Major Drilling Group International Inc.

Thanks, Ryan, and good morning, everyone, and thank you for joining us today to discuss our second quarter results. I'd like to begin by highlighting what was a record-setting quarter, which resulted in quarterly revenue increasing by 29% to $244 million when compared to the same period last year.

This represents the highest quarterly revenue generated in the company's 45-year history and a level that we hope to build upon. We are continuing our proactive efforts by leveraging our strong balance sheet to ensure that rates and inventory are ready for rapid deployment, which will position us to take on expected increased demand from mining customers in anticipation of what we believe will be a busier calendar 2026.

In the quarter, our Canadian operations saw a strong rebound in activity levels from -- with a 63% year-over-year increase in revenue. As strategic market positioning, drove results despite the continued competitive environment.

While the majority of incremental demand continues to come from senior mining companies, the number of discussions with juniors has also begun to increase following the number of financing, which we're completing over the last few months. In South America, we also saw further growth in the Peruvian market with Explomin's revenue run rate continuing to grow following the closing of the acquisition in November 24.

Additionally, slowdowns in Argentina and Chile due to challenging economic conditions and customer delays were more than offset by growth in Brazil and Guiana Shield. Strength throughout the North and South American markets was partially offset by the Australasian and African region, which was impacted by the company's largest customer in Indonesia, experiencing an operational incidents that resulted in the suspension of all mine site activity for the majority of the quarter.

While some activity now gradually beginning to resume, drilling operations are expected to return to full capacity in our fourth fiscal quarter. I'll discuss the rest of our outlook in more detail once Ian has taken us through the financials.

Ian?

Thanks, Denis. Revenue for the second quarter was $244.1 million, up 7.8% from the prior quarter and 29% from $189.3 million recorded over the same period last year.

Revenue growth was driven by operations in North and South America, particularly Canada and Peru, which was partially offset by the Australasian and African region, largely due to a pause in activity in Indonesia as previously discussed. Favorable foreign exchange translation impact on revenue when compared to the effective rates for the same period last year was approximately $2.7 million, while the impact on net earnings was minimal as expenditures in foreign jurisdictions tend to be in the same currency as revenue.

The overall adjusted gross margin percentage, excluding depreciation, was 26% for the quarter compared to 30.5% in the same period last year. Decreased margins was attributable to the continued competitive pricing environment in North America as well as ongoing training and maintenance programs at various branches around the world to ensure the company is well positioned for an increase in demand in calendar '26.

Additionally, Explomin's margin profile also continues to have a moderate impact given its focus on longer-term contracts and a higher proportion of underground drilling. While these programs typically result in lower margins, they provide increased revenue diversification and stability.

G&A costs increased by $3.6 million to a total of $21.7 million compared to the same quarter last year due to the addition of the Explomin's operations. Company generated EBITDA of $37.7 million in the quarter compared to $38.7 million in the prior year period with net earnings of $13.9 million or $0.17 per share compared to net earnings of $18.2 million or $0.22 per share from the prior year period.

Given prior investments in the fleet, CapEx in the quarter totaled $11.8 million compared to $20.1 million in the same period last year. With the addition of 2 new drill rigs and support equipment, while 4 older, less efficient rigs were disposed of, bringing the total rig count at quarter end to 707.

The company increased its cash position by over $17.6 million, ending the quarter with $14.3 million in net cash, while total available liquidity grew to over $149 million. While the company remains focused on balance sheet strength and being well positioned to take advantage of additional growth opportunities, it also continues to evaluate options to drive shareholder returns.

So that effect during the quarter, the company announced a normal course issuer bid, whereby 5% of the issued and outstanding shares of Major Drilling may be repurchased over a 12-month period beginning October 21. The company intends to be opportunistic in the use of its NCIB, taking advantage of any potential share price weakness resulting in a valuation that we feel do not accurately reflect our strong financial position and underlying fundamentals.

The breakdown of our fleet and utilization in the quarter is as follows: 310 specialized drills at 47% utilization, 160 conventional drills at 54% utilization, 237 underground drills at 54% utilization for a total of 707 drills and 51% utilization. As we've mentioned before, specialized work in our definition is not necessarily conducted with a specialized drill.

Rather, it is work that requires to meet the rigorous standards of our customers in terms of technical capabilities, operational and safety standards and other related factors. These standards are becoming increasingly important to our customers.

In the second quarter, specialized work accounted for 60% of our total revenue. We continue to see high levels of demand for our specialized services and expect this trend to continue as deposits become increasingly more challenging to find with discoveries continuing to be made in remote locations.

Conventional drilling, which is mostly driven by juniors, increased slightly to 16% of revenue for the quarter, while underground drilling contributed 24% of total revenue, aided by the contribution of [ Explomin ]. We continue to see the bulk of our revenue driven by senior intermediates, representing 92% of revenue this quarter as they continue their elevated efforts to address depleting reserves.

While junior financing has begun to increase, there's usually a 6-month lag between an increase in financing activity and increased activity levels in the field. As a result, juniors continue to represent approximately 8% of our revenue in the second quarter.

In terms of commodities, gold represented 39% of revenue in the second quarter, while copper accounted for 31% of revenue, driven primarily by strength in the South and Central American region. Iron ore continues to make a meaningful contribution at 10%, aided by our Australian operations and demonstrating the diversity in the commodities for which we drill for around the world.

Also of note in the second quarter was silver, which represented 6% of revenue, driven by record high silver prices. With that overview of our financial results, I'll now turn the presentation back to Denis to discuss the outlook.

Thanks, Ian. As we head into our seasonally weaker fiscal third quarter, we expect to see the usual pause in activity as programs shut down over the holiday period.

Also, as Ian mentioned, we continue to move through training and maintenance programs in order to ensure that we're well prepared for what we expect to be a busier calendar year. These preparation initiatives are expected to have a slight impact on third quarter margins.

While challenging to forecast, numerous data points continue to influence our positive outlook for calendar 2026. As seniors move through the budgeting period, the gold price continues to trade near record highs, remaining above $4,200 an ounce level.

This represents an increase of over $1,600 an ounce when compared to the same time last year when seniors were compiling their budgets. Higher gold prices have led to substantially higher levels of free cash flow generation and stronger balance sheet for senior mining companies as they assess depleting reserves following a long period of subdued exploration.

Also, we've seen that the current gold price environment has led to a sharp increase in the number and size of junior financings over the last few months. Copper prices have also more than doubled over the last 2 years, recently reaching an all-time high, while the world continues to working towards increased electrification and decarbonization, both of which are expected to require enormous amounts of copper.

Recent supply disruption are only expected to further exacerbate the projected supply deficit. Lastly, critical minerals continue to move increasingly into the spotlight as countries around the world look to secure and increase supply of various strategic commodities.

With substantial investments having been made in our fleet and inventory through the most recent downturn, the company remains very well positioned to take advantage of rapidly growing demand for drilling services driven by these various factors. While the shortage of experienced drill crews is expected to put temporary pressure on labor costs and productivity, particularly in our busiest markets, we expect wider industry demand for drilling services to drive pricing improvements and expedite margin recovery over a longer term.

It's crucial that we continue to aggressively and successfully invest in the recruitment and training of new drillers to ensure that major drilling remains both the operator and employer of choice in the industry. Finally, I know it's a bit early, but I'd like to wish happy holidays to our more than 6,000 employees around the world, and thank you for your amazing dedication and hard work.

I'm always amazed by the passion and commitment of our crews and staff to safety and getting the job done. I hope you each get a chance to rest up as it should be a busy year ahead.

With that, we can open the call to questions. Operator?

Congratulations on the results, strong print. I just wanted to highlight the Canadian revenues.

I think they were up about 63% year-over-year. Majority of the peers reflecting year-over-year declines in Canada through the July through September period.

Just wondering if momentum kind of accelerated throughout the quarter and you guys finished with a strong October? Or was it kind of a function of pricing dynamics that led to the strong year-over-year improvement?

Yes. It was pretty much throughout the quarter and driven by pricing dynamics.

As I said, we had strategic market initiatives that we put in place to gain market share and obviously work. And basically, the idea is to be positioned on key projects going forward as we see -- as we said, as we see good activity coming up in the future.

And then just pivoting over to kind of the junior financings. I usually look at the TSX.

So October was a record-setting month in terms of financings. It's now up 74% year-over-year on a year-to-date basis and the highest level we've seen in the last decade.

So I'm just wondering how you view the pipeline for juniors heading into calendar 2026 on the back of these financings. And if you're starting to see any improvements in activity levels now that we're kind of, let's call it, the halfway point through December?

Yes. The level of discussion has certainly increased.

It's still early because as we said, there's always a lag of like 6 months, sometimes it could be a bit longer or it could be shorter, but usually, on average, it takes 6 months between the time that money is raised and the time it gets deployed with all the logistics and everything. But we've certainly seen an increase in discussions and phone calls and things like that.

So we certainly see activity bubbling right now.

Okay. Good to hear.

And then final question for me and then I'll pass the line. Just I understand that direct costs are increasing in preparation for elevated activity levels for a busy calendar 2026.

We've kind of seen an uptick in salaries and benefits as well as materials and consumables. Just wondering if we're approaching a level that you're starting to feel prepared for the upcoming bump in activity?

Or do we still have a little bit of room to grow here?

Well, the good quarter is always a time where there's a lot of activity that happens that way, right? We bring in, first of all, the rigs that have been busy during the year, we bring them in the shop to do the maintenance -- the yearly maintenance on them and everything.

But at the same time, that's the time where as we forecast the level of activity, that's where we bring in more rigs that have been parked just to give them a bit of a cleanup or get them ready. And so that's where you have a little bit of extra cost.

So every time that we have a pickup in activity coming, we usually see a bit of a pickup in the third quarter from these type of costs. But the good news is that the investments we've made in our fleet over the last few years, while we were in the downturn and keeping our fleet fresh and everything, that's where it's going to pay off because we can pull rigs out and have rigs ready very quickly and not have to rebuild or replace all kinds of parts that have been stripped off of them or things like that.

We -- so the cost is going to be very reasonable, but it's just when you've got to an uptick of activity that happens, there's a lot of that happening and a lot of upfront hiring and mobilization and things like that. So upfront, there's always upfront cost and then things take off after that.

I've got 2 nitpick questions. In the income statement, you highlighted some extra income that could come in over the course of the year.

One was foreign exchange, and I forget what the other one was. But how was that -- how will that play into future earnings?

Or is that just an accounting issue?

Sorry James, you're really bold, was coming in -- you said there's a line on we didn't get...

It's -- you showed net income and then you showed extra income, which was foreign exchange gains of like $7 million and then there was another -- the total of that account came to CAD 10 million, I guess. I mean how does that come into earnings?

Is that cash? Or is it just accounting?

Are you looking at like the other comprehensive earnings section?

Yes.

Yes, that doesn't flow through the P&L.

Okay. All right.

That's something -- yes, a lot of that is like the variation of, for example, the equipment that's denominated in U.S. dollars like the value of that equipment, but it's not a P&L.

Okay. Now my second question becomes -- you mentioned a new accounting standard that you're examining to see how it's going to affect the company.

And I read that and concluded it was, excuse me, it was just written by lawyers. I had no idea what it means.

Can you help me on that?

Yes, for sure. There's just some new presentation for the P&L that will be coming into effect and different breakout of different accounts.

For us, we don't think it's going to have a material impact at this stage. And it's not until fiscal '28 that these changes need to go into effect.

So we're just in the initial stages of reviewing those now, but we don't expect it to have material impact.

Denis, as you noted, the whole world is focused on critical minerals. You guys obviously have been ahead of the curve expanding and upgrading the fleet the past several years.

As we look ahead to calendar 2026, how do you think about the allocation of the fleet by geography, customer type? How much will you lock up with senior customers relative to a potential wave you see coming with juniors following the recent financings to maximize economics and returns for yourself?

Yes. That's a good question.

Basically, first, the fleet -- the fleet is, I would say, well positioned in terms of geographic, but we can only move -- we can always move rigs if need be, but we do have the fact that we're still in the 50% utilization rates. We do have the [indiscernible] as demand comes, we fill that demand with either adding rigs or just moving rigs around.

So on that part, I feel -- I feel really good and comfortable. On the contracts and like you said, in terms of locking how we go play the seniors versus juniors versus -- frankly, the thing we're -- that we're trying to avoid is to lock ourselves up in long-term contracts because at this point, it's a -- the labor cost is highly unpredictable, material cost, all these things -- I mean those are going to fluctuate with the cycle.

And so therefore -- and really, the contracts are de facto lots of times short term. So just for that reason, you end up kind of maximizing you lock yourself into good contracts as the cycle lifts, we basically will price the jobs accordingly.

It's -- and it's a factor of availability of rigs, availability of crews. And as those get tighter, that's where the prices typically goes up because there's a whole lot more -- I always tell our managers a lot more headache that comes with that.

And therefore, you need a higher prices to basically be able to handle all these additional issues.

I promise this is the last question. It kind of follows up to the previous question.

Given the 707 rigs, what is the effective top capacity utilization you would experience before you have to make some major capital spending decisions?

Yes. Well, it's not necessarily in terms of -- in aggregate, it's more market by market where those decisions are made.

So in other words, I don't know if -- in Argentina, there was a big boom, all of a sudden and the decision to move rigs or buy rigs. If things are busy everywhere else, you want to preserve your capacity, we might end up buying a bunch of rigs, even though the global fleet might only be at, I don't know, 60%.

But we always say, though, that the maximum utilization that we can achieve with the total fleet is in the range of 75% to 80%, just because there's always rigs being mobilized. There are seasonal factors.

There's different types of rates. There's -- so for us, 75% to 80% is highest and [indiscernible] that, that's where, yes, we would be -- if the demand is still booming and we are able to prove, then we would -- will likely be adding rigs at that point.

Again, it all on the economics.

Well, thanks -- thank you, and thank you, everybody, and Merry Christmas and happy holidays to everybody.