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"Drilling budgets, particularly for programs in Canada, United States and Latin America, are expected to increase beyond the 2011 levels for brown?eld gold, copper, silver and iron ore projects, which bodes well for Cabo. The company will be worth keeping a close eye on over the coming months."
At Cabo Drilling it seems chief executive John Versfelt�s strategy of making �quality� his theme, as he steadily builds his international drilling business, is paying off. Cabo�s latest financial results show that it�s turned around in some style from the loss-making position of 2011. The company delivered record revenues of C$31.29 million for the first six months of fiscal 2012, a 50 per cent increase over the C$20.86 million recorded in the same period of the previous year.It�s a result which means the company is now is on track to exceed the C$43.22 million reported for all of fiscal 2011 by the end of the third quarter of fiscal 2012. Underlying this strong recovery is a good order-stream from new and returning customers, as several new multi-drill contracts have been awarded to Cabo this year.
The recovery is further highlighted by results from the second quarter fiscal 2012. These show net earnings of C$1.96 million, against C$590,856 for the same period the previous year, a 232 per cent increase. Cash flow from operations rose from C$1.85 million to C$2.58 million. That was on sales up 50 per cent from a year ago and utilisation running at around 60 per cent.
With revenues rising fast, the share price has pulled out of the downward trajectory it went into towards the end of last year, and has now recovered most of the lost ground. The shares are currently trading at around C$0.15, up more than 50 per cent on the lows of November and December.
The recovery in business reflects an increase in activity in the mining areas in which Cabo operates. Headquartered in North Vancouver Cabo works across Canada, the US, Central America and the Balkans.
�The primary reason for the increase is the increased activity in our Canadian and international operations�, says Versfelt. �Revenues from our international divisions continue to represent a significant portion of Cabo Drilling�s operations. Twenty-eight percent of revenues for the six months ended December 31 is attributable to international operations, which is five per cent greater than the comparable six month period last year. Surface drilling increased by 51 per cent during the six month period, due to new multi-drill surface programs carried out by the Colombia, Ontario, and Pacific divisions. And underground drilling increased by 67 per cent, carried higher by underground drilling operations in the Atlantic, Albania and Ontario divisions.�
Currently, Cabo Drilling is renewing drilling contracts with all its primary clients, as major and mid-tier mining and exploration companies push their exploration programs forward on the strong metal price outlook for 2012. The company is also experiencing a higher level of new drill program bid requests, earlier than normal, for 2012 drill programs.
Cabo has recently signed contracts with clients in Albania, where it has been working for the Turkish Ekin Maden Group, in Atlantic Canada, where it has been working for Teck Resources; in Northern Canada, for Goldcorp; and in the United States where it has been working on a surface exploration project for Galway Resources.
At the moment, the majority of existing and potential clients are focused on gold, copper, silver and iron ore projects. But past experience has taught that demand and supply for minerals can change dramatically over a short time period.
Versfelt explains: �The variability in the metal markets that we have witnessed in the past two years can cause dynamic shifts in the supply of drills and drilling personnel from undersupply to oversupply.� Changes in the metals markets, along with potential �negative changes� caused by the financial stresses in credit and equity markets can negatively affect the mining industry and the amount of spend on exploration.
To offset this, says Versfelt, �our management team continues to monitor costs by implementing comprehensive cost and spending controls, as well as risk management procedures throughout the company. Senior management is focused on careful cash management, reduction of debt, high customer relations and employee relations�.
Although the company is seeing improving cash flow and is enjoying a bullish market, Cabo Drilling has no plans for any splurge on new equipment. The company invested C$1.95 million on equipment during the first six months of 2012. But these acquisitions and capital expenditures generally occur in three year cycles. Consequently, Cabo does not expect any significant spending on trucks or major drill overhauls through the end of fiscal 2012.
Looking forward, Cabo Drilling should also benefit from some substantial additions to its board and the assistance the new directors will be able to provide in regard to growth plans. Roy Graydon has served as a director at a wide range of Canadian companies and brings experience of equity markets and corporate finance, as well as in the development of strategy. Peter Freeman has extensive experience in stock markets, finance and compliance having been director of Markets and Compliance at OFX (now PLUS) in London, and head of compliance and advisory services for London based mining finance house Loeb Aron.
�Such experience will prove crucial as we continue to grow and further develop our markets�, says Versfelt.
Rising commodity prices continue to buoy up the revenue and profit margins of mining companies, and the markets appear to be well disposed to offer finance at the moment, to the right companies.Drilling budgets, particularly for programs in Canada, United States and Latin America, are expected to increase beyond the 2011 levels for brownfield gold, copper, silver and iron ore projects, which bodes well for Cabo. The company will be worth keeping a close eye on over the coming months. | | |
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