Drilling companies look offshore

The Australian mining industry has provided a strong platform for contract drilling and drilling services companies such as Ausdrill, Brandrill and Imdex, but attempts to move into the international market have met with mixed success.

Despite past difficulties, each of these Perth-based companies is pursuing international opportunities, albeit at different speeds.

Drilling products and services company Imdex is leading the way with a recent agreement to acquire Swedish company Reflex Group for $25.4 million.

Reflex is an international supplier of borehole survey equipment and the acquisition will widen Imdex’s product range and broaden its geographic coverage in Canada, South Africa and South America.

The Reflex deal followed the $6.9 million acquisition last year of the drilling fluids and chemicals business of South Africa’s Samchem.

Imdex chairman Ian Burston said the company planned to become a significant global manufacturer and supplier of drilling fluids and services to the mining, oil & gas, water well and civil industries.

Managing director Bernie Ridgeway said last year’s sale of Imdex’s minerals division supported this plan.

“We’ve had a deliberate strategy of selling non-core assets and, in drilling products and services, concentrating on businesses that offer scale and have the ability to grow globally,” he said.

Mr Ridgeway said the company had in the past been a collection of small businesses, which had contributed to its inconsistent profit performance since listing in 1987.

“The way to fix that is to have scale in your business so that if one part is not going so well, it doesn’t have such a dramatic effect on your profitability.”

Ausdrill and Brandrill have also had problems in the past but of a very different kind.

Both companies were hit by the sharp downturn in exploration spending in the early 2000s, which exposed weaknesses in their business.

Ausdrill sold a number of assets and closed its South American operations but held on to its African business, African Mining Services, which has since delivered good results.

Ausdrill established AMS in joint venture with mining contractor Henry Walker Eltin and, following the collapse of that company, was able to acquire full ownership of AMS last year for just $1.4 million.

The AMS business is underpinned by a six-year $325 million mining contract at GoldFields’ Damang open cut mine in Ghana.

Ausdrill’s supply and logistics business, Supply Direct, has also built a substantial presence in Africa.

Ironically, Ausdrill tried to sell Supply Direct back in 2000 but it has since been transformed from a cost centre to a profitable business with its own clients. The strength of Ausdrill’s African business was evident from its latest half-year results.

Africa generated $63 million of revenue, or 41 per cent of the group total, and $6.8 million of pre-tax profit, or 49 per cent of the group total.

In contrast, Brandrill sold its African business as part of the restructuring that accompanied its receivership during 2004.

Under managing director Ken Perry, Brandrill has focused on its core business as a surface drilling and blasting contractor in Australia, where it is described as the market leader.

Brandrill is also continuing to support its loss-making RockTek business, which is seeking to commer-cialise a patented rock-breaking technology in international markets.

The company has appointed distributors in North America, South Africa and Australia but achieved sales of just $800,000 in the latest half-year and incurred a small loss.

Overall, Brandrill generated $45 million in revenue and a small profit in the half-year to December 2005.

With buoyant market conditions set to continue, Mr Perry said the company was confident it would reach $100 million in turnover and a $5 million profit for the full financial year.

Imdex is also anticipating significant profit growth in the current financial year.

In April this year, the company said it expected 15 per cent revenue growth to $55 million and earnings before interest and tax of $8.25 million.

“We are well on track to exceed those forecasts,” Mr Ridgeway said last week.

Reflex would add a further $15 million to annual revenue and boost EBIT by about $5 million, based on its expected 2006 results.

Mr Ridgeway said Imdex’s local representation was key to its success against international competitors.

“They have very little representation on the ground and we kick their backside because we are local,” he said.

Samchem and Reflex both have good on-the-ground representation in their respective markets, which will aid the group’s expansion.

“You must have that local knowledge, that local service component; that’s what works and we will build our business globally on that basis,” Mr Ridgeway told WA Business News.

“You can do that organically by setting up structures in these places but that’s just too slow.”

Mr Ridgeway said the Swedish venture capital investors that owned Reflex planned to accept a mix of cash and convertible notes as consideration for the sale.

Once converted, the notes would give them a 13 per cent shareholding, which he said reflected their confidence in the combined business.

Looking ahead, he said Imdex would consider further acquisitions.