Monsters of Rock: Imdex boss bullish on global exploration after big plunge into directional drilling, Vulcan down on DFS update
The head of one of Australia’s leading drilling technology players says it is in the “sweet spot” amid strong activity across the global mining sector, in a sign the boom is yet to slow down.
Imdex (ASX:IMD) saw revenues the first half of FY23 rise 18.4% year on year to $198.8 million and EBITDA lift 3.7% to $53.4m, with normalised EBITDA minus litigation costs up 22% to $62.8m.
While its net profit after tax fell 6.9% to $22.7m, Imdex aid its balance sheet remains robust at $32.5m, declaring a fully franked interim dividend of 1.5c per share at a 26% payout ratio.
The acquisitive Imdex, which recently spent $324m acquiring Norwegian directional drilling technology play Devico, partly funded by a $224 million institutional placement and non-renounceable entitlement offer, is bullish on the outlook for the global resources sector.
“We regard the industry as having strong underlying fundamentals with increasingly less restrictions on the pace of growth,” Imdex CEO Paul House said on a conference call today.
“The large and mid-cap producers remain well funded. Forward looking exploration budgets remain high or growing. Junior and intermediate financings were significantly higher in December. And Bloomberg recently reported mining equity raisings were up 29% year-on year in January.
“Commodity prices are strengthening, notably gold and copper, and price levels remain supportive of increasing exploration budgets. Based on S&P data, non-ferrous exploration budgets are still well below the peak of 2012.
“Finally, the underlying mining industry fundamentals of diminishing reserves, greater demand for critical metals, and drilling at depth, is continuing to support growth in drilling activity and the adoption of new technologies. For IMDEX, this is our sweet spot.”
House said directional drilling would grab an increasing share of the market as explorers go deeper to make new discoveries, with increased costs of drilling from inflation and depth coming at a time companies have been incentivised to go on the hunt for new battery minerals finds.
“All of those (cost and depth of drilling) play into that theme for directional drilling, particularly with the higher costs of drilling one of the advantages directional drilling offers is … you can get to depth and spur of the mother hole into a number of daughter holes without having to redrill that first pilot hole,” he said.
“It is of course a change to a lot of conventional drilling practices so it’s just about steering that conversation.”
Vulcan Energy (ASX:VUL) was one of the boom stocks of 2021, its shares almost rising to $16 a pop until a dispute with short selling activist, eventually settled with an apology to the geothermal lithium proponent, brought its hype train to a halt.
Since Gina Rinehart-backed Vulcan has been plugging away, testing its idea to mine lithium from geothermal wells in Germany’s Upper Rhine Valley, a process which become “zero carbon” as it produces an excess of renewable energy which can be sold on to German companies and the local grid.
It has finally delivered a long-awaited definitive feasibility study on the first phase of its project, backed by what it says its Europe’s largest resource of EV metal lithium.
A PFS in early 2021 placed a 700 million Euro capex and 3139 Euro per tonne opex on delivering a 15,000tpa lithium hydroxide development.
Its most recent estimate today has given a bigger, 1.496 billion Euro bill with €4359/t opex on a larger 24,000tpa phase 1 development, which will be combined with the delivery of over 300GWh/a renewable power and >250GWh/a renewable heat production.
The higher capex and opex, blamed on increased scale and inflation, may have spooked investors, who sent the ~$1b stock more than 5% lower today.
Still, Vulcan says it plans to begin drilling development wells in mid-2023 with commercial production by the end of 2025 on the novel lithium extraction project.
It boasts offtake agreements with European based customers Stellantis, Volkswagen, Renault, LG and Umicore, with an expected 3.5 year project payback period.
Vulcan MD Francis Wedin described it as a “tight timeframe” and said the company was “rapidly transforming” to deliver the project.
“Our Project consists of commercially well understood methods or processes with commercial analogues from other industries, but this is the first time these processes from the lithium chemicals and renewable energy industries have been combined to produce a unique, net zero carbon, zero scope 1 fossil fuels project development,” he said.
“It is an exciting project to work on, combining multidisciplinary, international scientific, engineering and commercial teams, passionately driven by the desire to provide sustainable, decarbonised lithium and renewable energy supply from Europe, for Europe.
“The Phase One DFS, backed up by technical data from our operating commercial geothermal wells and plant, and our operating lithium extraction pilot plants, shows compelling financial results, as well as worldleading target environmental metrics. Simply put, we are showing that with the right engineering, choosing a sustainable lithium production process can be a more profitable route than legacy methods.”
Miners fell in the order of 0.4% with coal stocks the standout resources and energy plays.
Graphite producer Syrah Resources (ASX:SYR), gold miners Gold Road (ASX:GOR) and Silver Lake (ASX:SLR) and mining services contractor NRW (ASX:NWH) were the best performers, along with Zimbabwean platinum miner Zimplats (ASX:ZIM).
Iron ore futures had a tough afternoon, dropping 2.22% in Singapore to US$121.95/t, though prices remain strong.
Fortescue Metals Group (ASX:FMG) will be the first iron ore miner to report its half year results on Wednesday.