Introduction:
Major Drilling (OTCPK:MJDLF) is a drilling service company for the mining industry. It is listed on the Toronto Stock Exchange and is headquartered in Moncton, New Brunswick. Major Drilling is held within the Vice-President’s Portfolio here at Contra the Heard. The holding was last added to in December 2018 at $4.51 CAD, though the average cost is $5.51 CAD, meaning the position is currently underwater. However, although it is down versus the average purchase price, the shares appear cheap, and the company may finally be turning the corner after reporting losses for years.
Corporate Characteristics and Investment Rationale:
Major Drilling is a well-managed industry leader with a unique business model and corporate strategy. The company is globally diversified, has a modern and well-maintained fleet, and has deep relationships with both senior and junior miners. Their primary focus is specialized drilling, which management defines as “exploration or definition drilling, with significant barriers to entry, such as deep-hole drilling, directional drilling, and mobilizations to remote locations or high altitudes.” As they go on to note, the above specializations demand higher pricing and allow for wider margins.
In 2014, Major acquired Taurus Drilling to better endure the mining downturn and to expand its conventional and underground drilling services. These segments were indeed more popular than specialized drilling during the commodities selloff. While this shift to lower margin services hurt the income statement, it also grew Major into a turn-key service provider during a period of reduced specialized drilling. In the latest quarter, for example, 57% of revenues were generated from specialized drilling versus around 50% at the cycle low in late 2016, and down from roughly 75% in the period before Taurus was purchased.
The corporate strategy prioritizes employee safety, margins over volumes, and customer satisfaction via strong field and equipment support. It also empowers
