Population Growth And Energy Transition Will Drive Mineral Drilling

Key Takeaways

• Tightening resource demand, water scarcity, and onshoring trends favor Foraco's specialized drilling and water segments, powering higher margins and recurring revenue growth beyond consensus.
  
• Expansion into deeper drilling, ESG-driven contracts, and emerging regions uniquely positions Foraco for premium pricing, robust cash flows, and improved earnings quality.
  
• Heavy reliance on a few large customers, high debt levels, limited geographic diversification, and industry headwinds heighten revenue volatility and constrain future profitability.

Catalysts

Provides drilling services in North America, South America, the Asia Pacific, the Middle East, Africa, and Europe.

• While analyst consensus expects Foraco to benefit from growing copper and gold demand driven by electrification and infrastructure expansion, this may actually understate the opportunity-accelerating population growth, rapid global urbanization, and a global push for onshoring critical metals could lead to a significant multi-year surge in mineral exploration drilling, driving substantially higher revenue and EBITDA growth as commodity demand outpaces supply.
  
• Analysts broadly agree that diversification into water drilling will boost margins and stabilize cash flows, but this segment could prove even more lucrative; tightening water scarcity combined with large-scale infrastructure investment and climate adaptation efforts worldwide position Foraco to capture a dominant share of high-margin, long-dated contracts, materially expanding recurring revenue and net margins well above current projections.
  
• Foraco is uniquely poised to capitalize on the severe depletion of easily accessible ore bodies, as its substantial investment in proprietary, advanced drilling technology allows it to dominate contracts for deeper and more technically challenging projects-supporting premium pricing power, sustained gross margin expansion, and long-term earnings growth.
  
• Outsized opportunities exist as mining companies accelerate compliance with stricter ESG and sustainability mandates, favoring partners like Foraco with proven safety and sustainability credentials-this shift is expected to drive an accelerating flight to quality and a sustained increase in high-value, multi-year contracts from both major and junior clients, enhancing revenue visibility and margin resilience.
  
• The company's accelerating expansion into fast-growing regions such as the U.S. and South America, alongside increasing penetration with junior miners finally regaining access to equity funding, could unlock a new wave of contract wins, leading to a step-change in equipment utilization, organic revenue growth, and ultimately a re-rating of Foraco's earnings multiple toward industry peers.

Foraco International Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Foraco International compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Foraco International's revenue will grow by 14.2% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 7.3% today to 13.5% in 3 years time.
• The bullish analysts expect earnings to reach $52.6 million (and earnings per share of $0.52) by about September 2028, up from $19.1 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 8.1x on those 2028 earnings, up from 7.5x today. This future PE is lower than the current PE for the CA Metals and Mining industry at 18.6x.
• Analysts expect the number of shares outstanding to decline by 0.58% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.9%, as per the Simply Wall St company report.

Foraco International Future Earnings Per Share Growth

Risks

• Foraco experienced a year-over-year decline in both quarterly and year-to-date revenues, with Q2 2025 revenue falling to $69 million from $77 million in the previous year and H1 2025 revenue dropping to $124 million from $155 million, reflecting the cyclical nature of the metals and mining industry and the risk that prolonged commodity price downturns could further suppress top-line growth.
  
• Customer concentration remains high with significant exposure to a few large contracts, as indicated by the mention of the new $34 million Glencore contract and the importance placed on winning Tier 1 U.S. customer contracts, which heightens the risk of revenue volatility and impacts revenue predictability.
  
• Elevated net debt, which stood at $76.5 million at June 30, 2025 compared to $61 million at year-end 2024, and declining EBITDA margins from 22% to 17% year-over-year could result in higher interest costs and limit flexibility for reinvestment, pressuring net margin and earnings in the event of market downturns.
  
• The geographic revenue split reveals limited diversification, with the majority of revenue concentrated in North America and Asia Pacific, exposing the company to region-specific downturns, regulatory changes, or geopolitical events that could disrupt regional revenues and compress group-wide margins.
  
• Long-term industry-wide trends such as increasing ESG pressures, the global shift toward decarbonization, and heightened competition from larger and local drilling contractors could lead to stricter permitting, rising operating costs, and pricing pressures, all of which may erode Foraco's overall revenue base and negatively impact future earnings.

Valuation

• The assumed bullish price target for Foraco International is CA$4.75, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Foraco International's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of CA$4.75, and the most bearish reporting a price target of just CA$2.5.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $391.3 million, earnings will come to $52.6 million, and it would be trading on a PE ratio of 8.1x, assuming you use a discount rate of 8.9%.
• Given the current share price of CA$2.02, the bullish analyst price target of CA$4.75 is 57.5% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.