Dear Shareholders and Stakeholders of Energold,
Thank you for your continued support of Energold and our team over the past few difficult years in resources and overall mining venture capital exchanges.
The Company wrapped up 2016 with our lowest consolidated revenues since 2012, marking the four consecutive year of revenue decline and losses. There is no sugarcoating the fact that business has been challenging and mining has been on a 80% decline the last four years. Coupled with low oil prices where our diversified business drops and rig market remains competitive for our manufacturing business, the Company focused on minimizing our costs and surviving the downturn.
On a brighter note, we are seeing recovery in junior mining and willingness to spend for exploration. 2016 revenues for drilling was higher than 2015 and more importantly reflected an increase in meters drilled of 15% year over year.
2017 so far is continuing that traction with higher revenues per meter year to date (YTD) already than 2016.
Our energy division is adjusting to the lower activity level of oil sands and finding rig utilization in geotechnical, geothermal, and water businesses in North America. The move to infrastructure drilling was very timely as governments in North America shifts priority to roads, communication lines, and bridges.
Revenues for Energold totaled $65.4 million in 2016, down 20% from 2015's $81.9. Mining revenue has picked up by 14% to $37 million in 2016. The remaining 44% of our business is now comprised of energy, geotech, and manufacturing sales. Just imagine as mining recovers and gets back into the normalized size in 2012 - with our active fleet of over 146 mining rigs we can expect over $150M combined revenue with our diversified business base.
It's a testament to the value of diversification. Back in 2011, 80% of our business would have been from mining. We believe the business is far more robust than ever with our diversified revenue streams and with our primary segment mining improving, I am optimistic about the years forward.
Our priorities remain simple: 1) focus on growing the company's dominant markets, 2) cost control and maintain nimble cost structure and 3) leverage global infrastructure for diversified revenue streams.
In July 2017 we completed a significant transaction with a new large investor Extract Capital in a $20 million convertible debenture. As existing large investors in the company already, management added another $2.3 million into the Company as part of this transaction. The terms will mean lower finance costs not to mention a valuable strategic investor who can add further value. I look forward to focusing on growing the business and aim to push for a profitable conversion for the noteholders.
We are also reducing liabilities and inventory across the board. During the boom inventory was high and Energold would focus on using existing stock rather than new purchases - payables was down 30% from 2015 with inventory down 13% to $48 million. G&A (office, rent, salary, services) has been reined in further down further 16% year over year.
Growth is evident in renewal energy opportunities such as geothermal, geophysical and geotechnical drilling in North America. Some of our rigs are also ideally suited for water discovery in drought-stricken regions, including the western United States. We believe we can tap significant new revenue in this sector while providing crucially needed water.
Manufacturing had a challenging 2016 with slower orders and competitive existing rig market despite recovering mining demand. Although revenues declined significantly in 2016, we have made necessary business changes which the Company believes will allow Dando to leverage their 150 year history into newer lucrative markets. In Q3 2017 there were restructuring costs that are one-time and will position Manufacturing division for success going forward.
We have been trying to convey the value proposition to the market for a very long time and today Energold is well recognized as a market leader in modular drilling solutions. I believe the next frontier is in modular drilling in other commodities and Energold will be a pioneer and bring more shareholder value as the market continues to recover. The Toronto Stock Exchange awarded Energold as one of the top Venture 50 mining and diversified service company in 2017 after a stellar performance on market capitalization growth, share price appreciation, and volumes traded. I personally believe a new high will still be in the years to come as our business is now far stronger than what it was at the beginning of the last mining cycle.
Lastly I have to express my sincere gratitude for our dedicated investors such as yourselves, stakeholders, employees and team members worldwide in moulding Energold over the last few years. It has not been easy but I believe all your commitments will be rewarded.
Frederick W. Davidson
President & CEO. Energold Group.