Geodrill Limited

Thank you, operator, and good morning, everyone. Welcome to Geodrill's Q3 conference call.

Joining me on today's call is Greg Borsk, our CFO. I'll begin.

Fiscal 2025 is playing out to be a year of 2 halves. Our first half was evidently solid.

Quarter 3 2025 reflects the complex realities of strategic expansion. While our financial results show short-term cost absorption, they also highlight the strength of our long-term vision.

We are executing a deliberate strategy to build a resilient geographically diversified platform capable of delivering consistent performance across seasonal and regional cycles. South America presents challenges but also opportunity.

It is a market that demands upfront investment, operational discipline and patience. We have doubled our rig count in the region, supporting major multiphase drilling contracts.

This expansion is not just about growth. It's about positioning Geodrill where we see long-term value.

Geodrill has always operated where there is opportunity and risk. This is how the company started 25 years ago with risk comes reward.

The higher the risk, the higher the reward. We don't chase crowded competitive markets, we never have.

We go where opportunity lies. One of our key advantages is our proximity to operations.

We live and work close to our drill rig fleet, boots on the ground. I live in West Africa, and we have now established hubs in South America and in Egypt that are treated with the same level of commitment.

Despite these headwinds, we remain focused. Our platform in Chile is growing.

Our West African operations continue to show strong post wet season demand. Surface drill programs in Egypt are restarting and our multiyear multi-rig contracts provide a solid foundation for sustained performance.

We have achieved 7.8 million man hours LTI free, our bidding pipeline is highly active. Commodity prices remain favorable, and our team continues to deliver with discipline and resilience.

I'll now turn the call over to our CFO, who will review our financial performance in detail.

Thank you, Dave. As Dave mentioned, in Q3, we faced significant headwinds.

However, we still delivered revenue of $39 million, an increase of $4.9 million or 14% when compared to $34.1 million for Q3 2024. The increase in revenue was a result of the company's strategy to diversify its operations to South America, and to operate in a geographic region that is not impacted by wet season.

The increase in revenue was predominantly the result of an increase in revenue in South America of $5.8 million partially offset by a decrease in revenue in West Africa and Egypt. The gross profit for Q3 2025 was $2.4 million being 6% of revenue compared to a gross profit of $8.4 million being 24% of revenue for Q3 2024.

The decline in the gross profit margin this quarter can be summarized regionally as follows: West Africa contributed to 66% of the decline. The decline in the region was driven by wet season -- the wet season slowdown, the drilling mix, wage inflation and the Ghana cedi appreciation.

We expect improvements in Q4 in Ghana, Cote d'Ivoire and steady performance in Senegal. Egypt contributed to 17% of the gross profit decline.

This was due to lower revenue and lower drilling activity. Q4 recovery is expected from restarting surface drill programs in Egypt.

Lastly, South America contributed to 17% of the decline. Rapid rig expansion in the region led to upfront costs and operational delays, especially in Chile.

Q4 improvements are expected with stabilized operations and new job starts. EBITDA was $4.3 million or 11% of revenue compared to $7.6 million or 22% of revenue for Q3 2024.

We reported a net loss for Q3 2025 of $1.5 million or a loss of $0.03 per share compared to net income of $2.6 million for Q3 2024. EBITDA and net loss were favorably impacted by the expected lifetime credit recovery of $100,000, a foreign exchange gain of $800,000 and the $1.8 million gain on equity investments.

Despite operational challenges this quarter, our year-to-date performance reflects the underlying strength and resilience of our business. Over the first 9 months, we have delivered solid financial results, maintain financial discipline and reinforce our strategic positioning for long-term growth.

We ended the quarter with shareholders' equity of $129 million, including net cash of $11.1 million. We remain confident in our ability to navigate the expansion in South America, leveraging our core capabilities and disciplined execution to optimize margins and capital efficiency.

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

Thank you, Greg. So let me jump straight to it.

The drilling market is strong, and we are positioned to outperform. The global mining drilling sector is entering a multiyear expansion recycle driven by a number of factors.

For example, rising commodity demand, governments doubling down on strategic resource security, and increased capital deployment across exploration and development drilling. This is translating into real activity on the ground, and Geodrill is uniquely positioned to capture outsized value through its disciplined execution, operational leverage and strategic footprint.

At Geodrill, we don't chase volume for volume's sake. We focus on disciplined growth, margin integrity and operational excellence.

That is what drives shareholder value. So in closing, to recap, here's what sets us apart.

Global rig utilization is climbing, and Geodrill's is the highest in the industry. Our rigs are working.

Our teams are delivering and our clients are extending contracts. This is not a theory.

This is happening real time. It's on the ground.

Our margins will return. We are seeing pricing power across key markets.

And as we work through operational challenges in South America, we remain confident in our ability to deliver the improved returns we have achieved in prior cycles. Our balance sheet is clean.

We are not overleveraged and we are not overextended. We have the flexibility to grow and the discipline to protect returns.

And finally, our work pipeline is real. We have contracts in hand, mobilizations are done and new tenders are in advanced stages.

We are building a geographically diversified operationally resilient business, and from here, it's head down execution, eyes on the prize, and we are confident in the path ahead. This concludes our prepared remarks.

Q&A session, over to the operator. Thank you very much.

Just looking for some clarification on the gross margin shortfall with the focus on Africa and South America. So I guess related to Africa, like was there an earlier shutdown and kind of later resumption of activity in the wet season?

Or is like most of the impact through the currency appreciation of the cedi?

Donnie, it's Greg. Yes, it was actually -- it was a combination of really 3 items there.

We had the wet season, so the slowdown impacted us in the 3 countries in West Africa. It hit us in Ghana.

It hit us in Cote d'Ivoire and also Senegal. So you had lower drilling activity.

And then we also had 2 other items that contributed to that. We had significantly higher salaries in West Africa.

There's a salary increases that we put in at the start of the year. So on a quarter-over-quarter basis, they're really amplified in Q3 2025.

So that led to a part of the gross margin decline. And then lastly, in West Africa, the cedi appreciated considerably.

Q3 2024, the cedi was about 15, 16:1. And what we experienced in Q3 this year was about an 11 to 12:1 cedi.

So it's a significant increase when we convert the cedi to U.S. dollars for reporting significant increase in our salary.

So that's the West Africa. In South America, the gross margin, we had a negative gross margin and we're just significantly ramping up operations in South America, and I made a note on that in the revenue.

And what's happening when you're ramping up as quickly as we are with significant jobs and significant rigs on the continent -- it's the costs are well ahead of the revenue. So we're -- we hope to catch that up in Q4.

And also, we just didn't get the drill time that we needed in Q3. So that kind of explains West Africa and South America.

Okay. I appreciate the color there.

Just a follow-up on South America. I was going through the MD&A, and I kind of saw it was -- there were onboarding delays, coupled with operational issues.

I'm just kind of curious on what some of those operational issues were. Was it trying to ramp up the new employees that were brought on, like were there any delays coming from the customer themselves?

Like can you just provide any more color on what was happening there? And if we're expecting -- if we're kind of expecting a drag on gross margins to persist out of South America as you guys are starting new projects?

It's Dave, Donnie. Yes.

Look, it was basically onboarding. The solid ramp-up, we went in quarter 3 last year, we've generated about $2 million in revenue.

This time, it was significantly higher. So we've doubled the rig fleet and basically, what happens with all of that is the training and the preparation before going to a Tier 1 mining site.

It begins about 2 or 3 months before you actually arrive at site. And so we had a solid -- there's one rig would come -- go out into the field, another one would come in and we'd have to go through the cycle again.

So it was basically just onboarding. There is light at the end of the tunnel, I should add, and that is that the rigs are actually now in the field, and they are drilling, and they're producing.

And so we're expecting a pretty solid turnaround from South America in quarter 4. So it was a tough quarter.

But we're confident that the hard yards are done, all of the costs are prefinanced and upfront and revenue is the laggard. And so the rigs are in the field.

They're turning, they're earning and the heavy upfront costs are pretty much absorbed now. So from here, it's -- it should be a bit of a turnaround story for sure.

Yes. Donnie, one other thing just on South America, our high-altitude job, we didn't -- we only got about 2 weeks of drilling in Q3, call it, the second half of September.

But that's going to be fully operational through Q4 for us through October, November, December. And then also in South America, we have another job starting, which started for us in October.

So you'll see that in Q4. So we're expecting significant revenue increase in Q4 in South America.

Okay. But just size of that new project being started, are we expecting like similar start-up costs that we saw related to Q3?

Or we would anticipate a little bit of improvement on that front?

No, yes. Sorry, we had that a bit in Q3.

We did get started, but only for about 2 weeks, second half of September. So we were fully ramped up by the start of Q4.

The pain side of the price is essentially out of the way. And from here, it's the gain that follows the pain.

So we'll see improvement in quarter 4 for sure. But we've had a significant increase in activity levels in South America, and all of that was essentially prefinanced throughout -- some of it was quarter 2, but the majority of it is quarter 3.

I have a question related to the gross margins that we just discussed. So yes, I could hear the reasons for the gross margin decrease.

However, in the notes to the financial statements, also come across the drill rig expense and the contractor services that were up nearly 30% and 60% year-on-year. Could you please give us a little comment on that?

What goes into those line items?

Yes. So what happens in the -- the major components of our cost of goods sold are salaries and wages.

And if you look at that, our salaries and wages increased significantly. Typically, when we're having our normal gross margin, we're able to recover those salary and wages through drilling performance.

And in Q3, with the start-up in South America, we didn't get the drilling performance to cover that, okay? So -- and that's due to the rapid ramp-up.

Also, I think you mentioned the drill rig expenses. Again, certain of those drill rig expenses are related to operations.

And if we're not getting the -- they're fixed, they're rentals, they're consumables, et cetera, and we just didn't get the revenue in the quarter in South America to capture those.

All right. If I could hear you correctly, you mentioned that in South America drills -- the drill rigs were only in use for 2 weeks.

So can you give me a little approximation that...

No, no, sorry. No, that -- no.

So that's -- what we communicated was -- in South America, we have a high altitude job that is seasonal. So it didn't -- it only drilled in South America.

We were only able to restart that job later in September. So that one job was only operational for 2 weeks in the quarter.

We had other jobs in South America that operated throughout the quarter. And that's how we effectively -- if you look in the MD&A, we disclosed the revenue from South America.

The revenue in the quarter was approximately $6 million. I think it was about $5.8 million from South America.

Great. So since we're on the topic of South America, can you give a number estimate that you might have internally for the 19 rigs that are in use at the moment?

How many are actually on site? Do you have a utilization rate that we could apply in our model?

This is specifically for South America or specifically -- or sorry, for the group?

Well, since South America is expanding at the moment, I'm more curious about it, but you can answer to both regions.

So in terms of utilization in South America, utilization is 75%.

Okay. Great.

And so are you moving operations from Peru to Chile? What are the reasons?

Do you have a real backlog of orders coming from Chile, that so?

All our focus at the moment in South America is Chile. We are 100% focused on Chile.

We had one rig operating in the quarter in Peru. We will now have decided to focus on the Chile market.

We'll actually be actually winding down the operations in Peru for now so that we can focus on our pipeline of work in Chile.

I noticed that despite the less than stellar results, you still like can't avoid building cash positions. So I'm wondering if there -- what plans you might have and suggestion on my part would be perhaps you might, a, reintroduce your dividend or b, buy your shares back.

Yes. The -- thanks, John.

Thanks for the question. Yes, I think you did notice we did have -- the balance sheet, our balance sheet is extremely strong.

If you look at -- we ended the quarter, we actually increased cash. Net cash at the end of the quarter was $11.1 million.

So we're very happy with our total shareholders' equity. We have $129 million in shareholders' equity ended the quarter with net cash of $11.1 million.

So we're extremely happy with the increase in net cash. And we'll look at -- we'll revisit the dividend.

We'll look at a dividend when we return to profitability.

What about share buybacks?

Share buybacks, and we look at in conjunction with the price of the share. And our share buyback, or NCIB is in there to use it as a floor.

So we'll monitor the price of the stock throughout the quarter, November, December. And if we need to get in and put the -- in place, we will.

But again, that's more of just to put in a floor for the stock price. But -- so it's hard to say, but we'll look at how the stock performs over Q4 and into Q1.

Just a quick follow-up. Just looking for some quick facts here.

Q3 utilization -- or yes, the utilization rates on a regional breakdown would be appreciated. And then on a consolidated basis, the commodity mix for the quarter, given the improved activity in South America.

So utilization currently is approaching -- it's north of 70%. It was 72% a couple of days ago, and it continues to trend north.

We're getting back to basically utilization that we saw in quarter 1 and quarter 2. So north of 70% kind of hovering around 72% at the moment, we think will probably trend to about 75% as we go through November.

And then traditionally, what happens is we have a solid first half of December, and then we slow down for the Christmas shutdown. And that pretty much goes through to about the first or second week of January.

So if we look at it on a semester basis between quarter 4 and quarter 1 through that sort of growth period, if you will, coming off a low base is the things get really solid and continue through quarter 1 and quarter 2, but we do get this culling out of the -- in the trajectory, if you will. And if you look at the history of the company, this has pretty much been the norm since -- I mean, every year is pretty much the same.

We do our best work in quarter 1 and quarter 2, then come quarter 3, which is essentially the quarter we've just come through, we just reported, that's the quarter that we see as the consolidation quarter. It's the quarter in which we literally so for what we harvest through quarter 4, quarter 1 and quarter 2.

Now we begin that -- we're actually seeing that harvest begin just now. It will -- we do get an interruption during the second half of December and the first half of January and it normally flows into a very solid quarter 1, which is usually followed by a very solid quarter 2.

So does that answer your question? 70% -- north of 70% at the moment, probably going to trend to about 75%.

And I think once we hit our straps in quarter 1, quarter 2 next year, we'll be basically possibly north of 80% last quarter 1, quarter 2, there were times there where we hit 81%, 82%, 83%. I hope that answers your question, Donnie.

Yes, that answers the first part of it. The second part was on the commodity mix for the quarter and how that compares to last year.

I would assume a little bit more copper exposure.

Yes. So looking at it of the, call it, more or less 100 rigs.

I think the rig count we closed the quarter was 98 rigs. We have 20-odd rigs in South America, of which about 15 are currently drilling.

So it's kind of -- it's trending north and it's moving from what was about 15% of our business to -- I expect it's going to probably end the year somewhere around 20% of our business. 80-20, gold, copper, nothing else at the moment, not drilling or anything else, just gold and copper with an approximate split of about 80-20, I would say, in around -- in high-level terms.

And I'll just say thank you very much, everyone, for attending the call today, and thank you very much, operator. I'll say goodbye.

Thank you.