Orbit Garant Drilling Inc. (OGD) Earnings Call Transcript & Summary

Good morning. My name is Sylvie, and I will be your conference operator today. At this time, I would like to welcome everyone to the Orbit Garant Drilling Annual General Meeting and Shareholders via teleconference and webcast. And I would like to turn the call over to Company Chairman, Jean-Yves Laliberte. Please go ahead, sir.

Thank you. Good morning. My name is Jean-Yves Laliberte. I am Chairman of Orbit Garant Drilling Inc. I am pleased this morning to welcome you to the Annual Meeting of Shareholders of the company. As is our custom, this meeting will be conducted in English as a courtesy to all the company's shareholders, many of whom are resident outside of Québec. Thank you to all of our Francophone shareholders for your understanding. In light of the ongoing public health concerns related to COVID-19 and in order to comply with the measures imposed by the federal and provincial government and social distancing protocols, we are providing shareholders with the option to listen live to the meeting by conference call or webcast, but not to participate in or vote. As per our proxy materials, we strongly encourage our shareholders to vote in advance of the meeting by proxy. We welcome shareholders who are listening to this -- the meeting by conference call or webcast. At today's meeting, I will act as Chairman of the meeting, and our Vice President and Chief Financial Officer, Mr. Alain Laplante, will act as Secretary of the meeting. With the approval of the meeting, I appoint AST Trust Company's representatives, Francine Beausejour and Isabelle Vachon, to act as scrutineers. The first formal item of business is the notice of meeting. The notice calling this meeting, the accompanying management information circular and a form of proxy were sent by first-class mail to all the directors, shareholders and to the auditors of the company and a return card for requesting delivery of the company's annual or interim and financial statement. I am presenting to the meeting an affidavit of mailing of AST Trust Company, which confirms the mailing of the notice circular and proxy. A copy of the notice of meeting and this affidavit will be attached to the minutes of this meeting. Unless there are any objections, I propose that the reading of the notice calling this meeting be dispensed with. Since there is no objection, we'll start with the next formal item of business is the convening of the meeting. The scrutineers have provided a preliminary report on attendance, and I confirm that there is a quorum present. The formal report will be kept with the minutes of this meeting. As a quorum is present and as due notice of the meeting has been given, I declare the meeting to be duly convened and constituted. To the best of my knowledge, if a ballot were to be conducted on any matters that we consider at the meeting, the total number of votes attached to shares represented by proxy, which require a vote against such matter is less than 50% of the votes eligible to be cast. Accordingly, voting will be conducted by a show of hands on all matters to be considered unless a ballot is demanded. I now present to the meeting a copy of the annual report of the company, which includes the financial statements of the company and the auditor's report thereon for the year ended June 30, 2020. Copies of these documents were mailed to shareholders that requested them, and they are also available on the company's website and on SEDAR. I do not propose to read them to the meeting, and will, therefore, move to the next item on our agenda. The next formal item of business to be dealt with at the meeting is the election of directors. Five directors are to be elected at this meeting. The company's bylaws require that shareholders provide advanced notice of any director's nominations to the company prior to an annual meeting. Apart from the directors listed in the management information circular and proxy statement for this meeting, no additional individuals have been nominated for election. So I'll ask if there is a proposal?

I nominate the following person individually for election as directors of the company to hold office until the next Annual Meeting of Shareholders or until their successors are elected or appointed: Eric Alexandre, Pierre Alexandre, Jean-Yves Laliberte, Pierre Rougeau, Nicole Veilleux.

Thank you, Mr. Sylvain Laroche.

I second each nomination.

Thank you, [ Mr. Morel ]. We will now proceed with the election of each of the person who has been nominated for election as directors of the company. The company has adopted what is commonly referred to as a majority voting policy. Under that policy, a director is required to tender his or her resignation if he or she received more with old votes than vote cast for his or her election. Based on the proxy received for the election of directors, if elected, none of the nominees would have to tender his resignation under our majority voting policy. I declare the nomination to be closed. I believe that Daniel Larose will move the resolution?

Yes. I move that each of Eric Alexandre, Pierre Alexandre, Jean-Yves Laliberte, Pierre Rougeau and Nicole Veilleux be elected as director of the company to hold office until the next Annual Meeting of Shareholders or until their successors are elected or appointed and that the Chairman of this meeting be authorized that -- to cast a single ballot for the election of 5 persons as director of the company.

Thank you, Mr. Larose.

Pierre Alexandre. I second the resolution.

Thank you, Mr. Alexandre. All those in favor of the resolution, please signify by raising your hand. [Voting]

Withheld, if any? [Voting]

There's none. I declare this resolution to be carried and those nominated to have been duly elected as directors of the company to hold office until the next Annual Meeting of Shareholders or until their successors are elected or appointed. The next item of business to be transacted at this meeting is the appointment of the auditors of the company and the authorization of the directors to fix the compensation of the auditor.

Nicole Veilleux. Mr. Chairman, I move that KPMG LLP be appointed the auditor of the company to hold the office until the next Annual Meeting of Shareholders or until a successor is appointed. As such, compensation as may be fixed by the directors that the directors be authorized to fix the auditor's compensation and that the Chairman of the meeting be authorized to catch a single ballot in favor of this resolution.

Thank you, Ms. Veilleux.

[indiscernible] I second the motion.

Thank you. A motion has been made. All those in favor, please signify by raising your hand. [Voting]

Contrary, if any? [Voting]

There's none. Thank you. I declare the resolution to be carried and KPMG LLP to have been duly appointed the auditor of the company to hold office until the next Annual Meeting of Shareholders and the director of the company and has been duly authorized to fix the compensation of the auditors. Now that the formal item of the business has been completed, I would like to terminate the formal meeting, following which we will receive a brief presentation from management, our CEO, Eric Alexandre.

Pierre Alexandre. Mr. Chairman, I move that the meeting be terminated.

Thank you.

Daniel Larose. I second the motion.

All those in favor of the termination of the meeting, please so signify by raising your hand. [Voting]

Contrary, if any? [Voting]

None. I declare the motion carried and the meeting -- the formal meeting terminated. Now we would like to provide a brief presentation of the company's fiscal 2020 and fiscal 2021 first quarter performance. I'd like to introduce Eric Alexandre, our President, Chief Executive Officer, to lead the discussion. Eric, please? Thank you.

[Foreign Language] Please be aware that certain information discussed today may be forward-looking and that actual results could differ materially. We will also be discussing certain non-IFRS measures. Please refer to our SEDAR filing for additional information on both our risk factors and non-IFRS measures. We entered fiscal 2020 with positive momentum as demand for drilling services in Canada was steadily increasing compared to fiscal 2019, reflecting the increased price of gold and the resulting improved access to capital for mining companies. For the first half of fiscal 2020, our revenue increased 15% compared to the same period in fiscal 2019 while our gross profit and EBITDA were up 10% and 41%, respectively. This growth was driven by the strong performance of our Canadian operations, which more than offset a 4% decline in revenue from our international operation that reflected the completion of a multiyear drilling contract in Chile in the fourth quarter of fiscal 2019, in addition to civil protest in Chile and regional security concerns in Burkina Faso. Our positive momentum in our domestic drilling business continued into our third quarter of fiscal 2020 and the outlook of our international operation was improving up until we were impacted by the COVID-19 outbreak starting in mid-March 2020. As a result of the pandemic, governments responded by implementing emergency measures to minimize the spread of the virus, including temporary shutdowns of businesses deemed to be non-essential. Our operations were significantly impacted by these measures as a number of our drilling projects were put on hold or postponed. In Québec, our operations were suspended from March 24 until April 20. On drilling activity -- our drilling activities on certain projects in Nunavut territory in Ontario were temporarily reduced or suspended. Our international drilling operation were also affected, either as a result of government restrictions or certain business activities or customer decision to reduce or delay certain projects. In response to the pandemic, we rapidly implemented precautionary measures across our operations to prioritize the health and safety of our employees and the communities in which we operate. As part of our business continuity plan, we implemented multiple initiatives to lower our costs and manage our liquidity position, including a reduction in capital expenditures and reduce investment in working capital. Importantly, we implemented these measures without impacting our ability to ramp up our business as conditions improved. Further, effective April 1, our senior management team and directors agreed to a temporary 15% reduction in their remuneration to support the company. We also amended or modified the financing agreement with our lender and secured financing in Chile through our Chilean subsidiary, thereby generating additional financial flexibility. We recorded $3.6 million in financial support from the Canada Emergency Wage Subsidy, or CEWS, program in the fourth quarter that helped to mitigate the impact of the pandemic on our business. As governments ease COVID-19-related business restrictions, we started to gradually ramp up our operation in our fiscal fourth quarter. For our fiscal year ended June 30, revenue totaled $137.8 million, a decline of approximately 10% from fiscal 2019. The decline was primarily attributable to reduced drilling activities due to the impact of the pandemic. EBITDA totaled $6.8 million compared to $8.3 million last year. Net loss for the year was $7.4 million or $0.20 per share compared to a net loss of $3.5 million or $0.09 per share last year. The decline in EBITDA and our increased net loss in fiscal 2020 reflects the impact of the pandemic and a $2 million provision for litigation in Burkina Faso. We vigorously disputed this claim and added file and appeal. Based on legal console, we believe that the claim is unfounded and that our appeal would be successful. As the facts and circumstances evolve, including if we are successful in our appeal, the liability recognized will be revised in the period in which the change occurs. We continue to ramp up our operation in fiscal 2021 first quarter, maintaining our focus on health and safety of our employees and the communities in which we operate. Our domestic drilling business regained substantial momentum during the quarter, generating revenue of $31.4 million, only $4 million less we reported in Q1 last year. Our ramp-up in Canada is still ongoing, and our utilization rates have not reached pre-pandemic levels. However, we are encouraged by the solid demand we are seeing from juniors, intermediate and senior mining companies. With current gold prices at approximately USD 1,800 per ounce and with the easing of COVID-related business restrictions, our customers are steadily reengaging their exploration and mine development programs. The ramp-up of our international operation has not moved as quickly as it has in Canada. As these countries are facing more tightened COVID-related restrictions. However, we are seeing increased project opportunities in these markets. For fiscal 2021, our consolidated first quarter revenue totaled $35.6 million compared to $43.3 million in Q1 a year ago. The decline is mainly due to the impact of COVID-19. Our drill utilization rate was 50% in the quarter compared to 62% in Q1 last year. While our utilization rates are below pre-pandemic levels, our Q1 utilization rate was well ahead of the 42% we had in Q4 2020. We drilled approximately 351,000 meters in the quarter compared to 387,000 meters in Q1 last year, a decline of just 9%, but a significant increase from 186,000 meters drilled in Q4 of 2020. Our sequential increase in utilization rates and meter drilled in Q1 compared to Q4 last fiscal year demonstrates the steady return of drilling activity. EBITDA for the quarter increased to $8.4 million from $5.1 million in Q1 last year. Net earnings for the quarter increased to $3.5 million or $0.09 per share from $1.1 million or $0.03 per share in Q1 last year. Our year-over-year growth in EBITDA and net earnings reflect the $2.6 million of financial support we received from CEWS program in the quarter, improved adjusted gross margin and cost-saving measures, partially offset by reduced drilling activity. Looking ahead, we continue -- we cannot predict when our drilling activity will reach or surpass pre-pandemic levels. We believe we have effectively managed through the crisis to date, and we are well positioned to continue ramping up our operation with improved profitability despite reduced drilling activity, a solid financial position and customer reengaging their mineral exploration and development programs. There are now more opportunities emerging from both our domestic and international operations. With the price of gold currently at approximately USD 1,800 per ounce, gold mining has become highly profitable even for higher cost producers. We would expect demand for gold drilling to accelerate as market conditions stabilize. We typically generate approximately 70% of our revenue from gold-related projects, so we are well positioned to capitalize. It is also important to note that copper prices have rebounded strongly since dropping in the spring as a result of the pandemic. Copper is currently close to a 5-year high, and the underlying supply-demand fundamentals of the commodity remain solid. This should support customer demand for our well-established drilling operation in Chile. As we pursue future growth, our focus on innovation and leading-edge technology will remain a priority for us and a competitive advantage in our industry. We currently have 43 drill rigs outfitted with our computerized monitoring and control technology. These next-generation drills increase accuracy and productivity, have long-lasting rig components, are ideal for training less experienced driller and have proven to be high demand -- in high demand from our customer. In addition to our strength in innovation, our expertise in both surface and underground drilling, comprehensive infrastructure with vertically integrated manufacturing capabilities, expanded global operation and scale, sound balance sheet and a highly experienced leadership team, position us favorably to compete for new projects as our industry recovers and demand for mineral drilling services resumes. In closing, we extend our appreciation to all of our employees, management team and their families for their ongoing commitment to the success of Orbit Garant, particularly during this highly challenging period. I also want to thank Bill Gula for the support and leadership he has brought to Orbit Garant as a Director since 2011. We wish Bill all the best in his future endeavors. We are delighted to welcome 2 new independent directors to our Board, Pierre Rougeau and Nicole Veilleux. They are both highly skilled and experienced ensuring continued strong leadership for Orbit Garant. And to our shareholders, we greatly appreciate your continued support. That concludes our presentation. Thank you for joining us today, and we wish you all good health. [Foreign Language]

Ladies and gentlemen, that concludes the AGM. Please disconnect your lines. [Foreign Language]