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Big miners keep on drilling as juniors freeze up

Big miners are being forced to drill in more remote, less hospitable locations, for which Major Drilling is one of the biggest suppliers of specialty rigs.

Major Drilling Group

Big mining companies may be pulling back on major new spending plans, but they haven't let up on exploration budgets, according to Major Drilling Group International Inc., which has a bird's-eye view on the mining world as the second-largest resource driller.

Chief executive officer Francis McGuire says the same cannot be said for junior miners, which have been stripped of access to financing amid tumultuous global markets, forcing them to virtually freeze drilling activities.

"The junior market is very dead," Mr. McGuire said in an interview on Tuesday, adding that most drilling proposals for the 2013 calendar year are coming from senior miners, intermediaries and some very well-funded juniors.

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Drilling companies closely shadow price cycles for resource commodities, so it's no surprise their fortunes have slipped in recent months amid a slowdown in demand for key industrial metals, such as copper and zinc, especially from China.

Moncton, N.B.-based Major Drilling said this week that profit fell 30 per cent in the fiscal second quarter, which ended Oct. 31, and pointed at falling demand from junior miners. The company also suffered as projects were cancelled in Australia owing to high costs, a high Australian dollar and new mining taxes, and in Argentina and Mongolia, where political uncertainty was a factor.

In Argentina, demand for drilling services was late restarting after the southern hemisphere winter and has only reached about 66 per cent of what it was last year, the company said.

Demand will remain low in the current quarter, Mr. McGuire said, as companies are more conservative with their cash and take December off for Christmas, but will come back in the fiscal fourth quarter.

The company's share price has fallen by nearly half since March, as uncertainty grew about the strength of global demand for commodities, particularly from China and India, the main drivers behind a 10-year surge in raw materials prices.

Major Drilling's competitors are also suffering, with stock of No. 1 driller Boart Longyear down 62 per cent.

Even so, Mr. McGuire said Major Drilling plans to keep adding to its fleet of specialty rigs, confident demand will only rise for drills that can operate in non-conventional conditions, whether in the hills of Colombia or in the cold of the Canadian Arctic.

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Major Drilling added 200 rigs in the past year or so, bringing the count to 750, or 30-per-cent fewer than Boart Longyear. It plans to add seven more specialty rigs in the next quarter.

"We keep on getting requests for more special rigs to do x, y and z," Mr. McGuire said.

"Everything is being driven by the fact that reserves are dropping," he said.

Big resource companies are sitting on aging mines and are under pressure to find new reserves before they run out of metals to mine. They are increasingly being forced to drill in more remote, less hospitable locations.

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About the Author
Mining Reporter

Pav Jordan is a mining reporter for the Report on Business. More

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