Following weak drilling activity in the mining and exploration sectors earlier in 2020 due to the COVID-19 pandemic, companies are set to play catch-up in the second half of 2020 and into 2021, according to Denis Larocque, president and CEO of Major Drilling Group International Inc.
As was the case for mining companies, the pandemic cut into drilling activity with exploration programs and mine operations shutting down amid widespread travel restrictions and stay-at-home orders. Major Drilling recently reported results for its first fiscal quarter ended July 31, outlining a 24% year-over-year drop in quarterly revenues to C$89.4 million.
"I'm very optimistic about where the sector is going," Larocque said during a Sept. 11 interview. By and large, drilling cutbacks came early on in the recent quarter and restarted by the end of the period, the company said in a Sept. 9 statement.
While the revenue drop was severe, Larocque said the drilling sector was on track for a strong rebound with metal prices, in particular gold, driving a resurgence in contracts. He likened the potential to the early 2000s, when a bull cycle in the mining sector began and lasted until about 2012, with a hard correction during the 2008-2009 financial crisis.
In the run-up to that cycle, the mining sector heavily underinvested in exploration and reserve and resource drilling for about six years, the executive said. Larocque believes a similar scenario is occurring now, after a multiyear bear market in mining pushed companies in the sector to pull back on drill programs at mines and exploration projects after 2012.
"Before COVID-19 hit, we were beginning to see drilling pick up as majors started to address this issue," Larocque said. He noted that margins for gold miners have jumped on the back of a climbing gold price, which for a brief period breached a record-setting US$2,000/oz in August.
Gold-related drilling accounted for about 63% of Major Drilling's activity in the first quarter of its fiscal 2021, the company noted in its earnings statement.
As drilling rebounds, Larocque said there will be ample rigs to meet demand. Major Drilling is operating at about 35% of capacity and full capacity comprises about 70% of the rigs in operation as some of its 613-rig fleet is down for maintenance, he said.
But a key issue will be labor, as recently noted by executives in the exploration sector.
Larocque said a lot of experienced drill teams left the sector during the downturn in mining and exploration after 2012. While some of those workers might return, others have moved on to permanent jobs less exposed to the boom-and-bust nature of the mining cycle, or simply retired from an industry where jobs are often physically grueling and favor a younger demographic.
"Rigs are really not the problem," he said, noting drill crews may have to be enticed to return with higher wages, pushing up costs for the mining sector.
Crew training is a concern as some skills take years to gain, Larocque said. Describing it as a fine art, he noted experienced drill operators learn how to listen and assess what is happening out of sight in a drillhole cutting or busting through rock hundreds or even thousands of meters below surface. Old-school tools to diagnose the health of a drillhole may include a wrench and a stethoscope, he said.
Still, the industry is adopting new technologies to lower the skill threshold needed to effectively operate a drill. Larocque said Major Drilling is rolling out new drill rigs with more down-hole sensors that provide data to the drillers on the rig and improve understanding of how well the rig is operating.