We report on Major Drilling, a contract driller whose customers mainly consist of mining companies. With commodities prices sliding for several years, the downturn has cut into Major Drilling’s revenues. However, the company continues to report positive cash flow. It also has lots of cash and very low debt. Meanwhile, a 2015 dividend cut should help it conserve its cash until mining firms are ready to expand their drilling. We view Major Drilling as a buy for aggressive investors.
MAJOR DRILLING (Toronto symbol MDI; www.majordrilling.com) is a large contract driller that mainly serves the mining industry.
In the three months ended October 31, 2015, Major’s revenue fell 2.9%, to $84.7 million from $87.2 million a year earlier. The company’s loss narrowed to $5.3 million, or $0.07 a share, from $10.1 million, or $0.13.
However, the year-ago quarter included $2.8 million of pre-tax restructuring charges related to the closure of its operations in South Africa and Namibia.
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Major’s results could remain weak into next year, but its longer-term outlook is bright. The company continues to report positive cash flow, despite the significant industry downturn: its cash flow was $9.8 million, or $0.12 a share, in the latest quarter, up from $3.6 million, or $0.05, a year earlier.
Mining stocks: Rising cash flow points to brighter outlook
At the same time, Major’s revenue fell 2.9%, to $84.7 million from $87.2 million a year earlier. The company’s loss narrowed to $5.3 million, or $0.07 a share, from $10.1 million, or $0.13.
Its balance sheet is also strong, with cash of $49.6 million, or $0.62 a share. The company’s debt is just $8.6 million.
To conserve cash until commodity prices start to rebound and its clients step up their drilling, Major cut its semi-annual dividend to $0.02 a share from $0.10 with the May 2015 payment. That gives the stock a 1.0% yield.
Major Drilling is a buy for aggressive investors.
Recommendation in Stock Pickers Digest: BUY for aggressive investors.
For our advice on making profitable selections in mining stocks, read: Copper stocks have advantages over precious metal investments.
For our advice on making investment decisions about major and junior mining stocks, read What are mining stocks?