Pricing Remains Competitive
In the drilling industry, price usually follows demand. As demand increases, drilling rates increase and margins improve. The past year was an anomaly, however, as pricing remained competitive as demand grew. A substantial portion of the drilling continued to be the more competitively bid "brownfields" exploration that typically takes place on or near mine sites.
Market Trends in Our Favour
Exploration for precious metals currently represents the industry's largest drilling demand. However, demand for drilling services around certain specialty commodities and base metals is increasing as well. We have also witnessed a shift in the type of drilling by the majors, with larger portions of their budgets moving gradually to more frontier-oriented programs. In the junior sector, a surge in financings in 2010 will likely result in their frontier-oriented programs increasing along with larger exploration budgets. These positive market shifts will assist in expanding Energold's core strength and niche market of highermargin, socially and environmentally responsible frontier drilling services.
New Capital for Acquisitions
To further Energold's aggressive growth strategy of penetrating new markets and drilling sectors, we completed a $17.25 million 'Bought Deal' financing in December 2010. The proceeds will fund the purchase of new drill rigs and support the Company's strategy of accretive acquisitions, allowing us to enter new markets faster and more aggressively. In March 2010, we acquired the assets and drilling operations of Envirodrill Ltd. of the United Kingdom, adding nine rigs and expand our operational expertise in Africa. This acquisition allowed the Company to set up quickly with a strong team on the ground and drilling contracts in place. Subsequent to year end, Energold acquired Dando Drilling International Ltd., also based in the United Kingdom. The Dando team has a long track record worldwide of profitably designing and manufacturing specialty/customized drilling rigs and associated equipment for water well, mineral exploration and geotechnical drilling companies. Our strategic objective with Dando is to profitably expand their core business and work with their team of engineers to develop and supply next generation drilling rigs for Energold. We also intend to capitalize on Dando's extensive experience and expertise to build a separate Energold division specializing in water well drilling services.
Expanding our Drill Fleet
At December 31 2010 Energold held a total of 103 rigs, including 13 new surface rigs and one underground rig delivered in 2010. The Company continues to expand its rig fleet with a target of 120 rigs by year-end 2011. Our focus includes expansion of Energold's underground drilling segment, as well as more conventional surface rigs. We continue to innovate as well, with a prototype mobile surface rig in the design phase that will access depths beyond 1,000 meters. We are also working on modifications to increase the capability of the standard EGD Highly Mobile Surface Type II rigs.
After the Decline: Landing on our Feet
Our variable cost structure, whereby direct costs such as drill crews, inventories and logistical fees fluctuate with contract revenues, helped limit the impact of the early 2009 market decline on the Company's finances. When the market recovered in 2010, Energold had maintained a strong balance sheet, built ample working capital and taken on no longterm debt. Consequently, the Company continues to operate from a position of strength. We are well positioned to take advantage of the continuing market recovery, and we remain the world's premier socially and environmentally sensitive drilling contractor.
Financial Results: a Return to Profitability
Revenues for 2010 totaled $54.6 million on 346,300 meters of drilling, up from $23.7 million on 151,300 meters in 2009. Energold achieved net earnings of $1.40 million in 2010, up from a net loss of $2.0 million in 2009. Despite rates per meter remaining relatively stable through the year, gross margins improved from 14.7% in the first quarter of 2010 to 21.1% for the year. Revenues and meters drilled increased each quarter throughout 2010. A Company record 103,400 meters were drilled in the fourth quarter of 2010, up 106% from the 50,200 meters drilled in the fourth quarter of 2009. Revenues of $17.3 million in the fourth quarter were up 140% from $7.2 million in the fourth quarter 2009. The improving economic environment helped Energold end the year with an industry leading balance sheet. With working capital of $61.5 million -- including $28.2 million cash -- and no long-term debt, the Company remains in a strong financial position to carry out its growth strategy for 2011 and beyond.
Aggressive Growth Strategy
With a healthier economy emerging, we intend to expand both organically and through potential acquisitions. Our latest acquisitions of Envirodrill Ltd. And Dando Drilling International Ltd. have proved successful in expanding Energold's footprint into West Africa and improving our engineering expertise towards developing the next generation of Energold rigs.
Prepared to Capitalize on Market Trends
We have reached these Company milestones during a time when the worldwide supply for most metals is expected to tighten due to a continuing lack of significant discoveries. With a modern drilling fleet in place and operations in 20 countries across five continents, we believe we have brought Energold to a position where we can capitalize on these trends and achieve our primary goals of strengthening our leadership position in frontier drilling and generating increasing value for our shareholders.
Accolades for our Team
The decline in 2009 and subsequent recovery in 2010 presented a wide range of challenges for all our 1,200 employees at Energold, from drillers in our many field operations to office staff in Canada and overseas. We want to sincerely thank everyone for their continued dedication, resourcefulness and energy in making the past year a remarkable success. Over the last several years, Energold has received numerous accolades that belong to each and every Energold employee. These awards include The PROFIT 100 -- Canada's Fastest Growing Companies; The Vancouver Sun/ Business BC Top 100 Companies in British Columbia; The BC Export Award for Top Professional and Services Company; The World Confederation of Businesses Award in the Dominican Republic; The Mining Journal Award for Exploration Equipment,and TSX Venture Top 50. Finally, on behalf of the Board of Directors, I would like to thank each of you, our long-standing shareholders, for your ongoing support.
Frederick W. Davidson
President and Chief Executive Officer
April 14 2011
