Commodities, Mining Services, News

Mitchell Services capitalises on drilling boom

Mitchell Services

Mitchell Services is taking advantage of the mining industry’s increased demand for drilling services, revealing several financial initiatives as it embarks on the 2023 financial year (FY23).

The company will commence dividend payments in FY23 and undertake an on-market share buyback on or around July 14.

As part of Mitchell Services’ ongoing fleet management, it will be selling two older surface rigs to support the buyback, which it said were purchased at the bottom of the market for a combined $400,000 in 2014. The combined selling price for the two rigs would be $2.5 million.

High commodity prices are driving increased demand for drilling services and while the mining sector experiences supply-chain constraints and long lead times, Mitchell Services pre-ordered new drill rigs to ensure it was ready for the rush.

As supply struggles to keep up with demand, the Brisbane-based company has been able to support everyone from junior explorers to mid-tier companies and major miners, diversifying its fleet across drilling type and commodity so it can attend to any request.

“We foresaw the current resources up-cycle and invested to expand our rig fleet before it impacted supply costs and lead times,” Mitchell Services chief executive officer Andrew Elf said.

“Clients have seen the benefits of those investments in our ability to deploy state-of-the-art equipment on their projects, and our pipeline of medium and long-term contracts is growing across drilling types and commodities.”

Since announcing its organic growth strategy in August 2021, Mitchell Services has delivered 11 of the 12 new LF160 drill rigs on long-term contracts.

As part of its ongoing capital management strategy, the company has introduced a formal dividend policy that will take effect from July 1 2022.

Committed to delivering cash returns to its shareholders, up to 75 per cent of Mitchell Services’ post-tax profits will be paid to shareholders in the form of a dividend.

An interim dividend will be declared with Mitchell Services’ half-year results (expected February 2023) with a final dividend to be declared at the company’s full-year results (expected August 2023), with the 75 per cent dividend aligning with each six-month period.

The cost for shares purchased under Mitchell Services’ on-market buy-back will be no more than five per cent above the volume-weighted average price (VWAP) of the company’s shares from the five days prior to the purchase, while the number of shares will not exceed 10 per cent of the company’s fully paid ordinary shares.

Mitchell Services said there was no guarantee it would purchase any or all of the approximately 22.5 million shares on offer, with the timing and volume of the transaction dependent on the share price and other considerations at a given time.

With one of the largest and highest quality fleets in Australia, Mitchell Services now possesses 100 drill rigs across various commodities and drilling types.

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