Commodities, Mining Services, News

The sky’s the limit for Mitchell Services

Mitchell Services

The strong business model Mitchell Services has developed in recent years is starting to bear fruit.

With 90 per cent of its revenue derived from Tier 1 mining companies – including the likes of Newcrest Mining, South32, Anglo American, Glencore and more – the drilling services company has a robust foundation.

Demand for Mitchell Services’ drilling services has jumped in recent times in the wake of high commodity prices, and the company has been well prepared to capitalise on the rush.

Mitchell Services pre-ordered drill rigs before the latest commodity boom, meaning it has the necessary toys to offer. In fact, the company has a current fleet of at least 100 drill rigs with 12 new LF160 drill rigs recently assigned to Tier 1 miners.

The Brisbane-based company generated revenue of $213.4 million and EBITDA (earnings before interest, taxes, depreciation, and amortisation) of $32.2 million in the 2021–22 financial year (FY22), which was a 24 per cent increase from FY21.

Mitchell Services said this was achieved despite the effects of COVID-related absenteeism, multiple rainfall events and mobilisation costs that temporarily affected operating margins.

The improved EBITDA has led to significant EBIT, before-tax and after-tax profit increases. The company generated a 100 per cent improvement in its after-tax profit and ended up in the green in FY22 after reporting a loss in FY21.

Having raised $10.5 million of equity in September 2021, Mitchell Services has no intention to raise capital in the near term, which demonstrates the strength of its balance sheet.

The company has aspirations to reduce its debt profile to $15 million by FY24, having closed out FY22 with a net debt of $39 million.

The current blended average cost of debt is approximately 4.8 per cent per annum, with much of Mitchell Services’ debt set prior to recent rate increases.

As it continues to capitalise on the rising demand for drilling services, Mitchell Services expects all of its major financial metrics to improve in FY23, while the company also recently announced a dividend policy to reward shareholders.

Mitchell Services plans to declare an interim dividend with its half-year results (expected February 2023) and a final dividend alongside its full-year results (expected August 2023), with the 75 per cent dividend aligning with each six-month period.

This coincides with an on-market buyback, where Mitchell Services is buying back shares daily.

The buyback has been supported by the recent sale of two drill rigs for $2.5 million, which were initially bought for circa $400,000 in 2014.

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