Our opinion on the current state of MASTDRILL(MDI)Master Drilling (MDI) is a South African company specializing in drilling exploration and other services for the mining industry, with a diversified portfolio that now includes drilling for hydro-electric projects and construction. The company has strategically shifted its focus away from the South African mining sector, extending its services to North and South America, Europe, and other regions globally.
A key innovation from Master Drilling is its development of new horizontal drilling technology, or tunnel boring machines, which could potentially revolutionize the mining industry worldwide. This technology facilitates the drilling of horizontal tunnels or tunnels inclined at up to 12 degrees, offering a faster and more cost-effective alternative to traditional blast-and-clear methods. Currently, this technology requires three operators, but the company is actively working towards a fully automated, remote-controlled version.
In its results for the six months ending 30th June 2024, Master Drilling reported a 17.3% increase in revenue but a 3.2% decline in headline earnings per share (HEPS) in US dollars. The company's net asset value (NAV) increased by 8% to 135c per share. However, operating profit decreased significantly by 67.6% to USD 6.9 million, primarily due to impairment losses on reverse circulation and mobile tunnel-boring equipment. Despite this, the company is currently trading at about 52% of its NAV and has a price-to-earnings (P:E) ratio of 4.39, suggesting it may be undervalued.
The company's horizontal drilling technology holds promise as a disruptive force in the mining industry, with the potential to extend the life of some mines and make others viable again. While the share carries risk, particularly due to its links to the commodities markets, the potential for strong growth is evident as the new technologies gain traction.
In our view, Master Drilling is an intriguing company with significant growth potential, particularly as its horizontal boring machine continues to prove its value in the industry. This could make it a worthwhile consideration for investors looking for exposure to innovative mining technologies.
