Major Drilling Announces Third Quarter Results

MONCTON, NB, March 4, 2013 /CNW/ - Major Drilling Group International Inc. (TSX: MDI) today reported results for its third quarter of fiscal year 2013, ended January 31, 2013.

Highlights

• Major Drilling posted quarterly revenue of $123.2 million, down 32% from the $182.2 million recorded for the same quarter last year.

• Gross margin percentage for the quarter was 23.8%, compared to 25.9% for the corresponding period last year.

• Net loss was $4.3 million or $0.05 per share for the quarter, compared to net earnings of $9.6 million or $0.12 per share for the prior year quarter.

• The Company is still in an excellent financial position with a total net cash position (net of debt) of $30 million.

• Given the Company's ability to generate healthy cash flows, it has declared a semi-annual dividend of $0.10 per share to be paid on May 2, 2013.
  
  
  

"As stated in our press release dated January 23, 2013, subsequent to the holiday season, there have been increased delays in the decision making process on the part of many of the Company's senior customers in regards to their 2013 exploration drilling programs.  Also, November did not have the benefit of the program extensions we had last year.  This has led to reduced activity levels as compared to Q3 last year, and produced a seasonal loss as anticipated," said Francis McGuire, President and CEO of Major Drilling Group International Inc. "Quarter results were also impacted by $0.9 million of severance costs as the Company reduced costs in certain regions and a $1.0 million withholding tax charge on an inter-company dividend paid from Mongolia in contemplation of possible changes to the tax treaty between Canada and Mongolia."

"As we started our fourth quarter, there continued to be a number of projects for which decisions had not yet been made regarding start dates and exact drilling meterage.  This has resulted in reduced activity in February as compared to our previous expectations and will continue to result in reduced activity for the balance of the fourth quarter.  In a number of jurisdictions, uncertainty as to the policies of host governments or issues of land tenure are adding to the uncertainties.  These factors, combined with the fact that sources of funding for junior mining companies remain limited, has led to pricing pressures in certain regions.  As a result, fourth quarter revenue is expected to be significantly impacted as compared to the record revenue that the Company realized in the same period last year.  Due to the ongoing volatility in the sector, it is too early to make an assessment beyond the fourth quarter."

"The Company continues to have a variable cost structure whereby most of its direct costs, including field staff, go up or down with contract revenue.  In addition, a large part of the other expenses relate to variable incentive compensation based on the Company's profitability," said Mr. McGuire.  "The Company continues to consider potential cost saving measures on a branch by branch basis as local market conditions require."

"Capital expenditures for the quarter were $20.0 million as we purchased 28 rigs, while retiring 15 rigs through our modernization program.  Included in this, we purchased the Canadian and Mongolian assets of Landdrill International Limited. Through this, we acquired 15 compatible rigs that are less than three years old, as well as ancillary equipment and inventory for a total purchase price of approximately $4.0 million.  This will help reduce our capital expenditures for fiscal 2014 by some $10 million.  While capital expenditures are expected to decline going forward, we still have 11 rigs on order, seven of which are dedicated to the underground, a sector of the market where we are seeing opportunities."

"In terms of our financial position, we continue to have one of the most solid balance sheets in our industry and are now debt free net of cash.  Our total net cash position, net of debt, was at $30 million at the end of the quarter.  Going forward, despite a more challenging environment, we expect operations to continue to produce healthy cash flows by generating cash from operations, reducing capital expenditures, and closely monitoring and reducing costs as appropriate."

"Given the Company's ability to generate healthy cash flows, the Company is pleased to announce that its Board of Directors has declared a cash dividend of $0.10 per common share payable on May 2, 2013 to shareholders of record as of April 5, 2013. This dividend is designated as an "eligible dividend" for Canadian tax purposes," said Mr. McGuire.

Third quarter ended January 31, 2013

Total revenue for the quarter was $123.2 million, down 32% from the $182.2 million recorded in the same quarter last year. The Company experienced earlier shutdowns in most regions at the beginning of the quarter combined with delays in startups of several projects in January.  Also, many junior customers have scaled back or suspended drilling activities as compared to last year.

Revenue for the quarter from Canada-U.S. drilling operations decreased by 31% to $48.4 million compared to the same period last year.  Both countries were affected by delays and the cancelation of projects.

South and Central American revenue was down 33% to $39.4 million for the quarter, compared to the prior year quarter. All of the countries in this region, particularly Mexico, were affected by a reduction in work by juniors.

Australian, Asian and African operations reported revenue of $35.3 million, down 34% from the same period last year.  The decrease came mainly from Australia where projects have been canceled due to high costs being incurred by mining companies and new mining taxes, and from Mongolia, which is affected by political uncertainty.  These decreases were offset somewhat by increased operations in Burkina Faso and Mozambique.

The overall gross margin percentage for the quarter was 23.8% compared to 25.9% for the same period last year.  Third quarter margins are typically impacted by a slowdown during the holiday season combined with higher than usual mobilizations, demobilizations and increased repairs during this period. The decrease in margins compared to last year is in part due to carrying extra costs as mobilizations to certain projects were delayed, combined with some pricing pressure in certain regions.

General and administrative costs were $15.4 million for the quarter compared to $16.5 million in the same period last year.  With the decrease in activity, the Company has reduced its general and administrative costs, in part related to the integration of the Bradley operations.

Other expenses for the quarter were $1.6 million, down $1.8 million from the $3.4 million reported in the prior year quarter.  More than half of this year's amount consists of retrenchment costs following staff reduction initiatives implemented during the quarter in certain regions, whereas last year's other expenses were mainly composed of incentive compensation expenses given the Company's profitability in that quarter.

Loss on disposal of fixed assets increased to $1.4 million this quarter as the Company retired 15 inefficient and more costly rigs.

The provision for income tax expense for the quarter was $1.9 million compared to $4.5 million for the prior year period. This quarter's tax expense was impacted by: 1) a $1.0 million withholding tax on an inter-company dividend from Mongolia in contemplation of possible changes to the tax treaty between Canada and Mongolia; and 2) differences in tax rates between regions.

Non-GAAP Financial Measures

In this news release, the Company uses the following non-GAAP financial measures: EBITDA and EBITDA as a percentage of revenue. The Company believes these non-GAAP financial measures provide useful information to both management and investors in measuring the financial performance of the Company. These measures do not have a standardized meaning prescribed by GAAP and therefore they may not be comparable to similarly titled measures presented by other publicly traded companies, and should not be construed as an alternative to other financial measures determined in accordance with GAAP.

Forward-Looking Statements

Some of the statements contained in this press release may be forward-looking statements, such as, but not limited to, those relating to worldwide demand for gold and base metals and overall commodity prices, the level of activity in the minerals and metals industry and the demand for the Company's services, the Canadian and international economic environments, the Company's ability to attract and retain customers and to manage its assets and operating costs, sources of funding for its clients, particularly for junior mining companies, competitive pressures, currency movements, which can affect the Company's revenue in Canadian dollars, the geographic distribution of the Company's operations, the impact of operational changes, changes in jurisdictions in which the Company operates (including changes in regulation), failure by counterparties to fulfill contractual obligations, and other factors as may be set forth, as well as objectives or goals, and including words to the effect that the Company or management expects a stated condition to exist or occur. Since forward-looking statements address future events and conditions, by their very nature, they involve inherent risks and uncertainties. Actual results in each case could differ materially from those currently anticipated in such statements by reason of factors such as, but not limited to, the factors set out in the discussion on pages 16 to 18 of the 2012 Annual Report entitled "General Risks and Uncertainties", and such other documents as available on SEDAR at www.sedar.com. All such factors should be considered carefully when making decisions with respect to the Company. The Company does not undertake to update any forward-looking statements, including those statements that are incorporated by reference herein, whether written or oral, that may be made from time to time by or on its behalf, except in accordance with applicable securities laws.

Based in Moncton, New Brunswick, Major Drilling Group International Inc. is one of the world's largest metals and minerals contract drilling service companies. To support its customers' mining operations, mineral exploration and environmental activities, Major Drilling maintains operations on every continent.

Financial statements are attached.

Major Drilling will provide a simultaneous webcast of its quarterly conference call on Monday, March 4, 2013 at 9:00 AM (EST).  To access the webcast please go to the investors/webcast section of Major Drilling's website at www.majordrilling.com and click the attached link, or go directly to the CNW Group website at www.newswire.ca  for directions.  Participants will require Windows MediaPlayer, which can be downloaded prior to accessing the call.  Please note that this is listen only mode.

MAJOR DRILLING GROUP INTERNATIONAL INC.
Notes to INTERIM CONDENSED Consolidated Financial Statements
FOR THE NINE MONTHS ended JANUARY 31, 2013 and 2012 (UNAUDITED)
(in thousands of Canadian dollars, except per share information)

1. NATURE OF ACTIVITIES

Major Drilling Group International Inc. ("the Company") is incorporated under the Canada Business Corporations Act and has its head office at 111 St. George Street, Suite 100, Moncton, NB, Canada. The Company's common shares are listed on the Toronto Stock Exchange ("TSX").  The principal source of revenue consists of contract drilling for companies primarily involved in mining and mineral exploration. The Company has operations in Canada, the United States, South and Central America, Australia, Asia and Africa.

2. BASIS OF PRESENTATION

Statement of compliance
These interim condensed consolidated financial statements have been prepared in accordance with IAS 34 Interim Financial Reporting ("IAS 34") as issued by the International Accounting Standards Board ("IASB") and using the accounting policies as outlined in the annual notes to consolidated financial statements for the year ended April 30, 2012.

Basis of consolidation
These interim condensed consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company. Control is achieved where the Company has the power to govern the financial and operating policies of an investee entity so as to obtain benefits from its activities.

The results of subsidiaries acquired or disposed of during the period are included in the consolidated statement of operations from the effective date of acquisition or up to the effective date of disposal, as appropriate.

Intra-group transactions, balances, income and expenses are eliminated on consolidation, where appropriate.

Basis of preparation
These interim condensed consolidated financial statements have been prepared based on the historical cost basis except for certain financial instruments that are measured at fair value, using the same accounting policies and methods of computation as presented in the annual consolidated financial statements for the year ended April 30, 2012.


3. FUTURE ACCOUNTING CHANGES

The Company has not applied the following new and revised IFRSs that have been issued but are not yet effective:

The Company is currently evaluating the impact of applying these standards to its consolidated financial statements.


4. KEY SOURCES OF ESTIMATION UNCERTAINTY AND CRITICAL ACCOUNTING JUDGMENTS

The preparation of financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods. Significant areas requiring the use of management estimates relate to the useful lives of property, plant and equipment for depreciation purposes, the useful lives of intangible assets for amortization purposes, valuation of property plant and equipment and inventory, determination of income and other taxes, assumptions used in compilation of share-based payments, fair value of assets acquired and liabilities assumed in business acquisitions, certain amounts recorded as accrued liabilities, and impairment testing of goodwill and intangible assets. 

The Company applies judgment in determining the functional currency of the Company and its subsidiaries, the determination of cash generating units ("CGUs"), the degree of componentization of property, plant and equipment, and the recognition of provisions and certain accrued liabilities.

5. SEASONALITY OF OPERATIONS

With the exception of the third quarter, the Company exhibits comparatively less seasonality in quarterly revenue than in the past. The third quarter (November to January) is normally the Company's weakest quarter due to the shutdown of mining and exploration activities, often for extended periods over the holiday season, particularly in South and Central America.


6. PROPERTY PLANT & EQUIPMENT

Capital expenditures for the three months ended January 31, 2013 were $20,126 (2012 - $22,833) and for the nine months ended January 31, 2013 were $61,342 (2012 - $60,473). The Company obtained direct financing of $120 for the three months ended January 31, 2013 (2012 - $294) and of $1,824 for the nine months ended January 31, 2013 (2012 - $441).


7. INCOME TAXES

The income tax expense for the period can be reconciled to accounting profit as follows:

7. INCOME TAXES (Continued)

The Company periodically assesses its liabilities and contingencies for all tax years open to audit based upon the latest information available. For those matters where it is probable that an adjustment will be made, the Company recorded its best estimate of these tax liabilities, including related interest charges. Inherent uncertainties exist in estimates of tax contingencies due to changes in tax laws. While management believes they have adequately provided for the probable outcome of these matters, future results may include favorable or unfavorable adjustments to these estimated tax liabilities in the period the assessments are made, or resolved, or when the statute of limitation lapses.


8. EARNINGS PER SHARE

All of the Company's earnings are attributable to common shares therefore net earnings are used in determining earnings per share.

There were no anti-dilutive options for the three months ended January 31, 2013 or 2012. The nine months ended January 31, 2013 exclude the effect of 214,677 options (2012 - nil) as they are anti-dilutive.

The total number of shares outstanding on January 31, 2013 was 79,147,378 (2012 - 79,086,376).

9. SEGMENTED INFORMATION

The Company's operations are divided into three geographic segments corresponding to its management structure, Canada - U.S., South and Central America, and Australia, Asia and Africa. The services provided in each of the reportable drilling segments are similar. The accounting policies of the segments are the same as those described in the annual consolidated financial statements for the year ended April 30, 2012. Management evaluates performance based on earnings from operations in these three geographic segments before finance costs and income taxes.  Data relating to each of the Company's reportable segments is presented as follows:

9. SEGMENTED INFORMATION (Continued)

Canada - U.S. includes revenue of $27,959 and $43,111 for Canadian operations for the three months ended January 31, 2013 and 2012 respectively, and $150,566 and $121,742 for the nine months ended January 31, 2013 and 2012 respectively.

Canada - U.S. includes property, plant and equipment for Canadian operations at January 31, 2013 of $99,224 (April 30, 2012 - $87,629).

10. DIVIDENDS

The Company declared two dividends during the year, $0.10 per common share paid on November 1, 2012 to shareholders of record as of October 10, 2012, and $0.10 per common share to be paid on May 2, 2013 to shareholders of record as of April 5, 2013.

The Company declared two dividends during the previous year, $0.08 per common share paid on November 1, 2011 to shareholders of record as of October 10, 2011, and $0.09 per common share paid on May 2, 2012 to shareholders of record as of April 6, 2012.

11. FINANCIAL INSTRUMENTS

There are no significant changes to financial instruments compared to the Company's annual consolidated financial statements for the year ended April 30, 2012 except for the following:

Fair value
The carrying values of cash, trade and other receivables, demand credit facility and trade and other payables approximate their fair value due to the relatively short period to maturity of the instruments.  The following table shows carrying values of long-term debt and contingent consideration, which approximates their fair values, as most debts carry variable interest rates and the remaining fixed rate debts have been incurred recently and their carrying value continues to reflect fair value.  The fair value of the interest rate swap included in long-term debt is measured using quoted interest rates.

Credit risk
As at January 31, 2013, 70.7% of the Company's trade receivables were aged as current and 3.2% of the trade receivables were impaired.

The movement in the allowance for impairment of trade receivables during the period was as follows:

11. FINANCIAL INSTRUMENTS (Continued)

Foreign currency risk
The most significant carrying amounts of net monetary assets that: (1) are denominated in currencies other than the functional currency of the respective Company subsidiary; (2) cause foreign exchange rate exposure; and (3) may include intercompany balances with other subsidiaries, at the reporting dates are as follows:

If the Canadian dollar moved by plus or minus 10% at January 31, 2013, the unrealized foreign exchange gain or loss would move by approximately $1,182 (April 30, 2012 - $4,556).

Liquidity risk
The following table details the Company's contractual maturities for its financial liabilities.

Non-derivative financial liabilities:

Derivative financial liabilities:

SOURCE MAJOR DRILLING GROUP INTERNATIONAL INC.