Yeah, good morning, everyone. My name is Allen Chan from Bridge Street Capital. Thank you for joining us this morning for our Mitchell Services third quarter update. Just for housekeeping, we are having some issues with the camera, so you won't be able to see Andrew or Greg. But you should be able to hear them loud and clear. I will address any Q&A at the end. So, if you could just pop questions in the Q&A section, and then I'll address them at the end. Andrew Elf, Andy, and Greg Switala, CFO, will be joining us for the presentation. Andrew, over to you. Thank you.
Thanks, Allen, and can you hear me okay, just to confirm?
I can hear you loudly, thank you.
Okay, thanks, Allen, and welcome everyone. Thanks for your interest in the company. Probably not a bad thing that you can't see me. But apologies again for the technical difficulties. Look, a quick introduction to the company first off, and then we'll jump into a couple of key points on quarterly, and then open it up for questions. So in regards to Mitchell Services, for those that don't know, are new to the story, the brand has sort of over 50 years of history in the mining services sector. The current business as stands today, 55% of the revenue from surface operations, 45% from underground operations, 50% of revenue from gold, 35% of revenue from metallurgical coal, and the balance of revenue from copper, lead, zinc, other.
No exposure to lithium or nickel, predominantly WA commodities. And importantly, 90% of our revenue is coming from global major miners, and from us operating on their mine sites, which obviously, you know, large ongoing operations through the cycle, but the lowest on the cost curve. Just jumping into the quarterly, I've got a handful of points to make, and then we'll really just open it up for questions and see what people would like to talk about. But look, a solid quarter for Q3. I think, limited wet weather, which was good. We had a timely restart after Christmas and got back out there up and running fairly quickly, which was again, good.
You know, if you think about other Q3s, you can have more bad weather, you can go out a little bit slower. So certainly it was a good one for us in that perspective, and the, and the EBITDA percentage for the quarter would support that. Some of the larger contracts that we needed to win this year have, have been re-won, which is, which is good. And we sort of start turning our attention a little bit more now to, to the re-wins required in FY 2025. The business itself, as the numbers would show, a relatively steady state, which was good for cash conversion. Net debt reduction has continued, and now AUD 7.9 million, which is, which is extremely pleasing, obviously.
We've effectively achieved our target of less than AUD 15 million net debt by 30th of June, which is fantastic as well. And again, make the point, as we do in the quarterly, that the company remains committed to its capital management objectives. So look, Alan, they're really the main points I wanted to make very quickly at the start, and we'll let you lead us away with some questions.
Right. Fantastic. So, for the rest of the joins today, again, any questions you'd like to raise, please kick off in the chat. But, I guess from my side, to kick it off, I guess you spoke about an increase in rigs. Is that... Where is that coming from? And, do you see a few more rigs being brought on?
Thanks, Allen. Look, I think we talk about the obvious rig count in there, and we talk about movement and shift count, and that the business is fairly steady state. You know, I'd expect that to continue as we move forward. You know, I'm not really seeing any huge increases or any huge decreases at the current time. The business is sort of ticking along nicely. I mean, obviously we've got 93 rigs in the fleet. You know, we've got sort of mid-70s there working on average. You know, we'd like to have a few more out. There's some good opportunities in hand, but you know, you've got to win those before you can put rigs out.
But as we've always said to people, you know, we'll be patient, we'll be disciplined, you know, we'll put rigs out at the right percentages, you know, that justifies the return. So, we're really happy with how the business is going. It's been a good year through the three quarters year to date, with you know, all of those key metrics heading in the right direction. You know, we've just got to bring it home now with a decent last quarter.
Thanks. Thanks, Andrew. One from Daniel Shea. Gold prices have been extremely strong, particularly in Australian dollars. Are you seeing this flow through to any additional demand at this point?
Yeah, it's really interesting, isn't it? I mean, gold is half of our contract book, as I said, and historic, you know, high Aussie dollar gold prices. But to be honest, no, I think we haven't seen it come through yet. So there's certainly, I think, upside, if and when it may. You know, really what we've seen so far with our clients is, they're obviously very profitable at producing some good cash. Obviously, we're working on the mine sites. And they really. They've had a, I would say, a fairly strong level of activity and a fairly strong level of demand for drilling service for quite some time now, and that's continuing.
We really haven't seen them pick up the phone and say: All right, I need, you know, I need another this many rigs, because it's, you know, we're shooting the lights out as such. So, but at some stage, you would think that the worm's got to turn, and that demand, given that gold price, will pick up. You know, obviously, junior equity raisings are always a good indicator. But certainly, I'd like to think if it stays at this level, you know, those phone calls, you know, may start coming.
Okay, thank you. A question from Shah. Can you provide an update on some of the new contract tender opportunities? What has been won, what has been lost, and the reasons why you've lost them, Andy?
Yeah, look, I think I'll probably answer that question in two parts. Firstly, re-wins. So, you know, a big focus of the team every year is to rewin any existing contracts that come up. Typically, about a third of our contract book rolls every year. You know, typical contract length is three years. And therefore, there's a certain percentage that will come up for renewal. And importantly for the team, we've had a good year this year in that regard, and we've re-won everything we have to rewin. You know, there's a couple of smaller ones between now and 30 June, but that's it.
You know, as far as new wins go, you know, I probably won't commentate on this call today in regards to specific tender opportunities themselves, but fair to say, there's probably four or five multi-rig, multi-year tenders in hand right now. And they don't come around every day. It's obviously a lot harder to win new ones than it is to retain the ones you've got, if you're doing a good job, obviously. So, you know, a couple of those submissions are in, one of them was a loss, you know, and there's a couple of others to still go in. So again, you never count your chickens before they hatch with those ones, but you'd like to think that, you know, you could at least land one of them.
But, the one we did lose, you know, I won't, again, I won't say who the client was or whether it was surface, underground, et cetera, but it was a Chinese client that is very sensitive to price. And again, I think a very much a price-driven decision rather than quality and value. And, as a result, we, we didn't win that tender. So, but all in all, there's still some good ones in the pipeline, and, you know, we'll give them, give them our best shot.
Okay. Thank you, Andrew. Another one from Shah. Consolidation among the gold miners, what impact is this likely to have on MSP?
Sorry, Alan, could you just repeat the first part of that question, please?
Yeah.
I couldn't hear it, sorry.
Yeah. Consolidation among the gold miners, what's the impact for you guys?
Oh, look, it doesn't change a great deal, to be honest. I think, you know, there may be times where they get more aggressive on certain assets or less aggressive on certain assets post transaction. You know, again, if you look at Newmont Newcrest, they're obviously, both of them, pre-transaction, good clients of ours and obviously a good client now that they've come together. You know, sometimes you'll see post-transaction, they take time to assess what they've got, what they're gonna keep, what they're gonna sell, et cetera. But again, in that portfolio, there's a whole lot of world-class assets that keep going, from Canada to Boddington, where we work, to the Northern Territory, et cetera.
So, you know, again, it generally, it doesn't really change things a great deal ordinarily.
From Tom. The working capital build was possibly smaller than we expected. Please, can you comment on that and whether there was any other influence on operating cash flow?
Yeah, thanks, Allen. I think a couple of points worth noting there. The first one being just traditionally and typically, you know, Andrew sort of touched on it earlier in his summary. Traditionally, the ramp up in terms of that third quarter would be far more skewed to March, say. And so what I mean by that is, you'd sort of your EBITDA, your operating rigs, and so January, February would be lower, and then a tick up in March. In fact, you can see that quite clearly demonstrated on the second page of the quarterly.
If you have a look at the number of operating rigs for the prior comparative period, you can see that gray line really, really tick up in March following a fairly subdued January and February. But positively this year, yeah, and the lack of weather that played a part there as well. You can sort of see that we got out fairly quickly in January, and then sort of held that level. And so in this business, a steady operating rig count is always gonna drive positive cash as opposed to one like we saw last year with that steep uptick. So that's certainly a reason.
And then secondly, as strange as this might sound, you've got that month-end. There's a number of public holidays towards the back end of March, just with Easter. And again, as strange as this might seem, what to do in terms of when to pay, given all those public holidays, that can drive an increase or a decrease in bills accordingly. And what we saw this quarter, fortuitously I suppose, is that a large number of those month-end payments were paid pre-Easter Friday as opposed to post-Easter Monday. And I realize, yeah, that sounds, that may sound arbitrary, but it does make quite a difference.
So I think, steadiness of operating rigs and earlier remobilizations in January, coupled with sort of nuance around the Easter public.
Yeah, and I mean, just to add to that, Greg, it could have gone the other way. If they, if they had all paid on Monday, we could have been sitting here saying, "You know, cash was terrible." But, you know, again, they paid, they paid pre-Good Friday.
Thanks, guys. Our next question from Glenn. Where's the growth coming from? And, are you getting lots of inquiries and doing tendering?
Yeah. So obviously, you know, the market in which we operate is predominantly Central and Eastern Australia. We will operate in WA given the right circumstances and the right clients. So we're really focused on our key markets. Obviously, we're number one in our respective market in Eastern Australia. And similar to the question before, there's been a lot of consolidation in the drilling services sector as well. So we're predominantly focused on, you know, operating mine sites in Central and Eastern Australia, you know, with multi-rig, multi-year tendering or drilling services opportunities. And we've got a, we've got good market share, but there's still opportunities out there for us to win. We've got rigs available to us. As I mentioned previously, there is a handful of multi-rig, multi-year tenders in hand.
And the better the conversion rate is for those, the more rigs we can get out and have running. You know, I should qualify that by saying that we've always said that we'll be patient with deploying our rigs. You know, we don't wanna be the biggest company for the sake of being big. I don't wanna have all the rigs running for the sake of having it running. You know, right rigs, right clients, right bases, right returns, good people, good service, all those sort of things. So there's still opportunities for us to grow in the markets we're in with the rigs we've got. And then secondly, and I've spoken to this a little bit, you know, it's very, very early days, of course.
The government has released the Safeguard Mechanism legislation in regards to emission reductions, which the long and short of that is, if you don't reduce your emissions, you'll be paying a tax. And there's certainly some clients that we work for that have spoken about that in their own presentations to the market. And we certainly believe there's an opportunity for us to start drilling in a whole new total available market to assist these clients reducing their emissions. And effectively, what that means is drilling in open cut coal mines to drain the gas out of the coal in advance of the clients mining that open cut coal. And that gas can then either be used in haul trucks, it can be used in power plants, it can even be flared.
Flaring the gas alone reduces the emissions by 25 times. So, that is a very exciting growth opportunity for the company. It's probably the first time since the early 2000s, when coal seam gas started or coal mine- coal, coal seam gas started, that you're seeing a whole new potential total available market for drilling. But as I said, it's very early days, and it's gonna take some time to come on. On a positive note, you know, we have had someone go over to the U.S. We've purchased a rig secondhand, it's on its way. We'll get that rig together, and we're hoping to see that rig out in the first half of the next financial year, drilling in that market.
And, you know, let's hope it gets some legs and we can grow into that as that market grows. So I certainly think the company's got options available to it. And then, needless to say, as the balance sheet gets stronger, as the net debt keeps reducing, loan gives us options. You know, we can go and buy more rigs if we want to take an organic approach, and we can do that with, you know, before bank debt from NAB, who's our house banker, at very good rates. And we do not need to raise capital. We do not intend to raise capital. Alternatively, you know, something else might come up that we're interested in as well.
I certainly think that the company is in the best position it's been since it re-kicked off in November 2013. It's sort of taken 10 years to get to a good, strong point where it is now. And really from here, we can be quite smart with the opportunities we take advantage of and really try and drive some shareholder value.
Okay, thank you. Next question is anonymous. Can you talk through the working capital into the third quarter, and what can we expect in the short term?
Thanks, Allen. I think, just to, yeah, noting the earlier comments around why cash was positive in the third quarter, given that lack of working capital requirements and reasons why, so won't go into that again in terms of the third quarter. What we expect to see in terms of the, in terms of, Q4, probably pretty similar. Again, my earlier comments, you know, the need for increased working capital investment in this business is generally driven off the back of steep utilization increases. And again, noting Andrew's comments around, you know, the business being a fairly steady state, noting, of course, those tender opportunities.
But assuming, you know, assuming none of those transact as such in the months ahead, we expect to see a reasonably steady level of utilization. Therefore, not a significant need for working capital investment, and therefore, a cash conversion ratio that should be, you know, pretty similar to current levels.
Thanks, Greg. Another question from Shah. Can you comment on labor availability and rates?
Yeah, we're just going through our FY 2025 budgeting process at the moment, so we're really starting to turn our minds to some of those things. So it's certainly a timely question. I might just talk a little bit to the market and what we're seeing, and then, Greg, maybe you can just talk to blended averages and things we're sort of looking at. But, look, I think the junior space has been a little bit quiet in regards to drilling services. I think that's taken a little bit of pressure off the labor market, particularly some of the people that live in Eastern Australia and work in Western Australia have come back home to the east.
So I think at a higher level or a more senior level in the business, we've seen the pressure come off a little bit. I think the pressure for rates to go up has certainly reduced. And I can't see rates increasing much at all, if anything, at those sort of levels. Maybe just with fitting people or mechanics that they're sort of a little bit harder to get and find. And then at the lower end, I think it's those people in our business are much closer to the award. So worth remembering with Mitchell Services, you know, no unions in the business, no EBA, all individual contracts, so that we work under. But our lower level employees are closer to the award.
I think if you look at Fair Work, you know, I think employees and unions want 6%, business groups want 2%, inflation's running at 4%. You'd probably think that they'll meet in the middle and 4% around about the number, you know? So you sort of probably see a little bit more at the lower end than at the higher end. And Greg, maybe just talk to the business as a whole, maybe.
Yeah, probably not too much more to add to that, other than to sort of say, if you, you know, note some of the comments from the Federal Treasurer, et cetera, that that is sort of support potentially the 4% that Andrew called out. So, we're sort of budgeting on the basis that, you know, that increase for the awards and therefore impacting the lower level of our staff will be in the order of 4%.
The portion of our staff that aren't impacted by award movements, et cetera, which is more, you know, market-driven in terms of rates, we really don't anticipate much at all there, given, again, some of the market forces that Andrew's spoken about, and the fact that, in the last sort of 18 months or so, that portion of the labor force has benefited from decent increases. It's probably about 25% of our overall labor force is at that lower end. So, therefore, you know, an overall labor increase of sort of 1.5% or thereabout is probably what we're expecting into 2025.
Thanks, guys. A question from Daniel. The fourth quarter last year was very strong, partly due to the high utilization of the three large diamond rigs during that quarter. How are those rigs utilized at the moment? And how do you think those margins should track into the fourth quarter relative to the third?
Yes, I'd love to sit here and say we're gonna have the same as we did last year in Q4, but we're not. We've got one of those rigs, running, or just starting to run, and we've got a second one running. So probably, you know, we had three running full tilt, with one in particular on an extremely attractive contract last year. Versus this year, you know, we've got one running, got a second one starting, and the third one will not run in this quarter. So, it's fair to say that we absolutely shot the lights out in that last quarter, last year. You know, we're hoping, as Greg said, to sort of have another solid quarter, but it, it won't, you know, it won't meet Q4 last year.
Thank you. Okay, maybe I can say something again, but, can you provide total rig count and productivity figures?
Yeah. So 93 rigs in the ... And you can sort of see the productivity figures you can see there in the quarterly. I'm not gonna run through those in detail, but average operating rigs, number of shifts, revenue, revenue per shift, et cetera. You know, obviously, they'll move around as, you know, as things change within the business. But you know, there's certainly these reports have been put out for quite some time, and people can certainly go back and have a look at how things have moved over time and things like that. But you know, just high level, looking at business, you've probably seen a bit of a movement from underground to surface in the last 12 months. It probably was 50% surface revenue, 50% underground revenue.
It's probably, you know, as I said at the start, 55 surface, 45 underground. And you've probably seen a little bit of movement towards gold and a little bit of movement towards metallurgical coal, as well. But certainly those high-level productivity figures there you can see are, you know, have been presented to the market for a long time.
Thanks, Andrew. Another question from Sharon. Contract renewals in Q4 and FY 2025, how many rigs are up for renewal coming up?
Q4 2024, Allen?
Yes. Yes.
Yes. Maybe five.
Yeah, it's negligible. As Andrew sort of said earlier, the-
Yeah
... the vast majority of contracts requiring a re-win, noting that the average tenure is three years, as that has been done recently. So it's negligible in Q4. And given how recent a lot of those rollovers have been, looking ahead into 2025, it's still a fairly small percentage.
Yeah, that's right. We say that 30% rolls on average, and it always changes as contracts change and terms start and finish, whatever. But if you looked at FY 2025 in isolation versus previous years, there's less to re-win in 2025 than there was to re-win in 2024 and 2023. And importantly, the work that's been re-won in 2023 and 2024 has been where we've been resetting rates, you know, post the spike in inflation. So, you know, it's in a good state where it is right now, the book moving forward.
Got it. Thank you. A question from Alex: Are there any future plans for asset sales, given your current drill count?
Look, we, we always buy and sell assets. And I say assets because you've got sort of rigs and trucks and cars and pumps and compressors and boosters and lighting plants and, and you name it, in this business. We're always buying and selling things. The other thing we'll do is we'll look at the year ahead. We'll look at idle rigs, and we'll sort of go, "Okay, well, could we scrap an idle rig and take the parts, and then use that to reduce the cash cost on a refurbishment or a rebuild of a rig?" So, yeah, look, we certainly can't definitively sit here and say, "Yes, we will." But we'll do what's best for the business, you know? Yes, we may sell, but yes, we may use for something else.
And yes, we may win something as well. So, you know, again, it's a balance between managing your cash, having the capacity or capability to, to bid tender on new work, look after your existing clients, you know, whilst, whilst using your capital, efficiently, effectively, as well. So we, we certainly do our best on that, you know, every day.
Thanks, Greg. Another question from Daniel: Buyback activity. How are you thinking about this going forward? Should we expect it to continue into FY 2025? How many shares have been bought back and not yet canceled to date?
To answer the first part of that question, Allen, I think, and, you know, I suppose to an extent, talking on behalf of the board, the view is to stick with the original strategy in the short term, which is, you know, return profits to shareholders via dividends. And to the extent that there are surplus asset sales, as Andrew mentioned earlier, then, given that ties in with the overall, you know, capital management, you know, distribute the proceeds from those surplus asset sales in the form of a buyback. So, the buyback activity in terms of, you know, between now and the end of the financial year, probably fair to say, not significant.
The view is still to target a dividend, you know, at sort of similar levels to the interim one based on profitability. But I think it's also fair to say that, you know, depending where the share price then ends, come the end of this year, to perhaps have a slight rethink just in terms of the proportions there. So perhaps lower the dividend slightly and increase the buyback, depending on where the share price is. And that'll no doubt be communicated in, you know, in early FY 2025 as part of that overall, you know, capital management objective setting.
I can't give you the exact number in terms of what's remaining out of that 10%. You know, it's an on-market buyback, up to 10%. We're nowhere near 10%, so there's still significant headroom there, if that's the way that the board chooses to go. But I think, you know, probably fair to say an average purchase price of high 30s. I think somewhere around sort of AUD 38-AUD 38.5 is where we're at currently, from a buyback perspective.
Yeah, I mean, and all I'd say is just, you know, from an internal process perspective, we go through our budgeting. You know, there's a board strategy session that's held pre-accepting the budget, of course. And that's typically where we talk about the year ahead and that sort of thing. And as Greg said, you know, I think, you know, we'll come out and communicate at a future point in time regarding the capital management.
But, you know, I know Nathan's not with us today, but, he said it in the past on calls, you know, his view is, you know, you've got, growth options and, and, you know, debt reduction, and you've got, dividends, and you've got buybacks, and you, you turn the dials on each one of those, you know, based on the, on the, on the best outcomes for the shareholders of the business. So, certainly, I think at a, at a future point in time, as Greg said, we'll come out and, and communicate some of those things.
Thanks, guys. Now, a question on Carl. Obviously, we are on tenders, but, what, what is your rate on tenders that you are not incumbent?
Look, it varies. The reason I say that is you'll have a tender that might be AUD 200,000 worth of drilling. It could be AUD 1 million worth of drilling. It could be AUD 10 million of drilling. It could be AUD 50 million of drilling. So your conversion rates are different in different sizes of projects. The other thing that varies is how aggressively you bid those respective projects. You know, the other thing that varies is have you got availability for that type of project when it comes up, a rig nearby, all those sort of things. So it's a tough one to give a straight-out answer to. It will also depend on the client, the commodity, the ground, you know, all of those sort of things.
Some clients, as I said, buy on price, some buy on value. You know, do you need to have a higher headcount in, you know, all this sort of things. So it really does depend. But, you know, typically, I would say, that if you've got four multi-rig, multi-year tenders in hand, you'd like to try and win one out of four.
Thank you. Another question from Daniel. This obviously relates back to labor and cost. So, on cost inflation, how are you seeing labor market dynamics in some of the weaknesses in some pockets in WA mining, such as lithium and nickel? Any improvement in labor availability starting to come through? And what sort of wage inflation is likely to fuel this over the next 12-24 months? Maybe just a recap. Do you agree?
Yeah, I think we probably answered most of that, Alan, to be honest.
Yeah.
I think, you know, it's obvious to say there's a cast of thousands available. It's just eased, and we, you know, we've got the people that we need to do what we have to do. And if we win any of the jobs that we're currently tendering on, you know, I've got no concerns either. So I think, you know, we're in good shape in that regard. Importantly, you know, a majority of our contracts have rise and fall clauses. So on the anniversary date of the contract, there's generally an industry style calculation that allows us to increase the rates. And, you know, again, just given where inflation is in the current environment, it is fair to say it's easing in our sector.
You know, our view is that any industry style calculation rate increases should cover our respective cost increases.
Yeah. Got it. Thank you. Another question from Alex, again, we went on the quarterly, but, he's asking: What is the company's plans for debt, given already under the target AUD 15 million?
Look, we... That's we're gonna sit down and talk about that with the board, as we go through the planning session. I mean, you know, AUD 15 million was our targeted number by 30 June. You know, it's pleasing to be where we are, given the fact we've returned over AUD 10 million to shareholders as well, including the recent dividend. But it's a question of where to from here. I think, you know, I think a drilling services company should be run with a conservative balance sheet. I think you can certainly take on debt, you know, to fund growth, or opportunities, with a view to bringing debt back down. So again, I think, we go through our planning process, we have a look at the year ahead.
You know, we come out and communicate with people and let them know where to from here. But I think fair to say, unless we take advantage of growth opportunities, you know, fairly conservative in nature.
All right. Thank you. A question from Mark on rigs utilization again. So, what's the current level of competitive intensity, and what is the current level of surplus unused rigs in the system?
Yeah. No one, no one really publishes, you know, this is how many rigs there are, and, and this is how many are running and, and that sort of thing. You know, there's, you sort of got to grab little bits of information from, from here, there, and, and everywhere and, and make a few assumptions. But I think probably the best way to look at the, the market is, I sort of spoke to us being strong in the east. You've seen Mitchell Services over the last 10 years consolidate a number of businesses being Drill Torque, Deepcore, Nitro, Tom Browne and Radco. And in the west, similarly, you've seen Perenti take DDH, Strike, Ranger and Swick. So you've seen a significant amount of consolidation in the east through Mitchell Services and a significant amount of consolidation in the west through Perenti.
That business over there in the west is a very strong number one in its market. And so again, I think it's harder to start a new drilling company now. There's a lot more red tape, green tape, the capital cost, et cetera. So you've seen consolidation in the sector. You know, it's harder to start up and grow a drilling business. Even smaller clients' expectations of what they expect of a drilling company have increased in regards to quality as social license, and how you act and perform in a community and with landholders becomes more important. So I certainly think the competitive profile of the drilling services sector has improved. No doubt about that.
And I think that, you know, everybody wants to try and make a dollar, and have a good company, a stronger balance sheet, and do a good job. And I think, you know, we're certainly not seeing people out there bidding irrationally at all. Which is good. So it's competitive? Absolutely, it's competitive. You know, it's not like there's never anybody there to tender against you and those sort of things, but, you know, it's more rational than perhaps it has been at previous points in time.
Right. Thanks, Andrew. Okay, this one for you, Greg, just a few parts to this one, so try and minimize here. So with EBITDA increasing due to heavily reduced depreciation over last year, is the current EBITDA level expected to be maintained going forward? Or are depreciation expenses expected to increase materially in the coming financial years?
Yeah. So, I suppose just to clarify, obviously the EBITDA is prior to any depreciation. So depreciation, amortization, is, I suppose, not applicable to the increase in EBITDA. So if we do look at the increase in EBITDA, which has gone from AUD 25 million to AUD 30 million, comparing the two periods ended March, the reason for that increase and, you know, really all the things that Andrew's touched on earlier, is an increase in revenue, better rates and a corresponding increase in EBITDA percentage and margin. So that's the first point. You know, there was a AUD 4.5 million improvement there, driven by, you know, items excluding depreciation and amortization.
If you go down to the EBIT line, which is obviously increased from AUD 2.3 million to AUD 9.8 million, which is an AUD 7.5 million-dollar increase, in total. That increase is really a result of two things. One, that EBITDA improvement of AUD 4 million. And two, you can sort of back calculate the numbers. There's a D&A improvement there, embedded in there of about AUD 3 million. That improvement is obviously driven by lower debt levels, which drives the interest cost down, as well as normalized CapEx levels over the last two years or so, which is resulting in depreciation beginning to normalize.
Subject to what may or may not transpire with some of the growth opportunities that Andrew mentioned earlier, if we just have a look at this business steady state, then these depreciation levels that we're seeing now are absolutely sustainable. And it wouldn't result in an increase. But I suppose the... In summary, that the point there is that EBITDA, you know, or the EBIT improvement was driven by not just a decrease in depreciation, but also by an increase in EBITDA, which had nothing to do with depreciation, if that makes sense.
No, great. Okay, thanks. I also have part two here. It's about rigs here, Andrew. So are there any expected purchases of new rigs, or is the fleet of sufficient quality and quantity? And also that morphs into, the specialized drilling rig required, for the Safeguard Mechanism you've mentioned. So I guess,
Yeah. The safeguard mechanism opportunity is a specialist rig that we'll need to get for that type of drilling. It is, it's effectively taking a lot of the smarts from our underground business and our surface business, mixing them together, and then using the rig that we've bought. So, probably not gonna say too much about that rig that we bought at this point in time, want to get a bit further down the track with everything. But importantly, what we did do when we went to the U.S. and had a look around is, you know, we looked at that rig, and we bought it secondhand. We probably saved well over $500,000 of what it would cost to buy new.
And the good thing is, there's a number of them available in the U.S., and generally always is. So if that market does grow, if that market does get busy, we've got the ability to buy these rigs at a good price, with a reasonable length lead time. It's not gonna blow out, and certainly a very good rig for us moving forward. So start with one, and then we'll sort of go from there and see how that market develops. As for other purchases, yeah, look, we might buy rigs here and there, but again, I can't see, unless there's something that comes up, a huge amount, I wouldn't think.
Thank you. Quick one for Sam. What is happening to drill rates? Are they stable now or still rising?
Yeah, flat. Flat, with increases for industry calculations on contract anniversaries.
Sure. Thank you. Okay, that's all the questions I have at the moment. If there's any others, please feel free to add to the chat now. Otherwise, if you have any more, feel free to reach out to myself, and I can coordinate with Andrew and Greg and get them to revert ASAP.
All right. Well, thanks, thanks, Allen, for, for having us on. Obviously, you know, we're, we're covered by Morgans, we're covered by Q Value. There's papers out there, encourage people to read those if they're interested in the, in the company. And thanks for your interest, and your questions.
No, thank you, Andrew. Thanks, Greg. This is recorded, guys, so I will send out the recording post this afternoon. Andrew and Greg, thank you again, and everyone on the call, thanks for attending.
Thanks very much.
Thanks, Allen.
Thank you.