MASTER Drilling’s 75% drop in profit for the six months to end-June was courtesy of the accountants forcing the company to make write-downs on equipment that management did not think were justified.
That’s according to CEO Danie Pretorius who comments “we had a pretty good six months and this write-down came from the blind side from our auditors demanding we write down assets we were not utilising.”
Pretorius believes the write-downs are unjustified because the equipment concerned – reverse circulation (RC) drilling equipment and mobile tunnel boring equipment – is going to be brought back into action in future.
The RC equipment in the North and Central American operations is currently not being used but plans are to shift the equipment to other mining sectors elsewhere in the world.
The mobile tunnel boring machine was impaired because “there is no formal agreement currently in place to protect future cash flows due to uncertainty over commodity prices within the machine’s target industry.”
Pretorius commented, “I thought we had a pretty good run over the last six months: cash flow was OK; working capital was OK but we don’t have any say over impairments.
“Absolutely, we will find new business for these machines.We hope to have the boring machine on contract early next year but unless there is something in writing that is the way it is. There are inquiries internationally about the reverse circulation machine but, again, unless there is something in writing, the auditors wanted to write it off.”
The write-offs are non-cash items affecting the basic earnings a share calculation so Master Drilling’s basic earnings per share in rands plunged 78% to 37.5c a share from 171.3c a share in the first six months of 2023.
At the headline earnings a share level earnings in rands were down just 0.5% at 168.6c a share from 169.5c a share after Master Drilling boosted revenues for the six months to $127m ($108.2m).
Pretorius – who is perpetually conservative in his business outlook – reckons “Master Drilling is confident in its ability to perform well. We have been tracking the transition to the Green economy and I think there is a lot that will come from that.
“The way the company has been set up means we are well positioned to benefit from that. Our long-term contracts provide a stable foundation for our business and we are well diversified.
“We have diversified our footprint across various regions, commodities, currencies and industries. This strategic approach mitigates risk and positions us for success in a complex global environment.”
Pretorius said discussions between Master Drilling and the major mining companies had changed focus in recent years and this had affected his business approach.
“Five years ago it was all about cost. You had to get costs down. Now it’s about ‘how can you help us to fast track access to orebodies’. I like to think that all our efforts tick that box .
