I'm chair for Bridge Street Capital, and today we are hosting Mitchell Services for their FY26 Q2 update. Today we have with us Andrew Elf, CEO, and Greg Switala, CFO, to talk about the quarterly.

Over to you, Andrew. Thank you.

Thanks very much, Alan, and thanks everyone for joining us today. We'll just touch on a few key points in the quarterly and then open it up to questions as we usually do.

First off, obviously, some good results in the quarter and a solid first half. Really that's the title on the sheet here, the strong profit in H1 has certainly driven the business to a net cash position, which is fantastic to see.

Obviously, looking back, last year was a harder year with certain factors outside of our control. The couple of years before that, over $40 million EBITDA and some good returns to shareholders.

Again this is a good start for us and hopefully we can bring home a solid second half and have a good year for the business and our shareholders. Again, without reading it verbatim, a number of factors that hit us in the same half last year just didn't happen this year.

It was a good, clean operation for the 6 months. Contracts that we'd won and spent the money on were out up and running and then operating in the ordinary course of business.

Lack of bad weather and other things like that. Client scopes steady.

Where things did end, there was enough work around to be able to redeploy rig and keep the continuity going. All in all, a very good half for the business and good execution from the team, which is fantastic.

There is a paragraph in there about the impairment of the assets for the fire in Western Australia, obviously an accounting nuance, as we say, and that'll obviously reverse itself in the second half just on timing as we work through that claim process with the insurer, which is progressing well. I won't talk too much about the market.

Needless to say, commodity prices are certainly strong across multiple commodities, and there's some tailwinds there. Pleasingly, coal has sort of bounced back a bit as well, which is good to see too.

Certainly the demand for rigs that we can see is certainly starting to increase further. It always takes time from capital getting raised to the capital getting into the ground, but we're certainly starting to see more demand for rigs as that money that's been raised flows through the system.

Obviously, with the operating rig count, it's sort of there or thereabouts as where it's been, and there's some good tenders in the pipeline. Obviously, we're patient, we're disciplined, and we're bidding things at the right prices to get those returns that we're demonstrating in this quarter.

The half-year results table on page 2, a very solid start to the year and again, good return on capital and good profitability, which is fantastic to see. Obviously, pretty disciplined with capital spending.

We do expect that to be a little bit higher in the second half, but certainly, again, being disciplined and things like that. The cash flow, again, very strong, and certainly some big tax bills that we've had to pay as well.

It's good to see that we've been able to manage that and still achieve what we have achieved from a net cash perspective. Again, when this business gets going and with more rigs in the shed, the ability to really generate strong cash is starting to be seen.

From a capital management perspective, I know people may have some questions on that, and really what's in the quarterly here is playing it with pretty straight bat. Everyone's just going to have to wait until the 19th of February when we come out with the half year.

The board's got some decisions to make between now and that release, and we'll decide what's going to happen at that point in time. Needless to say, we've spent a lot of money on divvies in recent times, not withstanding last year, and buybacks, we've certainly rewarded our shareholders as that debt has been reduced.

With the balance sheet where it is and the market and cash and everything else, the board will obviously discuss and make a decision on that. Then lastly, the Loop decarbonisation business, we've released previous announcements about Sumitomo making the investment into that business, which was fantastic.

The team has just won a contract with someone only yesterday, which is going to have a couple of rigs out there for quite a long time. There's another rig starting with a client in the not-too-distant future.

That business is gaining momentum all the time. I think certainly the clients that are exposed to that safeguard mechanism expense are getting their head around it, understanding it, and certainly I think that Loop business is starting to get more momentum, which is, an upside growth opportunity for the business in the medium to longer term as well.

All in all, good start and hopefully we have another good half in the second half and that it's a good year for everyone. Al, that's just a bit of a summary of some of the key points.

I might hand back to you if there's any questions from anyone.

Brilliant. Thanks, Andrew.

First question. Can you provide some comments around the rig count?

You've got 90 in the fleet, 62 operating, obviously 28 rigs are still parked. Can you give me some color on where that balance sits?

Are we losing tenders to competitors? I feel with the current environment there'd be plenty of work, and I guess when you go to put these things to work, would that be easy to sort of, yeah, get people to run these rigs?

Look, I think the challenge for us here in the east versus the west is the coal sector. There's obviously been, yeah, pretty subdued, as we say in the quarterly, from a demand perspective in the coal given Queensland and that's obviously coal price slash royalties.

What's happened is a lot of those rigs that have been in Queensland coal, and not just our rigs, have been redeployed across to minerals, which means that hard rock minerals has had to soak up rigs coming across from the coal. As is Western Australia, you've sort of got your iron ore and then your hard rock minerals.

Iron ore steady, hard rock minerals picks up, utilization goes up. What you've seen over here, coal down, minerals up, rigs across from coal, utilization stays the same.

You haven't seen that uptick as much. Having said that, there are tailwinds in minerals, demand is increasing further, coal's had a bit of a bounce back on prices.

Again, you would like to think that we can get more rigs out, but we will remain disciplined on our pricing. Happy to lose if we bid fair, reasonable prices and get beaten, happy to lose, happy to leave the rigs in the shed and keep delivering 20-plus percent return on capital with good profitability and cash flow, with great team, safely, happy clients.

Where we put the prices in and we get a win, we'll take advantage of it, we'll do it properly, and make a dollar. Again, I think the chance of the rig count going up is greater than it going down, you would think at this point in time.

We'll keep taking advantage of that. Obviously, we do have the rigs available to us.

It does give us leverage, but we'll remain disciplined with the bidding.

That's great. Thank you.

A question from Daniel. EBITDA margins in the quarter of 19.7% are very strong.

How much of this is driven by steady operating conditions versus new high-margin contracts, and how sustainable is this over the rest of FY26?

If we don't get smacked with things that we can't control, it's absolutely sustainable. It's ordinary course of business earnings.

We've always said to people that we target 30% gross margin, 10% overheads for a 20% EBITDA number, and then everything else generally takes care of itself if you manage your capex after that from a return on capital and profit perspective. Certainly I think that's what it really looks like in that first half is, you sort of bang on those sort of numbers roughly, just with a lack of things impacting earnings outside of our control and good execution from our teams and some good continuity with operations.

Certainly I think, again if we have similar conditions in the second half, we'll see how it goes. Obviously you're generally stronger in H1 than H2 and that's on the basis of the wet season really impacting things sort of January, February, March, usually.

It has been a bit of wet weather around, particularly in Queensland, in January.

All right, thanks. Just back on the impairment charge.

Just confirming the impairment in Q2 is reflected at both EBITDA and EBIT line?

That's correct, Alan. You can effectively add the $1.4 million back to the quoted EBITDA numbers and EBIT numbers here to arrive at a normalized number.

I think just importantly and to clarify, it's purely timing, with the insurance claim expected to sort of, yeah, finalize very shortly, and that'll then reverse in Q3.

Understood. Thanks, Greg.

Maybe some comments around your order book?

It's not something that we've traditionally put into presentations or spoken about a great deal. We really sort of just talk about how many rigs are running, how many rigs are in the fleet, what does the pipeline look like, what does it look like with commodities, and those sort of things.

It's not something we've traditionally gone into a lot of detail with. Really the best way to think about it is about a third of our contract book rolls per year on average.

You'd typically got 2-year, 3-year contracts, mostly. There's obviously shorter ones in there for smaller clients, but ordinarily you'd have about a third of the book rolling, and some years it's more, some years it's less.

This particular financial year '26, it's a little bit less than that, given that we had a few good wins and had to spend the money and get those jobs up out running last year, we had a higher proportion of locked-in work. Certainly the order book that you might see in some of the other NRWs and others or Monos, we don't put together.

All right. Question on capex.

With capex of $7.8 million year to date, can you remind us what your expectations are for the full year?

I think the $7.8 is probably not reflective of a normalized number. In other words, I don't believe you can simply take that number and multiply by 2 to get to the full-year number and that's largely timing related.

It will be certainly north of the $15.5 million. At the same time, FY25 had a relatively high level of capex just given those new jobs that were won as Andrew mentioned earlier.

I think from memory, capex in the last year was a tick under 20. I think certainly north of 15, but lower than 20, yeah, probably 17.5, 18 based on what we know now is probably a reasonable number.

That can obviously change, of course, depending the success of some of those tenders that Andrew mentioned earlier.

Yeah. All right, thanks, Greg.

Question from Nick here in regards to Loop. If there's an increase in rig requirements, will that require additional investment in capital?

It will require an additional investment in capital. Obviously, Loop currently owns one drill rig, an increase in requirements will require capital.

Just reminding everyone of the Sumitomo investment that happened in late August, whereby Sumitomo have effectively, based on certain hurdles, committed to two additional tranches of approximately $1.5 million each. An increase in rig requirements would see the drawdown of those two tranches effectively, and the use of those funds would certainly be to fund the additional rigs.

I daresay, once it's reached that point, or if it reaches that point, Loop would certainly be able to sort of stand on its own two feet in terms of acquiring debt facilities to fund rig 4, 5, and 6 going forward. We don't see any direct finance requirements from Mitchell Services or Talisman, the other partner, certainly in the short term at least.

Great. Andrew, I know we've touched on capital management, but obviously this question relates to that.

Capital management policy was to pay out 75% of net profit. Are you saying this could change?

No, look, I think that's been communicated as pay up to 75%, and the board had spoken to people previously that their decision will be to allocate based on growth opportunities or buybacks or divvies, but up to 75%. Again, I can't say anything other than that until they meet, talk, decide, and we put it out on the, I think the 18th, Greg, is it what we're going to 18th of February?

18th of February we'll release the half year or intending to release the half year, so that'll be the time to keep an eye out for that. Sure.

Thank you. With regards to Loop getting more momentum, when do you think you'll need to start to think about acquiring new decarbonisation rigs to support potential new clients?

The good thing with that business is there's a lot of pre-work that we do in advance of the drilling in regards to engineering, modelling, planning, operational readiness, et cetera. It's not like you've got to commit, buy a rig, get it on spec and then hope to win and get the work.

You've almost got a nice scenario there where you can get a win with a client, know that you've got a fair runway of sort of desktop-type consulting work in advance of starting operations on their site in the field, and sort of tie it to, okay, you win and start that work, then you might go, okay, let's get a rig for this client because they're going to want one. Ultimately the answer is more work, more rigs, of course, but not right now.

Certainly I think maybe if we were going to buy rigs for Loop, potentially after 30 June unless something else changes.

Understood. Thank you.

A question from Chris. Has debt been paid off to achieve the current net cash position, or have you accumulated a cash pile?

Should we make any changes to previous forecasts of debt reduction?

No, I don't believe any change to the forecast debt reduction is required. To answer the first part of the question, the $7 million worth of net cash is effectively $15 million in cash, yes, there is a cash pile that's been accumulated, coupled with $8 million worth of gross debt.

Now that gross debt is just traditional equipment finance facilities, that generally get paid over a 3-year period. There would certainly be no intention to try and target repaying that off earlier.

In terms of how that debt comes off, that's just in line with what's previously been disclosed in our financials. In terms of the $15 million worth of cash, that then becomes an important aspect to the meeting as Andrew mentioned that's going to take place later this month in terms of, yeah, best use of that from a capital management perspective.

All right,

thank you. A question from Sam in regards to work.

The inquiries you are seeing, are they from new or existing clients? Do you expect these inquiries to convert in second half or in FY27?

Sorry if there's any noise in the background, but as luck would have it the gardener's just rolled up. We're seeing inquiries for new and existing clients, particularly in the metalliferous or mineral space, certainly not coal as we say.

It's pretty flat. There are a number of tenders submitted with decisions due in the next month or two, where the work would start this side of 30 June or a touch after.

There is a couple of those in the pipeline.

Right, thank you. Next question.

In regards to rigs, does it make sense to dry lease spare rigs to operators in the western states?

Absolutely. That's something that we have done before, and we would do it again if the opportunity arose.

I did have a conversation with someone late last year in Western Australia about one particular rig getting rented. Didn't go anywhere.

If it gets absolutely red-hot and they need more rigs there and it's not an opportunity that we would go to Western Australia for because we do operate in Western Australia, it's something to consider, absolutely.

Right, thanks, Andrew. Bear with me for this one.

Guys, from Ismar, obviously he's commenting, 'First of all, congratulations on the strong result and the solid cash generation achieved for the half year. Given the current very favorable environment for commodities such as gold, copper, I'd like to ask how many rigs are currently operating as of today, and how is the company approaching the signing of new contracts at this point in the cycle, particularly with the objective of securing future utilization ahead of a potentially less favorable environment?'

If you think about a drilling contract, the first thing you do is look at the structure of a drilling contract. It's not a construction-style contract.

Generally, you don't have consequential loss, liquidated damages or a fixed schedule of work as such. The client reserves the right and sometimes by way of mutual negotiation to vary the scope of the services either up or down, and that notice can be given generally on a 30-day period.

If you sign a contract now for a million meters, that client could terminate it with 30 days notice. You sign a contract for 1,000 meters, same thing.

The approach that you take to contracting and winning work doesn't change. You've got to go these are our costs, this is the return that we want to get, and you put your bid in accordingly.

We've been very open with telling people, as I said earlier on this call, 30% gross margin, 10% overheads, 20% EBITDA. There's obviously different factors you then take into account where those gross margin numbers move.

It's either highly technical work, highly specialised work, short-term work, working for juniors versus longer-term ongoing work with a Tier 1 major, where you're going to have your rigs running at a site that's steady and stable as it can be for the next 10 years. You will make a decision on what gross margin you put into bid based on the client, the commodity, the risk of the drilling, the terms and conditions, the technical nature of the work, et cetera, et cetera.

They're all the things that you take into account. You've also got to have a look at the outlook with inflation and how long your contract's for and your rise and falls and labor rates and all those sort of things.

They're all the things that we take into account. As utilization goes up and the squeeze comes on, things get tighter, you can bid more aggressively, bid harder.

Certainly the juniors, it's well understood. They come, they go, and as things get busy you put the prices up, but again that might not necessarily be the case as much with your larger clients that sort of get a fairer price through the commodity cycle in exchange for the fact that they keep you alive when times are tough.

I think generating a 20% EBITDA return with good return on capital is a good fair number for a business like this if you can get it, when you don't have things outside of your control impacting those returns.

Thanks, Andrew. Next question.

Again, bear with me here. I know we spoke about a part of it already, but can you provide some color on the composition of the tender pipeline you're seeing?

You mentioned that there's a lag between commodity prices translating to rig demand, obviously when you talk to customers, how do you see this cycle playing out? Is all of that demand coming across in tenders today?

Do we still need to see them make capital decisions?

It's starting to come through now in tenders that we're receiving and submissions that they're asking us to put in. We are definitely starting to see it, no doubt about that.

It's predominantly gold related, no surprise. Victoria, New South Wales, Queensland as well, but not to the same degree.

Certainly I think we are starting to see it, which is really positive.

You think part two of that question are coming from the juniors?

It's a mix. It's definitely more juniors, absolutely.

There is a higher proportion of juniors in that mix than there has been, but the success in some of their drilling is driving the results too. I think Southern Cross in Victoria has been a wonderful success story, I think Falcon in Victoria, another wonderful success story, Catalyst in Victoria a success story, Waratah in New South Wales looking good.

There's some juniors out there that are doing some really good things.

Excellent. Okay.

Are there any impacts from wet weather on the East Coast or any demobilization or mobilization that you're aware of in the second half?

The wet weather in January has been horrible in Queensland. You've seen it all over the news.

Been a horrible start to the year in Queensland with the wet weather. The rest of the country, not too bad.

We've lost a bit of time in Victoria because of fires. If it's not floods and rain in Queensland, it's fires and fire bans in Victoria, we're waiting for the plagues to come.

It's not too bad in Victoria. It's really just if there's a high fire danger day with that hot weather, if you're working in national parks or highland country, you just sort of got to stop.

Certainly it's been a tougher start in Queensland. Again, as far as what happens with the weather and fires and other things from now moving forward, you can't predict it.

We are protected. We do have standby rates in place where we do not lose money when these things happen, but we do not make money when these things happen.

It's effectively a neutral situation where you're effectively diluting your percentages. We'll wait and see what happens.

Certainly on the mob demob, nothing big. Business is as usual.

Again if we get some good weather and just get back busy, we should be able to keep generating some decent numbers. All right,

thank you. First half '26 revenue, what would be the commodity mix, would look like?

That'll be in the half-year accounts and in the prezo, but without giving the exact numbers today in advance of that being released, gold up, coal down.

Yep. Good.

Back to Loop. I think memory, there's two operating rigs at the moment, or that's committed to.

I guess the third question, is there a third coming online in second half?

There's going to be the one rig starting work in April for a trial. That's going to be a sort of a 3 or 4-month project.

There's two rigs starting, probably in April again, and they will run, we're expecting probably for a couple of years. We've been notified of the award.

We certainly haven't signed the contract yet, I can't really say who it is, and it's not contracted, but that's the plan. Hopefully two rigs on an ongoing basis and one on a trial.

There's certainly a lot of work happening with multiple clients from a consulting perspective, and a lot of momentum in the business development space. Hopefully that momentum keeps going.

All right. I think, Greg, we mentioned capex before, but usually we split it up.

Maintenance capex...

It's essentially all maintenance capex, both in terms of the numbers we've quoted here and I've spoke to somewhat in terms of the forecast, that is generally all maintenance capex.

Thank you. This next one relates back to capital management.

Andrew, Greg, I think the language there is just back to the 17th of Feb and my neck of that one. With the company's share price trading at 3 and 1/2 times free cash flow and a net cash position, does the board consider share buybacks at current levels to represent a clear opportunity to create value for shareholders, and what role could they play within the company's capital allocation policy?

Same answer. It's the same answer from before.

Again, buybacks and divvies, it's like consolidations. Everyone's got a view.

Some people prefer buybacks, some divvies, it's just, yeah, it's the board's call. Let's let them decide.

Now, we'll wait. Thank you.

I think historically, any update from Anglo or Moranbah North and Grosvenor regarding the resumption of operations?

Look, they're still working towards getting going at both of them, but again they're keeping their cards pretty close to their chest for various reasons. Obviously, they've still got, I think, some discussions with Peabody as a result of that transaction.

They certainly haven't disclosed much to us or to the market. Certainly as far as we're aware, they're working towards getting going again.

Certainly from a positive perspective for Mitchell Services, if and when they do, that is positive for us because we'll have more rigs running at both of those sites, and that will naturally give us a bit of a boost in that coal sector of the business.

Yep. Perfect.

Thank you. Last question from Nick, obviously on Loop.

Is there the possibility of an offtake agreement for gas in the upcoming operations?

Absolutely. Again, Loop is never going to be an infrastructure company funding and developing any power plants or other gas-related infrastructure.

There are certainly opportunities to look at commercial models and to sort of go, okay, how can we turn a waste product into a resource and monetize that and share in it in some way? Again, as we get more momentum and more confidence and we move forwards, it's absolutely something that we can talk about.

Is it going to happen tomorrow? No.

Is it an opportunity? Absolutely.

Yeah. Right,

thanks, Andrew. I think that last question, obviously again probably relate back to the board, and we'll have to wait till the half year.

We'll leave it at that. Andrew, any final comments before we sign off?

No, thanks, Alan. Thanks, everyone, for attending.

I think, look, solid first half and good to bounce back after a tough year last year and a couple of better years before that. I think we've got some runs on the board if you go back and look at those other couple of years.

Balance sheet's strong, board's got some decisions to make, and hopefully the tailwinds in the industry continue and we have a good second half and not too much rain and as Ismar says, hopefully Anglo can get going again at a couple of their sites too. I think all in all, we're well set for a good second half, Alan.

Thanks for having us.

Fantastic. Thank you again, guys, and congratulations again.

Talk soon.

Thanks, Al.

Thanks, everyone. Bye.