• Perenti boss Mark Norwell says Australia remains the most attractive place to do mining business
  • The mining services player is eyeing off the ASX 200 with a 54% Aussie revenue split after announcing $410m takeover of DDH1 Drilling
  • Norwell sees tailwinds for drillers from future facing commodities

Like Dorothy clicking her shoes after some torturous travels through the Land of Oz, mining services giant Perenti Global (ASX:PRN) has got a hankering for home comforts.

The mining services giant, owner of WA’s iconic Ausdrill and Barminco drilling and underground mining brands, is heading back where it all began in a $410 million deal to mop up the ASX’s biggest standalone drilling stock DDH1 (ASX:DDH).

It comes after a multi-year turnaround for the contract digger, which hit a five-year low of 57c 11 months ago but is now up almost 75% over the past year.

Perenti was originally founded as Ausdrill by the late Ron Sayers with a single rig on Kalgoorlie’s Golden Mile in 1987, but re-geared its revenue to West Africa over the past two decades as globalisation opened the world to the ways of the Aussie contract miner.

Now MD Mark Norwell says the soon to be $1.3 billion company is looking to refocus its attentions on its homeland, which will account for 54% of its revenue once the DDH1 deal is wrapped up, expected to be in October with 38% of the company’s voting stock including ~20% private equity backer Oaktree supporting the deal.

“West Africa continues to evolve and change. We have been making some calls over the last few years — for example we’ve exited Mali so reduced our exposure there,” Norwell told Stockhead.

“We still have a number of jobs that perform very well in West Africa. We’ve been operating on West Africa for over three decades now, so we’re very experienced in it.”

But reallocating resources to more attractive locales like Australia, Canada and Botswana has been a deliberate focus of its renewed M & A strategy.

“Clearly Australia is the most attractive geography being an Australian based company and we’ve actually been working pretty hard on this over the last few years,” Norwell said.

“We’ve called out Botswana, we’ve called out North America. We’ve secured and commenced a couple of jobs in Botswana and a couple of jobs in Canada.

“And this just continues to complement our increasingly attractive geographies as per our criteria.”


Perenti (ASX:PRN) and DDH1 (ASX:DDH) share prices today:


Super positive on Australia

It comes at a time of growing concerns for the competitiveness of Australia’s globally dominant mining industry, with key figures lamenting increased regulatory challenges from new Aboriginal cultural heritage legislation, labour laws and immigration restrictions coming out of Covid.

But Norwell said Perenti continues to be “super positive” on the Australian operating environment, and believes labour shortages and movement restrictions which have been the bugbear of the industry and fueled capital and operating cost inflation are easing.

“Of course, I think the nature of any country in this day and age is there’s always changes and I think as an organisation you have to continue to adapt and embrace that change,” he said.

“I think the resilience and adaptability of our team is demonstrated in the ability to operate in West Africa for three plus decades, very successfully I might add.

“So what you’re seeing is a changing landscape, and we adapt well.”

Norwell is calling for a faster and easier system to bring skilled labour into Australia, but is less concerned about the impact of “Same Job, Same Pay” than some of his peers.

“We do need to look at what our policy is of immigration, bringing in a skilled workforce,” he said.

“I think there’s opportunity for the fast tracking of that in key areas there. That’s a topic that’s out there already and I think that needs to continue and see some improvement.

“Same Job, Same Pay we’ve seen a lot in the media about that. I understand the concept, but from our perspective as a service provider, I think there needs to be clarity that there isn’t any unintended consequences.

“There are concerns but we’re actively engaging with them on what that looks like in the future.”


Future facing commodities

The other big shifts for Perenti will be a change in earnings proportions.

Contract mining will give away revenue share to drilling, with a new drilling division run by DDH1 CEO Sy van Dyk and including the Ausdrill and DDH1 drilling businesses to be formed.

Perenti will also see gold mining as a share of revenue fall below 60% while nickel and copper revenues rise to 25%.

It is all part and parcel with a mining services industry which, after consolidation, sees green shoots in long term demand for metals for the energy transition.

“I think if you look at the long term demand, the nature of mining where we’re seeing deposits getting deeper,” Norwell said.

“We’re seeing the need for future focused minerals to support decarbonisation that requires further drilling campaigns.

“We’re seeing the long term outlook in mining very positive, therefore very positive for the drilling sector of mining as well. So we’re optimistic about the long term future.”


Services stocks in focus

Consolidation has come hard and fast in the mining services sector in recent years.

Historically balkanised, mining services stocks were not as prosperous as miners during the boom times as heavy competition between a number of small players saw price bidding cut contracting margins.

DDH1’s absorption by Perenti — price paid 12.38c cash and 0.7111 PRN shares at an implied price of $1.01 a share, a premium of 17.4% against DDH1’s 5-day VWAP — is another major name off the listed market after DDH1’s own merger with Swick last year.

CIMIC-backed Thiess consumed fellow WA mining and civil contractor MACA last year.

Perenti’s big competitor in the underground mining space, Byrnecut, remains private but must be attractive to private equity firms looking for rare IPO opportunities.

Drilling services stock Imdex (ASX:IMD) is there, though it’s been hit by the downturn in enthusiasm for mining this year, down over 17%.

Bill Beament’s Develop Global (ASX:DVP), which also owns copper development projects in NSW and WA, is around a year into its first contract at Bellevue Gold (ASX:BGL) and is believed to be a keen applicant for the job at Liontown Resources’ (ASX:LTR) Kathleen Valley lithium mine.

Mitchell Services (ASX:MSV) and Boart Longyear (ASX:BLY) remain as standalone drilling stocks. Both are down this year but remained profitable as of their March quarter results.

Also down this year but in a general uptrend over the past year is $1 billion capped WA-based NRW Holdings (ASX:NWH), while there is a cohort of listed engineering and minesite construction stocks in the west coast market including Monadelphous (ASX:MND), GR Engineering (ASX:GNG) and rare 2022 winners Lycopodium (ASX:LYL) and SRG Global (ASX:SRG).

However, other stories have shown how exposed smaller mining services stocks remain to contracts and supply chain issues.

Aerison Group (ASX:AE1) entered external administration this month after a major contract dispute with iron ore miner Roy Hill, while Austin Engineering (ASX:ANG), a star performer in 2022, is down 10% YTD and more than 25% off the five-year high of 40c it hit in March after reporting a big profit hit for FY23 from delays to truck tray orders.


Services stocks share prices today: