Bon Jovi or Meatloaf? It’s something I’ve been puzzling over since June 8 when the most innocuous of emails landed in my junk folder. It was exceedingly verbose for a press release, tediously overloaded with numerical analysis, and it started with a financial statement.
I almost trashed it. I’d actually right-clicked and pulled up the ‘delete’ command, but changed my mind at the last millisecond. There was just something about it, something I couldn’t quite put my finger on, but it was there – a twinge of interest, tweaked by the unassuming headline: “Major Drilling sees recovery in fourth quarter”.
I probably wouldn’t have been so curious if I hadn’t known the back story. Last year’s recession hit Major Drilling hard. As in, slammed-by-a-cement-truck-travelling-100-kilometers-an-hour type of hard. The Moncton-based company (one of the world’s largest drilling service companies) lost 65 per cent of its customer base and saw its global workforce cut in half, from just over 4,000 to barely 2,100.
Company president and CEO Francis McGuire says the liquidity crisis that hit the global mining industry in October 2008 was unlike anything he or his colleagues had ever seen. The sector’s inability to raise funds through the stock market crash started a debilitating chain reaction. For Major Drilling, it began with Rio Tinto and continued on through their international clientele. Seemingly every week, a different client would call and give Major Drilling seven days or less to get off the work site.
The company’s response? First they thanked their lucky stars they were in a solid, debt-less financial position. Then they rolled out their contingency plan. That meant layoffs – thousands of them. The ‘lucky ones’ who still had jobs were downgraded in both their titles and pay packets: managers became drillers, drillers became drilling assistants. As well, bonuses (a significant portion of mining industry wages) were eliminated. It wasn’t enough.
In January 2009, McGuire says he was starting to get scared. To the point where he questioned the fundamentals of the business strategy Major Drilling had adopted, at his behest, in 2001. Before then, the company had dabbled in all kinds of drilling: anywhere, anytime, any type. That lack of focus resulted in a fiscal sink hole so deep that the company was, according to McGuire in a 2008 interview, “on the verge of bankruptcy”. So, under his direction, the company bore down on the more lucrative niche of specialized drilling in remote, challenging locations (e.g., mountain tops in the Andes, deserts in Mongolia, winter digs in the Arctic). The strategy paid off. In 2007, the firm posted net earnings of $58.8-million on revenue of $415.4-million and CEO McGuire was mining’s golden boy.
The downside of his plan didn’t reveal itself until the financial crisis. Everyone in the mining industry was cutting back and the biggest expenditures were the first to go – which meant the bottom literally fell out of Major Drilling’s business operations. By March 2009, McGuire was wondering if specialization had been a colossal mistake.
Today, those doubts are behind him. Though the big money explorations are still on hold, there’s been a rebound in intermediary companies (aka large juniors) with projects at, or near, the development stage. These clients, though fewer in number, require more drill rigs per project. Exploratory drilling typically requires one or two rigs per property whereas four or more are needed for projects at the development stage.
Further fuelling his confidence are the base metal markets in emerging economies like China, Brazil, Chile and Argentina. “The market will rebound,” he assures. “I don’t know when – could be later this year, could be 2011 or 2012, but it will happen.” In the meantime, Major Drilling has a safe base from which to watch the market recover. (He’s also hedging his bets by introducing some of the relatively stable environmental and underground drilling operations back into the company).
Though McGuire feels like he’s been to hell and back, he’s also decidedly optimistic. The company is back up to 3,100 employees, salaries have been restored and quarterly revenue is up 47 per cent over the same period last year ($97.4-million versus $66.4-million) with posted net earnings of $3.4-million compared to last year’s net loss of $4.6-million. Major Drilling hasn’t fully recovered, but it is halfway there.
Which leads, in a roundabout way, to my original quandary. I can’t decide if Francis McGuire is more like rocker-balladeer Meatloaf (willing to do anything but abandon his company), or if he is more closely aligned with the guitar-riffing anthems of Bon Jovi (defying the recession with a plan and a prayer). Either way, he’s hitting all the right notes.