Battery Metal Demand And Infrastructure Buildout Will Drive Specialized Drilling

Key Takeaways

• The company is positioned for sustained, high-margin growth through strategic acquisitions, increased demand, and multi-year contracts in expanding mining regions and sectors.
  
• Investments in advanced technology and specialized services are set to drive higher productivity, superior returns, and leadership in complex, high-value mineral projects.
  
• Heavy reliance on a few commodities and clients, regulatory hurdles, and growing competition create significant risks to revenue stability, growth, and profitability.

Catalysts

Provides contract drilling services to mining and mineral exploration companies in the United States, Canada, South and Central America, Australasia, and Africa.

• While analysts broadly agree that the Explomin acquisition expands Major Drilling's footprint and revenue base in Latin America, this move could be dramatically underestimated as it positions the company for multi-year, high-margin contracts with major miners in a region experiencing outsized demand growth, likely producing a structural lift in long-term revenues and margins.
  
• Analyst consensus anticipates increased exploration budgets from leading gold and copper miners, but with commodity prices staying at or near record highs, Major Drilling is set to benefit from unprecedented, sustained investment cycles by both senior and intermediate miners-potentially generating outsized, compounding revenue and earnings growth beyond historical peaks.
  
• The accelerating push for global supply-chain security and resource independence is triggering rapid government-backed funding, permitting, and co-investment in critical and strategic minerals, creating a new runway of funded large-scale projects and translating into higher, longer-duration contracts for Major Drilling, which should substantially raise both utilization rates and earnings visibility.
  
• Demand for battery metals like lithium, nickel, and rare earths is poised for exponential growth as EV adoption and renewable infrastructure build-outs outpace even the most optimistic forecasts, making Major Drilling's specialized and diversified portfolio the go-to solution for complex, premium-priced drilling projects-opening a new layer of high-margin revenue streams.
  
• As resource discoveries shift to deeper, more technically challenging ore bodies, Major Drilling's leading investment in fleet modernization, automation, and data analytics is expected to unlock higher rig utilization, superior productivity, and operating leverage-delivering structural improvements in net margins and returns on capital that could far exceed industry averages.

Major Drilling Group International Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Major Drilling Group International compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Major Drilling Group International's revenue will grow by 19.1% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 2.6% today to 5.6% in 3 years time.
• The bullish analysts expect earnings to reach CA$72.8 million (and earnings per share of CA$0.89) by about September 2028, up from CA$20.2 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 24.9x on those 2028 earnings, down from 38.3x today. This future PE is greater than the current PE for the CA Metals and Mining industry at 18.6x.
• Analysts expect the number of shares outstanding to grow by 2.55% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.6%, as per the Simply Wall St company report.

Major Drilling Group International Future Earnings Per Share Growth

Risks

• Prolonged permitting delays and increased regulatory scrutiny, particularly in North America, along with slow progress in modernizing permitting processes, may restrict drilling activity and consequently suppress future revenues and growth potential.
  
• The company's revenues remain heavily concentrated in gold and copper, with over seventy percent coming from these commodities, meaning that any long-term commoditization, technological substitution, or price declines in these metals would have an outsized negative effect on Major Drilling's revenues.
  
• An increasingly competitive landscape in key markets, especially North America, combined with ongoing margin pressure-as reflected in the drop in adjusted gross margin from nearly twenty nine percent last year to just over twenty five percent this quarter-could further compress net margins if pricing power is eroded or costs continue to rise.
  
• A high reliance on senior and intermediate mining companies for over ninety percent of current revenue, paired with the persistent sluggishness of junior financings, exposes the company to exploration budget volatility and a concentration of risk that could limit revenue stability during down cycles in mining investment.
  
• Escalating ESG pressures, stricter environmental regulation, and increasing community and indigenous opposition to new exploration projects threaten the overall pipeline of drilling contracts, lengthen project timelines, and may diminish both top-line revenues and earnings across the industry.

Valuation

• The assumed bullish price target for Major Drilling Group International is CA$17.0, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Major Drilling Group 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$17.0, and the most bearish reporting a price target of just CA$12.0.
  
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be CA$1.3 billion, earnings will come to CA$72.8 million, and it would be trading on a PE ratio of 24.9x, assuming you use a discount rate of 6.6%.
  
• Given the current share price of CA$9.42, the bullish analyst price target of CA$17.0 is 44.6% 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.