Tuesday, April 5, 2016

A Few Mineral Drilling Companies Increased Their Revenues In 2015

The year 2015 was a really tough time for the entire mineral sector. So it should not be any surprise that mineral drilling companies reported weak results in 2015. Simply put, due to poor metal prices the exploration budgets were cut by a majority of miners and exploration companies, resulting in lower demand for services provided by drillers. 

However, in that bad year two companies were able to increase their sales, compared to 2014. Please, look at the chart below:

                                      source: Simple Digressions

* - Energold did not report its 2015 results so all data is calculated for the first three quarters of 2015 and 2014

As the table shows, Orbit Garant and Geodrill increased their revenue by 18.7% and 34.6%, respectively. 

The first company (Orbit Garant) operates mainly in Canada and the second one develops its business in five African countries: Mali, Burkina Faso, Ghana, Ivory Coast and Zambia. Quite interestingly, both companies are among the most undervalued drilling companies. Additionally, Orbit Garant operates in the so-called safe jurisdiction (Canada) while Geodrill is active in a very prospective, but a little bit risky region of Africa. Therefore, these companies could be of some interest for investors looking for the indirect and diversified exposure to precious metals sector (another thing - both companies work mainly for precious metals companies).

Claiming that Orbit Garant and Geodrill are undervalued against their peers, I mean the below presented ratio of sales to price:

                                 source: Simple Digressions

"Sales" is defined as revenue per rig (calculated as revenue / number of rigs) while "Price" is attributable to the value of one rig (calculated as enterprise value / number of rigs).

This formula may be simplified as a multiple of sales / enterprise value. Well, the logic standing behind these calculations is to find the company offering the highest revenue  for the lowest price (defined as enterprise value). 

As the chart shows, Orbit Garant is a leader. In 2015 the company's sales were standing at C$98,250 thousand. The entire rig fleet could be acquired for C$35,545 thousand (enterprise value). Therefore the ratio sales / price was standing at 2.76 (the higher the better). Next to Orbit Garant were Capital Drilling and Geodrill. 

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