Ausdrill : Company Magazine - Ausbits No 16

Issue 16 • 2017

Health & Safety Brian Mann

BtP

Bringing More to Mining

From the MD

AUSBitS

Ausbits is published by

Ausdrill Ltd

PO Box 1540

Canning Vale Western Australia 6155

Telephone

(08) 9311 5666

Facsimile

(08) 9311 5667

Email

ausbits@ausdrill.com.au

Cover photo: Happy 30th Birthday

AUSBitS

Issue 16 • 2017

Health & Safety

Brian Mann

BtP

Bringing More to Mining

Happy 30th Birthday

I welcome all staff, clients, suppliers and shareholders to our 16th edition of Ausbits.

I am pleased to report that we had an improvement in safety and profitability in the last half.

Safety

In the six months July - December 2016 there was a 1.5% reduction in the Total Recordable Injury Frequency Rate from 6.6 to 6.5 and a 9% reduction in the All Injury Frequency Rate from 20.2 to 18.4.

Profitability

Whilst the sales, revenue, EBITDA and operating profit before tax has improved over the prior period, as per the information on the following page, it is still short of what we have achieved in the past.

However, we have reintroduced dividends with a first half dividend of 2.0 cents per share. A major step in the right direction.

Contract Wins Australia

The Company has been successful in retaining two major contracts in extending the KCGM Superpit contract for another five years bringing our overall tenure to 35 years. We have also extended the Goldfields contract at St Ives and Granny Smith Gold Mines for three years taking our overall tenure to 24 years. These two contracts have been the corner stones of our Kalgoorlie operations for many years.

BTP has also won a two year contract extension with Peabody Energy.

Contract Wins in Africa

African Mining Services (AMS) have won a three year contract with a one year option with Hummingbird Resources commencing in FY18 at the Yanfolila Gold Mine in Mali, a five year contract with SEMAFO commencing in H2 2017 at the Natougou Gold Mine in Burkina Faso and a 6.25 year contract with Toro Gold commencing in H2 2017 at the Mako Gold project in Senagal.

All of the works totals AUS$1.347 billion which indicates we are winning our share of the work available albeit at lower margins as the competition is very fierce.

Now the single biggest event of the year. Brian Mann's Retirement

I must confess I have had a sneak preview of articles written by Ausdrill workmates of Brian and I must admit they have stolen my thunder and all I can now do is comment on the "Life of Brian" which is

He's not the Messiah, he's a very naughty boy! Ausdrill's Oracle of Mining is leaving us!

the name of the book I am going to write about him when I retire and it will have a lot of stories in it that I can't write here. So I will provide a tame view of my life with Brian.

I first met Brian when I was five years old as we lived in the same neighbourhood in Kalgoorlie and we ended up at the same school, St Michaels, a Catholic school run by the Sisters of Mercy (they didn't show a lot of mercy at all). Anyway as I started kindergarten as a five year old Brian was seven years old in second grade. He was also the biggest kid in the school and the neighbourhood and was a bully to boot. Everybody was frightened of him and I dodged him as best I could. Eventually I was lucky enough to be sent to New Norcia, a Catholic boarding school run by Benedictine Monks, and I never got beat up by anyone.

The next time I met Brian was when I was doing my apprenticeship on the mines and I ran into him at Sandovers, a tyre sale company, where Brian was the tyre fitter and he hadn't got any smaller. Eventually he was spotted by Dave Stevens, the manager of Seltrust Mining, an English mining company that used to do their own drilling, as there were not many contractors in those days. Apparently he spotted Brian at Sandovers and told him "You look like a big strong lad, you could make a good driller" and so the "Oracle" of drilling was born. In fact Brian has only ever had three jobs: Sandovers one year, Seltrust/BP Minerals 22 years and Ausdrill 28 years. Not many people spend 50 years of their life at the one work address.

Then in 1989 I noted that BP Minerals were having an auction to sell off all their drilling equipment and whilst Ausdrill was a blasthole driller I saw it as an opportunity to get into the exploration business, so I went and saw Brian and I must say I was still terrified of him, he had doubled in size.

He explained everyone had been given notice to finish up on the coming Friday, the day of the auction.

Brian gave me the name of the auctioneer and I approached him to see if BP would accept a job lot bid and I probably bid too much because they accepted the offer and we reemployed all the staff on the Monday.

I very quickly realised that Brian was the Oracle of drilling and as BP had given him a very good redundancy package due to his 22 years' service I was not sure how long I might keep him as he kept talking about moving to Esperance, which is what I have been listening to for 28 years.

Anyway, I came up with a great idea and one day I said to Brian "We have a lot of workers that like a drink and I think we should buy a pub". "Which one?" he asked. "The one on the corner" I told him, "The Broken Hill". He said "Okay". So we drove up to the pub and asked the owner if he would consider selling and he said "Yes, give me

$500,000". Brian looked at me and nodded. Deal done and whilst it solved my problem of Brian having all his redundancy money it was not the most profitable deal we ever did. We paid $500K for it and spent $800K on it and sold it for $600K 20 years later, but we did experience a lot of stories that are going to be in my book "The Life of Brian".

Whilst our partnership in the Broken Hill was not that profitable I did teach Brian a lot over the past 28 years. How to punt (he's not very good at it), how to fish (he's worse), how to drive a boat (nearly as bad as his fishing), how to swim (when he fell out of the boat).

I always thought the day that Brian would retire would never come because I would be long gone and it would be someone else's problem. But now that it is my problem all I can say is it's been 28 years of fun and if you can go through life like Brian and I have you have certainly had a good one.

Have fun, enjoy your job, stay away from drugs, be safe and look out for your workmates and family.

AuSBITS PAGE 1

KeY PointS:

• Strong safety and financial performance across the Group

• Profit after tax of $13.4m, up 87.1% over the prior corresponding period

• Sales revenue up 3.9% to $373.0m

• EBITDA up 9.9% to $65.6m

  • EBIT up 39.6% to $33.9m

• $1.2 billion in new projects and contract renewals secured

• Strong cash flow and balance sheet, with cash reserves of $218.6m and gearing ratio at a 5 year low of 23.9%

• Basic earnings per share up 87% to

  4.29 cents per share

• Interim dividend of 2.0 cents per share, fully franked

• Business on track to meet full year market guidance

Ausdrill has delivered a strong result for the six months to 31 December 2016, winning significant new contracts, strengthening its financial position and improving its safety performance. The Company has delivered an after tax profit of $13.4 million, an increase of 87.1% over the prior corresponding period.

Sales revenue increased by 3.9%, with all core businesses of the Group contributing strongly and all but one achieving improved margins. This comes on the back of a period of rationalisation, cost-cutting and a concerted re-focusing on the delivery of core mining services in markets where Ausdrill holds a competitive advantage.

EBITDA increased by 9.9% to $65.6 million while EBIT increased by 39.6% to $33.9 million, driven by reduced operating labour costs, lower operational and corporate overheads and lower depreciation and amortisation charges.

During the half-year, the Group won $1.2 billion in new projects and contract renewals, demonstrating Ausdrill's strong reputation,

long-standing client relationships and robust business model. This provides a very solid foundation for future revenue certainty and is expected to translate to a significant increase in revenue and profit for FY18.

Commodity prices, whilst on the improve, continued to place downward pressure on margins, as mining service providers respond to meet clients' pricing expectations. Ausdrill is meeting this challenge and continues to seek cost and productivity improvements across all of its activities to remain competitive in the markets in which it operates.

Safety remains a key priority, with the Group's commitment resulting in a continued reduction of total recordable incident numbers during the period. Ausdrill's flagship 'One Safe All Safe' program has resulted in an improvement in safety statistics.

Dividend

The improved performance has meant a return to dividends for the first time in two years, with the Directors declaring an interim dividend of

2.0 cents per share for the half-year ended 31 December 2016. The fully franked dividend will be paid to Ausdrill shareholders on 31 March 2017.

Outlook

Over the past 12 months, Ausdrill has focused on aligning its business activities to the delivery of core mining services in markets where the Company has a competitive advantage. This has involved significant rationalisation and cost-cutting initiatives.

This process is expected to continue as the Company pursues additional opportunities to increase productivity and to reduce costs in order to deliver a cost-effective and cost- competitive solution to customers in what remains a highly competitive and dynamic environment.

Recent increases in the price of major commodities and base metals have delivered positive sentiment to the mining services sector. However, the outlook for the broader mining industry remains variable. In the near term, Ausdrill expects margin pressures to persist across all business segments until the demand and price for commodities improves on a more sustained basis.

Rationalisation within the sector is likely to continue, which may result in changes to the competitive landscape in which the Company operates and may ease margin pressures.

In response to these market conditions, Ausdrill will:

• Maintain its strong focus on safety

• Continue to deliver efficiency gains to counter market driven margin compression

• Rationalise its businesses to focus on profitable revenue streams

• Maintain a stable financial foundation from which to grow the Company in the future

• Review working capital, particularly inventory levels, to ensure that it is commensurate with current levels of activity

• Invest capital astutely to deliver sustainable returns

• Pursue opportunities for further industry consolidation which deliver value for shareholders

The A$ gold price remains robust and provides a platform for a stable level of activity in Australia in the near term, particularly with the business having secured key contract extensions for the Drilling Services Australia segment.

Recent contract wins in Africa are expected to deliver significant revenue and profit growth in FY18 as African Mining Services mobilises and ramps-up projects which are most typically lower cost, long-term projects. Tender activity in Africa is expected to remain robust in the short-term, providing additional avenues for growth or revenue replacement and possible margin relief in the medium term.

The increase in the price of coal and iron ore provides opportunities for the Equipment Services and Supplies business to grow as the demand for parts, equipment and services increases in response to the need to replace and repair an aging client fleet.

The outlook for the resources industry is expected to improve over the medium term and Ausdrill remains in a strong position to remain a significant industry participant, well placed to capitalise on future opportunities as they arise.

Theresa Mlikota Chief Financial Officer

SAleS ReveNue By BuSiNeSS ACtivity SAleS ReveNue By geOgRAPhy

AuSBITS PAGE 2

Ausdrill thirty year Anniversary

I have not been with Ausdrill for the

30 years of its existence. I became Chairman of the Company just before it floated on the Australian Stock Exchange approximately 25 years ago. At that time I should say the Company, Ron Sayers and John Kavanagh were all much smaller than today. The latter two would have been lucky to be 70 kilos wringing wet. Needless to say all three are much larger today.

When I was approached and asked whether I would be interested in becoming Chairman of Ausdrill, I had never heard of the Company and did not know any of the people involved with it. I made some enquiries not only about the Company itself, but also about its senior people. The reports I received were universally positive. I arranged to meet with the directors so we could size each other up. For my part I was very impressed with the directors and knew I would be very comfortable working with them. As the offer was still open I assumed they were happy with me. Accordingly I was delighted to accept the role of Chairman, a decision I have never regretted.

In the early days Ausdrill's head office was in Boulder, which was where Board meetings were held. The Board meetings were followed by countless beers at the Broken Hill pub which was owned by Ron and Brian Mann. These sessions were not for the faint hearted as many a new recruit was found.

At that time the Company was solely a drill and blast and an exploration drilling contractor working basically in and around Kalgoorlie. At the time the Company was in the process of mobilising for a drill and blast job in Ghana. That move to West Africa was inspiring as our African operations are now a very significant part of the Company's business.

In the last 25 years the Company has grown exponentially adding a number of new businesses and significantly expanding its area of operations both in Australia and into a number of African countries.

In 1994 the head office was moved to Perth. We moved into a purpose built workshop and offices in Kewdale in 1998. In 2006 we moved into our current location in Canning Vale. We acquired a large area of vacant

land adjoining the Canning Vale premises which was used to construct facilities for our new businesses and provide a 'lay down' area.

Ron retired as Managing Director at the end of 1998 to devote himself to his horse breeding operations. He remained as a Non Executive Director.

In 2001 the Company was experiencing a financial crisis and Ron agreed to return as Managing Director to help sort out the problems and is still intimately involved in managing the business.

unsurprisingly all this growth has not been without setbacks and difficulty. We are currently slowly working our way out of the latest problem caused by the mining downturn. Fortunately Ausdrill is in a strong financial position, with the resources to avail itself of any opportunities that arise. The fact that the Company has been able to overcome these problems is due to the dedication and hard work of our management and staff led by Ron Sayers.

My involvement with Ausdrill has provided me with experiences and opportunities for which I will always be grateful. I have met people both within and outside the Company whom it is unlikely I would ever have met had I not been involved with Ausdrill. They are the sort of people whose work has created the national wealth which underpins our prosperity and standard of living.

I would like to take this opportunity to pay a special tribute to Ron, whom I count not only as a colleague but also as a friend. Ron founded Ausdrill with a drill and blast rig and a contract with the owners of the Kalgoorlie Superpit. He has grown the Group from that modest start. I have been involved with a number of public companies. In my experience Ron is a unique chief executive. He has a real concern for his people and his door is always open to anyone in the Company. He talks of the Ausdrill family. This is not just idle talk. The Ausdrill Way, which helps employees and their families having difficulty is something Ron created and drove. It has helped a number of Ausdrill people in need. Coupled with this, he is an intelligent and creative

manager with an extraordinary ability to solve problems and see opportunities. He is man of integrity and vision and easily the best Chief Executive I have worked with.

Terence O'Connor Chairman

AuSBITS PAGE 3