Geodrill Update - $GEO.to
Quick update after Q2 2023
GEO reported Q2 2023 and held a conference call yesterday. Results were quite a bit below my expectations for the quarter. The stock responded by dropping 11%.
Call Notes
The company decided to exit Burkina Faso and had a tough comp with the record quarter last year. Given 2 coups last year and the current situation I can’t blame GEO for leaving Burkina Faso and wanting some more stability with their workforce. The company will be able to redeploy the rigs in other geographies. Most of the equipment and personnel will also be utilized elsewhere so they are really just stuck with increased frictional costs (hopefully mostly temporary).
Given the high fixed costs, margins and profitability took a hit. Revenue was down 17% and EBITDA was 6.2 mil vs 11.1 mil last year. Things don’t look as dire when comparing H1 2023 vs H1 2022.
Outlook
Overall demand remains strong. Additional contracts were secured in Senegal and Peru. They commented on the call that they expect Q3 to be stronger than Q2 and Q4 sounds like it has the potential to be the strongest quarter for the year.
This feels like something that is temporary and the market won’t digest. It feels like if we were 2 more years into the cycle this misstep would be forgiven, but I guess we will never know. GEO is trading around 3x EV/ttm EBITDA which I think is reasonable to add.
Anyone else follow GEO? Anyone? Bueller?
Thanks for reading.
Dean
*long GEO.to
MDI should report around September 1st their May-July quarter which will give us one more month of visibility into the year. GEO would be a nice fit for them without almost no overlay of operations but MDI did exit West Africa a few years ago. When you dig for Foraco, also dig for Capital CAPD traded on the LSE. Their presentation have a pretty good slide comparing all the drillers. Capital has drilling operations with an overlay similar to GEO but also with mining operations as well as their lab division which will lead you through Chrysos trading on the ASE with their tech that should replace fire assays in the medium or long term. The lab division is growing like weeds but is not making any money. So, whenever it will inflect, it will be interesting. One could argue that that division, that should clock 80 million (from 27 million last year), in a couple of years, is not reflected in their share price as the current share price is comparable to others in the same industry. Anyway, I see their expansion as land and grab against competition that are subs of big labs (multi billion cos) that are not in a hurry to change a profitable business booked at quasi max utilisation. Nice set up.
Cheers
Hi Dean,
Have a few Geodrill. Timing issue for this quarter and the decision of vacating Burkina is the correct one. Check Orbit Garant, they are also getting out after loosing their shirt over there. Do not forget Egypt where they were the only act in town with Capital until recently. When you listen to the drillers conference calls, all of them are still bullish on demand, talking about the supercycle and increasing utilisation rate. However, the market appears to forecast lower demand, they all trade cheaply. Look at the 800 pound gorilla, MDI, and it slumped to less than 8.40 this week despite very nice growth. FAR just reported outstanding results (big jump in SA) and will refinance their debt. BTW the exCEOs, holding 40% of the shares, just retired so expect this one to be one the block. Capital has also been trading at 52w low level despite posting very good results and having their MSLabs sub growing like weed piggybacking on Chrysos tech.
The capital market has really sucked for the juniors despite the price of gold holding pretty steady. With the EV revolution coming our way just cannot see the drillers getting in a slump so bad unless we have a major recession.
So I keep on holding drillers for the supercycle,
GLTA