Geodrill Ltd

TSX:GEO

Earnings Call Transcript 2020-Q2

[Operator]

Good morning, ladies and gentlemen. Thank you for standing by. [Operator Instructions] I would like to remind everyone that this conference call is being recorded on Wednesday, August 12 at 10:00 a.m. Eastern Daylight Time and is being broadcast live via the Internet.During today's call, management will make statements regarding management's expectations for the company's future financial and operational performance. These statements are considered forward-looking statements. Each forward-looking statement speaks only as of the date of this call, and actual results may differ materially from management expectations for a variety of reasons, including market and general economic conditions and the risks and uncertainties detailed from time to time in the company's SEDAR filings.I will now turn the call over to President and CEO of Geodrill Limited, Mr. Dave Harper.

[David Michael Harper, President, CEO & Director]

Thank you, operator. Good morning, and welcome to Geodrill's Q2 2020 Financial Results Conference Call. I will begin with an overview of our operations and performance for the quarter. Our CFO, Greg Borsk, will then give some more detailed review of our second quarter financial results. And after that, I will discuss our outlook for the remainder of Q3 and beyond.During the second quarter, we remained committed to our strategy of high performance, high value to deliver solid growth returns to our investors. We generated strong cash, maintained a robust balance sheet, took steps to reduce costs and improved our effective tax rate, demonstrating the success of our operating platform and commitment to capital discipline. This resulted in improved EBITDA margin, 31%; increased net income of USD 0.07 per share -- per ordinary share; and increased cash in the quarter by USD 2.5 million to end the quarter with cash of USD 7.3 million.We also focused the first half of the year on broadening our opportunities for growth. We believe there are several catalysts that form key parts of the transformational year for Geodrill. These include improving gold markets; expansion into new geographical location; and entering a new drilling vertical. Gold continues to rally strongly in the first half of the year, providing a positive impact on operating margins to gold producers and exploration budgets for juniors. This has been beneficial for Geodrill, with the majority of our customers being gold producers, 90% of our revenue is derived from drilling gold-based assets. This is providing a highly positive drop -- backdrop for demand over the year ahead.Geodrill anticipated this increased activity. Henceforth, we grew our rig fleet over the past 5 years to position the business for the upturn in the market and increased market share in West Africa. Our rig fleet in West Africa has more than tripled since we went public in 2010, growing from 18 rigs to 67 rigs, firmly establishing our presence in Ghana, Mali, Cote d’Ivoire and Burkina Faso. Since our inception, our geographical focus has been in West Africa, where we continue to secure new contracts and extend others to drive a steady revenue. Significantly now, though, we are deploying rigs into another large growth market, Latin America.Latin America is a highly attractive and growing global market with the fifth largest exploration budgets worldwide. We anticipate having 9 rigs in operation by next year to establish our foray into the Latin American market. Locally, we have also continued to grow our exploration drilling services offering to include Grade Control drilling and Underground drilling. And now significantly Geodrill is adding blast hole drilling services, which enables Geodrill to offer clients a more comprehensive suite of mining services and provide the ability to pursue growth opportunities across the broader base of clients. Additionally, it offers larger, more scalable revenue and earnings opportunities with more stable production-based activities.I'll now turn the call over to Greg Borsk to discuss our Q2 2020 financial performance in detail. Thank you, Greg.

[Gregory Borsk, Chief Financial Officer]

Thank you, Dave. The company recorded revenue of $20.9 million for Q2 2020 compared to revenue of $27.8 million for Q2 2019, representing a decrease of 25%. The decrease in revenue was due to a change in the mix of meters drilled and in addition, certain jobs and rigs paused as a result of the global COVID-19 pandemic. The company's revenue decreased despite the company drilling more meters. Total meters drilled increased; however, revenue decreased as a result of the mix of meters drilled. The company's revenue of $20.9 million represents an increase on a quarter-over-quarter basis by $2.8 million or 16% for Q2 2020 compared to Q1 2020 as a result of more meters being drilled in Q2 2020 versus Q1 2020.The gross profit for Q2 2020 was $6.6 million compared to a gross profit of $8.9 million for Q2 2019, being a decrease of $2.3 million. We maintained our gross profit percentage. Gross profit margin for Q2 2020 was 32%, consistent with a 32% gross margin for Q2 2019.The net income for Q2 2020 increased to $3.3 million or $0.07 per share compared to $2.5 million or $0.06 per share for Q2 2019. It is very important to highlight that despite the decrease in revenue, we were able to manage other costs such that we increased net income on a quarter-to-quarter basis.We ended the quarter with $7.3 million of cash and decreased debt to $2.2 million, resulting in net cash of $5.1 million. We strengthened our balance sheet and ended the quarter with shareholders' equity of $69.3 million, resulting in an industry-leading debt-to-equity ratio of only 3%. We have built a strong balance sheet to fund future growth.At this point, I will turn the call back to Dave.

[David Michael Harper, President, CEO & Director]

Thank you, Greg. Before we move to the Q&A portion of the call, I'd like to provide a brief outlook for the remainder of Q3 and the remainder of 2020 and beyond.Despite the obvious challenges the first half of 2020 presented, the remainder of 2020 is shaping up to be a transformative year for Geodrill in terms of activity levels, strategic direction and positioning the company for future growth. We remain highly encouraged by the continued strength of the gold price, with prices at all-time highs. This is driving higher margins for semi-miners, which typically drive increased levels of drilling. Typically, Q3 is Geodrill's weakest quarter due to wet season. However, encouraging signs of a busy quarter includes increased drilling activity, new and extended drilling contracts for the quarter. As a result, the company is mobilized -- is currently mobilizing rigs back from Zambia to capture the strong momentum in the West African market.For the remainder of 2020, we will continue to focus on our core market, West Africa, including increasing our suite of services, our drilling services. As mentioned, this enables Geodrill to offer clients integrated mining services while providing the company with new earnings opportunities. Consistent with our platform to promote growth, we will establish a footprint in Latin America to become an intercontinental drilling business and further explore significant opportunities for growth.Our value proposition for investors has never been stronger. Geodrill has demonstrated that we are a high performance, high value drilling company. Geodrill is expanding to provide a comprehensive suite of drilling services across the cycle. Geodrill is focused on high-growth regions, being West Africa and Latin America. And Geodrill has a robust balance sheet to fund our growth initiatives.So this concludes our prepared remarks today. Thank you for participating in today's call. I believe we're now going to hand the call back to the operator for a Q&A session, and shall hand over. Thank you very much.

[Operator]

[Operator Instructions] Your first question comes from the line of Gordon Lawson from Paradigm Capital.

[Gordon Lawson, Senior Research Associate]

Could you provide some insight as to how much revenue you expect from Latin America going forward?

[David Michael Harper, President, CEO & Director]

Greg, do you want to walk through the revenues on that front?

[Gregory Borsk, Chief Financial Officer]

Yes. I think it's pretty early stage, Gordon, on Latin America. We're just in the process of -- we've set up the pipeline in the companies to get started. And so far, we only have 3 rigs on the continent. So -- and then with the COVID-19, so we -- at the start of the year, we had in place to be operational Q3, Q4. But I think just with the pandemic and kind of the challenges, it looks like we have 3 rigs in Peru currently, and the plan is to just get those started, hopefully, in Q4. So it's not going to be significant this year. But I think the key here is to understand that there is a large demand for Geodrill services in Latin America. And we -- with some of our existing clients and some new clients, we've actually made the decision that we're going to expand to Latin America. And it was -- timing is not perfect, but at least we do have 3 rigs, and the plan is to send another 5 in Q2. So by the end of the year, we'll have 8 rigs in Latin America.

[Gordon Lawson, Senior Research Associate]

Does that include any acquisition of rigs or are these already with in-house?

[Gregory Borsk, Chief Financial Officer]

No, these are existing rigs. So these are -- we're moving rig -- we always move rigs around in West Africa and between Zambia depending on demand and need. So the rigs -- I don't want to say too much about the type of rigs, but the rigs that we move to Peru are specific for the drilling request that we have there. And then the rigs that we'll move to the other country, again, those are specific rigs. So it's strategic, but they are out of our existing 67 rig fleet. And then the plan is in 2021 and 2022, as we continue to grow and expand in Latin America, would be to use the cash flow that we generate over there and continue to build on the 8 rigs that we will have there by the end of this year.

[Gordon Lawson, Senior Research Associate]

Well, on the rig type, revenue per meter has been declining. Can you talk about how we should model that going forward?

[Gregory Borsk, Chief Financial Officer]

I think, well, when you look at that, the -- I think the key, though, revenue per meter declines, but that's just what we try to highlight in the MD&A. That's just the mix in meters, okay? It depends on what type of meter we're drilling. But the key -- and this is what we emphasize, the key is we need to maintain our gross margin and you've seen that. Gross margin was 32% and 32%. So when revenue per rig -- sorry, revenue per meter decreases, the key is, does the cost of sales per meter also decrease proportionately. And that's what you've seen. So the different meters are more profitable, et cetera. But you need a mix of the different meters, and that's just the industry. Some clients want to drill core diamonds, some want to do RC. We're seeing a lot more grade control. But I think the key and the takeaway here, the positive is that even though revenue per meter has decreased, the cost per meter has also decreased proportionately.

[David Michael Harper, President, CEO & Director]

If I can just jump in there for a second, just to -- maybe just to elaborate a little bit on -- from an esoteric point of view, I think the thing you need to remember is that Geodrill provides the full suite of services. We're completely ambivalent when it comes to what we drill. The phone rings, the e-mail comes in, the customer says, "Can you?", we say, "Yes, we can." So customer wants Deep Directional drilling or a customer wants Air-Core drilling or they want environmental drilling or Grade Control drilling, underground drilling. In 95% of the cases when the phone rings and the inquiry comes in, the answer is yes, we can. There's very few things we cannot do. And this is what differentiates us. And I think -- to an extent, I think not to sound overpromotional, but I think it's actually the X factor that we bring to the table. The value proposition is that our rigs are highly utilized, more so than any of our competitors. And that is because there is no one size fits all with drilling. And therefore, there is no one size fits all drill rig and there's no one size fits all drill service. So the answer is too and as we have been building a very iron out the cycles, if you like, at various stages of the cycle, Air-Core drilling can be busier than Grade Control drilling or Deep Directional drilling. As I say, our focus is really not to try and second-guess what the customer wants, but only to say, "Yes, we can, when we can."Now it does from time-to-time come up and it's a bit, I guess, on the prima facie you look and you say, all right. So in this quarter, which is a great example, I think, of drilling more meters for less revenue and making more money, I think first thing we need to do is debunk the myth that more expensive meters drilled produce better margins. There are so many nuances that come into play. It's actually -- in 90% of cases, it's actually quite the opposite. But a good year-over-year comparison is the one that we've just come through, okay? So -- and the reasons for that without getting dragging into -- going into the esoteric side, the average production rates for Air-Core drilling, which is fast and furious is like 30 meters an hour versus RC drilling, which is 10 to 12 meters an hour, diamond drilling and stream meters now whereas Deep Directional drilling is like 2 meters an hour. But each and every one of these services that we provide, there's a different cost base, and there's a different price that we tender.So case in point, Q2 2020 versus Q2 2019, okay? Although the revenue per meter received in Q2 2020 was substantially lower than a year ago and the numbers were $56.7 per meter versus $80 a meter, so 30% lower. The company managed to cut its costs even more, resulting in direct costs of $38 a meter versus $57, so 34% lower. So as a result, 1 meter of drilling in this current quarter generated $18.20 in, let's call it, operating cash flow versus a year ago $22.80 in operating cash flow, so a 28% difference. Does that -- I'm very happy to -- I'm not sure how long you want to spend on this, but I'm very, very happy to have the call. After the call, perhaps we can send you some more data on that. I just have to share it around it. If I send it to yourself, I got to send it to other analysts, and I'm happy to do that, too.

[Gordon Lawson, Senior Research Associate]

Okay. Well, that's an excellent answer.

[David Michael Harper, President, CEO & Director]

Okay. Oh, sorry, sorry, and if I can just come back to one very, very high level on the Latin American thing, here's the thing. Ask me what my revenue is going to be this year in Latin America, I cannot, honestly, tell you because, honestly, what we're looking at the moment is something that we -- none of us really know the answer where we're going with this COVID thing, when we will see the other side of it and when things will normalize. The intention was that we should have had rigs up and running there actually by now. That was actually the big announcement that we were actually intending to make this quarter. And it hasn't happened because everything is basically closed for business. But here's the thing, rigs are on the ground, boots are on the ground and we are tendering. We are aggressively tendering jobs with the intention of putting those rigs to work, which will then give us the encouragement to take this to the next level. And the intention, as I say, is to have a minimum of 9 rigs operating in Latin America by next year. Now at what point in time they will arrive and what they -- and what the end of the year run-rate will be? I cannot, honestly, say because we don't -- the whole unknown here is in the big black swan, which really is the COVID situation. But once we get past that, there's certainly an appetite for our services, I can tell you that.And what encouraged us to look at South America was the fact that most of our customers here in West Africa geologists are basically like apples in a bucket of water. They sort of disappear and they work here for a while and then they pop up somewhere else. And a lot of them popping in South America lately which peaked my interest, my attention. And so as I was invited to go and have a look [indiscernible] and people are basically saying 22 years ago when I started Geodrill, the opportunities were abound. And I believe that the opportunities are abound for us in Latin America, very much high level what we're looking at is if we were to have 9 rigs. And I can annualize 12 months of 9 rigs, I would say that, that's probably going to add about $20 million to our revenue. And then I think you can look at similar, like even more aggressive, area to come from South America: one, because the appetite is there; and two, we haven't got debt. We're actually cash.If you look at the history of Geodrill, we started with 1 rig and 1 contract in 1998 and we grew -- we spent the first couple of years paying down debt. So we're really 2 or 3 years before we actually started to produce money to putting the rigs' money back into growth because we were busy paying down debt. We don't have the debt. We are actually aiming to become the only drilling company in the world without debt. And currently, we are on schedule to do that in April next year, which will be a hell of a milestone and it will enable us to -- we could -- a number of things that we could do once we get that debt out of the way, the opportunities, mining dollars. The obvious thing to do is buy the stock back, pay dividends or invest in growth. In other words, the dividends are attractive, but not at the expense of growth. And so at the moment, focus is all about growth. And I believe that if you look at what we've done -- what we've accomplished here in establishing Geodrill 100% organically in 22 years, if you take away that debt, then, I believe, what we could be looking at in 5 years' time from now is a 100% organic growth story and that's the attraction. Sorry for the long-winded answer.

[Gregory Borsk, Chief Financial Officer]

And let me just add on that, Gordon. Yes, Gordon. So you can see, Dave, we do have -- it's a term debt, it's very small. It's down to $2.2 million, and [ we pay that ] every quarter. But we have net cash. You can see, we ended the quarter with $7.3 million in cash and debt of $2.2 million. So we have net cash of $5.1 million. And we're continuing to build that net cash. And during the pandemic, I think we're the only company that quite a few of them actually after [Audio Gap] increased their credit line. Geodrill, we're actually continuing to pay down our debt. Not only are we paying down our debt, we're also increasing our cash so that at the end of each quarter, our net cash is actually increasing. So very, very strong balance sheet that will help us as things get busier in Q3, Q4 and into 2021.

[Operator]

Your next question comes from the line of John Sartz from Viking Capital.

[John Sartz;Viking Capital;Analyst]

I actually wanted to know about -- if you can give me what your operating rate was in the second quarter? And also how it's going so far in Q3? And I guess, because of seasonality, if you can compare the operating rate -- how busy you are in Q3 compared to a year ago?

[David Michael Harper, President, CEO & Director]

So on the -- on the -- great, John, on the -- I was actually just giving a very long-winded explanation of our -- the cost of generating a meter of drilling for Q2, and I gave a direct comparison. So let's not talk about free cash flow. Let's talk about operating cash flows as a benchmark. If we look at what it cost us to produce a meter of drilling in Q2, it was $56.70. But if you look at what it cost us a year ago, it was $80.70. But it's completely -- it's so nuanced between a mix of drilling and so on and so forth, but it just gets a little hard to sort of -- I'm not sure if I understand your question, though, John. What was the -- what was actually...

[John Sartz;Viking Capital;Analyst]

Your operating rate -- the number of drills -- the number of active drills as opposed to number of total drills.

[David Michael Harper, President, CEO & Director]

Oh, I'm so sorry, I'm so sorry. I'm so sorry. My apologies. Utilization rate, utilization rate was more or less 50% for the quarter.

[John Sartz;Viking Capital;Analyst]

Okay. And what about Q3?

[David Michael Harper, President, CEO & Director]

So in other words, we worked half -- half of the fleet was -- half of the rigs we could have been working were basically working. And that was -- I mean, we're obviously in a COVID-affected quarter. I think the results speak for themself considering all of the challenges that the quarter threw at us. But in terms of where we were a year ago, well, I can tell you what we were targeting had we not had this out of the sort of left field kind of event, more like 70%. So I mean, I'm looking at these numbers and saying, what a great quarter, imagining how it would have been in the absence of -- had we not had the COVID.

[John Sartz;Viking Capital;Analyst]

Okay. And what about the service current quarter?

[David Michael Harper, President, CEO & Director]

Current quarter is actually a wet season. So we're actually slightly below, but it's single digits below where we were in quarter 2.

[John Sartz;Viking Capital;Analyst]

And what about compared to last year?

[David Michael Harper, President, CEO & Director]

It's fairly similar to last year, actually. I think where we're going to end up year-over-year is a pretty flat result, but what I'm seeing is improved margins. So I'm expecting that we'll have -- I'm expecting -- Greg will speak more to this than I. But what I'm seeing on my radar at this point in time is flat revenue, stronger margin.

[Gregory Borsk, Chief Financial Officer]

John, if you see the Q3 last year, Q3 is always a wet season. It's our slower quarter. It's where we take advantage and bring the rigs back in and do work and make sure they're ready for Q4 and then the first half of 2021. So it's a slower quarter. Last year, I think we were about 20.3%. I think that the thing -- the key on last year Q4 was slow on us, and it was actually slower than Q3. I think it was about $17.5 million. So we -- Geodrill, we have not really seen the benefit of this high gold price. We've drilled through Q1 and Q2. You've seen those results this morning. Q3 is our wet season. So as Dave said, kind of tracking to what we were last year. But where we're expecting to see -- get really busy in that what this gold price and the inquiries is Q4 and into 2021. And that will be a -- like I said, last year, the Q4 was only $17 million. So you'll see we're tracking a lot higher in that right now.

[John Sartz;Viking Capital;Analyst]

Okay. Sorry. And just 1 final question, if I may. It's the terrorism activity in the Burkina Faso and to what extent there is it's -- there's still violence going on there?

[David Michael Harper, President, CEO & Director]

We've had nothing that has affected our operation that has been terrorism related this year.Greg mentioned that we had a soft Q4 last year. It was actually for the very reasons that you had just pointed out, we had a large job and it affected -- and we had a significant event that occurred, we had a couple of fellow fatalities. A couple of our guys who were unfortunately killed were part of convoy in a mine. And if you -- and maybe I'm not using this necessarily as an excuse to kind of explain what happened in the quarter, but if you look at what the reason we actually had a miss in quarter 4 last year was for that very reason. Otherwise, it also would have been a great quarter. So we'll see a nice pickup in quarter 4 this year, notwithstanding any problems that may black swan. But I think the point that I'm trying to sort of point out here is we're not just dealing with 1 quarter of COVID. In the last 12 months, we've actually had 2 massive black swan events. And if you look at where we are currently trending on year-to-date on a TTM basis to have the results that we have generated, given those 2 black swan events are just the mind boggles, and I consider where we would have ended up having had those 2 situations. And the reason for that is -- and the reason I'm saying that is it kind of gives a good indication of where we're going post COVID.

[Operator]

[Operator Instructions] Your next question comes from the line of Brad Virbitsky from Equinox Partners.

[Brad Virbitsky;Equinox Partners;Analyst]

I have a couple of questions for you. First, on Latin America. I'm curious what you think your competitive advantage will be there? I know in Ghana, you have numerous things you talked to, including having your own maintenance facility being local. In Latin America, will you have Australians there or will you be hiring local Peruvians or will you have Ghanaians there? What sort of team will you build there? And what will your edge be? And then I don't know if -- should I say my other questions first or wait.

[David Michael Harper, President, CEO & Director]

Well, just give them one at a time. Firstly, one of the biggest challenges that you have when you enter a new region, you're just finding someone that wants to be there. You don't want to drag someone kicking and screaming to a place in the world that you just clearly don't want to be. And it's a massive learning curve in terms of cultural learning curves, where shops are living in COVID now. The opportunity in Peru actually came from one of our chaps -- one of our senior supervisors/managers who actually lives in Peru and he was saying that all these opportunities were starting to present themselves and was listening to friends, colleagues, geologists that were lamenting about the lack of the types of services and the type of service -- servicing -- the drilling service itself, but also the support equipment and the higher mechanical utilization, customer centricity and competitiveness, and so on and so forth. Each of that it's an opportunity he brought to me, it was actually -- we've been looking at this for over a year actually. So we shut down, we looked at it long and hard. I jumped on a plane and went to Peru and I was overwhelmed with the appetite post -- I mean, overwhelmed with the amount of people that I knew that we have previously drilled for here in West Africa. So it's a very congenial move for us. It's like we just -- for us, it's almost like expanding into another -- going across the border and drilling in Ivory Coast or maybe expanding into Senegal. This is -- to me, it's just an extension of what we're doing.The type of service and the level of service and the services that we provide as in the suite of services that we provide, there will be no change. It will be the same general business model that has served us so well and has delivered the same great margins and provided our customers with a value proposition so that everybody at the table eats. It will be basically a nearer version of Geodrill. And so whilst I was there, I finally -- and someone heard that I was in Peru and I got invited down to take a look at another project in another country and that looked particularly interesting along the whole lot obviously the same thing, a lot of the people that we're drilling for out here basically drilling out there and saying that there's a deficit of great drilling companies providing everything that Geodrill does. So we're essentially what we're aiming to do and I'm driving this myself personally. We're aiming to replicate almost mirror what Geodrill does in West Africa. There are a couple of things along the way that may actually help us to do that as well. I mean how quickly can we grow there organically and capture this very strong commodity. South America is not just about gold. And I guess, that's one of the other attractions is that we're going to diversify our risk a little bit. There's a large copper player there that's the BGMs and so on and so forth.So it takes an enormous amount of oxygen. And as far as a growth story, it cannot be an easier growth story than an organic growth story. But the company has, for the longest time, been growing organically. And what we're thinking on this one is that it might make sense to maybe step outside that model and perhaps buy some local expertise. Jury is still out on that. I think we're just -- we're not averse to it. We'll just take each opportunity and look at it on its merits and proceed with certain steps.

[Brad Virbitsky;Equinox Partners;Analyst]

Okay. Okay. That was helpful.

[David Michael Harper, President, CEO & Director]

That was 1 question. Did you have another?

[Brad Virbitsky;Equinox Partners;Analyst]

Yes, I have 2 more questions. The second question is, it seems like you're expecting your utilization rate to be much higher in Q4 and next year, given that you're bringing rigs from Zambia into West Africa, at least your utilization look great in West Africa. Is -- what's the point at which you would look to start adding rigs again?And then just this last question is on the tax rate. This was the first quarter in which the tax rate was, I guess, a reasonable tax rate in a couple of years. Is this -- do you think you now sort of have this figured out? Or is there still -- I know there's still the looming Burkina issue, but can you give a little more color on the tax rate you expect going forward?

[Gregory Borsk, Chief Financial Officer]

Okay. Yes. Let me deal with the tax rate for you first. The -- I think what you're seeing, the effective tax rate, it's lower -- it's much lower. We budget around 30%. So you're seeing about 20% -- I think it was 22% in Q1. The year-to-date, 6 months is 27%. But that's really the -- our effective tax rate, it's a factor of which country we're drilling in and where we're busy, where we're drilling in and the type of tax. So there's really 3 types of taxes that we pay. We pay a withholding tax on revenue in certain jurisdictions, we pay a direct tax on profits in certain jurisdictions and then we -- there's deferred tax. So it comes down to where are we drilling and the mix. It's very similar to the mix in meters. So -- but I think your question is very valid, what we're seeing? The way we've structured certain operations in that is that the withholding tax was a tax on revenue. And even though you've built that into your rate, so that the margins -- you built that into your margins because you know you're going to have a withholding tax on revenue. But that was causing a lot of confusion for people. So what we've done is we've moved more towards where we can, more of a direct tax in certain jurisdictions. So you're seeing more of, what you're calling, a normalized tax. So hopefully, that explains it for you. You can see 22% in Q1, 27% year-to-date and a lot of people, 30% is what we budget, what we model up.

[David Michael Harper, President, CEO & Director]

So on the growth plans or aspirations, what drives our thinking is, first of all, utilization. So when the percentage of the available fleet is utilized to the point where we're starting to run short of rigs and, I guess, it's a pretty simple decision where we're going to find some rigs. And the magic number with one in the sand would be reach, the triggers that thinking will accelerate that thinking is 80%. We, in the last 2, 3 years, are going through a massive growth and in the lead up to that, ever since the get-go, every time we reach 80%, I sit down with the guys and say, "Guys, it's time we need to start adding rigs, how we got to find this." We need to keep our customers satisfied because it certainly depends a little bit looking to that -- into that thinking that you imagine because it gives us an opportunity you might -- it's always difficult to -- in our business, we say the power of incumbent. So if you have a contract, it's essentially your contract you lose about the service and the pricing and everything, which to a certain point is extremely important, meets all of the criteria for a customer. And so our customers find like people with their mobile homes and their banking. You don't change your bank just because you wake up 1 day and so not only will change your banking, change your mobile phone and then I'll have to send out a new number to everybody. Pulling contractors for the most part, work to -- we call contract ops because we work to contract. So that by definition, we have contracts. But at the end of the day, what it is, it's a quite simple supply demand business. Customers either raise money as junior explorers in that situation, the customers in COVID get markets or in the case of mine producers, it's usually cash-generative rather than operation that drives further exploration that expands the resource base.And so for the most part, the work -- the programs that we work to are defined by contracts. So by definition, we are supposed to have contracts that we work to. But at the end of the day, it's very much a customer relation business. Customer has drilling to do and has a capable driller who the customer has had a relationship with for many years. It's unusual for them to change from a good relation just because they want to change, they have to have a good reason.So we have the almost, I'd say, fine distinction in saying that we have somehow almost 100% success satisfaction rate. If we look at who we were drilling for in 1998 when I started Geodrill, customer happened to be resident mining.And success rates, success rates, so they don't go home, are in the mine and go drilling. I can tell you that we are still drilling for that customer today. That's 22 years. We still have them in our partners. And if we look down our list of clients, in terms of West Africa, in lot of cases, it's a junior exploration company and they've gone on to find a resource and that resource means going forward buy more drilling some corporate activity comes along the rig. When speaking of mining comes in, it pulls out their big checkbook and pays them than usually like to happen on the back, what was seem to do the same thing 4 or 5 years ago. And they come back to the same place that they know and they drill with the people that they know. And so our business has always been a very customer-centric and very much and repetitive business. And so that has enabled us to grow. We have grown pretty much with our customers. Every time we sort of get to a stage where we reach that sort of 80% and the customer starts saying, "Hey, listen, what are you going to do about next year's drilling? If you're going to be able to right on, you might have a few rigs." We just go out and buy a few rigs. And it's -- we've not had to go and buy anyone's business and pay a lot of money in any M&A opportunity.The most amazing thing about the story is that it is 100% organic. From 1 rig to 67 rigs, not only when it started in 1998, we actually started this business with 100% debt because the company did not have $1 of equity in the business on the day 1 in 1998 when we commenced the business, not only we actually had $2 million in debt. And so to have spent the first few years doing that, keeping customers satisfied and then as luck would have it, certainly an element of luck to everything we do, the various gold cycles have served us well. It served us well in terms of being able to grow when things are busy and being able to capitalize when things are tough. We've always been a company that's had a very strong balance sheet. So in those difficult years what we've done and, I think, done really well is we managed to go out and put our money to work and buy assets and bring them into our fleet. And one interesting thing about this is that we've managed to do that and keep the entire rig fleet standard. So of our 67 rigs that we have, we kind of do that with about 8 different types of rigs. It wouldn't be -- for the longest time, the first thing I learned out here is, you don't want a multi-bunch of equipment in this business. And that served us extremely well because when I think back to 5, 6, 7, 8, 10 years ago, when we looked at our inventory levels that we keep at the various locations, our inventory levels were USD 17 million. Today, we've tripled the rig fleet and our inventory levels are more or less the same. So this speaks to the point that I'm making about standardization and then the benefits of the organic growth.The other thing that's probably worth pointing out is because of that -- how that standardization has served us extremely well has -- and having that enormous resources inventory had pulled back on at the time when logistically it's been very, very challenging to operate in this environment, they call it deepest darkest Africa in that for a reason. It's not the easiest place in world to operate.I think you asked before about operating in South America. I can tell you that the logistical infrastructure in South America, that's the one difference with West Africa. West Africa, it's bringing your own infrastructure. And the point that I'm making here is that we have now been locked down since March. Since middle March, myself or my -- but not -- I'm speaking here today from [indiscernible], we have been here since the middle of March. I have not been able to fly, nor is my family. And we have managed to keep the rigs get going and have not lost a minute of time in downtime because of lack of supply and support equipment. Does that answer your question?

[Brad Virbitsky;Equinox Partners;Analyst]

Yes.

[Operator]

[Operator Instructions] There are no further questions at this time. So that ends today's Q&A portion. I would like to thank everyone for joining today's Geodrill's Second Quarter 2020 Results Earnings Call. Have a wonderful day. You may now disconnect.