, Andrew Mitchell Services has signed contracts for more underground rigs and also sees a path to a much higher rig count this financial year with largely fixed costs. What could that mean really for your earnings ahead?
Andrew Elf: Look, I think it’s going to be a strong year for earnings. Obviously Morgan’s put out a new updated note yesterday after our quarterly came out, and that’s significantly higher earnings in there.
But I think we finished the year at 30 June, last financial year at 65 rigs operating, and we’ve said in the announcement we can see a pathway to 80 operating in this financial year. We’ve got firm signed contracts in hand for another 10 underground rigs, as you say. So that’s exciting.
They’re obviously in Gold and Copper. So they’ll go out between now and early in the new year. And then there’s obviously other rigs that will go out too.
So I think strong commodity prices, increasing client budgets, strong demand, increasing demand really does bode well for the business. And I think once we get those rigs out, hopefully we’ll see the benefits of the earnings coming through. On the fixed cost side of things, our overhead costs are obviously fixed, not necessarily our infield costs, of course, based on the number of rigs running.
But certainly I think you’ll see some economies of scale as the business continues to grow. And hopefully we can keep delivering that 20% EBITDA, which we always target.
Lel Smits: Well, Andrew, thank you for the update from Mitchell Services and congratulations on your record results.
Andrew Elf: Thanks for the interest and thanks for having me on.
Lel Smits: Thank you.
Ends