Major Drilling Group International Inc

TSX:MDI

Earnings Call Transcript 2022-Q3

[Operator]

Good

morning, ladies

and

gentlemen,

and welcome to

the

Third

Quarter

2022

Results

Conference

Call.

I

would

now

like

to turn

the

meeting

over

to

Chantal

Melanson.

Please

go

ahead,

Ms.

Melanson.

[Chantal Melanson]

Thank

you and

good morning

everyone.

As

mentioned,

we

would

like

to

welcome

you

to

Major

Drilling's

conference

call

for

the

third

quarter

of

fiscal

2022.

On

the

call,

we

will

have

Denis

Larocque,

President

and

CEO;

and

Ian

Ross,

our

Chief

Financial

Officer.

Our

results

were released

yesterday

after

market

close

and

can

be

found

on

our

website

at

www.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

and

actual

events

or

results

may

differ

materially

from

those

currently

anticipated

in

such

statement.

I

will

now

turn

the

presentation

over

to

Denis

Larocque.

Please

go

ahead.

[Denis Larocque]

Thank

you,

Chantal,

and

good

morning,

everyone,

and

thank

you

for

joining

us

today.

Once

again,

I'm

pleased

to

report

that

we

are

seeing

strong

evidence

of

an

industry

upcycle

most

clearly

demonstrated

by

Major

Drilling's

best

third

quarter

performance

in

10 years.

In

November,

we

saw

elevated

activity

levels

that

continued

well

into

December

until

the

usual

holiday

shutdowns.

And

despite

the

Omicron

variant

causing

minor

delays,

January

got

off

to

a

much

earlier

start

than

in

previous

year

and

than

expected.

I

must

credit

our

teams

that

worked

extremely

hard

and

long

hours

over

the

holiday

period

to

get

rigs

repaired

and

deployed

in

the

field.

Thank

you

for

all

your

efforts

to

ensure

continuity

of

operations

for

both

Major

Drilling

and

our

customers.

We

continue

to

see

increased

demand

for our

specialized

services

as

customers

turn

to

more

challenging

drill

programs as

the

upcycle

progresses.

I'm

really

pleased

to

see

that

our

proactive

staff

training

and

retention

efforts

have

allowed

us

to

support

this

early

start

to

the

year

and

deliver

reliable

service

and

value

to

our

customers.

Our

strategy

of

holding

rigs

and

inventory-ready

for

immediate

deployment

to

customers

also

continues

to

deliver

results

as

the

industry

deals

with

supply

chain

disruptions.

During

the

quarter,

we

benefited

from

both

new

contracts

and

contract

renewals

with

incrementally

favorable

terms,

which

more

than

offset

the

impacts

of

our

annual

maintenance

and

overhaul

work

carried

out

over

the

holiday

period.

Inflationary

headwinds

continued

to

impact

our

industry

on

both

the

labor

and

supply

fronts.

However,

we

have

made

mitigation

efforts

through

our

new

contracts

and

renewals

that

have

taken

this

into

account

and

don't

expect

to

see

impacts

on

margins

in

the

near-term.

With

all

of

this

in

place,

we

were

able

to

grow

our

EBITDA

by

110%

and

turn

a

profit

of

CAD 5.7

million

in

a

traditionally

slow

quarter.

With

that,

Ian

will

walk

us

through

the

quarter's

financials

and

then

I'll

come

back

to

discuss

the

outlook.

Ian?

[Ian Ross]

Thanks, Denis.

Revenue

for

the

quarter

was CAD

138.8

million,

up

38%

from

revenue

of

CAD

100.4

million

recorded

in

the

same

quarter

last

year

as

drill

programs

continued

later

into

December

and

started

up

early

in

January

in

our

biggest

regions.

The

unfavorable

foreign

exchange

translation

impact

on

revenue

for

the

quarter,

when

comparing

to

the

effective

rates

for

the

same

period

last

year

was

approximately

CAD 3

million

with

a

minimal

impact

on

net

earnings.

We

are

pleased

to see

continued

year-over-year

top

line

growth

as

the

company

has

demonstrated

the

ability

to

respond

to

customer

demands

amidst

favorable

market

conditions.

The

overall

gross

margin

percentage

for

the

quarter,

excluding

depreciation,

was

24.2%

compared

to

20.3%

for

the

same

period

last

year.

Margins

are

typically

lower

in

the

third

quarter

due

to

seasonal

slowdowns

and

significant

scheduled

maintenance.

However,

this

year

there

was

less

impact

in

North

America

as

many

drill

programs

minimized

their

holiday

shutdown

plans.

Australasia

encountered

typical

seasonal

slowdowns,

while

the

South

and

Central

American

region

was

negatively

impacted

by

seasonality

as

well

as

ramp-up

costs

in

certain

jurisdictions

as

activity

levels

began

to

recover

from

the

impacts

of

the

pandemic.

G&A

costs

were

CAD

14.1

million,

an

increase

of

CAD

2.4

million

compared to

the

same

quarter

last

year.

The

increase

was

driven

by

the

addition

of

Australian

operations,

inflationary

wage

adjustments

and

the

resumption

of

some

travel

as

COVID-19

restrictions

loosened

in

most

jurisdictions.

The

income

tax

provision

for

the

quarter

was

CAD 1.3

million

compared

to

nil

for

the

prior-year

period. The

increase

in

the

income

tax

expense

was

related

to

an

overall

growth

in

profitability.

Net

earnings

were

CAD 5.7

million

or

CAD 0.07

per

share

for

the

quarter

compared

to

a

net

loss

of

CAD 1.5

million

or

CAD

0.02

per

share

for

the

prior-year

quarter.

EBITDA

was CAD

18.4

million

compared to

CAD

8.7

million

in

the

prior-year

quarter.

Strong

EBITDA

growth

in

the

quarter

versus

the

same

quarter

last

year

is

a

direct

result

of

the

increased

activity

level

and

illustrates

the

operational

leverage

potential

as

revenue

levels

continue

to

grow.

The

quarter

saw

strong

cash

generation

as

the

balance

sheet

remains

a

competitive

advantage

for

us

in

the

industry.

After

taking

on

debt

to

complete

the

McKay

acquisition

in

June

of

2021,

we

are

pleased to

see

the

return

to

a

net

cash

position

of

CAD 6.1

million

after

generating

CAD 36

million

in

cash

during

the

quarter.

We

have achieved

this

cash

generation

while spending

CAD

12.2

million

on

capital

expenditures

during

the

quarter,

adding

five

new

drill

rigs

and

support

equipment

for

existing

rigs

being

deployed

in

the

field.

We

also

disposed

of

eight

older

less

efficient

rigs,

bringing

the

total

rig

count

to

600.

In

order to

respond

to

current

market

demand and

stay

out

of

supply

chain

challenges,

we

expect

to

take

possession

of

at

least

eight

drills

next

quarter.

These

rigs

will

be

immediately

deployed

in

the

field.

The

new

breakdown

of

our

fleet

and

utilization,

factoring

in

seasonality

is

as

follows:

302

specialized

drills

at

44%

utilization,

117

conventional

drills

at

40%

utilization,

181

underground

drills

at

56%

utilization

for a

total

of

600 drills

at

47%

utilization.

As

mentioned

before,

specialized

work

in

our

definition

is

not

necessarily

conducted

with

a

specialized

drill.

Rather,

it

is

work

that

requires

that

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

62%

of

our

total

revenue,

down

slightly

from

the

previous

quarter

but

specialized

work

is

typically

prone

to

more

seasonality.

So

we

expect

this

percentage

to

grow

moving

forward

as

we

continue

to

see

increased

demand

for

our

specialized

services.

Conventional

drilling

made

up 10%

of

our

revenue

for

the

quarter,

mainly

driven

by

the

increased

demand

for

work

from

junior

mining

companies.

And finally

underground

drilling

revenue

was

up

slightly

compared

to

last

quarter

at

28%

of

total

revenue.

Underground

projects

typically

have

less

seasonality

with

most

operating

mines

minimize

their

holiday

shutdowns

to

keep

producing.

Juniors

continue

to raise

money

to

fund

their

drilling

programs,

evidenced

by

our

evolving

revenue

mix.

They

now

account

for

28%

of

our

revenue

in

the

quarter

as

many

juniors

kept

drilling

late

into

December.

Senior

and

intermediates

make

up

the

remaining

72%.

In

terms

of

commodities,

gold

projects

represented

54%

of

our

revenue

while

copper

was at

16%.

We

continue

to

see

gold

dominate

our

revenue

mix while

copper

lags slightly

from historic

norms.

We've

seen

an

increase

in

our

nickel

revenue

in

recent

months

as

the

need

for

battery

metals

continues

to

provide

strong

tailwinds

for

the

industry.

With

that

overview

on

our

financial

results,

I'll

now

turn

the

presentation

back

to

Denis to

discuss

the

outlook.

[Denis Larocque]

Thanks,

Ian.

The

early

start

to

operations

we

saw

in

January

provide

us

strong

indication

of

increased

activity

as

we

moved

into

the

calendar

2022,

which

is

reinforcing

the

market

backdrop

and

pointing

to

exciting

times

ahead

for

us

at

Major

Drilling.

Going

forward,

we

expect

our

new

pricing

to

offset

cost

inflation

of

supply

and

labor

while

competition

for

skilled

drilling

crews

is

still

a

challenge

across

the

industry,

particularly

in

the

most

operationally

intense

markets.

Supply

chains

continue

to

face

disruptions

in

many

industries

around

the

world

but

are

magnified

in

the

drilling

industry

as

it

enters

a

rapid

growth

phase.

However,

our

strategy

of

using

Major

Drilling's

strong

balance

sheet

to

stockpile

inventories

early

has

allowed

us

to

stay

ahead

of

delays

on

consumables

which

keeps

drills

turning

for

our

customers.

We

have

experienced

some

minor

delays

on

new

drill

orders.

However

as

we've

been

proactive

in

placing

orders,

we've

minimized

the

impact

and

I've

seen

no

effect

on

the

business.

We

are

seeing

most

senior

companies

increasing

their

definition

drilling

efforts

on

existing

discoveries

on

both

gold

and

base

metals

as

well

the

amount

of

financing

raised

over

the

last

12

months

by

junior

companies.

We've

seen

a

considerable

increase

in

exploration

activity

by

these

customers

as

the

mining

industry

continues

to

try

and

replace

depleting

reserves.

As

of

today,

there

are

numerous

positive

drivers

influencing

the

outlook

for

Major

Drilling

and

the

wider

industry.

When

you

look

at

things

like

the

gold

price

that

is

at

high

levels

as

reserves

remain

low

and

mining

companies

continue

to

struggle

to

replace

resource

depletion,

you've

got

copper

prices

that

have

more

than

doubled

over

the

last

two

years

and

have

recently

reached

all-time

highs

at

a

time

where

the

world

is

actually

accelerating

its

efforts

towards

decarbonization

which

will

require

enormous

amounts

of

copper

which

won't

help

solve

the

projected

supply

deficit.

Nickel

prices

are

up

more

than

40%

over

the

last

year

as

the

world

races

to

secure

supplies

for

electric

vehicle

batteries.

You've

got

the

lack

of

exploration

throughout

the

recent

industry

downturn

that

has

led

to

depleting

reserves.

And

finally,

it

takes 10

to

15

years

to

bring

a

mine

into

production

while

new

mineral

deposits

will

come

from

areas

more

difficult

to access

which

will

require

more

specialized

drilling.

So

with

all

these

fundamentals

in

place,

the

outlook

for

the

company

and

the

pricing

environment

through

our

fiscal

fourth

quarter

and

beyond

remain

extremely

encouraging.

Finally,

Kelly

Johnson,

Senior

Vice

President, Operations

for

North

America

and

Africa,

has

announced

his

long-planned

intention

to

retire

in

June

of

this

year.

Mr.

Johnson

will

retain

his

position

as

Senior

Vice

President

continuing

to

assist

in

the

strategic

management

of

operations

of

the

company

until

June,

after

which

he

will

provide

valuable

consulting

services

to the

company.

Kelly

started

in

the

drilling

industry

in

1978

with

Midwest

Drilling

until

its

acquisition

by

Major

Drilling

in

1998,

and he

held

a

broad

range

of

leadership

roles

across

the

company's

operations.

With

a

career

that

spans

more

than

four

decades

with

the

company,

his

leadership

has

made

a

significant

contribution

to

Major

Drilling's

success

and

he

has

certainly

left

his

mark

on

the

industry

through

his

experience

and

knowledge.

Kelly

has

been

a

mentor

to

many

in

the

company,

including

myself,

and

his

influence

has

made

a

lasting

impact

on

generations

of

people.

He

leaves

his

post

with

an

impressive

managed

leadership

team

fully

prepared

to

respond

to

future

challenges

and

to

meet

the

increasing

expectations

of

our

loyal

customers.

Going

forward,

the

regional

management

of

North

America

will

be

reporting

directly

to

the

CEO.

With

that,

we

can

open

the

call

to

questions.

Operator?

[Operator]

Thank

you.

We

will

now

take

questions

from

the

telephone

lines.

[Operator Instructions]



The

first

question

is

from

Daryl

Young

from

TD

Securities.

Please

go

ahead.

Your

line

is

open.

[Daryl Young, Analyst, TD Securities, Inc.]

Good

morning,

gentlemen,

and

congrats

on

a

good

quarter.

[Denis Larocque]

Thank

you.

[Daryl Young, Analyst, TD Securities, Inc.]

First

question

is

around

the

capital

discipline

by

some

of

the

senior

miners

that

we're

seeing

commitment

there

to

manage

margins.

Are

you

seeing

any

pushback

on

pricing

or

is

that

–

it

sounds

like

you're

able

to

get

cost

increases

pushed

through.

And

then,

secondly,

has

it

changed

the

way

they're

bidding

jobs

with

drillers?

Are

they

looking

for

longer-term

contracts

or

anything

there,

any

color

you

can

provide

there?

[Denis Larocque]

Yeah.

Well,

first

on –

in

terms

of

you

talked

about

cost

discipline

and

everything.

What

we're

seeing

in

our

discussions

is

not

as

much

a

focus

on

price

anymore,

more

about

delivering

service.

There's

been –

last

year,

there's

a

few

companies,

well,

many

companies

that

weren't

able

to

achieve

the

amount

of

drilling

they

wanted

to

do

when

they

started

the

year

for

different

reasons.

Either –

I

mean

you

had

COVID

but

also

either

they

didn't

have

the

quality

they

needed

or

things

like

that.

So,

this

year,

that

explains

the

early

start

for

one

because

they

want to

make

sure

they

get

their

drilling

budgets

drilled.

So

when

we

have

discussions,

this

round –

discussions

have

been

more

with

operational

people

than

it's

been

with

the

purchasing

department.

And

really

that's

been

really

good

because

we're

having

conversations

about

getting

the

job

done.

And

that's

the

main

focus

which

really

helps.

It's

not

just

pricing,

it

helps

on

the

productivity

as

well

because

then

you

get

full

cooperation

and

you

get

the

best

results

for

both

and

that

reduces

when

things

go

well

and

productivity

is

good.

It

reduces

their

overall

costs

because

they

get

more

meters

for

their

dollars.

So

from

that

perspective,

I

wouldn't

say

that

there's

been

a

pressure

on

pricing.

It's

been

like

I

say

more

about

working

together

to

deliver.

In

terms

of

looking

for

long-term,

they

always

–

it

was

more

early

on

when

pricing

was

better,

we

were

getting

requests

to

lock

those

prices

for

five

years

because

they

knew

what

was

coming.

Lately,

we

do

get

those

conversations

but

those

conversations

again

are

not

necessarily

about

price.

It's

about,

okay,

can

I

make

sure

I'm going

to

have

these

rigs

for

the

next

two

years

because

I've

got

lots

to

do

and

I

want

to make

sure

I'm

going to

have

the

rigs.

So

it's

more

those

types

of

conversations

in

terms

of

long

term-than

pricing,

so...

[Daryl Young, Analyst, TD Securities, Inc.]

Got you.

Okay.

And

then

just

one

other

question

with

regards

to

greenfield

exploration

budgets.

Tracking

some

of

the

senior

gold

exploration

budget,

it

looks

like

they're

relatively

flat

year-over-year.

Can

you

just

give

us

a

little

bit

more

color

on

where

some

of

the

really

robust

demand

is

coming

from?

We're

certainly

seeing

it

across

the

entire

industry.

All

the

drillers

are

seeing

it

but

just

trying

to

reconcile

the

gold,

the

flat

gold

budgets

with

the

really

robust

outlook.

[Denis Larocque]

Yeah.

The

–

on

pure

greenfield

exploration,

you're

right.

The

seniors,

from

the

looks

of

it

didn't

increase

their

effort

by

much

going

into

calendar

2022.

But

what

we're

seeing

is

we're

adding

rigs

to

existing

projects on

defining

existing

projects

that

they

have

and

they're

ramping

up

their

efforts

in

terms

of

trying

to

bring

mines

into

production

over

the

next

few

years.

So

that's

where

the

drilling

efforts

are

going

on

the

senior

side.

We're

seeing

an

uptick

on

that

side

and

that's

why

when

they

get

going,

it's

more

intense

and

it

takes

years

to

define

deposits

and

things

like

that.

So

that's

one

part

of

the

uptick

that

we're

seeing.

And

then

you

would

–

Ian

gave

you

the

numbers,

juniors

is

up

28%.

And

just

a

year

ago,

we

were

below

20%

of

our

total

revenue

and

a

much

smaller

revenue

numbers.

So

therefore

juniors

are

doing

a

lot

more

as

well because

they've

raised

money

and

they're

going

out

and

they're

going

to

be

the

ones

that

are

going

to

add

to

the

exploration.

So

when

S&P

Global

come

out

with

their

numbers

for

2022

in

a

year

from

now,

I

suspect

that

it's

going

to

be

much

higher

in

terms

of

growth

of

exploration

dollars,

much

higher

than

what

seniors

have

been

projecting

because

the

juniors

are

going

to pick

up

the

slack

on

that

part.

[Daryl Young, Analyst, TD Securities, Inc.]

Got

it.

Okay.

That's

terrific.

I'll

turn

the

call

over

to

someone

else.

Thanks,

guys.

[Denis Larocque]

Thank

you.

[Operator]

Thank

you.

The

next

question

is

from

James

Vail

from

Arcadia

Advisors.

Please

go

ahead.

Your

line

is

open.

[James Vail]

Good

morning,

gentlemen.

Good

quarter.

[Denis Larocque]

Good

morning,

Jim. Thank

you.

[James Vail]

Denis,

you...I'm

well.

I'm

well.

Thank

you.

You

talked

about

availability

more

key,

you

talked

about

lack

of

new

copper

supply,

gold,

et cetera,

et cetera.

It

seems

to

me

this

cycle

is

setting

you

up

to

have

extremely

better

margins

than

you

did

in

the

last

upcycle.

Is

that

a

reasonably

good

assumption?

[Denis Larocque]

I

mean

we're

still

a

long

way

from

where

we

were

in

2012

in

terms

of

the

peak

of

the

cycle.

But

the

outlook

when

you

look,

it

takes –

again,

the

key

is

it

takes 10

to

15

years

to

bring

a

mine

into

production.

That's

the

part

that

you

need

to

look

at.

And

we're

only

in

year

like

two

of

this

upcycle.

And

the

last

upcycle

that

went

from

2004

to

2012

really

lasted

eight,

nine

years.

[James Vail]

Okay.

[Denis Larocque]

So

there's

a

long

runway

ahead

of

us.

But

I

won't

give

you

that

–

there's

certainly

a

positive

possibility

of

us

having

better

margins

than

the

last

peak.

At

this

point,

our

margins

are

already

better

than

they

were

in

the

second

year

of

the

last

upcycle.

So

that's

– I'll

let

you

draw

your

own

conclusion

on

what

that

could

be

for

the

future.

[James Vail]

Great.

And

then

just

a

second

question,

you

went

through

the

utilization

rates

of

all

your

different

rigs.

In

all

practicality,

what

is

the

highest

utilization

you

can

get

to?

I

mean,

you

can't

go

100%,

but

is...

[Denis Larocque]

Yeah.

[James Vail]

...47%

–

is

there are

a

lot

left

to

go

from

these

numbers

or

are

you

getting

close

to

where

you're

essentially

at

full

utilization?

[Denis Larocque]

Yeah.

We've

always

said

the

highest

utilization,

the

way

we

count

utilization

because not

everybody

counts

it

the

same

way.

The

way

we

count

utilization

is

if

a

rig

is

earning

its keep. So

every

quarter

you

have

rigs

that

are

moving

around,

being

mobilized,

demobilized,

plus

we

have

rigs

that

are

in

the

Arctic

that

will

only

work

six

months

of the

year.

So,

for

those

reasons,

75%

is

kind

of

the

max.

At

the

very

peak,

when

there

was

nothing

available,

we

were

at

78%.

[James Vail]

Okay.

[Denis Larocque]

That's

the

highest

we've

ever

achieved

and

I

think

that's

the

highest

that

we

can

probably

achieve

as

utilization.

The

47%

is,

well,

for

the

third

quarter,

so

this

was

lower

than

what

we

had

in

the

previous

two

quarters.

And

also

it's

indicative

of

we've

entered

the

quarter

with

that

47%,

but

things

are

picking

up

week-by-week,

and

so

I

think

you're

going

to

see

that

utilization

keep

growing

as

we

go

through

the

year.

[James Vail]

Great.

Okay.

Thank

you

so

much.

[Operator]

Thank

you.

[Operator Instructions]



The

next

question

is

from

Maggie

MacDougall

from

Stifel.

Please

go

ahead.

Your

line

is

open.

[Maggie MacDougall, Analyst, Stifel GMP]

Good

morning.

[Denis Larocque]

Good

morning.

[Maggie MacDougall, Analyst, Stifel GMP]

So

must

ask

the

question

if

you've

got

any

exposure

to

Eastern

Europe

that

we

should

be

aware

of

or

that

we

should

be

thinking

through

if

there's

a

supply

chain

effect

from

that

or

anything

of

that

nature

because

clearly

a

really

difficult

situation

in

that

part

of

the

world

right

now.

[Denis Larocque]

Yeah.

Very

unfortunate

what's

going

on

there

and,

on

our

part,

we

don't

see

much

impact

on

our

operations.

We

don't

have

any

operations

in

Russia

or

Eastern

Europe.

Our

closest

operation

would

be

in

Mongolia,

which

is

a

small

operation

for

us.

But,

even

there,

the

supplies

are

coming

from

other

directions

that

should

not

be

impacted

from

what's

going

on.

So,

for

us,

we

don't

see,

unless

things

change

in

the

world,

then

all

bets

are

off.

But

we

don't

see

an

impact

on

our

operation.

[Maggie MacDougall, Analyst, Stifel GMP]

Okay.

Thanks.

And

it

sounds

as

though

you

are

in

a

great

position,

as

a

few

people

have highlighted

here

on

the

demand

side

with

regards

to

pricing

given

commodity

inflation

and

just

generally

a

lack

of

new

reserve

additions

over

the

last

decade.

On

the

flip-side,

we

are

seeing

fuel

cost

at

almost

back

to

peak

levels

last

seen

in

2006-2007.

Is

it

possible

that

they

overshoot

just

with

what's

going

on

in

the

world?

And

I'm

wondering

on

the

consumable

side,

the

fuel

side,

and

against

a

backdrop

of

the

constructive

discussions

you've

been

having

with

your

clients,

are

you

at

all

thinking

ahead

about

how

to

position

yourself

in

the event

that

inflation

in

inputs

does

become

somewhat

out

of

control

and

perhaps

begins

to

outpace

pricing?

[Denis Larocque]

Yeah.

On

the

fuel

side,

we

have

escalation

clauses

specific

to

fuel

in

all

of

our

contracts.

And

in

a

lot

of cases,

the

fuel

is

supplied

by

the

mine

themselves,

so

that

one

shouldn't

be

an

issue

going

forward.

On

the

consumables,

we

have

–

in

our

pricing,

we

are

expecting

–

we

started

the

year

expecting

inflation

on

consumables

with

everything

going

on

and

our

last

round

of

pricing

is

reflective

of

that

but

we

do

have

escalation

clauses

in

there

as

well

should

it

go

beyond

a

certain

percentage,

so

then

we

have

mechanisms

to

sit

down

with

our

customers

and

revise

our

pricing.

So,

right

now,

when

we

say

that

we've

renewed

contracts

with

favorable

terms,

those

are

the

terms

that

in

the

downturn

that

we

were

not

able

to

get

in

our

contracts

whereas

now

we're

able

to

put

escalation

clauses

to

make

sure

that

we're

covered

for

things

like

that.

[Maggie MacDougall, Analyst, Stifel GMP]

Okay.

Good.

And

when

you

look

out

around

at

your

competitors,

how

do

you

feel

going

into

this

type

of

an environment

it

does

seem

as

though

you

have

prepared

for

the

upcycle

for

some

time,

both

in

terms

of

inventory,

just

getting

the

fleet

ready

and with

the

balance

sheet

that

you've

maintained

in

a

very

clean

shape,

do

you

think

that

there

will

be

some

who

find

themselves

kind

of

stuck,

lacking

inventory,

perhaps

without

appropriate

pricing

pass-throughs?

I

wouldn't

mind

hearing

your

comments

on

that

because

it

does

seem

like

you

may

be

in

a

strong

competitive

position,

both

for

organic

market

share

gains

but

then

also

if

you

were

to

see

someone

who's

struggling

for

some

tuck-in

acquisitions?

[Denis Larocque]

Well,

on

the

supply,

we're

already

seeing

ourselves –

we're

already

seeing

issues

in

terms

of

delays

on

everything

which

is

why

we

stocked

up.

So,

we

have

that

buffer.

And

the

way

we

operate

is

we're

not

letting

that

buffer

go.

In

other

words,

as

we

take

something

off

the

shelf,

we

place

an

order

to

replace

on

the

shelf

to

replace

that

buffer,

and

that's

how

we're

managing.

If

you

don't

have

that

buffer

in

you,

you

have

to

put

rigs

in

the

field.

It's

quite

a

struggle

right

now

because

there's

delays

on

everything

and

then

you

have

to

wait,

which

to

your

point,

I

think

it

is

a

great

competitive

advantage

by

having

that

extra

inventory

on

hand.

On

the

acquisition

front,

I

mean,

we

get

–

just

like

before,

we

continue

to

get

phone

calls

from

companies,

for

the

most

part

they're

– the

– a small

private

company who's

looking

to

sell.

For

us,

it's always –

it

comes

down

to

quality

of

equipment.

It

needs

to

fit

our

strategy,

specialized

or

on

the

ground

and

also

it

needs

to

have

good

people

that

comes

with

it.

And

for

us,

that's

what

we

look

at

and

also

there's

sometimes

also

valuation.

We've

had

people –

they

tend

to

have

big

valuation

because

they

want to

sell

on

the

future.

And

for

us

there

needs

to

be

there

needs

to

be

something

for

our

shareholders

if

we're

going to

make

those.

So that's

all

I'm

going

to

say.

I

mean,

we

get

those

phone

calls

on

a

regular

basis.

We've

been

getting

those

for

the

last

three

years

and

it's

just

when

the

time

is

right,

when

it

makes

sense,

then

we

sit

down

and

look

at

it.

But

right

now

McKay

is

the

last

one

that

made

sense

for

us.

[Maggie MacDougall, Analyst, Stifel GMP]

Yeah.

Last

question

for

me.

I'm

watching

the

10-year

yield

fall

like

a

stone

today.

And

we've

talked

a

lot

about

how

the

base

metals,

copper

cycle

is

potentially

going

to

be

the

big

one.

However,

it

looks

like

in

the

near-term

gold

could

be

a

really

good

place

to

be.

What

has

been

sort

of

the

scuttlebutt

amongst

your

client

base?

Are

you

seeing

more

activity

in

one

versus

the

other?

[Denis Larocque]

The

gold

is

still

– interestingly

I

would

have

thought

that

moving

into

2022

that we'd

see

a

bigger

uptick

on

base

metal

but

gold

has

kept

up

with

base

metal

in

terms

of

the

demand

or

the

increased

demand

that

we've

seen

going

into

this

year,

so pretty

much

all

commodities

are

doing

more.

They

all

have

reserve

issues

because

they've

all

cut

back

on

exploration

through

the

last

six

years.

So

I

wouldn't

say

that

there's

one

more

than

the

other

these

days.

They're

all

busy

going

out

looking

for

stuff

at

the

moment.

[Maggie MacDougall, Analyst, Stifel GMP]

Okay.

Well,

thanks

so

much for

your

time.

I

will

get

back

in

the

queue

if

I

have

further

questions.

[Denis Larocque]

Thank

you.

[Operator]

Thank

you.

There

are

no

further

questions

registered

at

this

time.

I

will

return

the

call

back

to

Mr.

Larocque.

Oh! I'm

–

back

to

Mr.

Larocque.

Sorry.

Yes.

[Denis Larocque]

Okay.

Thank

you.

And

we'll

be

talking

next

quarter.

[Operator]

Thank

you.

The

conference

has

now

ended.

Please

disconnect

your

lines

at

this

time

and

we

thank

you

for

your

participation.