June 25, 2023
DDH1 provides a complete range of specialised surface and underground drilling solutions to their mining and exploration clients globally. The company aspires to be the world’s leading driller through innovation and a continued focus on high-quality, reliable services. DDH1 went public on the Australian stock exchange in March 2021.
Over the last five years, EBITDA has grown at a 12.8% CAGR, while EBITDA margins have avreraged 21-22% even during the recent inflationary environment. ROIC is 19%.
The dividend yield is 7.0% and the company is on track to buy back 10% of the shares outstanding.
DDH1 is comprised of four different drillers. The founder of each driller still runs their respective operations and is rewarded accordingly. Also, each founder owns shares of stock. DDH1 overall has 193 drilling rigs and is involved in all the cycles of a mine’s life.
DDH1 is marketed under four distinct brand names:
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- DDH1 focuses on deep section, underground diamond core drilling.
- Ranger Drilling was acquired in April 2019 and focuses on iron ore drilling.
- Strike Drilling was acquired in June 2018 and focuses on air core and reverse circulation drilling.
- Swick Mining Services was acquired in February 2022 and operates mainly underground drilling rigs.
DDH1 has the highest revenue per rig in the industry.
Here is a good writeup on Value Investor’s Club: https://valueinvestorsclub.com/idea/DDH1_Ltd/9486284739#description
Gold mining is cyclical, and it is likely that a long cycle of growth for gold drilling has begun. Gold mine drilling services will be greatly needed going forward. Here is a quote from the LBMA, the London Bullion Market Association:
In order to sustain production at or above current levels, significant capital will need to be deployed by miners in order to develop projects or expand existing operations to offset declining production from aging mines. With current prices, which at time of writing are around $1,850/oz, well in excess of the 90th percentile of the all-in sustaining cost curve, which sits at $1,300/oz, the vast majority of gold mines are making very healthy profits. These margins should allow the industry to deploy capital to develop new projects, with the average capital cost to construct a new gold mine approximately $200/oz over the life of mine.
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The market cap is $233.5 million. The company has $31.5 million in cash and $57.7 million in debt. Enterprise value is $252.3 million.
Here are the current multiples:
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- EV/EBITDA = 2.79
- P/E = 7.26
- P/B = 0.91
- P/CF = 3.77
- P/S = 0.61
Total insider ownership is 41.8%. Insiders have recently been buying shares.
TL/TA (total liabilities/total assets) is 28.7%, which is excellent. ROE is 18.1%, which is good.
The Piotroski F_score is 8, which is very good.
Intrinsic value scenarios:
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- Low case: During a recession, the stock could fall 50% from $0.53 to $0.26.
- Mid case: EV/EBITDA is 2.79, but should be at least 5.0. That would mean the shares are worth at least $0.95, which is 80% higher than today’s $0.53.
- High case: The stock could easily be worth a 6x EV/EBITDA, which would translate into an intrinsic value of $1.14. That is over 115% higher than today’s $0.53.
Risks
Gold prices could fall significantly. This seems very unlikely but is possible.
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