Major Drilling Group International (TSE:MDI) used its third-quarter fiscal 2026 earnings call to emphasize preparation for what management expects will be a much busier exploration environment, even as seasonal slowdowns and incremental readiness costs weighed on margins during the quarter.
Management frames Q3 as a seasonally weak quarter, but sees budgets rising
President and CEO Denis Larocque said the third quarter is typically the weakest period of the fiscal year as customers pause operations around the holidays. Even so, he said the company “began aggressively preparing” for what it expects will be a very busy year, pointing to exploration budget announcements from senior mining customers that include increases “of 30+%” and, in some cases, “almost double” compared with last year. Larocque also said junior mining companies remain “well supported” after raising substantial exploration capital in the second half of 2025 and continuing into 2026.
Larocque added that with higher budgets and record-high commodity prices, the company saw a “busier start to the year,” including a much busier January versus last year. He noted, however, that startup and mobilization costs associated with the ramp-up had a negative impact on margins.
Quarterly financial results: revenue growth, but margins compressed
CFO Ian Ross reported third-quarter revenue of CAD 184.6 million, up 14.9% from the prior-year period. The increase was driven primarily by Canada and the U.S., with additional growth in Peru. Ross said this was partially offset by Australasia and Africa, which continued to be impacted by a slowdown in drilling operations with the company’s largest customer in Indonesia, an issue previously discussed last quarter.
Ross said the unfavorable impact from foreign exchange transactions on revenue versus the same period last year was about CAD 1 million, adding that the effect on net earnings was minimal because many foreign expenditures are in the same currency as revenue.
Adjusted gross margin (excluding depreciation) was 14.3%, down from 19.5% a year earlier. Ross attributed the decrease to strategic preparation steps ahead of expected higher activity, increased startup and mobilization costs due to a busier January, and the termination of underperforming contracts in South America intended to better position that region for improved profitability.
General and administrative expenses were CAD 21.6 million, flat year over year, as annual wage adjustments were offset by reduced exploration integration costs that affected results in the prior year period.
Major Drilling generated EBITDA of CAD 5.1 million, compared with CAD 7.8 million a year ago. The company posted a net loss of CAD 10.8 million, or CAD 0.13 per share, compared with a net loss of CAD 9.1 million, or CAD 0.11 per share, in the prior-year quarter.
Balance sheet, CapEx, and fleet: cash increases as older rigs are retired
Despite the seasonally slow period and the additional readiness spending, Ross said the company increased its net cash position by more than CAD 25 million to CAD 39.6 million at quarter-end. Total available liquidity rose to CAD 177.1 million.
Capital expenditures totaled CAD 10.3 million, down from CAD 12.6 million a year earlier, including the addition of three new drill rigs and support equipment. Ross said the company also accelerated fleet optimization and modernization, disposing of 13 older, less efficient rigs, leaving a total fleet of 697 rigs at quarter-end.
The company provided a utilization breakdown for the quarter:
- 306 specialized drills at 49% utilization
- 158 conventional drills at 53% utilization
- 233 underground drills at 55% utilization
- Total: 697 drills at 52% utilization
Ross noted that Major Drilling defines “specialized” work not solely by equipment type, but by technical complexity, remote access requirements, stringent safety standards, and other operational factors. In the quarter, specialized work accounted for 59% of total revenue. Conventional drilling declined to 12% of revenue, while underground drilling contributed 29%, which management characterized as a stable base of work largely in operating mines.
By customer type, Ross said seniors and intermediates made up 90% of revenue as they continue elevated efforts to address depleting reserves. Juniors represented 10% of revenue, up from 8% in the prior quarter and 6% in the same period last year.
By commodity, gold represented 39% of revenue and copper accounted for 32%. Iron ore contributed 8%, aided by Australian operations, while silver represented 6% of revenue.
Outlook: pricing expected to improve, labor and supplies seen as constraints
Looking ahead, Larocque said the company entered the fiscal fourth quarter with a strong foundation, citing a well-maintained fleet of nearly 700 rigs, “optimal levels of inventory,” experienced crews, and what he called an “industry-leading balance sheet.” He said the company expects to deploy additional rigs at incrementally higher pricing as activity ramps through fiscal Q4 and into fiscal 2027, driving steady revenue growth.
Management expects labor availability to remain a near-term challenge that will pressure margins, though Larocque said improving pricing should progressively offset those costs. As a result, he said margins should improve over time, but at a slower pace than revenue growth.
During the Q&A, Larocque elaborated on North American initiatives, saying the company focused on retaining personnel through the Christmas break, ramping up training and recruitment beginning in November, and bringing more rigs into the shop to ensure readiness for higher activity.
On South America, Larocque said Explomin has been “a great addition,” noting it operates with a somewhat different business model that is more volume-oriented with more underground work, implying lower margins but also lower capital expenditure requirements. Management also said it terminated underperforming contracts across the region, replaced some of that work with better contracts, and expects regional performance to improve in 2026.
Addressing industry constraints, Larocque said tightness is emerging in Canada and the U.S., but he characterized it more as a people issue than a rig issue, citing competitors struggling to staff additional rigs. He also warned that bottlenecks may develop in supplies and consumables, such as rods, as more rigs return to the field and ordering accelerates. He said Major Drilling has kept inventory higher and placed orders earlier to mitigate that risk.
On capital spending, management said there was timing behind lower third-quarter CapEx and that spending should pick up in Q4, though Ross said the company now expects CapEx to come in below its CAD 70 million guidance for fiscal 2026, with fiscal 2027 guidance to be provided next quarter.
About Major Drilling Group International (TSE:MDI)
Major Drilling Group International Inc is engaged in the business of contract drilling, and it provides services to companies that are involved in mining and mineral exploration. It offers surface and underground coring, directional, reverse circulation, sonic, geotechnical, environmental, water-well, coal-bed methane, shallow gas, and underground percussive/long-hole drilling services, as well as various drilling-related mine services. Its geographical segments are Canada – the United States; South and Central America; and Asia and Africa, of which most of its revenue comes from Canada – the United States.
