Landdrill International LDI
January 28, 2011 - 4:58pm EST by
hack731
2011 2012
Price: 0.28 EPS $0.03 $0.07
Shares Out. (in M): 49 P/E 9.3x 4.0x
Market Cap (in $M): 14 P/FCF 9.3x 4.0x
Net Debt (in $M): 7 EBIT 3 8
TEV ($): 21 TEV/EBIT 6.6x 2.9x

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Description

Landdrill International (LDI.V) is a mining services company based in New Brunswick, Canada. The company operates about 35 drilling rigs on a contract basis in three regions: Canada, Mexico and Asia (Mongolia, Russia). Clients are generally small, publicly traded mining companies, roughly split between gold, copper and uranium. Note: USD/CAD is roughly 1.00, so dollar figures below are in both USD/CAD.

Before forming LDI, CEO Ron Goguen was an executive at Ideal Drilling, which was later acquired by industry leader Major Drilling (MDI.TO). He has some business managers with significant drilling experience in Canada. Canada is currently the company's only profitable market, but the company has made money in Mexico and Mongolia in the past and appears to have good prospects in those countries going forward.

In July 2008, the company acquired the assets of Forage M. Lafreniere (FML), which included 7 rigs in Canada. In early 2011, the company plans to add further rigs, growing to about 40 rigs. The company is also eliminating its Russia branch. The Russian branch lost the company $428k in 2008 and another $640k in 9mo2009. The company will move the five rigs from Russia to Mongolia, which currently has more mining activity and better prospects.

Historically, each rig costs about $500k, has about 75% utilization, and does about $1 million in sales per year. With 40 rigs in today's robust mining market, the company could attain sales of $45-50 million (up from $33-35 million in 2010). With 35% historical gross margin, that would imply EBITDA in the $9-11 million range. Results have improved sequentially in each of the last three quarters, with some good contract wins in late 2010/ early 2011.

The company has about $7.4 million in net debt but is seeking to finalize an equity issuance in the near future (in the next few weeks) of $10 million (priced at $0.30 with half warrant at $0.45), which would make the company debt-free with about 82 million shares. At 5x potential 2011 EBITDA or 7x potential 2011 EPS would put the stock around $0.45, a decent gain of 60% from today's price. By comparison, Industry leader Major Drilling currently trades at 14x F12 (April) consensus EPS.

Risks include customer concentration (one customer was 40% of total sales in first 9 months of 2009), further equity dilution (company recently issued 2 million options at $0.28 in October 2010), low visibility on contracts (typically contracts are for four months), and/or a major pull-back in metals prices or junior mining exploration activity. Tangible book value is $7.4 million, or $0.15 per share. Book value is likely conservatively stated as equipment is depreciated over 5-10 years yet can be used for up to 30 years.

By the way, CFO Derrick West (joined in March 2008) has been the most accessible regarding shareholder questions. He can be reached at 506-388-8100x225.

Catalyst

1) In next few weeks, equity issuance is completed to make company debt-free.

2) In 2011, company achieves its goal of $45-50 million in sales with 35% gross margin.

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    Description

    Landdrill International (LDI.V) is a mining services company based in New Brunswick, Canada. The company operates about 35 drilling rigs on a contract basis in three regions: Canada, Mexico and Asia (Mongolia, Russia). Clients are generally small, publicly traded mining companies, roughly split between gold, copper and uranium. Note: USD/CAD is roughly 1.00, so dollar figures below are in both USD/CAD.

    Before forming LDI, CEO Ron Goguen was an executive at Ideal Drilling, which was later acquired by industry leader Major Drilling (MDI.TO). He has some business managers with significant drilling experience in Canada. Canada is currently the company's only profitable market, but the company has made money in Mexico and Mongolia in the past and appears to have good prospects in those countries going forward.

    In July 2008, the company acquired the assets of Forage M. Lafreniere (FML), which included 7 rigs in Canada. In early 2011, the company plans to add further rigs, growing to about 40 rigs. The company is also eliminating its Russia branch. The Russian branch lost the company $428k in 2008 and another $640k in 9mo2009. The company will move the five rigs from Russia to Mongolia, which currently has more mining activity and better prospects.

    Historically, each rig costs about $500k, has about 75% utilization, and does about $1 million in sales per year. With 40 rigs in today's robust mining market, the company could attain sales of $45-50 million (up from $33-35 million in 2010). With 35% historical gross margin, that would imply EBITDA in the $9-11 million range. Results have improved sequentially in each of the last three quarters, with some good contract wins in late 2010/ early 2011.

    The company has about $7.4 million in net debt but is seeking to finalize an equity issuance in the near future (in the next few weeks) of $10 million (priced at $0.30 with half warrant at $0.45), which would make the company debt-free with about 82 million shares. At 5x potential 2011 EBITDA or 7x potential 2011 EPS would put the stock around $0.45, a decent gain of 60% from today's price. By comparison, Industry leader Major Drilling currently trades at 14x F12 (April) consensus EPS.

    Risks include customer concentration (one customer was 40% of total sales in first 9 months of 2009), further equity dilution (company recently issued 2 million options at $0.28 in October 2010), low visibility on contracts (typically contracts are for four months), and/or a major pull-back in metals prices or junior mining exploration activity. Tangible book value is $7.4 million, or $0.15 per share. Book value is likely conservatively stated as equipment is depreciated over 5-10 years yet can be used for up to 30 years.

    By the way, CFO Derrick West (joined in March 2008) has been the most accessible regarding shareholder questions. He can be reached at 506-388-8100x225.

    Catalyst

    1) In next few weeks, equity issuance is completed to make company debt-free.

    2) In 2011, company achieves its goal of $45-50 million in sales with 35% gross margin.

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