Good morning, everyone, and thank you for joining us this morning for the Mitchell Services fourth quarter quarterly update. My name is Allen Chan, and my colleague, Kurt Worden , and we're both with Bridge Street Capital. Today, we have Executive Chairman, Nathan Mitchell, CEO, Andrew Elf, and CFO, Greg Switala, joining us, to talk about the result. Just for housekeeping, we will have a Q&A at the end of the session. If you could please just add your questions to the chat, and, I'll address them towards the end. Thank you, and Andrew, over to you.
Thanks very much, Allen, and thanks everyone for joining us. And as Allen said, we've got Nathan with us today, so certainly welcome any questions at the end. Look, my presentation won't be long-winded. I'll probably just touch on a few key points, and then we'll open it up to some questions. But look, firstly, just a very quick introduction for those that may not be familiar with the company. The Mitchell brand itself has got over 50 years of a very, very proud history. And the company today has a large portion of its revenue coming from global major mining companies, predominantly copper, metallurgical coal, and other base metals, with no exposure to lithium and nickel.
We're number one in our respective market in Eastern Australia, and we work in different types of drilling, surface, underground, and specialty mine service drilling as well. So that's just a very quick introduction to the company. Firstly, just looking at quarter-over-quarter, 2023 versus 2024. Probably not a good comparison, and we—for those that have been following the company, we have flagged that previously. There was a large amount of specialty work completed in the quarter, the last quarter in FY 2023, for Peabody to reopen that North Goonyella mine. And again, that specialty work was not sort of to the same level in 2024, and therefore, quarter-over-quarter is a very tough comparison.
So what I might do is just talk really to the year, given it's the end of the financial year, talk to that. But certainly welcome any questions on anything people may have at the end. So firstly, I think it's important to say that, all in all, I think the company is in a magnificent position, and the strategy that's been agreed upon with the board, with Nathan, has been excellent over many years. And very importantly, I think we've done what we said we're gonna do as a board, as a management team, and we've delivered for our shareholders. It's been a very solid year. Operating cash flow has been strong.
You know, we've paid down debt from over AUD 40 million down to AUD 1.9 million net debt, and returned a significant amount of funds to shareholders along the way, via dividends, and via buybacks. So we've got a very strong balance sheet from which, you know, we can position ourselves to take, you know, various options that may be available to us. So it's been a fantastic year, and importantly, we're now in a very good position where we've done what we said we're going to do. Looking at the year ahead, you know, we've spoken to some people about the decarbonization business, Loop Decarbonisation Solutions that we have started.
That continues to gain some traction and is certainly an attractive growth opportunity for the business, amongst other opportunities that are out there, too. Commodity prices are strong. Gold remains strong. Inflationary factors predominantly are behind us. Greg can probably talk to any questions on labor as they may come up. But all in all, you know, we're in a very good position, and certainly I think, you know, in a positive manner to move forward into the future. So they're probably some of the key points. And Allen, I'll probably open it up to questions. People probably want to ask us a few questions.
Sure thing. Thanks, Andrew. Okay, nothing as yet, but I'll kick off. Just on mobilizations, when will the new contracts wins be completed such that we should expect utilization to start trending upwards from the current levels?
Yeah, look, we've flagged in probably the last couple of quarterlies and you can see it in the stats that, you know, rig count, ship count, slightly down. You know, again, the market is a bit choppy in places. We haven't lost any contracts. We have re-won all of the contracts that we've needed to re-win. It's really just a function of the market, where there's a couple of clients that have traded down with rigs and things like that. But at the same time, we have had some good wins as well. So there are rigs, you know, that are gonna be going back out between sort of now and November.
You know, there's probably seven rigs off the top of my head right now, that I know are going out between now and November. So, you know, it's probably gonna take a little while to get them ready, get them out. But positive that there's been a couple of good wins there, and moving forward in the right direction.
Thank you. I think that question has been answered, but here we go. Another one. "Impact of the Anglo asset sale process on life and productivity needs to be drilled?
Look, I think, again, if someone just buys the assets and operates them on a same basis, you wouldn't expect anything different. Maybe the person that buys it is more aggressive and wants to do more drilling for one reason or another. I couldn't, Nathan, imagine them doing significantly less drilling?
No, I don't think so. I think the issues they're having, on site at the moment, obviously, the gas issues, means there's gonna have to be more drilling. But I think we're really in a holding pattern with Anglo, at the moment, with regards to the issue that's occurred, the fire. But overall, from a sales asset point of view, sales process point of view, I would agree with Andrew. I think they just, you know, continue as normal. They're not gonna buy it to slow down. If anything, they're gonna buy it to speed up. But we're really in the holding pattern with regards to what's happening, I think, with the rest of the market, what Anglo's gonna do.
Yeah. And just to touch on that word, "productivity," in that question, certainly where you have an asset owner, like a BHP or like an Anglo, and the asset owner changes, and they may be a bit smaller or a bit more nimble, you know, you can certainly get more time on the rig, Nathan-
Yeah
... More bit on bottom and be more productive as such. So it all depends on who that owner may be, and what happens in the process. We'll find out.
Thank you. I guess, just to add to that, is it right to say that there was 2 rigs on site there? I think, yeah, what's happening with those ones? Are they sort of in that holding pattern, as you said, and is there sort of clarity on whether you get them back, or?
Yeah. So the site that we're talking about that had the issue that Nathan touched on is Grosvenor. And it's the same site that had a similar issue in the past. Previously, that site was down for approximately 18 months, last time it happened. And the client paid us a standby rate throughout the course of that 18 months to remain operationally ready, to then go back and resume operations. When we got down to the rigs last time round, we literally started the rig and started drilling. The rig started first shot, you know, no impact on the rigs. But, as Nathan says, we're in a holding pattern right now. The client is still assessing their options commercially. We haven't had access to get underground and assess the risks.
You know, obviously, the client's working on stabilizing things and then looking to move forward. So yeah, we're in a holding pattern, and really haven't got much more that we can add other than that at the current time. Everything's insured, of course, so, you know, there's no issues in that regard. And the surface rigs, you know, obviously, they're on trucks or whatever, and they can move around fairly easily. So it's really just a case of getting some guidance from the client, as to where to from here. But, as to this point in time, I think that it's fair to say that they're still working through that.
Yeah.
Thanks, Andrew. We've got just to combine the latest two. Last quarter, we spoke about contract wins or pipeline, whatnot. Can you give us an update on how they're progressing or basic status?
Yeah.
Well...
Yes, I think we have had a couple of good wins. I won't sit here and single out who the clients are or what the sites are, but as I sort of briefly mentioned at the start of the call, sort of 7 rigs, 4 on the surface and 3 underground. And those rigs will be mobilizing between now and the end of October. So certainly a couple of good wins there, that you know helps replace some of that work that's just downtraded a little bit. But again, the pipeline remains strong. I mean, there's some fantastic tenders out there at the moment, multi-year, multi-rig tenders with large clients. You know, we get a couple of those go our way, you know, there'll be more than 7 rigs going out, which is great for us.
So again, as I said, copper good, gold good, big part of the business. You know, met coal is still good, and then certainly active in that, in that market. So, you know, there's some, some positives there for sure.
Thank you. I hope that also answers Neil's question. Maybe another one from me. How much CapEx is budgeted for FY 25? Is this expected to be all maintenance spend, or are there any fleet upgrades, replacements included in this?
I think, from my perspective, based on what we know in terms of known contracts in hand, FY 2025 CapEx should be at levels similar to FY 2024. We've also got a couple of older rigs just on the schedule there in terms of potential asset sales. So I think on a net basis, certainly that AUD 17 million that you're seeing in this update for CapEx is probably an appropriate number to use. That's obviously on the basis of known contracts, as I said. You know, to the extent that any of the tender pipeline opportunities are won, then that could potentially change.
Although noting that one of the positives in terms of those opportunities and that tender pipeline in this instance is that it requires rigs that we do have. So there'd be, you know, a little bit of work on existing rigs may be required, and obviously the pipe and the ancillary sort of gear, but it doesn't require new rigs, which is a positive. But yeah, in short, yeah, on known levels in terms of revenue, sort of similar CapEx for 25.
That's great.... Yeah, I think we just covered that one. Okay, none of us. We can see the labor availability and expected wage increases across different employees in the group. Commentary on that?
Yeah, I think, in terms of labor increases and outlook, no real change here from our most recent update. You know, there's really two drivers or elements to labor rates, and that's the sort of legislated element. Fair Work obviously came out and increased rates by 3.75% from 1 July. But that only applies to a very small portion of our workforce, which is effectively, you know, at award rates. So there'll be a 3.75% increase there.
The balance of our labor force is, you know, the increase is really driven by market factors, and we just haven't seen anything in recent times to suggest any increase. It's pretty flat. I think what you're seeing out of nickel, particularly in the West, is probably a large driver there, where that you know that labor market is just beginning to soften. So given that you know the vast majority of our labor force is up- is at that upper end, and the Fair Work increase doesn't apply, low to negligible overall wages increase is expected in 2025.
Thanks, Greg. Question from Jason. There probably a little bit more color there, Andrew, I guess, in regards to Safeguard Mechanism and obviously how your U.S. trip went in looking for a rig. I guess maybe some color in the sense that it- it's, it's now landed Down Under, so to speak, or some-
Yes.
Color around that.
And just for the benefit of others on the call, obviously a strategy we've employed is to go to the U.S. and buy a rig that was low hours, good condition, secondhand, and just have a look at the market there and see if there's more available should this opportunity develop further for us and need more rigs. And as you said, that rig has now landed in Australia. It's currently going through the quarantine process, and the leads continue to develop for that business. But it will be choppy. It's early days, you know, it's not just gonna be a heap of rigs. Nathan, I'm not sure if you want to-
Yeah, sure. Look, I think that's a strategy we've employed. Obviously, we've. So it's always a touchy one, where we're trying to keep as much as possible cards to our chest. But obviously, you know, let shareholders know as much as possible, and because we believe there's a real opportunity for us in that market. We've taken the first step. We've obviously spent the CapEx, and we've started the business, and we think there's opportunity there. Obviously early days. You know, I see it similar to the start of the CSG industry, sort of 20 years ago. There's gonna be very choppy initially.
But fundamentally, we believe first mover position, you know, for the company. The Safeguard Mechanism is obviously an issue for the miners going forward, and it needs to be dealt with, you know, over the next few years and then ongoing. So I think that's exciting for us. I think that's exciting for shareholders. Let's see where it goes. As I say, really early stage. You know, we've spent the money, you know, not on a wing and a prayer , but certainly to beget that first mover position. We did that, you know, 20 years ago. It worked for us then.
We expect it'll work again, but again, you know, we're dealing with, you know, government incentives, government, you know, carbon tax, all those sort of, you know, weird, weird, wonderful things. So again, we'll, we'll have more to say probably in the next 6 months. Let's see if we've made the right decision or not. But, I think we're pretty happy with making those decisions. Again, you know, we've made other decisions along the way, as Andrew said, around the AUD 45 million CapEx, that we're now down to sort of AUD 1 million-AUD 2 million. We've that played out well. I think timing is everything in this business. And so, I think overall, we're pretty happy where we are at this stage.
I think we're hoping, you know, ideally in an ideal world, hoping to have the rig out running before Christmas, but, you know, that's the goal at this stage. And the intention is to put one or two slides into the full year investor pack and start introducing that growth opportunity a little bit more to the shareholders.
Great, thanks, guys. One from Ehsan. "Other than issues at Global, why have clients been so cautious on drilling, given the favorable external environment, other than nickel?" Have you got anything to say?
I think the global, as we've all seen, we watch TV, watch the mainstream media, it's pretty choppy out there, and I think people are just waiting to see what happens till next year. So I think the juniors are finding it hard to get the, to raise capital, even when, or, you know, when gold's at $2,400. But look, I think fundamentally, fundamentals are the inflation is slowing. Mining is gonna continue, we think, for the foreseeable future, and growth in the mining sector. But I think it's just choppy waters at the moment. Again, it's one of the reasons why we paid down debt, and got ourselves back into a good position.
We're sitting on a significant amount of, you know, debt if we need it, going forward, but, you know, we don't expect to use it. That's our firepower. So let's see, I think, what happens, you know, in 2025.
... Thank you, Nathan. Now, I guess the question from earlier. I guess we've spoken about the drainage. But any further talk on this update on open pit gas drainage? Is there any more commentary around that? Probably, Al / Nat.
Not really. I think that gas drainage will slow, obviously with the fire or the issue at Grosvenor. So that's, you know, that will slow down for us and our competitor up there initially. So that's—But I mean, that happened with Peabody before. You know, when Peabody... You know, we obviously we talked about this time last year, we were doing a lot of work for Peabody with their reopening, and that's the specialist work that we do, and the directional drilling that we do to help them get back into the game. Get that mine going, and we did the same thing for Anglo four years ago when they had an issue then. So again, we're in a holding pattern with regards to what's happened. The rigs are still on site.
We're still working on some of the work, but let's see, you know, over the next 3 or 4 months could be very busy, or we could be still waiting to hear what Anglo are gonna do.
Well, thank you, Nathan. Okay, next two are probably a combination here, but, I think you've mentioned you've recommenced the buyback, but, I guess something from current management, how do you guys decide, yeah, internally, buyback, dividend, debt repayment? What, what's the process or the thinking? Or parameterizing.
Just to remind everyone, I think in our business, we look at it from a board point of view as, you know, the four pillars. You know, first pillar is growth. You know, whether we spend more and more money on growth or ratchet that down. The second one is debt, and whether we ratchet up or ratchet down. We've decided to ratchet debt right down. The last two pillars are dividends and buybacks, and we essentially just really, you know, move those pillars up and down, depending on where we see the market.
Things like, you know, the Anglo accident or future growth into these next, you know, 7 rigs that Andrew's talking about, and the others that are in our pipeline, really then dictates, you know, whether we push the CapEx up, or the growth up or down. Ideally, we want to use all the rigs that we have in our fleet before buying any rigs. Obviously, you know, the decarbonization rig is an outlier to that, and there's other contracts that may require specialist rigs.
But fundamentally, we only want to use the rigs we've got, and we've taken, you know, actions over the last 12 months and previous 2 years, selling off old rigs that we believe were top of the market prices, and we let them go. And I think, again, that's been very successful for us. So I think that leaves the last 2 pillars of buyback and dividends. And look, I think it's worked for shareholders, in both instances, both buybacks and both in dividends. So I think a meld, and it's really just a matter of, you know, how much of either. And I think we're early days this year, so I think looking forward, it really will be...
Let's see how things pan out for the rest of this year and next year. So, but overall, that's how we're applying it. I don't think huge amount of growth, as in spending a lot of money on new gear, is where we want to be. Debt is where it's at. And so it's really the last two that we'll look at.
Well, thank you, Ed. I think, I guess the next question is, again, from Anonymous. M&A options, thoughts, in terms of, I guess, buying smaller drillers. Is that on the agenda?
Look, we're always being out to look at things. And we do. We never say no. We'll always look. I think we're being pretty prudent of what we're doing at the moment at businesses. We'll never say no, but I think at this stage we're, you know, we'll just see. There's nothing on our radar at this stage.
Nah, but we've, you know, we've completed 4 acquisitions in the last 10 years since we've been back in Australia. You know, 2, 2 bottom of the market for, for assets only, from assets out of receivership or administration. And 2 earnings accretive acquisitions. So as Nathan says, we'll certainly keep our eyes open, and and certainly we've got the ability with our balance sheet to, to swing the bat if we see something that we like.
Thank you, Andrew. Another question from me. Which geographic regions, I guess, are the highest priority onshore for growth with existing clients? And I guess outline under the growth strategy, anything come to mind?
It's probably not necessarily a priority on a geography, Allen, but more so right client, you know, right prices, it's multi-rig, multi-year, ticking a lot of those other factors that you would need to tick the box on to justify a country entry. You know, between Nathan, myself, and others in the team, we really have worked all over the world, and there's nowhere we wouldn't really go. It's just a question of, you know, is it with a good client and a good contract that's going to be profitable, and justify going somewhere else? So really the way we're approaching that is to talk to our larger clients, the global miners, and see are there opportunities for us to hang on to their coattails and go to some of the places where they're working.
Thank you. I guess also back on the dividend policy, assuming all conditions remain the same and steady, whatnot, should we expect sort of a continuation of AUD 0.02... per share, interim and final. Thoughts on that?
I think, from my perspective, just, you know, where that 2 cents came from this year, it, it's-- You know, we did call out a policy of circa 75% of NPAT in the form of shareholder returns. There are obviously a number of moving parts as the gentleman in the room have sort of outlined. So, it's again, really gonna be subject to what that profit number looks like in FY 2025. And then again, to Nathan's point around, you know, with that, yeah, slight update to the policy around a more blended four pillars approach, mix of dividends versus buybacks.
So I think it's not as simple as just saying, "Yep, two cents per share." Number one, what is the earnings profile of the business gonna look like? And it's a little bit too early to call that. And two, just taking into account some of those factors in terms of, you know, the potential mix of dividend buyback. So probably too early and too difficult to call out a sort of cents per share number at this stage, Allen.
Thanks, Greg. I think this one also goes to you, Greg. Can you provide any indication of what the D&A will be like in FY 25?
Similar levels to 2024. I think, 2024, we ended at a tick under AUD 26 million worth of D&A. We have a—we have had a sort of steadily decreasing CapEx spend over the past number of years. So, by definition, that'll begin to flow into D&A. So yeah, maybe a million odd difference in terms of a lower D&A in 2025. But again, I suppose similar to the disclaimer around the CapEx comment earlier. You know, to the extent that some of these opportunities with or in the form of tenders eventuate, then arguably CapEx tick up and D&A tick up as well. But that tick up won't be material.
The tick down is not material either. So at this stage, slightly under 24 levels would probably be the appropriate answer.
Last question, I guess they're from anonymous. What are the most likely sources of growth the next year? Do you expect drilling rates to increase?
Look, I think, it's really gonna be some of those, tenders that are in the pipeline. So really sort of the existing, existing business growth opportunities. Or needless to say, the decarbonization, rig that's coming, and then the development of that market over time, given its early days, and will be choppy, as Nathan said, too. That's, that's the primary growth opportunity for the business. You know, moving forward, we're-- we are a, a large provider of services in Eastern Australia, and there's still opportunities for us, but sort of going to be looking at, at where to, as well. On the rate, on the rate side of things, I think rates are flat, Nathan?
Yeah. Yep. I think, you know, just nationally or globally, we've all done very well at coming out of COVID. And I think, I don't... I can't see clients, you know, accepting new prices if wage rates are staying the same and costs have flatlined. So, I don't see, don't see an ability for us to, you know, rerate again, when we've already sort of rerated over the last couple of years. So-
Yeah.
I think the rates are pretty good at this stage.
Yeah, and worth noting, you know, all the legacy contracts that we did have have had rates reset, so there's no rates left to reset. And again, as Nathan says, I think from here it's just you roll onwards and away you go. You'll have your typical rise and fall mechanisms within your longer term contracts, and, you know, you might get a little bit here and there, but certainly no rerates that we can see.
Thank you. Another one from anonymous. Consolidation in the gold sector, positive or negative impacts from Mitchell Services?
You might be talking about Newmont Newcrest, maybe, or?
Yeah.
Don't really see a lot of that consolidation on the East Coast.
Yeah.
Probably in the West Coast.
Yeah.
Might be, but no, I don't think... I don't see any positive negatives in that domain.
It depends who it is and where it is.
Mm.
You know, I think, talking to Newmont Newcrest, for us, has been positive. I think, you know, we've got a surface diamond drilling preferred contractor status with Newmont. You know, we had a good relationship with Newcrest as well, working at various sites of theirs. So, I think that integration, from what we can see in this region that we're exposed to, has gone quite well, and our relationship's, you know, strong with that company. But, you know, again, sometimes when these things happen, they take a breather with certain projects and accelerate other projects. And we're seeing a little bit of that with Newmont now. I think, you know, obviously Newmont have looked at Havieron and sort of said, "You know, we're not that excited by it." We had a couple of rigs there that stopped.
You know, we had some rigs in the Northern Territory. You know, they're reassessing some modeling there as well. So again, it depends who it is and where it is, but, you know, one thing's for sure, Newmont by far now is the largest global gold miner. You know, and we've got surface diamond drilling, preferred contractor status with them, which I think holds us in good stead in a pretty important region for them.
... Thanks, Andrew. Again, last question again, I think we've touched on decarb, decarb, so, again, it's-
I think I probably said, you know, enough to too much on decarb. But, you know, I think we'll have better, you know, different news or, or just more news, sorry, you know, in the, in the coming months. And, I look from our point of view, again, it's not a silver bullet. It's not a, you know, it's not gonna be huge. I think it's early stage. We're just getting ourselves in, now, for the potential. So I think, let's see where it goes. Very early stages, as I say, it's, it's like the CSG industry back then. It will never be as big as the CSG industry, but it's again, gonna be choppy, to start with, as mines decide what they have to do and what they need to do around decarbonization.
But yeah, so we're not sure how big the market's gonna be at this stage.
All right. Thanks again, Nathan.
Just back on Bridge Street, how is the competitive environment? How do you think your competitors are doing with, you know, little companies disappearing? I know you're not exposed to that, which is good. How do you think the competitors are tracking at the moment?
I think, WA, I think is probably flattening a little bit, you know, because they did spend a lot of money on rigs over there, so there's a lot of capital expended over the last four or five years on new equipment, which is always the risk in WA. It's sort of, you know, boom bust scenario. East Coast is a little bit more flatter. We don't have the highs, we don't have the lows. It's just the way it's been for as many decades as I can remember. So I think the competitors on this side, we've lost a few. And so we don't really see—We still see a bunch of people competing against us, and they're always hungry for work.
Our position's always been, you know, we're never gonna be the lowest and the cheapest. You know, we'll always just park a rig rather than make it lose money.
Mm-hmm.
So that's our... but fundamentally, it's still pretty strong. As I say, it's all looking, still looking pretty good for us.
Thank you.
Just a final one from me. Some thematics starting to evolve in the Hunter. We saw in the popular press just recently, a re-permitting of open cuts for all the reasons we've been speaking about, which I guess is gonna start pushing some of the big miners there, and three obvious big miners towards underground. I mean, the only underground mine that I'm aware that's being built at the moment is Malabar, of course. But are you sensing that the big guys there are thinking more underground mines rather than open cut? And could that then drive drilling opportunities for the deeper seams? Any thematic along those lines?
Well, like the Hunter Valley, you know, we've been in the Hunter Valley for decades. I started my career there in 1989. It's a beautiful place, you know, and it's only got prettier. But, so I don't think any new open cuts are ever gonna be allowed down there. But certainly underground, I think overall the national discussion around, you know, fossils and coal and gas is changing. So it doesn't, you know... So I think there's probably possibilities for undergrounds down there, you know. So I think, and we've still got an underground drilling coal business in Queensland. So that's only potentially good for us going forward. So yeah, that's all positive for us.
Yeah, and definitely in Queensland too, you know, Jellinbah's gonna go underground, Coronado's gonna go underground. Most likely, some of those BMA assets will go underground at some stage. So there's certainly pathways to more underground mines. It's, again, it's a niche sector. It's, it's never gonna have the size and scale that the Metalliferous underground mines have, but certainly there'll be opportunities for us, definitely.
That's good. Thank you.
Thank you. Thanks, Nathan. I guess the last question, anything we've missed that you'd like to finish off on?
No, I think probably just the main point, in the quarterly, just to touch on, is that, you know, we're confirming the final guidance of approximately AUD 0.02. I think that's just an important note to know that, you know, what Greg's talking about, with 75% of NPAT and earnings moving forward, and Nathan with the allocation between the different pillars. You know, it has been a solid year for the company this year, and that guidance is out there, that final dividend of approximately AUD 0.02.
Perfect. If there's no more questions, we'll wrap it up here. Again, this is being recorded. Research from Daniel at Citi as well is out there, so I'll reach out to you guys individually. But again, Nathan, Andrew, and Greg, thank you very much for today, and well done.
Thank you.
Thanks, Allen, for having us in, and obviously you've got the full year results coming out the 22nd of August, I think it is, Greg, and a road show in September. So certainly, if there's any interest in meeting with us personally, please just get in contact with Allen.
Thanks, guys.
Thank you.
Thanks, everyone.
Bye.