Good morning, ladies and gentlemen, welcome to the Third Quarter 2023 Results Conference Call. I would now like to turn the meeting over to Denis Larocque, President and CEO. Please go ahead, Mr. Larocque.
Thank you, good morning, everyone. As mentioned, we would like to welcome you to Major Drilling's conference call for the third quarter of fiscal 2023. On the call with me today is Ian Ross, our CFO. Our results were released yesterday evening and can be found on our website at majordrilling.com. We also invite you to visit our website for further information. Before we get started, we'd like to caution you that during this conference call, we will be making forward-looking statements about future events or the future financial performance of the company. These statements are forward-looking in nature, actual events or results may differ materially from those currently anticipated in such statements. I must say we're very happy with our third quarter results as we continued to see strong levels of activity despite the usual seasonal slowdown related to the Christmas season.
During the quarter, we continued to see the growing importance of electric vehicles and electrification market. We saw the beginning of a widely anticipated shift to the copper and battery metals in our operational commodity mix. Between copper, nickel, and lithium, our revenue percentage for those commodities went from 22% of our total revenue last year to over 37% of our activity during the third quarter. Our specialized drilling expertise allowed us to meet the increasing demand from those customers that are levered to this e-energy transition. The strong performance this quarter allowed us to grow our net cash position by CAD 23 million to CAD 74 million at the end of Q3, while at the same time continuing to modernize our fleet, purchasing nine new rigs.
On the safety side, I'm extremely proud to report that we have gone 12 months and over 9 million hours worked without a lost time injury, which is a record in the company's history. When you consider the inherent risk in our industry, this is quite a feat for our industry. I want to credit our teams out there for the attention to details in applying the company's tools like the TAKE 5 program and our 10 Lifes aving Rules. I commend our recruiting and training teams for their success in the development of our workforce at a time where we brought in a significant number of new employees over the last two years. Great job, everyone, and please continue to stay safe. With that, Ian will walk us through the quarter's financials, and then I'll come back to discuss the outlook.
Ian?
Thanks, Denis. Revenue for the quarter was CAD 149.2 million, up 7.5% from revenue of CAD 138.8 million recorded in the same quarter last year. During the quarter, the volatility in the currency markets continued, producing a favorable foreign exchange translation impact on revenue when comparing to the effective rates for the same period last year of approximately CAD 6 million. The impact on net earnings was nil, as expenses tend to be in the same currency as revenue. The overall gross margin percentage, excluding depreciation, was 25.3% for the quarter, compared to 24.2% in the same period last year.
While margins in the third quarter were negatively impacted by seasonal shutdowns and annual maintenance of the equipment, there was improvement from the same period last year, attributed to the improved pricing environment and enhanced productivity of existing jobs. G&A costs were up CAD 2.3 million at CAD 16.4 million when compared to the same quarter last year. The increase from the prior year was mainly attributed to increased employee compensation in keeping with rising inflation, increased insurance costs, and increased travel costs with the ease of COVID-19 restrictions. Foreign exchange loss was CAD 300,000, compared to a gain of CAD 400,000 for the same quarter last year. While the company's reporting currency is the Canadian dollar, various jurisdictions have net monetary assets or liabilities exposed to various other currencies.
The income tax provision for the quarter was an expense of CAD 2.5 million, compared to an expense of CAD 1.3 million for the prior year period. The increase in the tax expense was related to an increase in overall profitability and re-reduction in utilization of previously unrecognized losses compared to the prior year period. Net earnings were up 11% to CAD 6.3 million or CAD 0.08 per share, compared to net earnings of CAD 5.7 million or CAD 0.07 per share for the prior year quarter, as our earnings power remained prominent. With our solid financial performance, despite Q3 being our seasonally weakest quarter, we generated CAD 20.5 million in EBITDA, increasing our net cash position net of debt to CAD 74 million.
With the strong cash generation, we paid down CAD 10 million of the revolving credit facility in the quarter in order to minimize exposure to the current rising interest rate environment. The company also paid CAD 2.5 million in contingent consideration in relation to the 2019 Norex acquisition, as they successfully achieved all EBITDA milestones set out in the purchase agreement. With CAD 195 million available liquidity, we are well positioned to execute on our growth strategy and remain committed to investing in the business. This quarter, we spent CAD 15.6 million on capital expenditures, including the purchase of nine new drill rigs and support equipment for existing rigs being deployed to the field.
To continue our fleet modernization, we also disposed of 10 older, less efficient rigs, bringing the total rig count to 602. The new breakdown of our fleet utilization is as follows. 290 specialized drills at 47% utilization, 113 conventional drills at 47% utilization, and 199 underground drills at 53% utilization. For a total of 602 drills at 49% utilization. As we've mentioned before, specialized work in our definition is not necessarily conducted with a specialized drill. Rather, it is work that requires we meet the rigorous standards of our customers in terms of technical capabilities, operational and safety standards, and other related factors. Over time, we expect these standards to be increasingly important to our customers.
In the third quarter, revenue from specialized work accounted for 63% of our total revenue, down from 65% in Q2, while our underground drilling revenue grew to 28%, up from 23% in Q2. The shift in our revenue mix is a function of our diversity as the underground work is less impacted by seasonality. This is mainly tied to the production of operating mines that keep producing over the holiday season. Conventional drilling made up 9% of our revenue, down from 12% in Q2, driven by the decrease in junior activity and seasonality. As mentioned, revenue from juniors was down in the quarter due to continued tightness in the financing markets, accounting for 16% of our revenue, while seniors and intermediates offset the impact of juniors with expanded programs, providing 84% of our revenue.
This quarter, we saw a tremendous shift in our commodity mix as gold represented 38% of our revenue, well off historic norms of 50%. As anticipated, the need for battery metals is driving this current cycle, we are seeing year-over-year growth in copper, nickel, and lithium. Copper drove 24% of our revenue, nickel 9%, and lithium 4%, which are all significantly up year-over-year. With that overview on our financial results, I'll now turn the presentation back to Denis to discuss the outlook.
Thanks, Ian. Going forward, the outlook for calendar 2023 remains strong. Although weather was somewhat challenging throughout February, and operations got off to a slow start in a few regions. Major Drilling's emerging role in the energy transition continues to grow in importance, and over the last six months, we have seen the electric vehicle and electrification markets drive increased demand from our copper and battery metals customers. Additionally, most of our senior gold customers have committed to elevated exploration efforts in calendar 2023. We expect these drivers to maintain the strong activity levels going into fiscal 2024. With the company's robust financial position, we will ensure we have the equipment and inventory required to be a best-in-class service provider as we move forward in this upturn.
As new mineral deposit will be increasingly located in areas more challenging to access and requiring complex drilling solutions, we continue to see our strategy to focus on specialized drilling as being key to providing top quality service to our valued customers. In closing, I would like to invite our customers and investors to visit our booth at the Prospectors and Developers Convention, the PDAC, starting this weekend in Toronto. Initial indications are that it will be a very busy show, and there seems to be a lot of optimism going into that week. With that, we can open the call to questions. Operator?
Thank you. Please press star one on your device keypad if you have a question. We have one question from Daryl Young, TD Securities. Please go ahead.
Hey, good morning, everyone. just with respect to the weather comments that you made in the release, should we anticipate that in fiscal Q4, we would see a year-over-year decline in results, or will you be able to make that up in March and April?
Well, basically what we're seeing is, in February, we had, as we mentioned, it was a slow startup. We had in Canada, warm weather where the ice didn't freeze as much and which delayed some of the programs. In Nevada, we had cold weather, which is still ongoing when you look, even look at what's going on in California with the snow they're having. That's impacting and we're seeing delays there. Then we had floods in Indonesia that affected a few of our programs up there. February was off to a slower start than we had last year. Starting in going into March, things are getting back on track and we're looking at March and April to be back to levels we had last year.
Looking forward, we feel really good about the outlook because really our base of revenue now is we've got the senior gold, and we mentioned that there's we're seeing an increase of activity there, and that's a solid base. We've got the copper and base metal that really need to do a lot, and that's another solid base. We're going into calendar 2023 with a very good base of revenue in place. The only group that Basically, where we're not sure where they're gonna be is the junior gold.
Even there's lots of talks, and my comment on PDAC, with optimism, we're having lots of talks about programs down the road or over the next, maybe going into the second half of this year. Things are looking very positive for calendar 2023 at this point.
Yeah, that's great color. When you look at the rig fleet for this year and, you know, you're obviously pretty much maxed out in some regions on the specialized side, are you anticipating adding significant CapEx for new specialized rig acquisitions or is the fleet relatively full today?
Basically, the ongoing rate of CapEx we have is enough to basically sustain the growth we wanna have. And to your point, there are regions where we're tapped out of specialized rigs, and we're adding rigs to those regions every quarter. Also we're modernizing our fleet at the same time and upgrading to more modern rod handling rigs, which is in high demand from customers and also part of our strategy. We're, so the CapEx rate, the run rate we have ongoing now should be sufficient to keep us going.
Okay, that's great. That's good color, and congrats on the good results. That's all for me. Thanks.
Thank you.
Good. Thank you.
The next question is from Gordon Lawson, from Paradigm Capital. Please go ahead.
Good morning, everyone. Thank you for taking my call. You mentioned lithium drilling in your commodity shift. Can you please elaborate on the growing interest from battery metals and which metals you see driving 2024 results?
Yeah. Well, I mean, the lithium, definitely we're seeing demand in regions like Argentina and Chile, some in the U.S. and in Canada. You have nickel as well, which as we've seen growth in our nickel activity. When we talk of, you know, people are focused on battery metals, but a battery itself can't run a car. It needs electricity, and that's where we're really bullish on this whole equation in terms of copper, and that you're gonna need a whole lot of copper to feed this whole industry. Copper, we're seeing a big uptick on the copper side as well. Those three together are gonna be probably the most active of in terms of activity.
There's other metals out there, although you look at prices, you look at the shortage, the amount that is needed doesn't necessarily warrant huge amount of exploration. There is an uptick, the three I mentioned, nickel, copper and lithium, are the ones that are really gonna be driving our industry going forward.
Okay, thank you for that. You mentioned taxes earlier, but your tax rate was higher than expected in the quarter. Could you provide some color on that and again, what we should be modeling for the next year or two?
Yeah, for sure. The main driver was that in some regions, we have losses that aren't recognized for tax purposes. Last year, those countries were more profitable than they were this year. There was a little more seasonal impact, those ones that had exposure to juniors. Going forward, we see that tax rate coming back. It's a lot of the seasonality in Q3 is tough to model because the numbers come down a lot. But in Q4, we would expect the tax rate to look what it was in Q1 and Q2.
Okay. Yeah, that makes sense. One more, if I may. With the strength of your balance sheet and the premium multiples on your share price, I doubt you'll be able to answer this, but, I mean, should we expect another major acquisition in the coming quarters, or is reinvestment in your current fleet more of a priority?
I mean, we're looking at both. I mean, on the M&A side, for us, we're always looking for companies that fit our model, that fits on either the specialized or a diversification strategy, whether it's geographic diversification or diversification, for example, the underground. We've put some efforts there to grow our business. We're always looking for M&A. We have discussions, basically ongoing all the time. We find that it's always a matter of timing. You end up getting a phone call, sometimes even out of the blue, from somebody that then are ready to sell.
Our approach has always been, you know, friendly M&As where that fits our strategy and we'll see how that plays out over the next year or two. We're also looking at organic growth and looking at opportunities, whether they're, again, geographic or just adding rigs in regions that are already busy. Plus, we do have regions that are coming off from low that are just starting to get going where we see growth coming from those areas as well.
Okay, that's very helpful. Thank you very much.
Thank you. Once again, please press star one on your device keypad if you have a question. We do have a question from James Vail, Arcadia Advisors. Please go ahead.
Good morning, guys.
Morning, James.
Denis, let me ask you a fundamental question. You mentioned your lithium business. You mentioned what I perceive to be mostly hard rock lithium. In the United States, I'm well aware there are several large operations taking place where it's brine related. Is that something you're looking at as an opportunity, or is it just so far out of your wheelhouse that it's a market you can't address?
No, I mean, we've done that in Argentina. We're always, it all depends on the program. That is part of the specialized service we bring to the table because there is different techniques for this. Our Argentinian team, for example, have been quite successful there. Yeah, no, we're, that's part of the equation.
No, that's good.
Definitely.
Okay, now, here's a tougher question for you. If I look at your gross cash, and I'll even take your net cash, the average cash position is about 10% of the market price. That looks like it's gonna continue to grow. Is there any chance that the board would consider a dividend?
At this point, as you know, it's not on the table. It's.
Yeah.
Those are ongoing discussions, and those are basically, those discussions, like I say, are always ongoing, and they're a factor of where we think we are in the market, what we think are coming up. Not closing the door on it, but, at this point, it's not on the table.
Okay. Thank you so much. All the best.
Thank you.
There are no further question with us at this time. I would now like to turn the meeting back over to you, Monsieur Larocque.
Thank you. Again, hope to see some of you at PDAC. We're gonna be around there. Don't hesitate to reach out, hope to see you next week. Thank you.
Thank you. The conference has now ended. Please disconnect your lines at this time. Thank you for your participation.