Table of Contents
Income Statement
Balance Sheet
Cash Flow Statement
Statement of Changes in Equity
FULL ANNUAL REPORT
Website
Managing Director's Report On Operations
Overview of Swick Mining Services
Swick Mining Services is a specialist mineral drilling services company that provides premium quality underground and surface drilling services to the Australian mining industry. The Company operates five key drilling divisions:
- Underground Diamond.
- Surface Reverse Circulation.
- Surface Diamond.
- Surface Multi-Purpose.
- Underground Longhole.
Swick Mining Services focuses on competing in sectors of the market where it can develop a distinct competitive advantage in the key areas of productivity, safety, versatility and reduced mine client input. Competitive advantage is primarily delivered through innovative rig designs that offer best practice technology to the market. Those divisions demonstrating sustainable competitive advantage typically present strong opportunities for further growth and therefore warrant additional investment by the Company.
Swick Mining Services has a strong focus on evolving its service offering and a commitment to continuous improvement thatto ensures that existing competitive advantages are sustained and further improved and new competitive advantages are developed. The Company also attempts to gain an edge over its competitors through a companywide professional approach, innovative drilling practices, highly trained and motivated personnel, focused management of contracts and development of strong client relationships. The ability of Swick Mining Services to develop best practice rigs and strong competitive advantage in key divisions has underpinned the outstanding growth rates seen to date.
Overview of Performance for the 2008 Financial Year
The 2008 financial year was a period of record revenue and profitability for Swick Mining Services, highlighting the Company’s continued ability to successfully execute its growth strategy and capitalise on the strong demand for high quality mineral drilling services in the Australian mining industry. The key financial and operational indicators for FY08 were as follows:
- 121% increase in revenue to $84.2 million (FY07: $38.1 million).
- 128% increase in EBITDA to $23.3 million (FY07: $10.2 million).
- 5% increase in the EBITDA margin to 28.1% (FY07: 26.8%).
- 164% increase in net profit after tax to $10.3 million (FY07: $3.9 million).
- 20% increase in the net profit after tax margin to 12.2% (FY07: 10.2%).
- 80% increase in earnings per share to 7.17 cents (FY07: 3.98 cents).
- Cash of $25.3 million as at 30 June 2008 (30 June 2007: $12.4 million).
- 20 new rigs commissioned during the year.
- Fleet of 49 rigs and 560 personnel as at 30 June 2008.
The FY08 result was underpinned by further strong growth in the core underground diamond drilling division, which utilises the Company’s innovative, market leading jumbo mounted drill rigs and offers superior productivity, safety and versatility. Underground diamond drilling accounted for 75% of FY08 operational revenue and was bolstered by additional contract awards with a number of major mining houses, including Barrick, Xstrata and Oz Minerals.
The Company’s other divisions, in particular the surface reverse circulation and surface diamond drilling divisions, were solid revenue contributors in FY08. Much of the focus in these divisions during the year was on building the foundations to support new rig build programs and growth in the 2009 and 2010 financial years.
Significantly, even with the strong revenue growth in FY08, the Company has been able to improve its profitability margins as a result of a strong operational focus and the development of economies of scale within key operational divisions. Importantly, the profitability margins achieved by Swick Mining Services are at the upper end of mineral drilling service providers, delivered through product innovation and high quality service during a period of heightened cost pressures.
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Outlook for the 2009 Financial Year
Despite recent market conditions and a softening of some commodity prices, Swick Mining Services believes demand for itsmineral drilling services will remain strong in FY09. Importantly, the Company’s revenue is generated across a number of different commodities and predominantly at brownfields sites (ie, existing minesites) which are less affected by fluctuations in commodity prices and cycles than greenfields sites (ie, exploration projects).
Swick Mining Services expects continued strong revenue growth on a year-on-year basis and is forecasting revenue of $155m for FY09, an 84% increase on FY08 revenue. Revenue growth is anticipated to be driven by the continued expansion of the underground diamond drilling division and improved contributions from the surface reverse circulation division, surface diamond division and the newly established multipurpose division. Despite the cost pressures being experienced in the mining industry, the Company expects to at least maintain its profitability margins in FY09.
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Underground Diamond Drilling Division
Swick Mining Services is a world leader in the provision of underground diamond drilling. Typically, underground diamond drilling rigs utilise up to five separate but interconnected skid mounted components which are immobile, inherently unsafe and involve a high degree of manual labour. To combat these inherent design issues, in 2004 the Company developed a new design concept which included mounting all of the drilling components on a single self propelled jumbo carrier.
The world first design has been a stunning success, delivering a highly mobile rig that has consistently provided superior productivity, safety and versatility over standard skid mounted configurations. As a result of the strong competitive advantages offered, the Company has been able to secure a number of mid-to-large tier mining houses as key clients, including Barrick, Newmont, Xstrata and OZ Minerals.
The underground diamond drilling division contributed 75% of operational revenue in FY08, driven by strong market penetration in Western Australia. At an operational level, the focus during the year was on improving productivity andprofitability margins and capitalising on the economies of scale developed in a number of regions.
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The underground diamond drilling division is expected to remain the key contributor to revenue in FY09.Further rig build programs are scheduled to compliment the current fleet of 34 rigs, with another 11 rigs currently in various stages of build and potential to grow to 65 rigs by the end of CY09. The Company is targeting a number of further growth opportunities in Australia and is keen to increase its footprint outside of the core Western Australian market. The larger mining regions in Queensland and New South Wales will be a major focus during the upcoming year.
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Expansion of Underground Diamond into Canada
Swick Mining Services has initiated a global expansion strategy for the underground diamond drilling division. The preliminary market target is North America, with an initial focus on Canada. Canada is one of the pre-eminent mining and exploration destinations in the world, offering excellent underground diamond drilling opportunities from a large number of underground mines.
Will Gove has been appointed General Manager (North America) to coordinate and implement the Company’s Canadian expansion strategy, bringing with him more than 12 years experience in the mining services industry
in Canada. Logistical and administrative structures are being established in Canada to support the arrival of an initial three underground diamond drill rigs later this year. Discussions have commenced with a number of
large mining houses for drilling trials in the Sudbury Mineral District in the Province of Ontario, with the Company confident of rapidly developing a sizable footprint in the market.
Surface Reverse Circulation Drilling Division
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Swick Mining Services is poised to build a strong presence in surface reverse circulation (RC) drilling. In August 2006, the Company launched a new prototype rig consisting of a modular configuration and unique rod handling system that was designed in-house for the purpose of overcoming many of the inherent safety issues in standard RC rig design. These safety issues include heavy manual labour, excessive noise and heat, working at height, dust problems, poor ergonomics and general fatigue.
The Swick designed RC rig was successfully commissioned in August 2006 at the Woodie Woodie Manganese Mine in Western Australia (Consolidated Minerals) and delivered on all of the benefits envisaged by the Company. The Swick prototype rig was awarded the Chamber of Minerals & Energy of Western Australia’s 2007 Safety and Health Innovation Award and has since been improved further with the commissioning of the next generation rig, which the Company believes is now industry best practice.
The surface RC division was a solid contributor in FY08 from a small fleet of three rigs, focused on generating revenue from iron ore and manganese mines. The surface RC drilling division is poised for breakout growth in FY09 as a result of the success of the Swick designed RC rigs and their strong appealto the booming iron ore sector. Much of the focus during the year was on building the foundations to support the expected growth in the coming years, centred around systems, training and people development.
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The surface RC fleet will grow to at least 11 rigs during FY09, providing the platform to develop into a significant player in the Australian RC market. The Company will focus on securing long-term contracts with larger mining houses targeting bulk commodities, such as iron ore and manganese, and is currently pursuing a number of significant opportunities in this regard.
Surface Diamond Drilling Division
Swick Mining Services is a specialist provider of surface diamond drilling services, utilising a fleet of highly mobile track mounted drill rigs. The track mounted rigs are well suited to difficult terrain that may not be suitable or accessible to standard skid mounted configurations, offering improved safety and versatility over rigs with a larger footprint.
The surface diamond division operates a fleet of seven track mounted rigs and generated steady revenue for the Company in FY08 from mine sites across Australia. The division will increase its revenue contribution in FY09 as a result of improved utilisation and implementation of an enhanced management structure.The Company expects further opportunities for the growth of the division to materialise during the coming year.
Surface Multi-Purpose Drilling Division
Swick Mining Services recently established a surface multi-purpose drilling division to further compliment its service offering. The division will commence operations later this year and utilise market leading KWL1600H multi-purpose rigs designed and built in Western Australia by KWL Boart Longyear.
The KWL1600H is a proven drill rig that can be utilised for a variety of drilling applications. Multi-purpose rigs provide significant versatility in their ability to provide both surface RC and surface diamond drilling from a single platform. The ability to drill RC pre-collars before switching to a diamond tail to drill through the target area offers clients significant cost benefits given the greater cost of diamond core drilling.
The Company initially approved the acquisition of four multi-purpose rigs to target a growing sector of the market focused on deep exploration holes. Swick Mining Services has been awarded drilling contracts with Newcrest Mining at the Telfer Gold Mine in Western Australia and Barrick for use at its gold operations in Western Australia, securing three of the four rigs in work. As a result of the strong demand for the multi-purpose rigs, the Company recently approved a second build program consisting of an additional four rigs, taking the fleet to a total of eight new rigs. All eight rigs are scheduled for delivery by the end of CY08 and will drive a significant revenue contribution from the division during the second half of FY09.
Underground Longhole Drilling Division
The underground longhole drilling division is a small but consistent revenue generator for Swick Mining Services, operating standard off-the-shelf drill rigs lacking any significant competitive advantage. As a result, the division has previously held limited strategic opportunities for expansion. However, this appears set to change with the in-house development of a prototype water hammer drilling system for underground longhole drilling in line with the Company’s continuous improvement focus.
Underground longhole rigs provide grade control, blast hole and mine support drilling in the underground mine environment. Presently, underground longhole drilling is largely provided by owner-operators owing to the limited drilling complexity and standardised equipment available. Standard rigs use a top head hammer drilling system, applying percussive force on the top of a drill string and transferring energy through this string to the drill bit. This configuration results in loss of energy as the drill string lengthens, reducing accuracy and penetration rates as the hole deepens. Consequently, shorter holes of around 30m are drilled to ensure accuracy, restricting rig efficiency and necessitating intensive development access.
The new water hammer drilling system developed by Swick Mining Services integrates groundbreaking new drilling technology developed in Sweden onto the Company’s standard range of underground longhole drill rigs. The water hammer system uses low volume, high pressure water to drive a reciprocating downhole piston that in turn strikes the drill bit. This method of drilling allows for constant, high penetration rates over the hole depth, as well as very little hole deviation, a significant advantage over conventional rigs. The water hammer system consistently delivers the drilling force directly to the drill bit rather than by applying force at the top of the drill string, avoiding the loss of energy associated with the standard configurations and overcoming accuracy and penetration limitations. The new water hammer drilling system was trialled at the Golden Grove Base Metals Mine in Western Australia operated by Oz Minerals. The trial proved successful, with the water hammer system delivering significantly longer, more accurate holes of up to 80m in depth.
The potential for this rig to alleviate many accuracy related issues in mine drilling, combined with its major safety benefits over standard in the hole hammer rigs, offers many solutions to existing mine problems. Final design modifications are being made to improve the effectiveness of the new water hammer rigs, with initial rig rollouts and marketing programs expected in the second half of FY09. The Company believes that there will be significant interest in this new drilling system throughout Australia, which has the potential to change the market in the same manner as the Company’s underground diamond drill rigs.
Swick Engineering Division
In July 2007, Swick Mining Services established an in-house engineering division at its head office in South Guildford to manage its rig build programs, field maintenance and research and development projects, A machine shop was also established to produce key consumables used by the Company to ensure timely and certain supply.
The engineering division has since rapidly expanded to become a major support platform for the Company’s operational growth, adding a range of additional functions including electrical, fabrication and boiler, panel beating and paint shops. The division now builds or assembles drill rigs and support equipment for the Company’s key divisions, including the underground diamond drill rigs, and has coordinated the successful development of the Company’s innovative water hammer drilling technology for its underground longhole rigs. Feedback from the safety and training departments, operations and client representatives is reflected into design modifications and upgrades for the fleet.
Swick Mining Services now has one of the largest in-house engineering functions in the industry, offering the capacity to immediately ramp-up rig build programs and maintain high operational standards for all rigs and equipment. The engineering division is playing a lead role in the continuous improvement of the Company’s drilling services and equipment and maintaining the Company’s competitive advantages in productivity, safety and versatility, further building the reputation of Swick Mining Services as the mineral drilling industry innovators.
Personnel
Swick Mining Services currently employs more than 560 personnel across its operations, engineering, support services and corporate departments. The Company’s personnel play a key role in delivering a premium quality service offering and capitalising on the strong competitive advantages offered by the Company’s best practice drill rigs. Swick Mining Services strives to attract high quality people and provide them with first class training and development programs to ensure that all personnel are motivated, professional, safety conscious and client focused.
As a result of tightening labour market conditions, the Company has intensified and diversified its recruiting initiatives to ensure it continues to recruit adequate levels of new operational staff. The high quality and enhanced safety features of the Company’s drill rigs makes them an attractive proposition for prospective employees. In addition, the productivity advantages offered by the Company’s rigs equate to a strong ability for operational staff to generate significant productivity bonuses as part of their remuneration. Swick Mining Services has a strong people focus and provides excellent career progression opportunities for high performers which makes the Company an employer of choice within the mineral drilling industry.
Safety & Training
Swick Mining Services is committed to innovation and best practice risk management in the areas of safety and training. The Company has highly professional and well resourced occupational health & safety and training departments in place that focus on an objective, research based approach to risk management and personnel development. Clients have a high expectation for productive drilling services that do not compromise on safety and the Company is focused on delivering on these expectations through its training programs, innovative rig designs and strong culture.
The Company has developed highly sophisticated and competency based training and assessment systems that are mapped to national competency standards. All new starters are put through a rigorous induction program that includes a simulated drill training centre. Regular training and development programs are conducted to maintain high levels of safety and operational competency in the field. Comprehensive safe work procedures are in place for all moderate and high risk tasks. The Company’s culture promotes safety accountability at levels within the organisation and promotes a bottom-up approach to safety management and risk identification. Swick Mining Services is focused on matching the best practice rigs in the industry with the highest quality drilling personnel through its safety and training programs.
Summary
The 2008 financial year has been another year of great success for the Company, with revenue, profits and overall profitability at record levels. Our strong performance is testament to the quality of the people we have attracted to our Company. It is their commitment to professionalism, client service and innovation that has underpinned our strong growth rates and will provide the platform for our future growth. On behalf of the board of directors, I would like to thank all of our staff for their excellent efforts in FY08.
The year ahead promises to be one of great excitement as we undertake our first major rig rollouts in our surface drilling divisions and expand our cornerstone underground diamond drilling division into the large Canadian market. We are well positioned to build a global brand in the coming years and become of one the largest providers of mineral drilling services in the world. We look forward to sharing this journey with all of our key stakeholders, including our clients, staff and shareholders.
Yours faithfully
Kent Swick
Managing Director
