Global Electrification And Urbanization Will Expand Drilling Demand

Key Takeaways

• Intensifying global demand for critical minerals and supply shortages position Major Drilling for sustained revenue growth, operational leverage, and market leadership in key regions.
  
• Investments in automation, digitalization, and ESG capabilities are creating durable competitive advantages, supporting margin improvements and higher-quality customer relationships.
  
• Overdependence on a concentrated client base and mineral drilling exposes the company to volatile earnings, margin pressure from rising costs, and long-term risks from industry shifts.

Catalysts

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

• Analyst consensus anticipates growth from rising exploration budgets at senior mining companies, but actually, the industry is on the verge of a prolonged surge in exploration spending as global metal supply shortfalls become a widely recognized crisis-suggesting that drilling demand, revenue, and operating leverage may ramp even more sharply and persistently than consensus expects.
  
• While consensus expects Explomin to enhance Latin American revenues, they may be understating the impact-Explomin's integration and fleet expansion in the region could rapidly transform Major Drilling into the dominant provider for both gold and copper drilling across South and Central America, potentially driving multi-year step-changes in revenue and margin mix.
  
• The accelerated push toward global electrification and renewables is placing unprecedented long-term demand on critical minerals like copper, nickel, and lithium; Major Drilling's specialization in challenging ore bodies positions it to capture sustained double-digit revenue growth as mining customers are forced to intensify exploration programs globally.
  
• Meaningful investments in automation, digitalization, and proprietary geosolution platforms are leading to step-function improvements in safety and efficiency, which not only lower costs but also create a durable competitive advantage that could drive structural increases in net margins over multiple years.
  
• As environmental and responsible sourcing expectations for mining intensify, Major Drilling's industry-leading safety record and strong ESG profile are expected to command pricing premiums, secure longer-term contracts with high-quality customers, and increase overall earnings quality and visibility.

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 20.7% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 3.6% today to 5.6% in 3 years time.
• The bullish analysts expect earnings to reach CA$71.4 million (and earnings per share of CA$0.87) by about August 2028, up from CA$26.0 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 23.3x on those 2028 earnings, down from 27.7x today. This future PE is greater than the current PE for the CA Metals and Mining industry at 18.5x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.49%, as per the Simply Wall St company report.

Major Drilling Group International Future Earnings Per Share Growth

Risks

• The company's extreme reliance on seniors and intermediates, which made up 92 percent of revenue this quarter, means revenue and earnings are exposed to shifts in budget priorities or consolidation among a small group of major mining clients, leading to significant earnings volatility and weaker pricing power over the long run.
  
• Despite recent growth from acquisitions, Major Drilling's business remains heavily concentrated in mineral drilling, providing limited revenue diversification and exposing it to cyclical downturns and secular headwinds such as increased metal recycling and substitution, which could structurally compress long-term revenue during commodity slumps.
  
• Ongoing cost inflation, particularly in labor and equipment as indicated by wage adjustments and higher G&A expenses following recent expansions, risks squeezing net margins if these rising costs outpace the company's ability to secure higher contract prices from a concentrated customer base.
  
• Shrinking junior mining activity, which accounted for only eight percent of revenue in the quarter due to persistent capital constraints, makes the company highly dependent on established mining companies; any further decline among juniors, or industry-wide pullbacks in exploration budgets, could leave idle capacity and depress cash flow and margins.
  
• Trend toward more remote and technically challenging discoveries will drive up capital expenditures, as evidenced by the planned seventy million dollars in CapEx for fiscal 2026, potentially lowering return on invested capital and pressuring free cash flow if higher project risks or lower margins are realized in increasingly complex environments.

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$71.4 million, and it would be trading on a PE ratio of 23.3x, assuming you use a discount rate of 6.5%.
• Given the current share price of CA$8.79, the bullish analyst price target of CA$17.0 is 48.3% 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.