CONFIDENTIAL
FORACO
Investor Presentation
Table of Contents
I
EXECUTIVE SUMMARY
1
II
MINERAL DRILLING MARKET
3
III
FORACO BUSINESS OVERVIEW
9
IV
HISTORICAL KEY FINANCIALS
18
V
STRATEGY GOING FORWARD
22
I
Executive Summary
Executive Summary Foraco International SA (“Foraco”):
Is the third largest global mineral driller in the world
Provides services across 22 countries and 5 continents
Grew via a series of successful targeted acquisitions and organic growth
Foraco’s revenue base is closely linked to the evolution of exploration expenditures driven by commodities prices
After a period of slowdown between 2012 and 2016, the market is steadily recovering
Market studies tend to confirm that this positive trend will continue before reaching an equilibrium in 2023
Foraco’s revenue exceeded market growth in 2017, 2018 and 2019 with +18%, +33% and +14% growth respectively
Foraco is well positioned to benefit from the continuing recovery of the drilling services activity given:
its new innovative services
the commodities it addresses
its long-standing presence and strong positioning in key markets
its capacity to adapt
1
Key Highlights 1 BALANCED & GLOBAL GEOGRAPHICAL FOOTPRINT
Solid and balanced presence in all major mining markets across five continents allowing to optimize opportunities and mitigate market risks
5
2 SEASONED MANAGEMENT TEAM
Experienced management team and employees with a significant stake (53%) in the business
Proven ability to lead and reshape the company during market downturns (no senior level turnover during down cycle) and upturns
4
DIVERSIFIED END MARKETS & ESTABLISHED LONG-TERM CUSTOMER RELATIONSHIPS
Diversified commodities portfolio mainly split between precious metals and base metals to mitigate risks on commodities
High quality customer base including all the blue-chip mining companies (“Majors”) reducing the client risk
3 STRONG TRACK-RECORD IN ADAPTING COST STRUCTURE
ACKNOWLEDGED BARRIERS TO ENTRY
Capacity to maintain EBITDA margin above 11% (average EBITDA during the 2013-2016 major downturn)
Majors require strong referencing, deep knowledge of procedures and good safety statistics
Swift adaptability of global cost structure supported by a lean and efficient organization
Enhanced technical and R&D capabilities
Geographical footprint (Brazil, Russia)
2
II
Mineral Drilling Market
Delivering Drilling Solutions Across the Value Chain DRILLING ACTIVITY AT EVERY STAGE OF THE MINE LIFE CYCLE Foraco offers tailor-made solutions through the whole mining cycle
$ Volume Exploration Geotechnical
Drilling Activity
Feasability study
Metallurgical sampling Dewatering
Life of mine 79%
10x Prefeasability study
1x
Mining construction
Mining revenue FY2019
Life of mine extension
Greenfield
2 to 3 years
2 to 3 years
EXPLORATION Geologically complex formations Harsh and Remote environments
Source: Management
2 to 3 years
2 to 5 years
5 to 30 years
DEVELOPMENT Define quality and quantity of resource Geotechnical analysis Bulk sampling to validate metallurgical process
Brownfield 12%
Time
PRODUCTION Delineating ore body Controlling or obtaining water Life of mine extension projects
Greenfield 9%
MINING SERVICES
3
Contracts: Characteristics, Monitoring and Risks CHARACTERISTICS
Contracts typically used to range between 3 months and 1 year, during the downturn. Today, more and more clients ask for the optionality to extend their ongoing contracts (Rio, BHP, Teck…). Since 2017 and the market recovery, the duration of the contracts now ranges between 1 year and 3 years Invoicing is based on work performed and issued monthly Contracts are based on (i) meterage and price per meter (ii) hourly rate for stand-by time Tender procedures follow a very rigorous process
MONITORING
Management considers that monitoring of contracts is key and implemented a strong financial reporting system Monitoring the profitability of all its contracts is performed on a monthly basis
RISKS
The Company is a pure player in the domain of drilling and does not perform the diagnostic and analysis of the geotechnical samples which it extracts. This role is performed by the clients thus limiting the risk of litigation There is a no history of claims Contracts are signed by local entities and are denominated in local currencies. Local costs are mainly in the same currency as the contract 4
Overview of Competitive Landscape DRILLING ACTIVITIES
PROFITABILITY
The market is highly fragmented with a small group of globally active companies Foraco has grown to become the 3rd largest global driller with around 5% share of the world’s mineral drilling fleet Main global competitors rig count:
Foraco is outperforming the market in term of profitability. The EBITDA for the period FY 2013 to FY 2019 as a percentage of revenue is as follows: EBITDA margin 30.0% 20.0% (1)
10.0%
Foraco 15%
Capital Drilling GeoDrill 5% 3% Orbit Garant 11%
0.0% (10.0%) (20.0%) (30.0%) FY 2013 FY 2014 FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 Major Drilling Boart Longyear Foraco
RIGS UTILIZATION RATE
Major Drilling 32% Boart Longyear 34%
FY 2016
FY 2017
FY 2018
FY 2019
33%
36%
45%
48%
26%
31%
36%
39%(2)
32%
43%
46%
42%(3)
Sources: Annual reports, Companies, Brokers, Factset estimates Notes: (1) Figures calendarized for Major Drilling at year ended December, 31; average USD/CAN exchange rate over the period / As per broker estimates for Boart Longyear as FY2019 annual report is not available yet (2) As of July 2019 (3) As of June 2019
5
World Mining Destinations FORACO’S GEOGRAPHICAL FOOTPRINT IN THE TOP WORLD MINING DESTINATIONS Country shares in the worldwide market Foraco presence
Foraco regional headquarters Foraco group headquarters Foraco’s FY19 revenues by region
Russia 5%
Canada 15%
Europe / Russia 18%
Europe and mainland Asia (excl. Russia and China)
North America 34%
8%
US 9%
China 5%
Brazil 17%
Pacific/SE Asia South America 28%
South America (excl. Brazil) 6%
Africa 13%
3%
Africa 7%
Asia Pacific 18%
Australia 14%
South America (28%), Canada (15%) and Australia (14%) are the key mining markets Foraco is well positioned in the top world mining regions with presence in Canada, in South America, in Europe and Russia, Africa and in Australia, regions representing 83% of the worldwide spending Source: S&P « World Exploration Trends » - March 2019
6
Steady Recovery of Global Exploration Expenditures Since 2016… EVOLUTION BY COMMODITY
EVOLUTION BY GEOGRAPHY $34.9 b in 2012
2019 US$ Billion $35 $30
Exploration is very much a "boom-orbust" business
$25
$23.7 b in 2008
$30
$15
$15 $10
$3.2 b in 2002
$0 1975
1980 Other
1985 Coal
1990
1995
Iron Ore
2000 Diamonds
$3.2 b in 2002
$5 2005 Uranium
2010
2015
Base Metals
Gold
Note: Includes expenditures on non-bulk and bulk mineral (i.e. bauxite, coal, and iron ore) exploration Forecast is based on a long-run price (inconstant 2018 US Dollars) of $1300/oz Au, $3.00/lb Cu, $7.00/lb Ni, $1.00/lb Zn, $0.80/lb Pb, $60/lb §U3O8 $50/t iron ore fines and $45 & $140/t for thermal & met coal
The business cycle bottomed out in 2016, expenditures are expected to progressively rise to reach an equilibrium which should occur in 2023
$0 1975
1980
Rest of World
FSU + Europe
1985 China
1990 Western Europe
1995 Africa
2000 Pacific / SE Asia
2005
2010
Latin America
USA
2015 Canada
Australia
Note: Includes expenditures on non-bulk and bulk mineral (i.e. bauxite, coal, and iron ore) exploration
$11.2 b in 2016 $11.3 b in 2019
$20
$11.2 b in 2016 $11.3 b in 2019
$5
$23.7 b in 2008
$25
$20
$10
$34.9 b in 2012
2019 US$ Billion $35
Between 2012 and 2016 expenditures fell by 68%
Relative market shares for the various regions will remain at current levels over the next decade. Latin America, Canada and China are the regions with the highest potentials Due to the specificity of the market and onerous foreign investment rules, very little of the exploration in China is done by Western companies
After the market downturn between 2013 and 2016, the drilling industry is recovering and is now in an upward cycle MinEx estimates that global exploration expenditures will rise from $11.3bn in 2019 to $14.9bn in 2023 This equates to a 32% increase in real terms over the period Source: MinEx Consulting October 2019
7
…with Gold and Base Metals Remaining the Main Targets in the Coming Years FORACO’S REVENUES BY COMMODITY
FORECAST EXPENDITURES AND DRILLING BY COMMODITY IN US$BN (2018-2023) % Change
+19%
6.0
Iron Ore 7%
+37%
+36%
Coking Coal 9%
6
5.0
5
4.0
4
3.0
5.9
Water 11%
5.0
2
1.0
1
0.0
0 2018A
2023E Gold
Base Metal 39%
Precious Metal (Gold) 30%
3
2.0
Uranium and other 4%
4.6 3.4
2018A
2023E
Base Metal
0.6
0.8
2018A
2023E Iron Ore
FY2019 Revenues: US$205m
Gold and Base Metal continue to be the two main targets for drilling and will account for 83% of the meters drilled in 2023 These commodities represent a significant amount of Foraco FY2019 revenues (c.69% of Foraco FY2019) Source: Management, MinEx Consulting Report
8
III Foraco Business Overview
Foraco – The 3rd Largest Mineral Driller Worldwide COMPANY OVERVIEW World’s third largest fleet of mineral drilling rigs (62 rotary, 194 diamond, 18 combination, 28 Underground)
KEY FINANCIALS (US$M) & OPERATIONAL KPIS in US$m, FYE 31/12 Revenue
Broadly-spread customer base including all the major mining companies
% Growth EBITDA % Margin
Strong and experienced management team and employees with a significant stake (53%) in the business
EBIT % Margin Net Debt xEBITDA
2016A
2017A
2018A
2019A
CAGR 16A-19A
115.2
135.7
180.0
205.4
21.3%
(16.4%)
17.9%
32.6%
14.1%
7.1
12.1
18.1
29.3
6.2%
8.9%
10.0%
14.3%
(14.4)
(6.7)
1.1
11.0
(12.5%)
(5.0%)
0.6%
5.4%
103.3
122.7
130.4
128.9
14.6x
10.1x
7.2x
4.4x
302
302
302
302
International workforce with a proven track record in geologically complex formations and extreme terrain
Rigs % Utilization rate
33%
36%
45%
48%
1,946 people at the end of 2019
Em ployees (at YE)
1,536
1,526
1,882
1,946
Significant expertise in destructive and nondestructive drilling, as well as proprietary drill rig design capabilities Specialized in drilling in harsh environments and isolated locations including arctic, desert and mountainous terrain and thus has acquired a specific know how in remote locations logistics
60.4% nm 7.7%
0.0% 8.2%
SHAREHOLDING STRUCTURE Management 43% Float 47%
Listed on the Toronto stock Exchange (“FAR”) and headquartered in Marseilles (France) Source: Management
Employees 10%
9
Acquisitive Strategy to Reach a Global Scale 2007
2008
2009
ACQUISITION HISTORY
January ‘07: Connors Drilling
September ‘08: North West Sequoia
April ‘09: Mosslake Drilling Services
GEOGRAPHY ADDED
North America
North America
Australia
RIGS ACQUIRED
22
3
8
NUMBER OF RIGS
108
115
119
2010
2012
2011
April ‘10:
April ‘12:
April ‘10:
November‘12:
EDC: Russia AD: South America
Servitec: Brazil JND: Australia
5
50
180
90
192
15
308 Servitec & JND
433 66
HISTORIAL PERFORMANCE REVENUE ($M)
Source: Management
301 103
128
119
2007A
2008A
2009A
368
164 2010A
2011A
2012A
10
A Diversified Footprint Covering All Mining Markets DIVERSIFIED FOOTPRINT AND BUSINESS Revenues by Commodity (FY19)
Iron Ore Uranium and Other 7% 4% Coking Coal 9% Base Metal Water 39% 11%
Precious Metal (Gold) 30%
STRONG CUSTOMER RELATIONSHIPS Revenues by Customer (FY19) Juniors 12%
Majors & Multinational Institutions 88%
Broad spread of commodity exposure No dependence upon any particular resource Revenues by Geography (FY19) Africa 7% Europe / Russia 18%
North America 34%
Asia Pacific 18%
South America 23%
Presence in all major mining markets Source: Management
High quality, broadly-spread customer base including all the major mining companies 11
A High Quality Customer Base – Focus on Top 5 Clients OVERVIEW OF CONTRACTS Contribution to Sales
1
FY19
FY18
Start of contractual relationship
14%
11%
2006
Average duration of contracts
# rigs currently deployed with client
Top 5 Clients 45%
Total FY19 Sales: US$205m
3 years
Top 5 Clients 38%
Total FY18 Sales: US$180m
26 Customer Satisfaction Survey
2
12%
8%
2009
4 years
11
3
8%
8%
2012
2 years
15
4
6%
4%
2012
1 year
18
5
5%
7%
2006
3 years
9
Yes 85.1%
Do you intend to work again with Foraco ?
Yes 84.9%
Would you recommend Foraco to peers ?
No dependence at the global level Foraco enjoys long term relationships with key clients
Source: Management
12
A Seasoned and International Management… Daniel Simoncini Chairman and Co-CEO
Jean-Pierre Charmensat Co-CEO and CFO
Director & CEO since incorporation
Director & Executive Officer since incorporation
Over 30 years of industry experience
Over 35 years of management experience
Based in Singapore
Based in Marseilles (France)
Timothy Bremner SVP North America
Olivier Demesy VP Brazil
Denis Simonin VP Africa
Peter Jacobs SVP Asia Pacific
To be named VP South America
Fabien Sevestre Deputy CFO
Andreï Popov VP Russia and CIS
Thierry Merle VP Europe & Middle East
13
… Relying on Experienced International Workforce… EVOLUTION OF # OF EMPLOYEES AT YE 1,882 1,536
1,946
1,526
SAFETY RECORD Last Time Injury Rate Trend (per 200,00 hours) 1.05 0.63
2016A
2017A
2019 BREAKDOWN BY GEOGRAPHY Europe / Russia 18% North America 34%
Source: Management
2018A
0.45
2019A
2019 BREAKDOWN BY FUNCTION
SG&A Indirect / Other 1% 7% Africa Indirect 7% Facilities Asia Pacific 11% Direct 18% Project Direct Project Production Support 59% South 22% America 23%
0.39
0.37
0.33
0.39
0.50 0.19
2011A 2012A 2013A 2014A 2015A 2016A 2017A 2018A 2019A
Total Recordable Injury Frequency Rate (per 200,00 hours) 3.34 2.39
2.23
2.17 1.58
1.66
1.64
1.57
1.97
2011A 2012A 2013A 2014A 2015A 2016A 2017A 2018A 2019A
14
… and Retained by a Stable Human Resource Policy Sustainable Long Term Contracts
Engaged and Empowered Employees
Stable Employment Opportunities
Class Leading HSEC (Health, Safety, Environment and Community) and Productivity
Investment in Skills and Knowledge
15
A Versatile Drill Fleet GLOBAL DRILL RIG FLEET Drill Rig per Age (% of total fleet)
302 Drill Rigs
•
62 Rotary
•
194 Diamond
•
18 Combination
•
28 Underground 51%
39%
10%
<5
5 < Age < 10
>10
A new rig has an operational life of 15 to 20 years and can be rebuilt every 10 years, regaining another decade of market life In 2019, the company invested c.7% of its revenue in capex 16
Foraco is a Recognized Innovator and a Leader in Deep Directional Drilling
LATEST INNOVATION: WIRELESS REMOTE CONTROLLED RC MWD RIG
Pioneered first wireless remote RC rig with fully featured Measure While Drilling (MWD)
Collects multiple drilling data points use by both drillers and geologists
Currently unmatched by any other drilling competitor
Awarded 2017 DMIRS Engineering Award of Merit
2019 has introduced next generation of remote RC (functional isolation/electronic exclusion zones)
This innovation will reduce drill times and enhance crew safety
EXPERTISE IN DEEP DIRECTIONAL DRILLING…
Techniques and tools which allow to steer in 3D drilling through hard rock in order to follow a preset 3D trajectory
JV setup between Foraco and the Continuous Wedging Tool (CWT) to market and operate their tool in North America, Brazil, and West Africa
… A TECHNIQUE WITH MULTIPLE ADVANTAGES
Significant cost and time savings when exploring deep targets Planned intersections with defined separation Fewer constraints on rig locations Less underground development during exploration phase
17
IV Historical Key Financials
Long-term Trend Has Been Driven by the Cycle of the Mining Sector LONG TERM TREND FY12-19 – REVENUE (IN US$M)
433 66
Revenue CAGR FY16-19: +21.3% Servitec & JND
368 248 186
FY12
FY13
FY14
138
115
136
FY15
FY16
FY17
180
205
FY18
FY19
LONG TERM TREND FY12-19 – EBITDA (IN US$M) AND GROSS PROFIT MARGIN
23%
EBITDA CAGR FY16-19: +60.4% Gross Profit CAGR FY16-19: +90.9%
Restated from one off costs of US$21m in FY13, the EBITDA rate reached 24% 15%
11%
8%
1% FY12
FY13
8%
14%
9%
10%
FY17
FY18
4%
4% FY14
16%
6%
FY15 EBITDA Margin
Source: Management
15%
13%
18%
FY16 Gross Profit Margin
FY19
18
Historical Performance in US$m, FYE 31/12
CAGR 16A-19A
2016A
2017A
2018A
2019A
115.2 (16.4%)
135.7 17.9%
180.0 32.6%
205.4 14.1%
21.3%
Gross Profit % Margin
4.6 4.0%
14.4 10.6%
21.9 12.2%
32.1 15.6%
90.9%
EBITDA % Margin
7.1 6.2%
12.1 8.9%
18.1 10.0%
29.3 14.3%
60.4%
EBIT % Margin
(14.4) (12.5%)
(6.7) (5.0%)
1.1 0.6%
11.0 5.4%
n.m.
EBITDA Var. of Working Capital Other (2) Cash from operations
7.1 (5.8) (1.3) 0.0
12.1 0.0 (0.1) 12.0
18.1 (6.8) 0.1 11.3
29.3 (0.6) 28.7
60.4%
Capex
(6.5)
(9.5)
(12.7)
(12.5)
Free Cash Flow (pre interests and taxes)
(6.5)
2.5
(1.4)
16.2
n.m.
Rigs Employees
302 1,536
302 1,526
302 1,882
302 1,946
0.0% 8.2%
INCOME STATEMENT Revenues % Growth
(1)
CASH FLOW STATEMENTS
Source: Management Notes: (1) Includes amortization and depreciation expenses related to operations; (2) Excluding financial interests and taxes
n.m.
19
Key Competitors Comparison 735.2
REVENUES (IN US$M)
238.8
228.0
253.2
286.1
320.6
205.4
739.1
770.2
774.6
(1)
642.4
137.7
115.2
135.7
180.0
2015A
2016A
2017A
2018A
2019A
2015A
2016A
2017A
2018A
2019E
2015A
2016A
2017A
2018A
2019E
6.2%
8.9%
10.0%
14.3%
3.5%
3.7%
6.1%
9.3%
12.6%
(15.7%)
0.2%
(5.0%)
7.0%
14.7%
13.1%
114.0
EBITDA (IN US$M)
(1)
54.1 18.1
7.1
12.1
18.1
2016A
2017A
2018A
29.3 8.4
8.3
15.4
2015A
2016A
2017A
26.5
40.5
1.6 (36.6)
2015A
2019A
2018A
2019E
(115.3) 2015A
2016A
675.8 576.4
NET DEBT (IN US$M)
89.3
103.3
122.7
2015A
2016A
2017A
130.4
2018A
2017A
598.9
2018A
2019E
682.6
723.2
2018A
2019E
(2)
128.9
2019A
2015A
2016A
2017A
2018A
2019E
(27.6)
(18.7)
(5.6)
(12.1)
(17.0)
Source: Management, Companies, Factset Notes: Figures calendarized for Major Drilling at year ended December, 31; average USD/CAN exchange rate over the period (1) As per broker estimates / LTM Jun. 2019 EBITDA of $79.5m; (2) As of Jun. 2019; (3) As of Oct. 2019
(3)
2015A
2016A
% of sales
2017A
20
Backlog Evolution and Roll-Out Total at 01/01 FY
FY
FY + 1
FY + 3
Roll-out
201
2018 (IN USDM)
FY + 2
128 41
32 -
Total 266
134
2019 (IN USDM)
78 32
24
32
24
269
2020 (IN USDM)
Source: Management
158
55
21
V
Strategy Going Forward
Strategy Going Forward: 5 to 7 Year Plan – Positioned for Growth Prepared for Up Cycle 3: 2020 and Forward Take advantage of our strengths as market recovers Continue to focus on quality and safety Continue to attract, motivate and retain best employees
Continue to address all commodities
Strengthen balance sheet:
Reorganize existing debt
Take the opportunity of solid economic activity to generate significant cash-flows
Rebuild strong cash position and limit debt to a reasonable level
Leverage our presence in all significant markets to reinforce our position Continue to focus on profitable growth Continue to monitor capex and working capital requirements
22
Disclaimer This presentation (the “Presentation”) has been prepared by Foraco. Neither this Presentation nor any information contained herein may be used for any other purpose without the prior written consent of Foraco. This Presentation and its contents shall be kept strictly confidential and not be disclosed to any person other than its intended recipients.
This Presentation has been prepared by Foraco on the basis of information provided by Foraco or in the public domain. It reflects prevailing conditions as of this date, all of which are subject to change. In preparing this Document, Foraco has relied upon and assumed the accuracy and completeness of all the information available.
In issuing this Presentation, Foraco does not undertake to provide the recipient with access to any additional information or to update this Presentation or any other information provided in connection therewith or to correct any inaccuracies therein that may become apparent.
Recipient of this Presentation shall conduct its own review and analysis and should consult its own advisers.
This presentation is incomplete without reference to, and should be viewed solely in conjunction with an oral briefing provided by Foraco.
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