Mitchell Services Limited (MSV) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. I'm Nathan Mitchell, the Executive Chairman of Mitchell Services Limited. On behalf of the Board and the staff, I would like to welcome shareholders and guests to the company's 2022 Annual General Meeting. Whether you're attending in person here at Morgans or whether you are attending virtually, either through the online portal or via telephone conference line, welcome, and thank you for the support and interest. Given the virtual component of the meeting, there's always a small chance that we may encounter technical difficulty. Should this occur a short recess may be required, and I'll advise you accordingly. Today, I'm joined in person by my fellow directors, Scott Tumbridge, Peter Miller, Robert Douglas, Neal O'Connor and Peter Hudson. I'd also like to acknowledge in the attendance of [ my alternate ] Director, Grant Moyle; as well as our Chief Executive Officer, Andrew Elf; and Chief Financial Officer and Company Secretary, Greg Switala. As required under the provisions of the Corporations Act, also joining us this morning is Mark Jeffery from KPMG; and Max Rose from Jones Day. As a courtesy, I'd ask everyone in the room to turn their phones off or put them on silent to avoid disruption of the meeting. And please also ensure that you have preregistered if you are a shareholder. At today's meeting, I'll deliver my annual address, which will be followed by Andrew's CEO presentation. We'll then move on to the formal part of the business where the resolutions of the meeting will be put to a vote. Voting on the resolutions will be conducted in the form of a poll, each security holder eligible to vote today and attending in person will have picked up a yellow voting card. Votes can be cast by either marking the various boxes on the card to indicate your voting intention. At the conclusion of the meeting, please make sure -- ensure that your voting cards are placed in the ballot box as you exit the room. Those shareholders who are attending via the online platform, you will have had the opportunity to cast your vote using the electronic voting card received during online registration. If you experience any issues today, please refer to the online portal or use the help line specified on your screen. Please note that only shareholders, proxy holders or shareholder company representatives may vote in today's AGM. Shareholders will have the opportunity to comment, ask questions on each of the resolutions. Please raise your hand so we can provide you with one of the roaming microphones. It would be appreciated if you could identify yourself and show your card when asking a question. For those who are online, and that wish to ask a question, please tick the Ask Question button, type your question and click submit. You do not need to wait until we begin the formal business of the meeting to submit those questions, so you may begin to do those now. For those shareholders who have dialed in into the questions and comments telephone line, you'll have the ability to ask questions and make comments verbally over the telephone rather than through the virtual platform. Please note if you ask a question via today's online platform, your name will be announced at the beginning of the question. And if there is similar questions, then we'll aggregate those into 1 question. Okay. So to date, proxies have been received from 59 shareholders, representing 103 million ordinary shares, being approximately 46% of the company's issued share capital. All valid undirected proxies and open votes that have been nominated, the Chair of the meeting as the proxy will be cast in favor of those resolutions. Okay. So 2022. In an industry like ours, timing is extremely important. And as I reflect on 2022 and what a year that was, I'm reminded of this importance. By way of background, Mitchell Services had previously acquired a significant number of drilling rigs at the bottom of the market from companies that were placed in receivership. Since that time, Mitchell has embarked an aggressive growth strategy. Initially through the use of those assets acquired out of receivership and later through earnings accretive acquisitions of other operating drilling companies. This growth has seen Mitchell transform from an 8-rig company that generated around $15 million into a business today that owns 100 drilling rigs and that generated last year, FY '22, over $200 million in revenue, an unbelievable opportunity. Most recently, the growth was pursued through organic growth expansion strategies and capital management programs. The timely completion of the investment program has not only ensured that Mitchell remains one of the most diverse drilling companies in Australia, but preordering those 12 rigs that we've spoken so much about, those new state-of-the-art rigs in advance of the supply constraints has positioned us and the business to capitalize on increased demand for specialist drilling services. I was reminded of that today when we were at the QEC Queensland Exploration meeting, and just how much exploration has grown. And I think one of the largest issues that the mining companies -- exploration companies faced was lack of drilling rigs, which only bodes for our business going forward. In June this year, as part of the ongoing fleet management, we entered into a sale to dispose of 2 older rigs, 2 rigs that we bought right at the start in 2014. Now in 2014, we purchased those rigs for $400,000, $200,000 each. And under the terms of the sale agreement last, we sold those for $2.5 million. So it gives you some understanding of the value of 100 rigs. FY '22 saw the continuation of strong commodity prices, which drove increased demand from existing and potential clients across commodities and geographies. This increased demand was driven by various factors, including infrastructure spend, demand for future-facing minerals, a recognition of Australia as a high quality jurisdiction in which to invest and increase budgets amongst our global miners and increased exploration programs. These increased demand levels translated into a greater number of rigs operating and higher revenue, EBITDA and profit in '22 when compared to '21. So year-on-year, we've been able to grow this business, and I will say last year, and as we all know, and we've spoken about COVID enough over the last 2 years, and I'm glad to see the end of it. It's been extremely difficult trying to move 700 staff around Australia, let alone trying to move people just around the city. It has been a huge, monumental exercise for the team. And I think in order to continue to make profits, continue to show growth in such a tough and difficult time speaks volumes to this business. Conversely, supply side constraints also continue to tighten. We continue to see significant barriers to entry for service suppliers. So we saw ability to get equipment, went from 3 weeks to 20 weeks. Again, I think, forward planning around supplies, supply chain, spare parts, we spent a significant amount of money on spares, more so than I've ever seen in 10 years, and I think that's also paid dividends for us. So timing is really important. The Mitchell's Board has emphasized a structural approach to capital development to support future growth with a view to delivering long-term sustainable returns to shareholders whilst ensuring prioritization and allocation of capital to the balance sheet and shareholder returns through dividends and buybacks. As such, I'm very pleased to outline the following summary of the recent implemented capital management policy. Under the guidelines of the formal capital management policy, Mitchell will prioritize a portion of free cash flows to reduce leverage and has no present intention to raise capital to reduce our leverage or for any other reason. The Board has recently set a net debt target of $15 million by the end of FY '24. So you can see the wheels have changed for us and somewhat, we've spent a lot of money, gearing up from 8 to 100 rigs. Now we're looking to return funds to shareholders. Capitalizing on the buoyant market conditions, Mitchell has increased confidence about the future operating cash flows, which underpins the decision to do these returns and return the surplus cash to shareholders. Under the terms of the recently implemented dividend policy up to 75% of Mitchell's reported post tax profits will be paid to shareholders in the form of a dividend. Under the proposed policy, an interim dividend is intended to be declared in February next year, '23, and a final dividend is to be declared in August '23. Mitchell has also initiated an on-market buyback, as you're probably all aware, under which a number of shares will be purchased back, which will not exceed more than 10% of the total fully paid shares. The proceeds from those recent rigs will contribute towards the funding of the buyback and has done so far, which is intended to be in place until at least July next year, 2023. The company has currently bought back approximately 3.2 million shares for a combined consideration of approximately 1.2 million. And we'll continue to do that while the share price, we believe, is depressed in the market where it is and the strength of the business. In closing, I would once again like to thank all staff, customers, suppliers, shareholders, for your continued support. Finishing each day without harm remains a core principle for Mitchell, and it's extremely pleasing that even in this environment of significant growth and COVID, the safety performance and culture across the business remains leading edge. I'll now hand over to Andrew to give his CEO's presentation. Thanks, Andrew.

Good morning, everybody. Welcome, and thanks very much, Nathan. So we'll take the disclaimer as being read and just move through the presentation. So market profile, obviously, Nathan, name on the door and major holder and Scott Tumbridge as well, who was the founder of Deepcore, one of the investments as Nathan alluded to in recent times, another major holder at over 7%. So certainly fantastic from my perspective to have people like Peter Miller and Nathan and Scott on the Board that have really had a lifetime in drilling. As Nathan said, things are heading in the right direction. That's the summary for '22, and I'll touch on the first quarter in '23 as we move through the presentation. But probably the interesting point to note there, a 3.4% increase in shifts leads to a 24% increase in EBITDA. Now there's reasons for that, but it certainly shows that there is a significant amount of leverage that does exist in this business, and that is still to play out as we move forward. So obviously, we've got a leading safety program and culture, as Nathan said. And certainly, that's been a big part of the business in the last year or 2, up over 800 people as of today. So it's gone up since the end of the full year and 100 rigs, as Nathan said, and over $200 million revenue. We have not given guidance to the market in a specific range this year, but fair to say that we expect to have a material increase in revenue and in EBITDA and earnings for the year ahead. We had 84 rigs running as at the end of June, and we've certainly moved forward in a positive manner through the first quarter. That I will touch on as we move through the presentation, but it's going to be another very, very strong year for the company. So just a little bit about the company here, a bit of an overview for those that may not be aware, 90% of our revenue is with global mining majors. Some of those logos there, and I'll read them for people that may be online, Anglo American, Agnico Eagle, Newmont South32, Newcrest [ and ] Glencore, they represent 90% of our revenue. Commodity prices are good. They're very active. Their budgets are up, the demand from them is strong. And certainly, we're in a very strong position with those clients to move forward. The commodity prices are good, as I mentioned. There are supply constraints, as Nathan said. There's long lead times to get gear. It is tight with labor. So a lot of drilling companies decided to not buy more rigs on the basis of who you're going to get to run them. So certainly, I think that our organic growth program, as Nathan said, was conducted at the right time, and it's really going to start paying some very strong dividends for the company as we move forward. And really, this is what we're talking about where we're going, moving forward in a slide, in a summary. It's a very strong cash generation using those rigs that we have invested in and the money we have spent. So revenue up, EBITDA up, CapEx down, debt down, debt's peaked, and I'll talk to that again when we get to the first quarter slide. And importantly, for some of the people here today, obviously, funds returning to shareholders with the buyback already on, as Nathan said. So this is just in a little bit more detail into what Nathan said, so I won't read this slide in detail. But the focus is to be disciplined and take a really disciplined approach to capital management. take that strong cash flow that we are going to generate and return some of it to shareholders, up to 75% of the post-tax earnings. And as Nathan said, the buyback is on and the interim and full dividends are intended. So why invest in Mitchell Services? Obviously, we've got a world-class fleet. There's no doubt about that. We've spent tens of millions of dollars on CapEx over the years, and we are in an absolutely wonderful position. That photo, you can see there is a state-of-the-art drill rig that's about to go to work in the next week or so. And really, that's what the people of today want. The clients, the crews and that sort of thing, we've got a strong client base. Again, 90% of our revenue is from those global mining majors. We're working on their mine sites, and that's the best place for them to drill, grow their resource and add significant resource at a reasonable price as opposed to greenfield where it can take a bit longer with approvals. So certainly a very good client base. Revenue and earnings are going up and materially so in the year ahead, as I said. And again, the capital management strategy, as Nathan spoke to. And importantly, there at the bottom, our equity price is certainly low versus our tangible assets. And when you compare it to the value of the rigs that were sold, as Nathan also said, and certainly, the multiples that we're trading at versus the sector and what traditionally has traded at. So this is probably the important one and what people are probably interested in is what have we done so far this year and where to from here. So again, revenue up 16% year-on-year in that first quarter. Operating rig count up, EBITDA up over $10 million for the quarter. CapEx way down. And again, that's something we're mindful of. We are spending the money we need to spend on the gear. We're maintaining it. Our average breakdown percentage is less than 2%. So we're certainly doing what we need to do to maintain that fleet and still run a very high-quality operation. Debt down 10.6% in a quarter. And as Nathan said, a $15 million target by 30 June '24, and we're certainly on track with that. And the capital investment program is effectively complete where the rigs have been delivered. They've been deployed, they're in the field, they're working, all 12 of them, and every one of them is with a global mining major. They want those new rigs. They want the tech and they're loving it, and they're paying for it. So in summary, good year in '22, up earnings-wise and revenue-wise, and it will be again in '23, very strong. It's a high-quality brand, we've got a lot of history in the industry. Our revenue streams are of very high quality. There's going to be strong cash generation in the year ahead and thereafter. We're absolutely targeting material shareholder returns over the next 2 years. We're going to be disciplined. The buyback is on, and it's happening. We've got the interim and full year dividends that are intended to be declared in the future. And as I said, all in all, I think it's a very compelling investment opportunity. So I'm certainly looking forward to the year ahead. And thanks very much to the Board and all of our teams for all their efforts over the last year. And I'll just hand back to Nathan for the formal business.

Thanks, Andrew. I appreciate that. I think it's a short presentation, but I think overall, the message is loud and clear that we have spent the money that we needed to spend to put ourselves at the top of the rank. And now, we want to look at returning even shareholder dividends and cash. And as the major shareholder, I can say, that's something that we want to do. It's been a 10-year, nearly 10 years now, and that went very fast. But I'm immensely proud of the team, Andrew and Greg and the team on what they've been able to achieve during COVID. And with Scott joining us in 2019, right just before COVID hit, early '20, integrating that business over the last 2 years. And obviously, as we know what happened in Victoria, Victoria was obviously one -- probably the most difficult states to deal with COVID. So I think overall, I couldn't be happier with the team. There's always room for improvement, and we'll continue to focus and strive for those improvements. But overall, we're coming out the back end of COVID now with a new fleet and wind in our sails, let's hope. All right. Let's get on to the formal part of the business. And this is to consider the resolutions, the notice of meeting sets out the resolutions proposed for the meeting. As the notice of meeting and explanatory memorandum have been circulated, I take those as read. There are 7 resolutions on the agenda. Resolution 1 relating to the remuneration report is advisory only, Resolutions 2, 3 and 5 are ordinary resolutions, which means that in order for each of these resolutions to be passed, more than 50% of the votes cast on the resolution must be in favor of it. Resolutions 4, 6 and 7 are special resolutions, which means that in order for these resolutions to be passed, that more than 75% of the votes cast on the resolution must be in favor of it. Resolutions 1, 4 and 5 are subject to voting exclusions, the Notice of Meeting sets out the voting restrictions for each of those resolutions. The first item of business is to consider the final financial statements of the company. This item does not require a vote. The Corporations Act requires that the annual report of the directors, the auditor's report and the financial report be laid before the AGM. Those reports are hereby tabled. I now invite shareholders to comment or ask questions on the reports or the business of the company. Questions may also be asked of the auditors about the conduct of the audit and the audit report. Do we have any questions from the floor, firstly?

Glenn [ Risten ], shareholder. And my question relates to the EBITDA percentage, which to be honest, I feel like I've been coming to these meetings for some time and been promised that they're going to get better and better. But I remember when they were 20%. And in a good quarter, last quarter was 16.5% which, by the way, was actually less than the progressive average of the 3/4 of FY '22. We just had a bad last quarter that stuffed up the year. I hear reports that there's a lot of demand for rigs. People can't get enough rigs. We're serving the best companies. My question is, why can't we get a better return? Why don't we get a better percentage return? Because this is EBITDA, so there's no depreciation and amortization applied. This is just revenue and cost of running. And we don't seem to be making material progress. So I'd like some feedback.

Thanks, Glenn. I'll make a first comment and then I can let Andrew and probably also Greg make some comments from a financial point of view. But I think -- I hear what you're saying, the bigger we get, the higher the costs. I think this last couple of years, just travel costs alone is significantly higher. I booked flights yesterday to go to Sydney, it was $1,800 economy to go to Sydney. Now we're sending 700 people around Australia. So flights alone are expensive. Accommodation now is expensive. I think everyone here is now experiencing the inflationary costs, just in the living costs going up right across the board. I think we're lucky that we don't pay for fuel, a lot of our clients pay for fuel. But fundamentally, things are going up. I also think that wages have certainly moved. We've been driven by Western Australia. Western Australia has driven wages dramatically over the last 2 years in their own cocoon over there when that opened up. That's essentially been a magnet for people on the East Coast to go to WA, which has driven wages. But I hear what you're saying. And obviously, our driver is to get EBITDA as high as we possibly can. But we also are mindful of the fact that we work for the Tier 1 guys. And we're here for the long haul, not the short haul, and there is an opportunity to be able to push the prices significantly, but that's a very short-term site. I think we want to be here working for these guys for the long haul. And as a listed company, our shareholders want to see not a 3-week contract or a 6-week contract or a 6-month contract. They want to see a 6-year contract, which is unheard of really in our game, but we're getting it because we're dealing with the Tier 1s. So there's a trade-off in some of that for sure. Costs go up, margin -- we're pushing margins up. But that's -- it's part of the game. And I think where we were in the last 12 months it's been difficult, but I think we're coming out of that. Andrew, I'll let you make some comments to that.

Yes. Thanks, Nathan, and thanks for the question. I certainly think we're heading in the right direction. We've reset the rates on a lot of contracts, and we're doing our best to overcome some of those inflationary challenges that Nathan has spoken to. I think wet weather hasn't stopped. We got belted, there's nothing we can do. And we're still getting affected by the wet today. We work with Newcrest Cadia in New South Wales, and they've been devastated by the rain that's come through there. At the same time, the number of shifts has been increasing materially. We just put 12 brand-new rigs out into the field and mobilized. We had to hire those people, train those people. We've had to get all the gear for those rigs. We've got to transport them to the site and get them up and running. So all I can say is that the culture is excellent. The safety performance is excellent. The prices are right. The clients are right. We're doing everything right. The EBITDA will come, there's no doubt about it. I'll stand by that. I just think, as Nathan said, it has been a very tough trading environment. And I think the teams have done a wonderful job. And the platform and the foundation is very well set. And from here, we're just going to keep producing the best we can and keep doing the right things. And the returns for shareholders will come. It's really just a question of how good will they be? We're certainly doing our best.

Greg, do you want to make any comments about the EBITDA?

The only thing I'd add to that and agree with the reasons or drivers in terms of the historical performance. It is pleasing to know to -- Andrew put a slide up in terms of the summary of first quarter FY '23. And take your point, looking back, we've hit 20s in the past. Not quite back there, but it is pleasing to note to think that the quarter was sort of circa 17%. So you can see heading in the right direction as COVID, as wet weather and as importantly, ramp-up starts to normalize. So we certainly -- I'm in agreement with Andrew in the sense that our expectation would be that, that continues to tick up, albeit slowly.

Moderator, have you got any questions from -- or any more questions from the floor? Beg your pardon. Sorry.

I'm a bit confused. I got a lot of general questions, but hang on before you go. Don't you want the voting out of the way first for the resolutions and then take questions from the floor?

This one is to do with the audit and the audit committee, but we can have more general questions at the end. Don't worry about that. That's fine. So if you want to hold off.

Michael [ Mennel ], retail shareholder. My biggest holding is in Mitchell. And my second is an IMDEX. Just a couple of things. We've mentioned EBITDA. In the previous 3 announcements, COVID has been mentioned regularly. So I did some investigation and I've become friends with a fellow who works for a contractor, who works with Santos drilling coal seam gas around the Dalby, Roma area. He's also called Mike and I said, Mike, what -- how is this COVID affecting operations? What you explained to me is, they work in a team of 4. Back a year ago when COVID was racing around, we had all these restrictions. He said it just needs 1 member of the team to have COVID or even at its height, a close association, and the team can't go out. We then have to stock high-tech crew from other crews and other drills and that. And when he explained that to me, I could see that just -- a chain is as strong as its weakest link. You only need 1 person in the team to not be at the drill rig and the drill rig doesn't operate. So I fully understand what a blooming nightmare COVID has been for you. And well done for managing it. You mentioned the logistics, what a hassle it's been. The second thing, though, this is a question, is rainfall. Again, not so far back, but recently, your updates and your presentation to [ news ], et cetera, mentioned rainfall. It so happens, I have a very close friend who works as a truck driver on the coal mines in the Bowen Basin, Isaac Plains and various other mines that she's on. So I said to Amanda, I said, "Look, I'm studying the rainfall map up there. And you're constantly saying, "We had this [ in the crib ] all day, we couldn't work." But that -- it only shows that there was about 6 or 7 mills fail. What's going on? And she said, "It's not the water in the pit. It's if the ramps going out of the pit get wet, that trucks have very little traction and can't get out." And that made sense to me, so -- since we lose days on it. However, I said, "Well, what about the drillers?" And Mitchell happens to be drilling on a couple of the mines she works because she's on coking/metallurgical coal. She said, "Well, I don't have a lot to do with the drillers, but I don't think it affects them that much because they're not drilling in the pit so much. They're drilling on the surface where the pit is planning to go." So I know out in the Cooper Basin, the way I've been out there on the South Australian border, it's as flat as billiard table. You get 50 mill of rain, that water can sit there for weeks. But it's reasonably undulating around the Bowen Basin and that. So my question is how -- Hunter Valley has had a lot. But why has rain been such a devastation when you're not drilling in the hole, but on top of the hole? Can you just explain to us how that works?

Sure. I think the issue with rain is it's a client issue. Like we could continue to work through the rain. It's the issue is we're really driving on landholders property. And I can tell you that fundamentally, even more so onto ESG, the miners are very concerned about the welfare of the ground they're on and the properties they're on and who they're working with. It's their #1 issue. And we're out there as the face of that mine, whether it's Mitchell or whether it's BHP or whether it's whoever it is. In the pit, different story. No one sees what happens in the pit. But we're the face of those people. So fundamentally, we're running around tearing up tracks, drilling, whatnot. Most of the time, they'll just say, shut it down, wait 3 days. And if it dries back out, you can go back out to work. And that's just been the way it's been forever. And unfortunately, this year -- and normally, that would be December, January, February, you pretty much ride the bubble by it every year for whatever, for 10 years, we've been exceptionally lucky. There's been a drought in Australia. Lucky for us as drillers, terrible for farmers. But we had a great period there where it never rained. So we worked all the way through Christmas, all that sort of period. This year, it's been raining all in the middle of the year, which is just unbelievable. I don't know why. And Sydney, it just seems to have been getting it now, too, in the middle of the year. And seasons have changed, things have changed. But by the time you lose 3 days, then it rains again 3 days later. Then it rains again, then it rains again. And then you lose shifts, you lose days. And that's pretty much one of the major issues that we face is around rain. Andrew?

So probably just that -- from a commercial perspective, we do generally get remunerated when it is raining, but there's different contracts, they've got different levels of renumeration. So some may be for a period of time, some might be for days, then it stops, and then it keeps going. So there's different commercial models, but you're never going to make as much money on a standby rate waiting for wet weather as you are when you're drilling and getting meters. So really what you're doing when you are down with wet weather is you're sharing that risk with the client and saying, "Look, we'll cover your costs, but we're not going to let you make a margin. So we're happy to remunerate you and protect you so that you've got a sustainable business model, but you're not here to profit from us and make a margin when the weather is bad." And so further to the previous question, too, if you can imagine, you've got a number of rigs every single month getting impacted by the weather, it can just drag that EBITDA down by a percentage mark or 2. So you think about -- like yesterday, for example, we had rigs down at [ Manheiser ], down out near Boulia, down. The Cadia, down. Everything else, running. 50% of our business is underground. Those rigs generally keep running, not impacted by weather, which is great.

But you have to access them as well. Everybody lives down on [ the piece ].

Yes. So I certainly think everything Nathan says is 100% correct, and we're certainly doing everything we can to operate safely, manage client expectations, look after landholders, the community and have a sustainable commercial charge to the clients to protect ourselves.

Well, thank you for explaining that. I'll just have one more question. I've got plenty more, but I'll give the others a go. I used to work at the [ CSR O'Conner set ] station, so on those black cotton soils. I know exactly what happens when you get rain on those soils. You go straight down to the axle and your wheels spin for days. So I had no idea that it was the farmers who were preventing it because it's churning up their paddocks and fields and everything else. So thank you for explaining that. My last question for the moment is -- relates mainly to Andrew, is I've owned Mitchell on and off before I knew about the company, before AJ Lucas took it over and then -- and so on. And I've read the history, how your dad started the company in the 1960s and you as an early adult joined, and then eventually took over. And reading the history and how your dad did things and everything else, I think you started off as a water bore driller.

That's right.

Yes. Is the thing that came through was this was a lean and mean machine of a company, running on the smell of an oily rag. None of these fancy camps anymore, they had a bit of a tarp they would rig up and sleep under that. And both you and the CEO mentioned the culture. Is this culture -- you spoke about how you save money buying rigs from bankrupt countries. But because that's how I try to and run my own business in life. Is this culture of saving money wherever possible still strong in the company? Or is it a case you've got so big now that that's drifted away.

Andrew, you want to answer that one?

Perhaps you could give an example.

Look, I think the first thing we try and do is just we may be -- I would say we're still a small business at the level we are, but I think we are certainly bigger than we were. But I'd say be big, act small. And that's certainly how we look at it. We like to still run it like a [ locker ] family business, [ locker ] is your own rig. And I think it's a very flat structure we've got. Management is very close to the rigs and the operations. The Board are regularly in the field, on regularly in the field with clients, with teams, underground surface. And we're a contractor, we're a service provider. We can't be fat. If we're fat we're dead. So I think that we are very -- laying as lean as we can be within reason to still do a very, very good job for the clients that have got very high expectations. So I certainly think that we are very, very disciplined. As Nathan said, I think we can always do better and find a better way. That's behind me on the screen is what it's all about, just find a better way. But certainly, I think we've seen some positives come out of being a larger company, and that's where we've really been able to push suppliers harder with volumes and with discounts and driving more volume through less supplies. So that cost reduction program has been a big success, and it has saved us probably over a couple of million dollars in the last year or so. So I think we're very disciplined. I think we're very organized. And I certainly don't think we're fat by any means.

Look, will say, I think the business is very different from -- and all businesses are very different from 40-odd years ago. And I think fundamentally, the issue is around attracting talent to this sector. And yes, the younger generation are coming through now are just not going to do the tent thing and work in the field thing and all of that sort of stuff. And so we -- I get what you're saying and that's where I was brought up in. But today, we're having a hard enough time trying to encourage people to go to the field as it is. And we're not the only one like that. The mines are doing the same thing. So when you go to a mining cap, it's very flashy. You've got your own room, your own accommodation, your own toilets, you've got a gym, you have exceptionally good food because they're trying to attract people, and we have to play the same game. We can't be subpar to those guys or we will lose those people to the mines. They're working alongside your friend who's a truck driver. And he's probably already earned more money than we are, than we're paying our guy. So we are always trying to make sure that we retain our people and attract the right people to the field. So it's a different world, and it is a struggle between trying to keep the old world and the new world together because you're right, drilling industry has always been about keeping it lean, keeping it mean. Well, I think we've got -- we're on both sides of the page here. We're trying to, anyway. Any other questions from the floor? There'll be more questions later on each of the resolutions, if you want. Glenn?

I have a question on the buyback process. Okay. It's been going for 4 months now.

Yes.

We've bought about $3.2 million, which is about 15% of the target -- stated target, and we've spent about $1.2 million, which is only -- I was trying to work out whether we were relying on sales of old equipment for all of the purchases. But it doesn't -- I don't think you said that. I think you're just using that as part of it. So my question is, we don't seem -- I'm trying to understand the policy or the rules behind this buyback process because we don't appear to be or our broker just doesn't appear to be particularly aggressive in doing it, and there is many a day when we could have bought within the limits of the rules, and we haven't bought shares that were available. So I'm just wondering what's the plan here? Because we're 1/3 of the way through a year, and we bought 15% of the target. So where are we going?

Sure. Thanks, Glen. I think what -- I can hand it over to Greg, but initially is if we could have spent the $2.4 million on day one, whatever at the share price that it was, but we can't do that under the rules. And Greg, I think you should probably -- a good opportunity just to inform everyone the limitations that we are under around buying shares.

Thanks, Nathan. So 2 main rules. Glenn, in terms of the buyback. The first 1 is that the market has got to set the first price. So irrespective of 5-day with VWAPs, irrespective of anything legacy, market has got to set the first price and we can only buy along those lines. So even if there was a buy line out there right now, let's say, for $0.40, we couldn't act first. It's probably been the biggest restriction. And then secondly, just the 5% rule in terms of the VWAP, so we can only go a maximum of 5% more than the trailing 5-day VWAP which, again, depending on where the market is, restricts us in terms of what we can and can't do. What I can say is that 3.2 million shares and $1.2 million worth represents about 25%, 26% of the overall volume, which I would have thought is fairly significant. So we are picking up 30% of the volume. We -- as Nathan said, we're happy to buy where it is right now and view it as cheap. And so it's just a -- it's really just a case of having to operate within those rules, which is -- so when you do see, no doubt, you would have seen a couple of days recently where there was nothing. That was really just the case of not being able to by virtue of those requirements.

Yes. And I think just to add from a cash perspective, if we are going to sell assets from the company, you're reducing the earnings capacity of the company by having less rigs, it makes sense to reduce the number of shares on issue as well. So it's not our intention to sell any more shares, but never say never, of course -- rigs, sorry. But that that's really the thought process there from a cash perspective. But obviously, it's a Board decision in the future, how they choose to use that 75% of funds post-tax between [ DVs ] and buybacks.

Does that make sense, Glenn? Thank you. As I say, look, if we could buy more, we would, but we are at where we are under the rules of the ASX. Any other questions from the floor?

Michael [ Mennel ]. Thank you, Glenn. I was going to ask about the buyback. Thank you for your answer. I used to own Swick. Not own Swick, shares in Swick. As you know, Kent Swick started the company, had his -- makes his own rigs and specialized in underground drilling and created a fantastic niche. His ventures in America and Spain though, cost the company an arm and a leg, and I sold prior to the takeover by DDH. Now DDH are massive, Boart Longyear are massive, but they're mainly in the west -- well, DDH is always been in Australia. I'm not quite sure how much Boart are here on the East Coast. But as far as I can see, we in Mitchell are #3. So my question is, who are your main competitors here on the Eastern Seaboard, stitching from under [ Isa ] right down into Victoria? And I know you've got this huge mine called Fosterville in Victoria, and I don't know who their drillers are. Who are your main competition? It's a 2-part question. Part B is, do you get an inkling or any sort of smell that there might be somebody out there wanting to do a takeover of Mitchell?

Look, I think on the East Coast, we are on the West Coast as well, on the small -- yes, we are. We're currently working in Western Australia. It's a tough market, but we are over there with a major. And so that's been very good for us. East Coast, I think, still DDH1 is our largest competitor in the mineral sector. They are here on the East Coast.

Is that nickel and copper, mainly?

Yes. Boart Longyear are here as well on the East Coast. Everyone is here on the East Coast. So there's no shortage of contractors on the East Coast, trust me. In Victoria, Deepcore has got a business that we acquired, does the work for Fosterville.

Oh, do they?

Yes. So that was one of the fundamental reasons why we did a deal with Scott because of that Victorian market and so that was one of the reasons why we did it. So we're pretty much the major contractor in Victoria and Foraco, and there's a few others. They compete against us on the minerals. And my old company in AJ Lucas competes against us in the coal. So that's probably the 2. Andrew?

We're #1 market position in Eastern Australia.

Yes. Yes, you are.

Yes. And as Nathan says, we've got presence elsewhere, too.

And part B, the takeover of Mitchell Services?

Neal?

In relation to any circumstances by which there may or may not be a takeover, we'd obviously comply with our disclosure obligations as and when that came.

But do you have a sense of it? What's you vibe or your instinct that are the people out there looking you? Do you get that feeling?

Well, I would be surprised if people weren't looking, but certainly, there's nothing to disclose.

And I would agree with Neal. I think our share price now is very cheap. But at this stage, we're just focusing on -- I think we're just focusing trying to run a good business, get out the back end of COVID and really sort of try and hit our straps is our focus at this stage. Any other questions from the floor? Moderator, if not -- moderator has any questions from the telephone lines?

We have no questions from the telephone line at the moment.

Thank you. Is there any -- any other questions? No, great.

No questions online either, Nathan.

Thanks, Greg. Okay. Now neither the Corporations Act nor the company's constitution requires a vote of the shareholders at the AGM on the financial statements and reports. We, therefore, move to consider the resolutions of the meetings. Resolution 1 is a nonbinding resolution seeking shareholder approval to adopt the remuneration report for the financial year ended 30 June 2022. Shareholders are asked to consider and, if in favor, to pass the following resolution under Section 250R2 of the Corporations Act that the remuneration report for the financial year ended 30 June 2022 be adopted. The presentation of the remuneration report is a requirement for all listed companies. The company's remuneration report is included in the company's 2022 annual report. The vote on this resolution is advisory only and does not bind the directors or the company. The proxy votes that are eligible to be voted on this resolution are displayed on the screen. The proxy votes received to date are as follows: 28% received. For, 96%; against, 3.1%. Again, is there any questions on the report from the floor?

There are no questions from the floor.

Any questions from the moderator?

There's no questions online, Nathan.

Great. Thank you, guys. Thank you. Please now select either for, against or abstain for the Resolution 1 on your voting card. [Voting]

Okay. We now move on to Resolution 2, which is the reelection of Neal O'Connor as the Non-Executive Director of the company. Shareholders are asked to consider, and if in favor, to pass the following resolution as an ordinary resolution. That Mr. Neal O'Connor, who retires in accordance with Rule 5.1 of the company's constitution and the listing rules, being eligible, offer himself for reelection, be reelected as a Director of the company. Mr. O'Connor was appointed as a director in 21st of October 2015, and most recently reelected on 27th of November 2019. Mr. O'Connor is the Chairman of the Remuneration and Nomination Committee; Mr. O'Connor was formerly General Counsel and Company Secretary, and an Executive Committee member of the global Xstrata Copper. He has extensive experience in the resources industry and brings a focus on corporate governance and risk management to the Board. The proxy votes that are eligible to be voted on the resolution are displayed on your screen. The votes received to date are 46.35% cast. 98.34% for, 1.3% against. Are there any questions from the floor?

There are no questions from the floor.

Moderator, any questions? Greg?

No questions online, Nathan.

Thank you, Greg. Can I please ask you now to vote for, against or abstain for the Resolution 2 on your voting card. I now move to Resolution 3, which is the reelection of Scott Tumbridge as Executive Director of the company. Shareholders are asked to consider and, if in favor, to pass the following resolution as an ordinary resolution, that Mr. Scott David Tumbridge, who retires in accordance with Rule 5.1 of the company's constitution and the listing rules be eligible, offers himself for reelection, be reelected as a Director of the company. Mr. Tumbridge was appointed to the Board on the 29th of November 2019, as an Executive Director upon the acquisition of Deepcore and was elected by the shareholders as a Director on the 27th of October 2020 at the company's 2020 Annual General Meeting. Mr. Tumbridge, the founder of Deepcore has over 25 years' experience in the Australian mining and drilling industry and has a proven track record of business development, innovation and operational excellence. The proxy votes that are eligible to be voted on this resolution are displayed on the screen. And to date, they've been received 46.35%. received. 98.13% for; 1.31% against. Are there any questions from the floor?

There are no questions from the floor.

Thank you. Moderator, any questions, please?

No questions online, Nathan.

Thank you. Now please select for, against or abstain for the Resolution 3 on your voting card. We now move to Resolution 4, which is the approval of an additional 10% placement capacity for the company under Listing Rule 7.1A. Shareholders are asked to consider, and if in favor, to pass the following resolution as a special resolution, that for the purpose of listing Rule 7.1A and for all other purposes, shareholders approve the company having an additional capacity to issue equity securities up to 10% of the issued capital of the company at the time of issue, calculated in accordance with the formula prescribed in Listing Rule 7.1A2 until the earlier of: one, the date that is 12 months from the date of this meeting; two, the time and date of the company's next AGM; three, the time and date of shareholder approval of a transaction under Listing Rules 11.1.2 and 11.2. If this Resolution 4 is passed, the company will be able to issue equity securities up to the combined 25% limit in Listing Rules 7.1 and 7.1a without any further shareholder approval. The proxies' votes that are eligible to be voted on, on this resolution are displayed on the screen. To-date, we received 46.3% of the votes to be cast. For, 98.07%; against, 1.55%. Are there any questions from the floor on the Resolution 4.

There are no questions from the floor.

Any questions from the moderator.

No questions online, Nathan.

Thanks, Greg. Thank you. Now if you can please select either for, against or abstain for Resolution 4 on your voting card. We now move to Resolution 5, which is the ESOP approval. Shareholders are asked to consider and, if in favor, to pass the following resolution as an ordinary resolution. For the purpose of Listing Rule 7.2, exception 13, and all other purposes, approval be given in relation to the issue of up to 11,135,279 securities including rights, options and shares under the company's employee share and options plan as described in the explanatory memorandum. The proxy votes that are eligible be voted on, on this resolution are displayed on your screen. Proxies received to date are 46.35%. For is 99.3%; against, 0.32%. Are there any questions on the ESOP from the floor?

There are no questions from the floor.

Any questions from...

No questions online, Nathan.

Thank you, Greg. Can you now select either for, against or abstain for Resolution 5 on your voting card. We now move to Resolution 6, which is the repeal and replacement of the constitution. Shareholders are asked to consider and, if in favor, to pass the following resolution as a special resolution. Now for the purposes of Sections 136-1B and 136-2 of the Corporations Act 2001 and for all other purposes, the existing constitution of the company be repealed and the company adopt replacement constitution in its place with effect from the close of this meeting. The company's existing constitution was adopted in the eighth of February 2011. Since that time, there's been substantial changes in the listing rules and the laws and regulations applied to ASX-listed companies. Accordingly, the company seeks to repeal existing constitution and replace it with the replacement constitution, which reflects these amendments. For the purpose of identification, a copy of the replacement constitution is hereby tabled next to me. The proxy votes that are eligible to be voted on in this resolution are on the screen. Proxies received 46.35%. For is 99.58%; against, 0.04%. Or any questions on the constitution from the floor?

There are no questions from the floor.

Thank you. Any questions from online?

No questions online.

Can I please now ask you to select either for, against or abstain for Resolution 6. We now move to Resolution 7, which is the ratification of appointment of the auditor. Shareholders are asked to consider and, if in favor, to pass the following resolutions as a special resolution that for the purpose of Section 327B of the Corporations Act 2001 and for all other purposes, approval is given for the appointment of KPMG as the company's auditor with effect from the date of the meeting. As announced to the ASX on 28th of January this year, 2022, the company appointed KPMG as the company's auditor following an extensive and competitive tender process. KPMG was appointed to fill a casual vacancy in the role of the company's auditor under Section 327C1 of the Corporations Act and accordingly, is required to be appointed at the company's Annual General Meeting. The proxy votes that are eligible to be voted on this resolution are on the screen. To date, we received 46.35% of the votes. For, 99.6%; against, 0.02%. And any questions from the floor regarding the appointment of the auditor?

There are no questions from the floor.

Thank you. Greg, any questions online?

No question, Nathan.

Thank you. Can you now please select either for, against or abstain for Resolution 7 on the voting card. Okay. That now concludes the formal part of the meeting. Shareholders are also reminded that they should please drop their voting cards in the ballot box and online voting will remain open for another 5 minutes until after the meeting. The results of that poll will be announced on the ASX later today. So before we close up, is there any more general questions or questions for the Board? Questions for the company?

Okay. Me again, Michael [ Mennel ]. Not a question, but I just want to say congratulations to the company. I read every report in great detail. And I used to correspond directly with Kent Swick, when he was the founder/owner of Kent drilling that part of the deviation. Well, not all that often, 3 times a year, but Kent used to always write back to me. And one year he brought out a report, and I wrote him and I said, "Kent, this is only half as long as your previous report. Why?" He said, "Oh, I thought the previous reports were too long and the shareholders wouldn't bother reading it." I said, "Hold on, mate. This is our life savings invested in your company. I said it can't be too long. We will -- blooming will read it from top to bottom. So he went back to 25 or 30 pages after that. And I don't think he realized until I had said it to him that, yes, we're not multimillionaires, but we are willing to invest our life savings. And there's 2 people in this room who I know we've got a big percentage of the savings in the company. So please keep up the detail in the reports. I love the fact that you do presentations like at the Noosa Mining Conference and elsewhere. And particularly, congratulations on the fact that -- my understanding is it isn't a legal requirement. For non-mining companies have to produce it quarterly, but as far as I know, you are -- Mitchell is an industrial company, yet you still bring out a quarterly between the interim and the annual report. Keep it going. It keeps us in the loop. It helps us. I've learned a lot today, for example, the land owners. It didn't enter my head that was a problem, but it's a huge issue. As I said, I know how those soils get so boggy. So congratulations on a fantastic year. As we've learned today, COVID has been a massive problem along with rain. We all want the rain to continue but not -- where I'm living the -- we lost the sorghum crop. There was just too much rain, and it rotted in the ground. It was a pitiful site, you drive in from Dalby and see the sorghum rotting. There are still cotton bales standing there a meter deep in water, breaks your heart. Cotton is supposed to be harvested in April. It was harvested in July, August and there were bales there up until 3 weeks ago, and they've lost that. Pray to God they get this wheat harvest off while we've got a bit of sunshine. All things considered, I think Mitchell now are on the cusp of a great 12 months ahead. That's the feeling I had before I came here, and I think I can safely say that's the feeling I'm leaving with. So well done on all of you for a fantastic year and full steam ahead. Thank you.

Thank you. Thanks, Mike.

Michael, I think we all agree with you, there's a great 12 months ahead.

Yes, Tim Evans, shareholder. I just want to say also, well done on the change of capital management policy. I think the mindset shift for the company and the Board will reap rewards for shareholders and I think it will instill a change of mindset around how the stock is traded. So I just want to say well done.

Thanks, Tim. Yes. It's a difficult one. The mining sector is an unloved -- mining services sector is an unloved part of the ASX, and we're not the only one struggling with regards to shareholdings or share price, I should say. But our focus is just running the business. In this year, hopefully, the share price will reflect a well-run business at some point in the future. And so I agree. I think we've changed tack. But I am -- we thought about changing tack before buying those rigs, and it was a tough decision. And there was a lot of pressure from people to say do what you're doing now, do that 2 years ago or a year ago. And we struggled with that decision. But I think we made the right decision again. I think we've made a right decision. We've had a couple of bad decisions which we would rather forget, our [ out of man ] days. But fundamentally, nearly all of our decisions have been pretty good so far, which touch wood continues to date. So yes, a change of tack is where we are. And we'll get all our rigs out working. Any other questions?

Ralph Matson, shareholder. I have 2 questions, they run together. The first question is for the year ending 30th of June '23, how much money are we likely to pay the tax department in tax? I'm trying to get a feel for what quantity of franking credits are available to attach to the dividend, if any?

Greg, I'll hand that over to you, the CFO.

Thanks, Nathan, and thanks for the question. To answer the first part of the question, Nathan mentioned that the timing of the capital investment program was a positive one, obviously, supply chain constraints, et cetera, et cetera. Why it was also the positive from a timing perspective was it coincided with the ATO's instant asset write-off policy, essentially a COVID stimulus mechanism, I suppose. So all 12 of those rigs plus additional growth CapEx to the tune of about $40 million in this last financial year was able to be written off from a tax perspective. So we've got accumulated tax losses within the business of $40 million approximately. So certainly not going to be paying cash tax in the next year and probably then some is the first part. I suppose, to your point then, in terms of how that affects franking credits. That will then mean that the franking credits only become available down the line. There is franking credits available right now that would enable us to pay a fully franked dividend of about $3 million. And then from that point on, it will be dependent on future tax payments which, as I sort of mentioned earlier, might be in years to come. But certainly, the next sort of $3 million would be on a fully franked basis.

Sure.

[indiscernible] Just 1 more question, If I may. Based on the answer, which as I understand, is the Board considering paying an unfranked dividend this year?

I think we would use -- Greg, we'd use those franking dividends. Our first dividend, hopefully, is in August?

Yes. Look, it will really depend on the quantum of what that is, and obviously, not giving guidance now in terms of what that profit number and dividend number looks like. Obviously, the first $3 million would be fully franked. And I suppose then -- I can't talk on behalf of the Board, but then it would be a Board decision in terms -- then in terms of that surplus-free cash do you, do you go unfranked? Do you continue to extend the buyback subject to where the share price is? So probably a little bit too early to answer that other than to say the first $3 million would certainly be paid a fully franked basis.

I think it's always been a struggle of buybacks versus dividends. But I think at the share price where we are at the moment, it makes sense to continue to do the buyback. And if the shares start to run, then that's great, and we'll look at a dividend at that point. But again, we can't speak on behalf of the Board, but it's logical that we would look at that. Any other questions? Okay.

Sorry. It's really a follow-on from the question asked here. In a sense of trying to understand where our profit might be for '23 and beyond, I'm looking at the depreciation and amortization numbers, which are significant, but they've been significant for a number of years for '22, there are 27 depreciation on 3 amortization. And for '21, they were 23 depreciation and 7 for amortization. So I'm just wondering if there's any guidelines about where that number -- those numbers might be for '23, '24?

Greg, go ahead.

So in terms of the amortization and the amortization arises from the intangible asset value that we ascribe to Deepcore's customer contracts, they are all but fully amortized now. So in terms of FY '23, there will probably be about $1 million come through for amortization. And that is that's not information not available to the market. There's the sort of details around the intangibles note in the accounts there. So about one for '23 and then nothing ongoing. Depreciation, given the fact that we've sort of called out a much lower CapEx level, we'll probably in the short term remain at around about that $27 million mark and then start to drop off quite substantially with every year that goes by in terms of that lower CapEx. But I think for purposes of FY '23, you're probably safe to use there or about the $27 million number.

Okay. Any other questions from floor. Greg, is there any questions online?

No questions online, Nathan.

All right. If there's no further business, then I declare the Annual General Meeting closed. Thanks for your attendance. There's some food and drink at the back. Thank you.