Our opinion on the current state of MDI

Master Drilling (MDI) is a South African company that specialises in drilling exploration and other holes for the mining industry, and which has diversified into drilling for hydro-electrical projects and construction. The company has moved away from the South African mining industry and now provides services in North and South America, Europe and elsewhere. It has developed a new horizontal drilling technology, or tunnel boring machine, which could revolutionise the mining industry world-wide. This technology enables the drilling of horizontal tunnels or tunnels which are inclined up or down by 12 degrees. It is much quicker and cheaper than the traditional blast and clear methods currently in use. At the moment it requires three operators, but the company is working on a completely automated remote-controlled version. In its results for the six months to 30th June 2023 the company reported revenue up 12,1% and headline earnings per share (HEPS) up 25%.The company's net asset value (NAV) increased 3,3% to 125c (US) per share. The company said, "Net cash generated from operations decreased by USD0.8 to USD12.6 million. Master Drilling will continue to manage debtors actively to ensure robust conversion to cash. Cash resources continue to be managed prudently to cater for emerging opportunities that require specific design, planning and investment". It is now trading at about 68% of its net asset value (NAV) and on a price:earnings (P:E) multiple of 4,92 - which looks like good value. We regard the company's horizontal drilling technology as a potentially disruptive technology in the mining industry which extends the life of some mines and makes others viable again. So, while this is a risky share, because it is linked to the commodities markets, it has the potential to offer strong growth because of the new technologies which it has that have the potential to revolutionise the mining industry. In our view, this is an interesting company with the potential to perform well as its new horizontal boring machine gains traction.