Geodrill Limited (GEODF) Q1 2023 Earnings Call Transcript

Start Time: 09:30 January 1, 0000 10:31 AM ET

Geodrill Limited (OTCQX:GEODF)

Q1 2023 Earnings Conference Call

May 09, 2023, 09:30 AM ET

Company Participants

Dave Harper – President and CEO

Greg Borsk – CFO

Conference Call Participants

Daryl Young – TD Securities

Gordon Lawson – Paradigm Capital

Ahmad Shaath – Beacon Securities

John Sartz – Viking Capital

Operator

Good morning, ladies and gentlemen. Thank you for standing by. For today’s call, participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session and instructions will be provided at that time for you. [Operator Instructions]. I would like to remind everyone that this conference call is being recorded on Tuesday May 9 at 10.30 AM Eastern Daylight Time and is being broadcast live via the Internet.

During today’s call, management will make statements regarding management’s expectations for the company’s future financial and operational performance. These statements are considered forward-looking statements. Each forward-looking statement speaks only as of the date of this call and actual results may differ materially from management expectations for a variety of reasons, including market and general economic conditions and the risks and uncertainties detailed from time-to-time in the company’s SEDAR filings.

I would now like to turn the call over to President and CEO of Geodrill Limited, Mr. Dave Harper. Please proceed.

Dave Harper

Thank you, operator. Good morning and welcome to Geodrill’s Q1 2023 quarterly results call. I will begin with an overview of our operations and our performance for the quarter. Our CFO, Greg Borsk, will then give us a more detailed review of our first quarter financial results, after which I will discuss the outlook for the remainder of 2023.

Geodrill delivered outstanding results in the first quarter of 2023. We delivered record quarterly net income from our second highest ever and our best ever quarter one revenue result. This is the result of our proven growth strategy of delivering high quality drilling services that attract long-term contracts and provide recurring revenues and cash flow visibility.

Operationally, we continue to be encouraged by the current strength in the global drilling market and growing momentum that we expect will carry into the foreseeable future. And to add a footnote here, I’m very pleased to report that Geodrill continues to gain market share in its new territories with diversified commodity exposure in Egypt and South America, which are both performing very well for us.

And the gains we have made on every front can be seen in the strength of our balance sheet and our ability to return free cash flow to our shareholders in the form of continuing dividend payments and the return on equity provided to shareholders. Recall that our strategy since inception has been simply to provide diverse drilling services backstopped by unparalleled access to drill rig support and maintenance services to, as we say, keep them turning and keep them earning. And above all, to keep our customers satisfied. Evidently, this strategy is working.

I’ll now turn the call over to Greg Borsk, our CFO, to review the financial highlights for Q1 in detail.

Greg Borsk

Thank you, Dave. As a reminder, all figures are reported in U.S. dollars. We generated revenue of 37.6 million, representing a 12% increase compared to 33.4 million for Q1 2022. This was our highest ever Q1 revenue and our second highest ever quarterly revenue. We increased gross profit to 12.2 million or 32% of revenue compared to a gross profit of 9.8 million or 29% of revenue for Q1 2022.

We recorded EBITDA of 10.5 million or 28% of revenue. We generated record net income for Q1 2023 of 6.1 million or $.13 per share compared to 6 million or $0.13 per share for Q1 2022. It should be noted, however, that in the prior year comparable quarter, the company had a 1.1 million gain in Q1 2022 on its equity investments.

If this gain was excluded from the Q1 2022 operating results, net income would have been 4.9 million and earnings per share would have been $0.11 per share in Q1 2022. Throughout the quarter, we also maintained a strong balance sheet and ended the quarter with net cash, excluding lease liabilities, of 9.2 million.

At this point, I will turn the call back to Dave.

Dave Harper

Thank you, Greg. Before we move to the Q&A portion of the call, I would like to provide a brief outlook for the remainder of 2023 and beyond. With 2023 already underway, our pipeline of new business is solid. We are benefiting from strong gold and commodity prices, which continues to drive the demand for our services and with that increased demand and less rigs available internationally in the global market, rig utilization is increasing. And as a result of that increase, we are beginning to see pricing leverage. With the demand for drilling services remaining strong for gold and other minerals, including EV, Geodrill will continue to create for its shareholders as we focus on margin expansion as we continue to benefit from this current up cycle, which is now well and truly underway.

This concludes our prepared remarks on our financial results. I’ll now hand the call back to the operator to see if anyone has any questions. Thank you.

Question-and-Answer Session

Operator

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions]. Your first question comes from Daryl Young from TD Securities. Please go ahead.

Daryl Young

Hi. Good morning.

Dave Harper

Good morning, Daryl.

Daryl Young

Congrats on a good start to the year. My questions are around the outlook for 2023 and the seasonality that you might expect. So it’s just become a little bit more complicated now that you’ve added new geographies and new longer term contracts. So just trying to get a sense if you’re expecting Q2 to be one of your stronger quarters of the year? And then the Q3 rainy season, obviously a long way away, but just the magnitude of the potential decline there, if you would expect it to be as big as it’s been historically?

Dave Harper

So you recall that Q2 is generally our strongest quarter. And you’ll also recall that last year, we had a slew of contracts beginning in quarter two, when we — in the quarter one we signed, I think it was $130 million or $140 million in new contracts. And those contracts had well and truly begun in earnest in quarter two last year. So I would imagine that quarter two this year will be strong. But as for a year-over-year performance on the previous year, I’m not expecting like an asset gain. It will probably be flat at best actually. It will still be a good quarter. And adding to their quarter, I think you can look forward to a solid Q3 and a Q4 as well. But as for Q2, looking at Q2 in isolation, I’m not expecting it’s going to — it’s not going to be a massive bump over last year. In fact, at this point in time, I’ll tell you it’s probably trending more like flat.

Greg Borsk

And let me just add, Daryl. When we talk about that Q2 in 2022 was our record quarter ever. Like if you remember, we almost did 40 million. It was 39 million. So to come close or — to come close to that would be an exceptional Q2 2023. And I think the other thing too is just as the business has expanded and diversified and we’ve taken on more mine-related work, you see a bit of a smoothening in the Q3. In the past, Q3s dropped off quite significantly. As we’ve gotten more mine work, more underground work, that kind of sharpness in the quarters has declined. If you look at last year, Q3 was exceptionally strong. I think we did about 35 million. So we’ve kind of — we still have that seasonality in the business with Q1 and Q2 being the strongest, and then Q3 and Q4 kind of tapering off. But I think the declines have softened a bit as we grow.

Daryl Young

Okay, that’s great context. Thank you. Second question is just around the growth prospects. And I think you’ve said that you might take a bit of a pause here on the rig fleet growth, it’s been so strong for so many years, and maybe digest a little bit before thinking about the next phase of growth. But just wondering if you’re looking out to 2024 at this point and what you might think of for future rig fleet growth or where your plans are on that?

Dave Harper

Well, I think the first target I can see that’s clearly in view is 80 plus rigs. And I think we’re going to get there in the next couple of years, probably in the next — maybe the next 12 months. We just look at rig growth. And we look at the numbers that we have put on. We look at the five — from last five years, I think rigs have been growing at 3% or 4% per annum, correct?

Greg Borsk

Yes.

Dave Harper

And I think it’s just going to be more of the same. We may pause, but it will be more of a hiatus. It won’t be an indefinite pause. We need to focus on a few things in the business. One thing we are trying very hard to focus on is restoring the pricing environment to what it once was. We look at where we were in 2012 and the pricing that we were getting at 2012, what followed is we had a seven-year down cycle for seven years during what ensured is that pricing went from the peak to the trough. We declined about 25%. Our industry has done a pretty good job of getting their rigs out there and getting them to work. And as a result of that, global utilization has increased such that now as we read it, global utilization is approaching 50%. I think we’re almost at the 50% point. Now historically, at 50%, we start to see pricing leverage. And so most of the drillers that you’re talking to, I think there will be a general [indiscernible] that pricing needs to increase for the right reasons, because costs have increased. But I think also we do need to kind of try and capture some of that pricing power that basically when the pendulum moved across to the customer. Else what will happen is we’ll reach the top of this cycle in another five or six years, and of course it will become competitive as we come down the other side, and we’ll have nowhere to go. So I think where we’re coming from is we’re just not chasing every job that comes across our table these days. We will have to increase our pricing to maintain the same margins. And as a result, and as a natural function of that, I guess our bid to win ratio may suffer. And so the result being is I do not believe in the immediate future and I mean the immediate future as in the next 12 months, we’re going to be as aggressive on rig numbers, but we might be a little bit more aggressive on pricing, which in theory would result in perhaps a delta between GDP and top line should in theory decrease somewhat. And I believe we saw the first green shoots of this in quarter one when we produced a 12% year-over-year improvement top line, but we saw our GDP go from I think it was 29 up to 31. And I took that as a massive positive.

Greg Borsk

The other thing, Daryl, too, I think if you look at the annual growth over the last two years in terms of top line, we went from 82 million in 2020 to 115 million in 2021 if you remember. That was a 40% top line growth. Then in 2022, we took that number from 115 all the way up to 138, so another 20% top line growth. So I think what you’re seeing now we’re really looking at the business and looking at some of the markets we’re in. And does it make sense to put rigs and add additional rigs into different markets like South America, Northern Africa, et cetera? So it’s what Dave says, it’s still going to be growth, still going to be rig additions, it’s just looking at the business long term, looking at the countries we’re in, the markets we’re in, who we’re drilling for, and where does it make sense to be adding rigs and capacity, et cetera? Also, where does it make sense to move rigs around so that we’re well positioned? So hopefully that answers your question.

Daryl Young

That’s great color. And I like the strategy of focus on margin. And then the SG&A in the quarter was a little elevated. Is that a run rate, or were there unique factors in the quarter?

Greg Borsk

Yes. I think the — we tried to budget the SG&A at about 10% of revenue and we crept up to 12%. We had some share-based expenses in there related to options. Typically, we issue options in May. But this year in 2023, we did that in Q1. We did it in March. So the lion’s share of share-based expense fell in Q1. So that will be a timing between Q1 and Q2. Also, we just looked at some of the — because we had a good quarter, we looked at some of our receivables. And we’re pretty conservative on our provisions in that in terms of IFRS and kind of some of the aging buckets. So we thought it was — just have a look at those and maybe provide a little bit more. Still collecting them. We’ve collected some subsequent, but in terms of the quarter end, there was a little bit more in provisions. And then other than that, it’s — again, if you look at the business going from 83 to 115, call it to 140, we’ve strengthened our controls. We’ve added more admin people. We’ve added more finance people. We’re in new countries like Egypt. We’re expanding in South America. We’re now in Peru and Chile. So there’s some upfront administrative setup costs that are there. And as we continue to add rigs in those markets, they will be spread out over a larger rig base, if you will.

Daryl Young

Got it. That’s great color. Thank you very much. I’ll get back in the queue.

Greg Borsk

Thanks, Daryl.

Dave Harper

Thanks, Daryl.

Operator

Thank you. Your next question comes from Gordon Lawson from Paradigm Capital. Please go ahead.

Gordon Lawson

Hello. Good morning. My questions are similar, just a little more detailed here. We previously talked about start up costs, particularly in Egypt. But seeing your margins once again improve year-over-year, is this level of profitability I believe 32% gross margin, is this a reasonable assumption for Q2 and Q3, of course, acknowledging your seasonally weak Q4?

Greg Borsk

No. I think Gordon, if you just look at the history, the margins, they’re kind of lockstep in term with revenue. So our high revenue quarters are our high gross margin. And that’s because we have a lot of fixed costs in the cost of goods sold also in terms of senior people, senior drillers, et cetera. So if you look at last year, Q1, Q2 I think were similar, 32%, 31%. Then when we got to Q3 when revenue tapered down closer to 30 million, the margin was 24. And then in Q4, it came up again. So we kind of — Dave and I, when we budget and when we manage the business, we manage towards sort of overall annualized gross margin. And with that overall annualized gross margin, we know Q1 and Q2 are typically ahead of that, and Q3 and Q4 are slightly below that.

Gordon Lawson

Okay, that makes sense. Thank you very much. And you stated in your disclosures that drilling in Peru has come to a standstill. So are you looking to expand into other South American countries? And is there a timeline at which point you’d mobilize those rigs and approve to help support contracts in other growth areas?

Dave Harper

Currently, we only have two rigs in Peru and we’re receiving suddenly a number of inquiries. So we’re going to leave those just there for the minute to see where that goes. We’ve had a bit of an expansion drive going on down in Chile. That’s going very well for us since entering that market about a year ago. And so we’re encouraged. And as a result of the job that we’re doing down there, we’re receiving a few inquiries around the same job. So that’s looking pretty good that market. I’ve actually just had an inquiry from another South American country as well. And we’ve put a proposal on the table. So we’ll see where that goes. Again, the whole rationale of moving to South America was it was a diversification — it was a commodity diversification strategy. It’s also, again, a different country risk, it’s the same time zone, as a lot of our shareholders would appreciate. We’re enjoying the experience in South America. And so I think these are the new growth markets for us. They’re going very well. We’ve been well received. And I think the future looks pretty good there for a nice organic kick.

Greg Borsk

And Gordon, that’s kind of our secret sauce, if you will. If you look at West Africa, the four countries we’re in, we have our main bases in every country. We have our fleet of rigs in every country. But then again, we’re able to move rigs around from one country to another if the demand exceeds in one country and not the other. So we’ve been doing that very effectively in West Africa for a long time. And you’re seeing the same in South America. So we started off very strong in Peru. And for political reasons, et cetera, Peru — right now, we’re not drilling in Peru. But we’re extremely busy in Chile. So we were able to mobilize some rigs from Peru to Chile to satisfy our customers and keep drilling in South America. So as you keep adding more countries throughout South America, you’ll be able to have that flexibility. So it’s something we’ve done extremely well. And like I said, we’ve been able to look at South America in 2022 and continue drilling there just in a different country.

Gordon Lawson

Okay, that makes sense. Thank you very much. I appreciate it.

Dave Harper

Thank you.

Greg Borsk

Thanks, Gordon.

Operator

Thank you. Your next question comes from Ahmad Shaath from Beacon Securities. Please go ahead.

Ahmad Shaath

Hi, guys. Thanks for taking my question and congrats on the solid quarter. Most of my questions have been answered. I guess I just want to clarify. It looks like from the comments I guess from you, Dave, is Q1 is the high watermark for the year and we should be trending lower on a quarterly basis for the remainder of the year. Is that a fair statement?

Dave Harper

I think it is actually, and I think we’re going to have a blended — it will be a good year. I think it’s — we’re not looking for 20% year-over-year improvement. Again, if you recall, 2021 was a 40% year-over-year improvement where we were coming off a low base, we were coming off COVID, we were coming off down cycle. So 2022 for us was a good year. And I think that for the reasons that I gave just before, not chasing every job, bidding more qualitatively and trying to move that pendulum back in our favor a little bit such that we can appreciate it, a slightly improved GDP, I think we will start to see a bit of pushback. And so I think these things — these disciplines are points in time in a cycle and necessary to do. I would be thinking at this point this year, this fiscal year as compared to last year would be probably closer to maybe a 10% improvement, high single digits. And if we can achieve high single digit top line, that will improve the GDP by a couple of percentage points, then we would have effectively ended up with the same result if you get my meaning. So that’s what I would — if I was to throw a dart where the year is going to end up at this stage, I think I’d be aiming for about high single digits here.

Ahmad Shaath

Got it. Fair enough. That’s very helpful. And just to close the loop on the margin, it seems that you’re targeting — given where the environment is in terms of pricing and industrialization, you think you can achieve a 2 percentage point improvement on the gross margin, revenue base we just spoke about?

Greg Borsk

I didn’t catch all that. But just on the gross margin, if you look at the last years, we target 30%, Ahmad. And typically, we’re higher than that in the first couple of quarters and then around that or slightly below in Q3. So again, we look at the margin when we do our budgeting, our forecasting, how many rigs we’re going to add throughout the year, et cetera. We look at our annualized margin. And typically in Q1 and Q2, we track ahead of that.

Ahmad Shaath

So it sounds like —

Dave Harper

A reasonable target for this year is probably about 31%, give or take, in that range.

Greg Borsk

Yes. We budget 30. So if —

Ahmad Shaath

Perfect.

Greg Borsk

32 in first quarter was a strong margin for us. And again, the other thing too is this is something we need to communicate. In 2020 to 2021, we grew by 40%; ’21 to ’22, we grew by 20%. This is kind of a year where we’re looking at maintaining gross profit pricing. We’re also looking at jurisdictions and it’s more of an investment into the future, where we’re looking at certain countries we operate in, certain territories. And does it make sense to increase our presence in South America? Does it make sense to increase our presence in Northern Africa? Add more rigs in Egypt. So we’re still focused on margins and top line, but it’s also strengthening the company and diversifying it a little bit more. That’s kind of what we’re looking at in 2023.

Ahmad Shaath

That’s great. I appreciate the color. And the last one on back on — just on the G&A line. If I parse out the impact of the receivables and the share-based comps, it looks like your run rate on a quarterly basis is in around 4 million. Is that a good number to have?

Greg Borsk

Yes. I’d like it to be 10% of the top line. But yes, I think, again, with the investments we’ve made into these countries and still adding rigs, it’s probably 3.5 million to 4 million a quarter.

Ahmad Shaath

Perfect. Thanks, guys, for answering my questions and congrats, again, on a solid quarter.

Dave Harper

Thanks, Ahmad.

Greg Borsk

Thanks, Ahmad.

Operator

Thank you. [Operator Instructions]. Your next question comes from Benjamin Anderson from Anderson Consulting Group [ph]. Please go ahead.

Unidentified Analyst

Yes. Thank you for taking my question. I have a question about the availability of rigs. As the company expands, do you foresee any problems or are there any problems in the procurement of additional rigs in terms of their availability? Is this something you have to order years in advance? And how easy are they to obtain as your business expands?

Dave Harper

We did pretty well on that score. Where we don’t buy, we build. Either way, we’re always able to satisfy the demand. What we don’t do is wait until the demand or the utilization of the existing fleet reaches maximum capacity before we act. We preempt that we are going to be at 100% when we reach 70%. And so when we get to 70%, we naturally are out there in the market looking to either buy new equipment from manufacturers or one of the things I’m not sure how familiar you are with the history of the company, but you may be aware that the company actually has its own manufacturing facilities. It’s one of the big things that we do I think remarkably well in Geodrill is that we have the ability to actually manufacture our own drilling rods, our own drilling bits and our own drilling rigs. And so in the fleet currently, I think we have about six rigs that have been made at our manufacturing and fabrication facility plant in West Africa. As we speak, we have four rigs going through the workshop. And those rigs, we can speed them up or slow them down. So we’ve always — we can always satisfy demand basically to answer your question.

Unidentified Analyst

Thank you. And very briefly, I wondered if you could talk about the political risk that the company now faces. Could you talk about Burkina Faso specifically? And does Geodrill have any martial or governmentally provided political risk insurance?

Dave Harper

I’ll let Greg speak about insurance. I’ll talk about Burkina Faso. It’s a market that we’ve been in since 2010. So we’ve got some history there. At one point, it was our busiest market. Currently, it is actually our quietest market. And that’s just a natural function of the fact that less people are drilling there these days. It is for us a country currently under review and a decision in some ways imminently in the not too distant future will be taken as far as that country is concerned. The one litmus test that I always have is that I will not work where I — where I will not visit myself where I will not ask my people to work. Sorry, I’ll say that the other way around. I will not ask my people to work where I’m not prepared to visit. So that is firstly and fore mostly our sort of litmus test in terms of whether a site is safe. Of course, Burkina has come under some negative press for, frankly, all the right reasons in recent years. And for that very reason, we are currently reviewing our situation in Burkina Faso. And I think a decision will be taken imminently that will derive us a better result in terms of where we place our assets.

Greg Borsk

Just in terms of insurance, Benjamin, yes, the group insurance, we coordinate that out of the UK and then filter it down to every country that we operate in. So we’re, again, very well insured. We disclose the D&O insurance. But in our industry, I think everybody has expat medical insurance, your general liability insurance, umbrella insurance, et cetera, so very, very adequately insured. And like I say, we review this semi-annually with our team in the UK, and then we push that down to the operating jurisdictions.

Unidentified Analyst

Do you have any insurance or confiscation or nationalization of a political nature?

Dave Harper

Expropriation I think you’re talking about?

Unidentified Analyst

Yes, right.

Dave Harper

No, I don’t think so. It’s never happened in my 25 years. We’ve never had — we’ve actually never had a situation where we’ve actually lost any time through drilling because of any, let’s say, political purity chart, which is fairly common throughout Africa. Where we’re more exposed currently in that country that you just mentioned and one of the other ones up there in West Africa is the terrorism situation. And so that’s more of a concern to us. Of course, a rig can always be replaced but people can’t. Do we actually have insurance for expropriation? I think it would depend on the purpose, the reason behind the expropriation, if it was civil, if it were — that’s never happened. So I’m not even 100% sure.

Greg Borsk

And the way we work, in general we insure wherever we can. If an insurer will not provide that, again, we go through our main broker and there’s just some things that insurers will not insure for and a lot of this is riot and terrorism-related events. So what we do to kind of mitigate that is make sure we know where we’re operating. The Geodrill model we operate with most of our clients are the majors or the intermediates, so we make sure we’re on very secure mine sites. We’re in discussions with our clients and their security protocols, our security protocols. So in general, wherever we can add a layer of insurance, we will. But there are certain situations and certain circumstances where you’re not able to insure, so what you do is you look at how do you mitigate that? And it’s through diversification. Like I said, we’ve had situations where we’ve had through us and our client has maintained special security, spent a lot of money on that just to make sure assets are safe and people are safe. But what you’re seeing, what I mentioned earlier with Geodrill, it’s investing in the business. Some of those countries that are a bit problematic now, we’re pulling out of them. And we’re pulling out of them as we can, and redeploying rigs to other areas that are more favorable to operate in. So hopefully that answers your question.

Unidentified Analyst

It does. Thank you very much.

Operator

Thank you. Your next question comes from your John Sartz from Viking Capital. Please go ahead.

John Sartz

Hi, guys. I’m wondering — you mentioned in your MD&A talking about rewarding shareholders. And I noticed that despite — you spent a lot of money on new rigs in the last couple of years. And despite that, you don’t seem to be able to spend all the cash you have. You’ve been building up cash and now have a substantial level of net cash in hand. And I’m wondering — at the same time your dividend payout is less than 20%. Now I realize that you obviously, with dividends, you want to be careful that you don’t want to be in a position where you have to cut it. But I’m wondering if perhaps you might do something you — of course you haven’t been buying shares back either. And I’m wondering if you might contemplate buying some shares back and also perhaps pay a special dividend?

Greg Borsk

Yes. I think if you look at the history of Geodrill and just kind of the last four or five years, where we bought back shares through our NCIB, what we do is we have an NCIB that allows us to buy back shares and we monitor that. So I think it was in 2019 and 2020 that the share price traded significantly below the book value of the company. And so with the share buyback, we were allowed to kind of put in a floor and it made sense for us to buy back shares. As we got through 2020 and through COVID and into 2021, through our Investor Relations people and the marketing, we were told that a lot of investors wanted to invest in Geodrill and buy shares. So we kind of — it’s a balance thing. So what we did is we adopted more of a dividend strategy. So we did our first dividend in 2021. We did a small dividend $0.01 twice, so that it was $0.02 annually. Then the next year, we ratcheted that up to $0.03. So it was $0.06. We just did our first one in 2023 of $0.04. So what we’re seeing — again, it’s a balance thing. You need to have the balance to add rigs and continue to grow and continue to satisfy customers. But we also need to have the balance to return capital to our stakeholders. And where we’ve done that in the last two years is more through the dividends via the share buyback, however, we do have the share buyback in place so it’s still a lever to pull if we need it going forward.

John Sartz

Great. Thank you.

Operator

Thank you. Your next question comes from Ray Gibbons [ph], an investor. Please go ahead.

Unidentified Analyst

Congratulations on a good quarter, guys. I know you guys must wonder why you can’t even get the — hello?

Dave Harper

We can hear you. Thanks, Ray.

Unidentified Analyst

Yes. You guys must wonder why you can’t even get the valuation of like a mining company that has one mine in the ground, cannot move it, is at whim of the government of everything, cannot mitigate any of its risks and yet has a healthy PE that you guys can’t seem to touch, being able to move your assets wherever you think they should be at 30% EBITDA margins. It’s just an amazing world. Not to mention these mines eventually run out of what they’re looking for. And from what I can tell, you guys decide when a rig is retired and you can keep refurbishing it and optimizing it and ultimately you guys decide when your asset is broken down for parts or whenever it is. So it’s just incredible the valuation confusion there. But what I would ask is about you guys are talking a lot about recurring revenue now. And so I know your customer mix is much more towards miners. And miners are now saying things like, the cheapest sounds [ph] as we find are right around our mine side. And you guys are the ones helping them execute that. So I suppose what percentage of your customers are majors? And is it fair to say that if you’re a major in West Africa that your pricing quartile is very low, which further goes to show you guys will be working with these guys right into the next downturn. And that recurring revenue here is something we can actually look at into the next downturn and not say, okay, this is a business that’s just going to run out of work. So just tell us about these major miners and where you think their pricing quartile is?

Dave Harper

That’s a good question. Drilling is a cyclical business. And it tends to go up and down depending on commodity prices and so on and so forth. I think firstly, just recall that the history of the company, why I was encouraged to start Geodrill 25 years ago, this is now by the way our 25th year of business. We started with one rig, one contract in West Africa, in Ghana 25 years ago at a mine site — well, sorry, the junior exploration site that later went on to become a mine site. And most of the miners what they do is they — I think firstly and foremost believe the thing that attracted me to West Africa was that West Africa had missed what I thought was 50 or 60 years of modern exploration. All these things that are being drilled around North America and Australia and around the various places in the world, they have a wave of exploration that took place through the ’60s, the ’70s and the ’80s. West Africa missed all of that. And so a bunch of exploration juniors arrived in their droves [ph] in the early ’90s. And I was part of that movement. So I’ve been there. I’ve had the first mover advantage since I arrived. And I’ve never needed to really go and drill anywhere else. There is an enormous amount of drilling that has taken place and will continue to take place. So the drilling that has taken place was the drilling that was making the major discoveries. Now please know that a mining company does not drill its 30-year mine life or 20-year mine life in its first two or three years of exploration. They tend to drill what will give them about five years of production, call it 150,000 ounces per year. And on the basis of that they can generally go and do a DFS, raise some money and build a mill. So then they get — now they’ve gone from an exploration junior to an intermediate minor in the making to a minor. Now by this stage, they’re mining, they’re producing gold at, say 150,000 ounces a year. Well, if they do that, then in five, six years, they’re going to be out of business. So what happens is they take the cash which is generated from the operations and it’s usually they work on fairly good margins out here, because the grade of the resource is much higher. And that really speaks to the point that I mentioned that West Africa had this 50 years modern exploration and so you had all this low hanging fruit out here. So when they get into production and they produce their first year’s resources, they’ve taken their pit down, call it 50 meters. And so as they deplete the pit and they remove gold from the balance sheet, they spend some of that free cash back into exploration which then generates the next two or three years of results. So what happens is you have this ever increasing momentum where the resource never ends. So the recurring revenues that I can speak on, on projects where we have worked, where we began as juniors, they became intermediates, have gone on to become miners. And now West Africa is dominated by Tier 1 names such as Newmont, Barrick mines, Kinross mines, and Endeavour mines. These people are serious people with serious mining plants and a serious attitude towards working sustainably and building a proper ecosystem with communities in mind. Now the result being for us, we’ve been able to build a business model, which started with one rig, one contract and 100% debt. So zero equity 25 years ago. Today, what is a company which has — at this morning’s count $112 million in entitled shareholder equity? I think that’s an enormous result. And the best part about it is all the projects that we are currently working on, other projects that have been going now for 15, 20 years, they still have another 15 or 20 years of mine life. And by the time we get to the end of that 15 years or 20 years of mine life, I expect they would for the next 15 or 20 years of mine life. So it’s a great business model. It’s why I started in West Africa. Now the result being if you want to look at how much gold is now coming from West Africa, as a result of all this drilling that we perform, and other companies perform, please know we are not the only drillers here. As a result of all this drilling activity, West Africa is now producing 450 metric ton of gold per annum. And just to put that number into perspective, China, the largest producer in the world on a country basis, produces 350 metric tons. So there’s 50% more gold coming from 6 of the 12 West African countries in a footprint, in an area which should inside of China twice. So I think the recurring — what this company has been very successful in doing is identifying a region, getting the first mover advantage, building a network of support facilities to support our high performance rigs, and generating cash flow. And from that operating cash flow, we then take the cash generated from operations of each and every one of these rigs. And the next thing we do is we just reinvest it into another rig. And this cycle has been going on. We’re now approaching 80 rigs as we inexorably move in the direction of what will eventually become probably north of 100 rigs. Now what’s the best use of our cash generated from operations? People often ask, why don’t you buy the shares back? Why don’t you pay more dividends? Why don’t you pay special dividends? I think we just had that question on the call earlier today. I will tell you the best thing we can do with the cash generated from our operations is just put it back into another rig. I don’t have to buy someone’s business. I don’t have to peg [ph] diluted multiples to expand into other markets. I just take my rigs, my cash. I add rigs into the exact same market where there is an appetite for our equipment. And that business model is now expanding beyond West Africa into these other strategic markets for us. We’re essentially doing in Egypt today exactly what we’re doing in Ghana and exactly what we were doing in Ivory Coast 10 or 20 years ago. We just start with two or three rigs. We get in there, we keep the customer satisfied. And that’s all you got to do in this business, to keep your customer satisfied. We are firstly and fore mostly a service provider. That’s what we do. So we have to provide service. That’s how we do it. And that’s the story, the Geodrill story. Holes are us. We drill holes, lots of them.

Unidentified Analyst

Thank you for your efforts, guys. Well done.

Dave Harper

As to the share price, I can’t help you with that one. That’s where we sing the Serenity Prayer. I think we’re just in the lap of the Gods. You got to believe that the market, the cycles will change. This is a cyclical business. What we have done is we’ve taken a cyclical business and — the share prices of drilling companies and mining companies alike tend to suffer through the peaks and the troughs. And so we’re collateral damage in that respect. But I do think that what Geodrill has done probably better than most is we have managed to take a cyclical business and flatten out the cycle such that even in the troughs, we’re still profitable. We’re just less profitable than when we are in the peaks. And now we’re evidently in an up cycle. This up cycle I believe began in earnest two years ago. Based on the last down cycle, I will tell you I’m confident this up cycle is good for seven years. We’re two years in. We’ve got five years to look forward to. And it’s going to be game on.

Greg Borsk

Yes. And just on the share price, Ray, diversification I think is going to help in the long run, adding more capacity in South America, adding more capacity in Egypt and some of the other North African countries we’ve invested in. We added the over-the-counter QX listing last year to kind of cater to more U.S. investors that would like to invest in Geodrill. Last year, Dave, all of the C level, we basically reinvested about $2.5 million into the business. So like Dave said, we’re kind of at the mercy of the stock market, but in terms of paying dividends, diversifying the business, for us to continue to reinvest, C levels never sold a share. We believe in this business. And we believe it in the long run. So we’ll keep doing what we’re doing.

Unidentified Analyst

I definitely think there’s a correlation between the share volumes and the dividend. So as the dividend increases, more and more people will be forced to look at this business. What business can sustain this particular dividend? They’ll look under the hood and they will be like, incredible business. And so maybe now people think, private equity was involved in this mineral exploration business, they took on a bunch of debt, they ran aground, lots of people lost money, part of the backing for the cyclical elements of it, but you’re better than a mine. It’s way better than a mine. It’s way better than even two or three mines. Like it should have a higher valuation than the mining industry. You just have all of the flexibility. You almost have what royalty companies have. Royalty companies talk about how many — how diversified they are, how they don’t participate in the cost of a mine, they just sit around and collect cash. Even though you’re in a lot of low quartile mines, like you’ll be working for them right through the next cycle. Why can’t you be valued at 20x EBITDA like the minimum royalty company? Instead, we sit around grateful that you’re at 3x EBITDA and then you get asked questions, wow, if we don’t grow at 15%, we might lose our 3x EBITDA valuation. Incredible. But anyways, love your business. Love it all. Thank you.

Dave Harper

I agree with everything you’re saying. I’m trying to figure out how an outside laboratory who are effectively our cousins. They say that the driller is the proverbial canary in the coal mine, right? And that’s because we spent the largest of the exploration budgets, 50%, approximately 50% of all exploration budgets goes to exploration drilling. So you would think that we would speak to the lion’s share of the multiple of the picks and shovels, not so. Oddly, assay companies, the companies that take the samples that we produce and assay them, they traded 12x, 13x, 14x multiples, look them up. Just check if my intel is correct on that. I don’t understand that. Because you know, if I want to move one of my rigs out of the jurisdiction, because I’m uncomfortable, you know what I’d do, I’ll just fetch a truck and I’ll stick it on the truck and I’ll drive it out. We’ve done this many times before. We will do it many times in the future. If we don’t like a place, we just move. You cannot move an asset. Like it’s bolted to the ground, it’s a building. And so if you’re in a jurisdiction that you don’t like, you’re stuck there. So I just do not get — I don’t get that the assay companies aside the fact that they are billion dollar companies and there’s this whole argument about liquidity versus illiquidity. And I get that. I totally get that. But, look, you got to believe — you got to firstly and foremost, we believe in the cycles. We are not in an up cycle yet, but we’re evidently approaching an up cycle. And in the last up cycle, we traded at 4.5x to 5x EBITDA. Currently, we trade at 3x EBITDA. You can say that our share price has had a good run in the last few years, and it has. It’s increased by 50%. But our operational and financial performance has outpaced that. So our share price performance and our multiple is actually lag compared to our financial performance. I would argue that the underlying value of the stock is well valued as it has ever been. And well done for those loyal shareholders that were with us back when we were trading at $2.00 and $2.50. But really, the intrinsic value of this stock, if we were just to get back to a 4.5x multiple, and pegs us at kind of, I don’t know, $5.50 or something, and that’s where we should be. And you know what’s going to happen, that’s not going to happen overnight. But when the markets do kick in, and when we are getting that 4x, 4.5x multiple valuation, well, what’s going to happen in the meantime? What’s moving is the EBITDA. If you look at our EBITDA over the last five years, it has grown at a CAGR 19%. And so I can afford to be quite patient. I’m not a seller. I’m a buyer. As Greg said, last year, I exercised I think it was — what was the number I exercised last year, Greg? I’ve comped at [ph] $600,000 or $700,000 back into the business last year in share options that were trading pretty much at market value. Now they weren’t give away options. They were $2.14 options, and I think they were actually a penny or two under what I exercised in that. But I believe in the business. I believe in the business.

Unidentified Analyst

The last down cycle wasn’t bad for you guys. You doubled your size. You go into this next one in a lot of different jurisdictions, you outperform your competition, pick up whatever’s there and you wake up in the next up cycle double the size still. Why not? You created a business model with the moat that people talk about. But we all want things to happen faster than that.

Dave Harper

Those grow through acquisition. I just love that the whole organic thing, it just worked so well for us. We don’t have to buy someone else’s problems. We just muscle in with some of our rigs and we pummel the opposition, and we just take market share. And the next thing you come back to that country in a few years’ time, and we will be the preeminent driller in their country. We’ve done this in many countries, in West Africa and now we’re now making a name for ourselves in Egypt. We’re doing very well in South America. So thanks, again.

Unidentified Analyst

Thank you, guys.

Dave Harper

It was more of a statement than a question I should add. But thank you. I’m glad someone actually jumps on these calls and actually supports me and what I’ve been saying for the longest time. Thanks very much.

Unidentified Analyst

Thank you, guys.

Greg Borsk

Thanks, Ray.

Dave Harper

Thank you very much.

Operator

Thank you. There are no further questions at this time. You may proceed.

Dave Harper

Thank you. Well, if there’s no further calls, we will thank everyone for being on the call today. Have a great day. Thank you.

Greg Borsk

Thank you.

Operator

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines. Thank you.