RB fleet and earnings growth
Nic Dinham
H1:24: Basic earnings of USD2c/s were affected by a $12m impairment of the MTB1 and other equipment. Using the less sensitive and representative HEPS metrics, MDI achieved USD9c/s or ZAR169c/s. We expect MDI to record basic earnings of USD9.7c/s in the 2024FY and HEPS of USD16.7c/s and ZAR318c/s.
RB fleet build: By the end of 2024FY, MDI’s large diameter fleet should increase from 89 to 98 rigs including a Herrenknecht RBR900. More machines are under construction that will increase the fleet size to around 105 machines by the end of 2025FY. Several more blind drilling high-efficiency rigs are also being built. This is the fastest expansion of the fleet on record and follows a strong increase in underground mining capex spend in several regions.
RB feet build benefits: The increase in the RB fleet and the fact that most machines are being built to meet contractual requirements provides some certainty that MDI will be able to generate solid earnings increases over the next two years. The larger machines are used in longer contracts and generate higher ARPOR.
Mogalakwena setback: The Hall Core JV (HCJV) surface and underground contracts at Mogalakwena were sharply reduced at short notice and the JV may now be unprofitable. HCJV’s surface contract has expired and may be replaced by short-term extensions. This may trigger rig impairments as well as fair value losses for the JV.
Kolomela setback: MDI had hoped to use both MDX’s and HCJV’s surplus rigs for a contract at Kolomela. This has not been successful and may require both MDX and HCJV to look for slim rig contracts overseas. MDX is expected to generate a modest GP for the medium term.
Re-impairments: There is now optimism that both the MTB1 as well as RC shaft drilling rigs will be able to find contracts in 2025Q2. If this does happen, re-impairments would be required. The reactivation of the MTB1 would be very positive for MDI and its future earnings.
Growth investments: We expect MDI to continue investing its c. $15m/a surplus cash in growth. The focus in 2025FY will probably remain on the fleet build as well as the acquisition of another 24% of A&R, which may create a fair value gain. In 2026FY, a $10m investment in the MTB2 through the Besalco JV looks likely.
Future earnings and valuations: We forecast MDI’s basic earnings and HEPS to increase to USD19.4c/s and USD20.7c/s respectively, in 2026FY. We don’t forecast possible impairments, re-impairments or changes in fair values. Our base case valuation has increased to R14.28/s and our speculative value to R15.44/s. The increase in valuations reflects our increased confidence in the benefits of the RB fleet build.
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