Master Drilling Group Limited (MDI) Earnings Call Transcript & Summary

Hi, everyone, and welcome to our result presentation for 2020, and thanks to all the webcast viewers and listeners. My part of the presentation today is going to be very brief. Koos and André and Roelof is going to deal with the detail of the presentation today. So what I'll be doing is just giving you a high-level overview of the way we reacted and the way we responded to COVID the last couple of months. And then just a high-level view on the strategy of the business going forward. Before we delve into the detail of the business, first of all, just to our employees, all the people that got stuck, the crews up in North Africa, India and in the rest of the world. So gentlemen, guys, thank you very much for keeping the wheels turning and also for the families back home, who supported the crews whilst they all got stuck up in the -- on site. So thanks again from my side and from management for supporting the business and keeping those wheels turned. So back to the business, we introduce -- give you a little overview of the way we responded to COVID the last couple of months. And I must admit, we've been through a number of cycles. We went through a gold price when it dropped down from -- in 2006, if not mistaken, down to $260 odd. We saw the IT bubble not too far beyond that. We saw the crash -- the financial crash in 2008, '09, if not mistaken. We also saw the gold price had ran up to, I think, just on $2,000 in 2012 when we did the IPO. So we've been through some of these cycles, but I must admit, what we saw the last couple of months, that was something very, very different. And we also saw, by the way, that all the commodity stumbled, the last 2 years to an all-time low, something really that we never experienced. I think the lesson learned is, certainly, the volatility of the world, the way the world is changing and again, with the emphasis on volatility. So how did we respond to the COVID? We put them in 2 boxes, although in the slide we showed 3, but the 2 specific pillars we considered, one was certainly the people, the well-being of our people and the way we're going to protect our people, the well-being of our people. So high level, 2, 3 things is very important, which we've done. The first one was, as soon as possible to get a policy out with a specific protocol, just to make sure that we make the people understand the risk of COVID, and obviously, the consequences thereof. The second one was to engagement with our clients, clients intermediaries in some areas. And to align our expectation with the clients and vice versa. And I think that worked pretty well. Different countries, different challenges. But I think the group overall, the business units did quite a good job. And then lastly is to make sure that we have some sort of a platform, a way to communicate, make it visible. And thanks to our IT department. I think the guys did an excellent job to provide us with a dashboard on our cellphones, on our tablets to actually real-time view the -- what is happening in the world, what is happening in the business units in terms of COVID? The second one was the well-being of the business. So 3, 4 things is very important. So the first thing, obviously, when we talk about the well-being of the business is clamp down on capital. So what we've done earlier this year is to suspend all the dividends, and I think that we shared with you guys earlier this year. The second one was to stop all CapEx within the reason. There's some maintenance CapEx still being spent, but the instruction early this year was stop all CapEx, and there was some maintenance capital spent to date, and André elaborate on that later on. The third one was, and thanks again to senior management, we reflect the salaries of the senior management in most part of the world where it was allowed by the labor laws. Obviously, you can't just do it. We need to comply with the labor laws of the different business units and countries. And then obviously, the other one was make sure you clamp down on cost. So this is pretty much what we've done in the financial space. So -- and again, André can go into the detail. And probably one of the reasons why we, today, probably okay in terms of cash in the business. And then maybe the last one is, if you look back on the -- and what happened in COVID and just the lessons learned and not only COVID, also historically, I think the one lesson to learn and what I think the business units and the -- and our managers did pretty well was to make sure you react, speed of reaction, speed of response. And again, I think the guys did a pretty good job on that. And with that comes, obviously, 2 things. And sad to say, we had to restructure the businesses and André and Roelof are going to go into the deal thereof. We had to let go about 1/3 of our labor force in the world, which is sad to say, but we had to clamp down on fixed cost. So that was the one. And the second one, again, was to stop CapEx. So that's what the 2 main, main, main lessons, speed of reaction, clamp down on cost to make sure your overhead cost is contained. So this is a high level -- our response to COVID. Our strategic pillars hasn't changed much. I won't go into the detail of the technology slide. Koos is going to present the technology vehicle a bit later on, when he get his chance. But just on the people optimization and maybe the growth strategy of the business. So maybe just deal with the people. Remember, we said it earlier, nothing has changed. People is still our focus in the business. Business is people, people is the business. So what we've done in the last couple of months is to engage with an outside company to help us just to align our current -- the current skills in the business where the world is going to and we just took a step back and said to ourselves, if we want to diversify the business more, the world has changed. Then we might -- need to make sure that the skills in the business and maybe some tools, which is lacking in some tool boxes needs to be dealt with. So we've engaged with an outside company who's currently work in progress, and we hope by the end of the year, we'll be in a position to understand the gaps whether it's training, maybe a reshuffle of management, but that's work in progress. Back to the point. So people key in the business, although we had to let go 650 people in the business, we kept the core of our skills and nothing to be concerned for the investors. The second one, optimization, you would remember, we said it earlier on this year. Our current PPE in the business is just north of $170 million, André, if I'm not mistaken. And key here was to utilize the equipment, get utilization up. I think utilization currently is down to 53%, 55%. And there's no reason in normalized conditions why the utilization shouldn't be in the early mid-70s. So key in our business is to make sure we drive utilization. And utilization is a function of, obviously, geographic expansion. You would remember last time when we had the same discussion. I was saying to you something like we today only have 2 or 3 machines in Canada, which is one of the top gold mining countries in the world. We only have 1 machine in Australia, we've just entered the Stans and in Russia, huge opportunities in those countries. And from a business development point of view, a specific focus for us is going to be in the next short, medium-term is to grow -- organically grow those areas which we just entered. So key optimization, we need to utilize the equipment. We need to get the utilization up. The last -- the #4 pillar of our strategy is the growth. Again, geographic expansion, maybe a step back on that. I'm pleased to report this time around, last time, we've mentioned we've tended on some work in the Stans and Russia. We've just been awarded our first contract, the machine is on the water as we speak. And I'd like to think there's some opportunity, more opportunities in that part of the world. We've just been awarded earlier this year, our first real contract in Australia, and that's work in progress. So we foresee in the short medium-term to send more machines to that part of the world. It's a stable first world country. It comes with challenges, yes, but I really believe a company with this size should be in Australia. So Koos, maybe you can carry on. And then gentlemen, just maybe the proceedings, Koos will deal with the technical side, Roelof, you will deal with the operational side. André, you will then, once I'm done, you guys, well, you will deal with the financial side. And then we will have a Q&A and wrap up once done. Okay, proceed.

Thank you, Danie. And good morning to everyone. Just as an introduction on technology overview is image that's presented at the moment, that's a cutting phase of a decline after we cleared from Eland. And it shows the curves cutting hard rock, and it also shows the inclination of the decline at minus 9 degrees. And you can see the scale of that excavation for an investment in new technology and implementing that scale, it's challenging. And it needs to be a mature organization that takes on something like this. So you might ask yourself, why is Master Drilling is a company, pursuing this type of work in line with the current and historically raise boring business. And what everybody have witnessed for last while is that it's a changing world. So it's got its uncertainties. But it's exciting in a way. And as the world is changing, so are the mines. And what we see is, we see a requirement from the mines, where open cost mines are moving underground. It's an issue to replace capacity or a production of those mines from an underground operation. You have cultural challenges, and the transition is difficult. So the mines need solutions where this could be done with higher urgency. They need to have a strong partner to do this with. So that's one of the changes that we see, and we want to align ourselves with. A second point is in many cases, you have ore bodies that are below environmental sensitive areas. And it's not an issue necessarily about depth, but it's over a long distance that these ore bodies needs to be reached. And there needs to be a solution for that. The third one is that many of these projects, like we're currently doing is in remote areas, it's in harsh conditions. So it's an extremely cold conditions like North Canada, it might be in deserts. It's in -- geographically, it's an isolated areas. And if clients want to invest in mines like that, but they can't move there with thousands of people and all the resources. Historically, what they would do with an established mining area. So it's important for them to have high-efficiency resources and strong partners to deliver these projects. There's many challenges for our clients around environmental issues. Around social issues such as communities, where they're working with. It's the localization of resources and also the governance. So how do we deal with the environmental issues? And how do we deal with skills transfer, maybe a localization of skills. Those are key aspects that we need to consider. And how are we dealing with all of this? This is how we will have a relevant future. And how we will be competitive and how we will be a sustainable company. So what is exciting is, is that we already established the capacity around some of these new technologies. The maturity of these technologies are well developed. And it might not just be that with the changes where clients are going through, and the market is going through, but we will get an opportunity to have a successful implementation of these technologies to show value to our clients. So the lasting value that we want to create for our clients is around -- it's around safety performance, it's around quality, and it's also around real cost, say it being capital cost for a project or investment cost. And all of these issues is related to productivity. So to address this in a historical way of conventional resources is difficult. And if you would move to a more industrialized process, it is something that can create much, much, much value for our clients. So to give you an update on the initiatives that we're busy with, for instance, our tunneling initiative, we've established a capacity through a Mobile Tunnel Borer, which is specifically designed for the mining requirements. We have manufactured it. We've tested it. Unfortunately, we lost a Phase II contract from Eland platinum in the beginning of 2020, where capital to the project was deferred, and we can really commend a client like Northam Platinum for their investment that they've done in technology in our company. It's a huge commitment from an industry player, and I think it will be to the benefits of the whole mining industry. Currently, we have cleared that contract. We have the machine on maintenance. We're doing improvements, and we will recommission it. We've done proposals to various clients. And we're hopeful that we will be able to redeploy this resource in the beginning of 2021. To give you an update on TunnelPro, TunnelPro is a company that we have established, to diversify ourselves into the civil tunneling industry and also to support our strategy around tunneling and shaft sinking and the equipment that we need to develop. We've been busy with this initiative for about 2, 3 years. And we decided in this period to exit this company as a result of civil opportunities that didn't realize. And also the ability or the know-how that we've gained and -- in these 2 services, and being able to maintain our ownership on the intellectual property and the patents for this work that was done. To give you an update on our sinking initiative, we have a company jointly owned with IDC. We have followed a phased approach for risk implementation. We have developed a wide range of scope over the last period. We had very successful experimental and field trials at the end of last year. And we had -- at the beginning of this year, we have decided, as Danie has mentioned before, we deferred some of the capital expenditure in the company and basically reduce that. We have also, in the first part of this year, we did a proposal on a project that was -- it had a great value. Unfortunately, we've come to realization that this service is linked to value on high critical infrastructures for mines like access shafts like hoisting shaft. And the risk of a clients to introduce this new technology on those projects, I think it's limited. So what we have done is, we've repositioned ourselves, and we looked at rescoping a project that is smaller in size. It's quicker to execute. It's lower cost to execute. And that project, what we're doing there will be scalable to a big shaft configuration. And hopefully, by delivering on this initial work, it will reduce the risk and provide comfort to clients where they can get a big benefit on these larger infrastructure projects. So at the moment, we're busy looking at the approval for funding for Phase II to Phase IV. And we're confident on the development work that we've done on the sinking initiative. The next one is, in general, our Master Drilling business and our in-house engineering expertise, over the group for vertical integrated business model. Here, we've done significant work in supporting the business, in terms of semi and full autonomous control. End of last year, we communicated that we've introduced semi-autonomous control on about 40 rigs in the company. We've seen the benefits of 30% plus in productivity, and have substantially reduced our exposure to operational risk. We have currently a remote operation. We have 6 contracts that we're busy resourcing to be able to do remote drilling. We had, in the last week view of operation in Peru, where we're remote drilling, with a significant upside in terms of productivity. And through the digitization and the analytics of operational information, we are able to track what is happening on these remote sites, and then to apply our experience. And this by itself leads to safer operations. It leads to lower risk and also increased productivity. We have increased our capacity as well around technology study work for clients, which is exciting for us. It moves us closer to our clients and the requirements that they have in the industry. We engaged with a few clients where we're doing study work for them. It will entail the development of equipment and the supply of equipment and also of operation thereof. And by doing that, we hope we can create more value to our clients and their expectations of what they see is required. Through this semi and full autonomous control, we have also did significant investments in our existing plant to modernize that equipment with great success. And lastly, I'd just like to say a few words on a project that was in the media about a month ago, we achieved a very accurate deep pilot hole, 1.4 kilometers pilot hole with a tolerance that is significant. It provides for opportunity to mining companies where they could use this infrastructure or this method of construction for deep access shafts. And it's got a considerable benefit to their business cases on the projects that they look at. So once the shaft is complete and reamed at 4.8 meters diameter, we are hopeful that it will provide the value to our clients. And it sets the standard for doing this type of work in the future. And on this project, I think we also one of the -- if not the only, one of the few companies that have invested in this directional drilling technology that we've used, and there's further development that we have planned around this to roll it out to the other projects and then create value by using this technology. And that gives you a quick update. Thank you for your attention, and I hand over to Roelof.

Thank you. Good morning, everyone. Koos, thanks for that introduction. Before we get going, I just want to echo what Danie mentioned regarding the COVID and the sacrifices that a lot of people made during this period. Just thanks again for each and every single assistant, operator, supervisor, contract managers, support individual that contributed during this period. Your contribution is much appreciated during this very difficult time. The operational review today, I would like to cover 3 main areas with you: number one, being safety. This being our most important value of the company. And we continue to see strong safety performance coming from our regions across the group. Number two, we will have a look at the regional review, unpack the performance of the different regions, stand still in South America and unpack that and discuss that sub performance from that region. And we will also share with you some good news coming from the South America region regarding the restructuring. And then some good news within the Africa region and the Scandinavia region up in Europe. And lastly, we'll touch on the order book. We still have another $60 million of work to execute on the second half of the year, which I believe is a very strong position to be in during the current situation. Let's start with safety. Okay. So we are proud to announce that for the first half of 2020, we've achieved exceptional safety performance. Once again, our LTIFR rate is down to 1.69, the lowest in the company's history. And this is really a remarkable achievement and just shows the leadership commitments being made in terms of safety is really paying off. In March, we reported that we had 11 countries, which operated accident-free during 2011, this is now up to 13 countries. And we would like to congratulate the Mexico business and the Chile business for achieving 365 days lost time injury-free during the first half of the year. To touch base on some of the safety initiatives. Koos mentioned a few during his technical review. From my side, good progress being made on the remote drilling and that is really important from a safety point of view to remove the individuals, operator, supervisors from the underground operations to surface away from home. Secondly, autonomous drilling, automization, hands-free projects. These are projects, which is really important for us as this really deals with the interaction between our operators assistance and the machines underground or on surface. And the intention of that is really to reduce the interaction between people and our machines. Regarding our behavioral safety programs, getting a lot of tractions in the different regions, and we will continue to invest in those local safety behavioral programs across the group. If we move on to the regional review, let's start off with the top line of the business. The revenue for the first half of the year is down 17.9% in dollar terms. The stronger dollar had an impact, a negative impact of about 5% on the top line. And the rest of the impact was mainly driven by a decrease in utilization across the board and across the group, due to lockdowns regulations imposed by governments around the world and less mining activity. The biggest contributor to that was South America. If you go through the various operations, first of all, South America, operations in South America were severely affected by the COVID pandemic as the region suffered some of the worst infection rates globally. And we've seen a number of mining operations within the region being halted or suspended. And the worst effected being the Peru region. Just to put that into perspective, we probably went about 2, 3 months within Peru without any production. We had a significant impact on the Peru business performance. As you can see, contribution from the region is down from 34% last year to 19% for the first half of 2020, with operational margin of around 4.5%. If we move up to North America, Gary and his team successfully mobilized for the voices by contract, which is a very important contract for us, although they experience a lot of challenges with the COVID pandemic. The second machine is on his way through that contract, and we're very excited for the year to come in terms of the performance of that contract. For the rest of the North Americas, we're still seeing a loss in the region. But we still stay confident about the investment we made in the RC technology as we believe that this market will be successful for us in the long run, and we still believe this is underserved market with a lot of potential to tap into. Briefly on the Mexico business. Utilization rates are lower in Mexico for the first half of the year due to the pandemic and the lockdown restrictions. The last few months, we've seen an uptick again in these utilization rates. As the silver miners is starting up operations again or planning to start up some of their mining activity. Then to some good news. Africa and the Scandinavian European region. Africa, this is now our top revenue contributor for the group, up from 34% to 37% for the first half of the year, with a very strong margin coming in at about 28.7%. Operations in Africa were not that severely affected during the pandemic period. We were very fortunate for a number of our operations to continue during this time. And that really contributed to the successful project delivery on some of the key projects at very specific clients in Africa. If we briefly touch base on the Bergteamet business up in Scandinavia, a strong performance for the first half of the year, and we also expect a strong performance from them for the second half of the year. We'll talk a little bit later about the order book but also a strong order book up in Europe, Scandinavia for 2021, which is really something to be excited about. One or 2 specific things on Africa to mention. First of all, we've been awarded the Khoemacau project in Botswana, which we're really, really proud of. This is a flagship project in the region, and we're really privileged to be part of that project. And also a long-term contract where we can utilize some big machines within the fleet. And then secondly, as Koos already mentioned, the groundbreaking record in the Zondereinde project. This is really something to be proud of, and achievement, and we believe that will generate a lot of value for the industry going forward with the ability to drill and construct these very deep shafts. In terms of our diversification strategy, that paid off, as Danie mentioned earlier, we have been awarded contracts in Russia. Machine is on his way there and also contracts in Australia. And this is really something to look forward in the years to come. If we move then on to our revenue diversification in terms of mining activity, this is fairly stable compared to last year. Revenue from production activity at around 83%. And by having the majority part of our revenue coming from the operating cycle has served us well in the past. And we see the benefit of that in a pandemic cycle like this. Then revenue diversification in terms of commodities, this is really as we expected. We've seen an uptick in the gold exposure and the copper exposure. And this is really on the back of the strong performance coming from the Africa region. Another big mover is iron ore, which is down from 12% to -- 12% last year to 4% for the first half of the year. And this is mainly driven by the demobilization on the Kolomela Kumba contract in the Northern Cape. Just the last comment from my side on revenue diversification. This well-diversified portfolio in terms of commodities, currencies, mining activities and regions have really served us well in the past. And drilling the pandemic, it really served us well, and we believe this is key and fundamental to our strategy going forward. And we will continue to invest and spend time developing these regions, as we discussed a bit earlier. Utilization in ARPOR. Raise bore utilization is down to 53% for the first half of the year. The biggest impact came from our medium and large type machines. With lower utilization, mainly driven by the South America region. Utilization of our XXL and XXXL machines have increased significantly for the first part of the year. The good thing about those machines, they demand a higher premium or a higher ARPOR. The 2 big XXX machines, both of them are deployed to long, medium and long-term contracts, 1 up in Africa and 1 in the Zondereinde project, and that really helped our ARPOR, which we'll touch on now. So then just on the ARPOR, average revenue per operating rig, this is fairly stable at around $111,000, $112,000. This is really as expected. We've seen a little bit of a negative impact of around 5% due to currency fluctuations, the stronger dollar. And also impact on some operational restrictions in various territories introduced where we saw some little bit lower production rates. But this has been offset really by the strong performance in our XXL and XXXL machines, which earn a very good ARPOR for us for the first half of the year. On the slim drilling rig side, a relatively small acquisition caused the increase in the number of slim rigs. Demobilization of the Kolomela contract couldn't have come at a worst time. And it was really unfortunate during this time that we were not able to redeploy those rigs to other projects under these current market situations. Then, if we move on to the pipeline, some good news here. The pipeline is still strong at $281 million. This is ticked down from the $300 million that we reported in March to you. We have committed orders of still $60 million for the rest of the year that we need to execute on. And I believe that's a really strong position to be in at this moment. Then we have another $60 million for 2021 to execute on. And that would roughly present about 50% of this year's revenue, once again, which is a good position to be in considering where we are in the cycle of the pandemic. Just maybe to comment on the pipeline and the order book, some of the activity we've seen in the last 2 months, a lot of activity in the market. We've seen a number of projects being awarded to us in the last few weeks, the last month, one such project being the TELT project up in France, that project being a infrastructure project and a long-term project, and that will really help our commodity diversification into the future. Then in the next months to come, a number of big contracts is being adjudicated, specifically in the Africa region and in the South America region, and we're fairly positive to see a bit of an uptick in the pipeline and order book towards the end of the year. Some of the miners is finalizing their 2021 budgets. Then in terms of the committed orders, you'll see large exposure to gold, nickel and zinc. Our committed orders is sitting at around $140 million, $145 million at this moment. We've very high exposure to gold. We expect this to change, and this have already changed subsequent to our 30 June reporting. We've just mentioned the TELT project, which we'll see a big uptick in the infrastructure exposure, and then definitely a bigger uptick in the platinum infrastructure and most possibly on the copper side as well, following some big contracts being adjudicated. Then from my side, maybe just the last thing to conclude on we all know that, that has -- this has been an extremely difficult time for everyone, and I would like to thank all our individual employees within the business and their families, our clients, and lastly, the communities that we operate in, that stuck with us during that time. And there's definitely light at the end of the tunnel. Thank you. André, over to you.

Thanks. Thank you, Roelof. Hi, everybody. This is now the 16th time I've been counting them as we report back to you guys as investors as a public company. And obviously, this has been the most difficult period for us. So if we just go to the highlights, really tough environment. But I think what's reported on early this year when we did the full year and when we just basically got into the COVID period, we said we're going to focus mainly on cash preservation. And that's basically what we did. So I think the good thing that's come out of the 6 months period is really how we managed to manage the cash in the business. How we managed to reduce our gearing ratio in this period. So that's been very positive for us. And it's also a clear indication of when we don't spend money on capital, how much cash we can actually generate in the business. I mean, in this period, we doubled the cash conversion compared to the previous period. So that's been quite good for us. Another highlight for us has been the expansion into other areas. I think Roelof basically mentioned all of them. It's part of our strategy always to diversify further. So we've been successful with this as well. And as I mentioned, the repayment of the debt, given the conditions to pay nearly ZAR 100 million of debt during this period is quite considerable. If we go on to the headline earnings per share, obviously, it's down 40% compared to the previous period in dollar terms. In rand terms, down about 30%, although not great, we managed to be profitable, which is very important in this time. And also then the diversification, the commodities and keeping us in good state and the weaker currency, the rand, obviously, better for us in times like this, we assisted a bit with better headline earnings. If we just go to the EBITDA. Although down, I mean, we're down to $11 million of EBITDA during this period given on a $57 million turnover. I think to make a 20% EBITDA margin during these times are actually quite good and all credit to the operations guys who did a great job in this time. Danie mentioned the sacrifice that was given by most of the senior employees reducing their salaries during this time. So to be at about 20% EBITDA margin, I think, is actually a job well done. Profit after tax, basically just in line with the reduction in the EBITDA, all the way down and roughly 20% tax that we pay on our profits. If we move on to the balance sheet, I think this was the most important area for us in this period is to manage our balance sheet. And I mean, it was so important to be sure that we stay liquid in this period. We did manage to preserve our cash up to the region of $20 million of cash that we had in the bank. So cash balance basically stayed equal during this time, with a lot of debt repayment that we had to do and a bit of capital spend that we did. We also, like Roelof mentioned, did a small acquisition in the slim drilling area, which we basically paid out of cash. So if we look at the -- our working capital, a lot of focus has been put on that, although it's not much improved than what we reported on for the December period, but a big focus is on that. And given the struggles that our mining clients went through during this COVID time, administer, it was very difficult to get your invoices issued in time, get it paid in time. So I think to protect our balance sheet like we did was actually a job well done. If we look at the -- our liabilities, we're down to 18% gearing, that's including cash, which is very good for capital-intensive business like ourselves. We did mention at the previous reporting that we are aiming at 0 debt in the next 2 years. I've got a slide later that we can talk around that. So balance sheet is strong, and we're in a good position for the future. If we look at the income statement, obviously, this is where the bleeding happened. We didn't manage to get any top line growth due to, as mentioned by Roelof. But I think the fact that we still managed to make roughly 30% gross profit margin. That was a job well done. Unfortunately, with operating profit that's down from previous years, but that's due to fixed cost. And we're in the process, like Danie also mentioned, with a lot of employees like we had to reduce, that is a bit of a fixed cost, and it's got a bit of a lag effect. But on the operating profit line, we're still profitable. Finance costs, pretty much in line with previous years. The low interest rate obviously helps us a bit with -- going forward as well with debt level or interest rates at the historic low. So that put us in a good position. I think I mentioned here, if we look at the revenue, if you go back to the slides, where we show the diversification in the areas, we could see that South America was really a difficult period this time of this cycle. But it's something that's has been very good for us in the past, and we -- it's part of our future. And it's a process we just need to go through to streamline the business, get it right for the future and be profitable. I mean they are very good mines there, some of them, low-cost mines. So we need to be there. It's commodities that we really like to be in Chile with a copper. It's part of the future. So although we're taking a bit of bleeding and second half of the year, I think it's going to be tough as well. But that should put us in a good position come 2021 to really be profitable. I mean we're going through the process to -- like we mentioned before, is to get the right employees for the future. And if we get into that position where there's more certainty in the commodities, I mean, commodities are high at the moment, but we need to have it sustainable before the mine starts spending the capital. And when we hit that cycle, and we've got the right employees in place, management in place, then the profitability will pick up. So we're very excited about that. This slide is always very interesting just to have a look and see and this -- as mentioned several times, this is part of the strategy, to try and get hard currency income and emerging currency costs. With this last period that we had quite a strong dollar. We had roughly a $1 million positive effect on bottom line due to the strategy. It hasn't moved too much for this period, the breakdown of what percentage is dollars and emerging costs, but it assisted us with $1 million addition, sorry, additional profit for this period. If we look at the cash flow statement, as mentioned, this has been the focus for the 6 months. So we could see the cash from operating activities double than what it was before, mostly due to improvement in working capital cycle. On the investment side, we only invested $4 million, which includes the acquisition of Geoserve that was roughly $2 million. And then part of that capital that we spent was on the tool that enabled us to do that accurate drilling adds on that. So I think that was a very well spent capital for that project, and which can be used on several further projects going forward. Then the negative $6 million on the financing activities, that's a repayment of the debt. So that's the normal debt payment cycle. So if we look on a movement in cash, pretty much exactly the same as it was the previous period. So considering the conditions, I think a job well done to the guys. If we just move, Roelof has mostly spoken about this. The revenue waterfall just shows you the effect from last year to this year. Biggest -- or big effect has been the currency on revenue, obviously, negative, but on costs, even more positive for us. But the biggest effect here was the utilization going down to the 53%. So as you all know, 75% is what we would like to achieve, 72%, 71% is maybe the sweet spot. So that's been a big effect. And obviously, a lot of effort being done, moving equipment around to getting into places to utilize the machines. If you move on to the working capital breakdown, the inventory not moved too much. I mean, it was $1 million, but a lot of focus is on not procuring unnecessary, not that we ever procure unnecessary, but a lot of management in procurement to try and get the stock levels down. But when machines aren't drilling all that much, you can't utilize so much of the inventory, but not a lot of inventory has been procured in this last 6 months. And then just on the trade receivables payables, you can see the $10 million movement on the receivables reduction. Part of that has also been some of a retention that's been overdue to collect that we managed to collect in the 6 months, that assisted with the cash flow. And then the trade payables, obviously, we did our part to assist the people in the markets where we operate to pay the suppliers. They're also going through tough times, and we managed to keep that -- reduce that. If you look at the aging of the debtors, you can see still a struggle, obviously. Only 50% of our debtors is normal cycle and 30%, 1 month and up to 8% 3 months and older. That's a continuous process. But I think the good thing is the 2 months and 3 months overdue, that has reduced significantly. But to try and get that payment done within the time of 30 days is -- we are struggling with that. And -- but we are continuously working on that. So something definitely we can still improve on, but already some improvement. If we move on to the debt. This is just to give you guys an indication, I don't think we mentioned this before. Just a table what the debt levels should look like given the current exchange rates because some of our debt is in rand terms and others in dollar terms. So if we look at this, the profile, where we are today, just over the $40 million facility and where we work it down to June 2022 where the expiry of the facility is where the debt level should be 0. Obviously, quite a big bullet payment to be made in June 2022. But we're planning accordingly. So just to show, and we'll report on this going forward, how we track this number. Just the balance sheet ratio as quickly. I mean it's nothing great to report. But again, given that we were in this period of COVID to make at least returns, I think, is a job well done. Obviously, a lot of improvement to be done, but we're working on that. I mentioned the working capital, although bit weaker, but given the conditions, I think it's not bad. And then gearing low at just over 18%. So balance sheet is still strong. Just a cash flow waterfall, just to show how the cash has moved. I think I discussed it at the -- when I discussed the cash flow statement, but just showing the $11 million cash that was generated and how it was spent on a bit of capital, and then the acquisition and the debt that's being repaid. Last slide here on the capital, in line with what we said beginning of the year, we won't spend too much. So basically, just the $4 million, which includes the acquisition. Most of that has been on the expansion. Biggest part is actually the $2 million, as I mentioned, and then the exploration rigs that we bought through the acquisition, small bit of maintenance capital that was done. So that is from the financial side. We'll take the questions and then after that Danie will wrap up for us.

Thank you, André. We've got a number of questions from the webcast. First one from [ Jay Upesh ] from AFINA Capital. Asking if you can taking through the $20 million exchange difference in the income statement and why it is shown below the line?

Look, it's a good question. It's obviously something that's always in our balance sheet with local currency balance sheets that we need to convert to dollars. So it's a reporting. So the effect has obviously been big this period due to the about 20%, in some countries like Brazil balance sheets to be revalued with 30%. So that's IFRS transaction. It doesn't go through the income statement, it's the reserves that basically gets reclassified according to the spot exchange rate at the end of the year.

Next question is from Derek Deale from Renaissance Capital. What were the utilization rates for the acquired slim rigs versus the existing net? And what is your thinking with regards to potential impairments of rigs towards the end of the year, given the lower current utilization? And could you please confirm your medium-term utilization targets?

So it's a lot of questions. But just on the exploration rigs, obviously, the acquisition went through in March. So it's only a small period of time. I think we only invoice like $500,000 with Geoserve rigs during this period. So they were very lowly utilized. But normalized, they will be up to the 50%, 60%, same as the Master Drilling exploration rigs. So I don't think any write-offs that we're looking at in all the classes as well, even though the assets hasn't been utilized up to the level that we are looking at the 70-odd percent, there's not -- it's an uncertain environment, but there's a lot of inquiries coming for work through all the different sizes of machines. So we don't foresee any write-offs on any equipment soon, I don't think it's necessary. What's the another part of the question, Fred?

No, there's a follow-up question from him, which is around the guidance for full year CapEx?

Look, full year CapEx, there's not much that we're busy spending. So I would say, if another $2 million then that should be roughly the number, unless anything happens where we need to maybe do specific project capital, sometimes it can happen on the project, but there is not a lot that we're busy with. As mentioned before, we would like to spend capital on technology, and that we've just put on hold until everything has normalized. So we should see a start-up of that next year.

A number of questions from Keith McLachlan from AlphaWealth. I think, you're in demand, André. How much of your debt floating rate -- how much of your debt is floating rate, in which currency? And Keith is saying that surely, your estimates for FY '21 interest rate should see significantly lower finance costs?

Yes. So the debt that's all floating. It's linked to LIBOR and JIBAR rates. So 2/3 is about dollar term linked to LIBOR, plus a margin. So obviously, at nearly 0 LIBOR, it will come down. It's right on the rent side also, although it's a 3-month lag, you work with a 3 months looking forward, interest rate. So it is lagging a bit, but the guidance is right. It should be lower in the second half of the year.

The following question is, in the absence of North America's circa $4 million operating loss, profit would have been 20% to 40% higher. Are you expecting North America to reach breakeven in H2? Will it be profitable in FY '21?

Who's going to take that? Danie?

I'll deal with the last part of the question, it should be profitable '21. I like to think so, I think both contracts, Raglan and [indiscernible] is doing pretty well. So I'd like to think for the second half of this year, those contracts should be profitable.

And finally, from Keith. It's -- what was the rationale behind making the slim rig acquisition during the period? And what was the price paid?

Well, I'll deal with the last part of the question, what was the rationale behind that? 2 reasons. One was to consolidate the local industry. I think that was overdue; and two, to get hold of some specific expertise in the drug control and RC drilling space, which I think Geoserve was probably the better company in Southern Africa with those SKUs on board. André, the first part, you can probably take.

Look, the purchase price was basically ZAR 100 million that reported for, but we took the overdraft as well, which was a ZAR 26 million overdraw facility at this stage to cover the liabilities as well. So not a big number.

Thank you very much. We have no further questions from the webcast.

Well, maybe just to wrap up to where we are and what do we see out there? And without engaging specifically one-on-one with some of the CEOs in the last 6 months, unfortunately, we don't have first-hand information on what's happening behind the scenes and probably outside the boardrooms. So I think fourth things are very important. I think the buzzword out there today is what they refer to as future smart mining. And maybe just for the non-miners, just to shed some light on what we see out here in South Africa and what we learn from the bit of engagement that we had in the last couple of months. I think 3 boxes, 3 pillars, you can put the future smart mining into. And I think the first one, there is certainly what Koos shed some light on earlier, technology. I think there's a specific drive internationally about the way mining is going to be done going forward. So I'm not going to in the detail again, I think Koos elaborated on that. I think the second one, which we should not underestimate is digitization. I think this all of a sudden become -- is becoming a specific buzzword, which I think as a business should take. We're already doing some of that in-house as we speak today. And I think the third one is sustainability and when we talk about the specific buzzword there is the ESGs without going into that detail. So maybe a step back. So if we, as a business today, want to be relevant going forward, I think all 3 of the above is something that we probably, as a business, need to consider as part of our strategy going forward. I think the second part, which I think is very important, just as part of the stage, which I would like to share with the investors and the viewers today. And that's the way the business has been diversified for a number of years. And as part of the investor, remember, management has still got skin in the game of about 60-odd percent shares. I'm not convinced today that the way the business has been diversified is sufficiently going forward. Why do I say that? I think the cycles today in the market, the cycles that we see with commodities the unstability, it's probably time for us to relook at the diversification. And yes, we -- in 20 to 25 countries today, here is we've got exposure to different binding clients worldwide, different currencies and alike. But I think the time is probably coming where we need to diversify outside the specific drilling industry. And I'm not saying we should not be doing more business with our current clients, the current miners, but I'd like to think what I said earlier on, there's some opportunity to probably given the other SKU level, our DNA, to probably diversify into some of -- one or more of those areas, I mentioned earlier. And then I think the last one is just been optimist. I think what we've seen in the last number of years since 2012. I would like to think we're probably well placed today, well set up, given the investments that we've made with a number of machines and assets, which we've really bulked up to either they does change, or seem certainly although commodities seem to be on the up, but really, the company should be doing well in the next 5 or 7 years for all we know. So that's from my side, no more questions from the webcast. Again, thanks for attending the webcast and I'll see you next time, hopefully, with better news. Thank you.