The Company Management/Board
The company was founded by CEO Dave Harper in 1998, who has 41% ownership of the company (total insider ownership sits at 44%). At the time, West Africa was where companies would send tired and old drills that were near the end of life. Mr. Harper wanted to exploit this lack of investment by investing in both better equipment and customer service. Now 63 years of age, Mr. Harper has spent a quarter of a century living in the area and raising a family there. Mr. Harper is well versed with the African continent as are much of the management team. COO Terry Burling has been with the company for 28 years in various roles, while the executive GM has 25 years of experience in West Africa as well. The Board, excluding the CEO, is largely populated with members with financial experience, including one with substantial exposure to the mining industry. This complements the management team quite well, who are more versed with the operations of a drilling company rather than the capital market component. Mr. Harper has been through three different booms and busts in mining over this time so has plenty of experience navigating the cyclicality.
As note earlier, the company tries to avoid debt as it can be a detriment in cyclical industries; Geodrill only raised significant capital when it was looking to grow with its public offering in 2010. All Geodrill’s growth has come through organic investment to grow its drill fleet, which has been the main use of the company’s cash generation. Geodrill has begun some shareholder initiatives utilizing a NCIB share buyback at times as well as instituting a semi-annual dividend. The company chose to introduce a small dividend that was well covered so it wouldn’t have to cut it in bad times; the dividend is well covered by cash flows, and it is not hard to see that it could be enhanced in the future.
The Next Steps
Management has been consistent with its plans going forward: grow organically and concentrate on keeping its customers happy. The company started in West Africa due to the lack of good equipment and service at the time. The region grew as Geodrill did, evolving from just explorers to developers to senior miners as well. If combined, Africa would be the 2nd largest gold producer in the world, making it a solid base for the company to base its business on.
Management has indicated its growth path remains through organic growth. The company has recently expanded into Egypt with a new client expecting to start operations in Q3. Geodrill has also put its first rigs into South America, Peru specifically, at the request of an existing client, though Brazil has a large mining industry as well. As a rule of thumb, Geodrill looks to expand its rig count once it reaches 70% utilization which the company is right up against, excluding backlogged jobs. Management has indicated it can see itself reaching 100 rigs within two to three years. This steady growth has allowed It to build long-term relationships with both clients and vendors alike; the recent COVID issues show cased how important it is for supply chains. Similarly, management pays leading levels of compensation with continuous training for its employees which has helped Geodrill avoid excessive turnover.
We believe Geodrill will continue to grow organically. Management has noted they have looked at M&A in the past. However, they noted that any M&A needs to fit with the standardization and compatibility of GeoDrill’s existing equipment even with 8 types of drills. Management is already looking at new markets in Egypt & South America so this seems a clear pathway for its growth in the near to medium term.
In giving a sense for Geodrill’s valuation, we can look at the leaders in the industry as comparatives, which we do below: