Mitchell Services Q2 Earnings Call Highlights

Mitchell Services (ASX:MSV) executives said the company delivered a “solid first half” of FY2026, with strong profitability and cash generation lifting the balance sheet into a net cash position, according to comments on the company’s FY2026 Q2 update call hosted by Bridge Street Capital.

Chief executive officer Andrew Elf said the first half benefited from a “good, clean operation” compared with the prior year, when the business faced several issues “outside of our control.” He attributed the improved performance to contracts that were already mobilized and “operating in the ordinary course of business,” steadier client scopes, a lack of bad weather disruptions in the half, and the ability to redeploy rigs as work ended to maintain continuity.

Net cash position and insurance-related impairment

Elf said strong first-half profit “has certainly driven the business to a net cash position,” which he called “fantastic to see.” CFO Riggs Vitara provided additional detail in Q&A, explaining that the roughly $7 million net cash position reflected about $15 million of cash and approximately $8 million of gross debt. Vitara said the gross debt was traditional equipment finance typically amortized over three years, and that there was no intention to repay it early.

Management also addressed an impairment related to assets impacted by a fire in Western Australia. Elf described the impairment as “an accounting nuance” tied to timing of the insurance process, and said it should reverse in the second half as the claim progresses. Vitara confirmed the impairment was reflected at both the EBITDA and EBIT lines and said investors could add back $1.4 million to arrive at a normalized result. He said the insurance claim was expected to be finalized “very shortly,” with the reversal anticipated in Q3.

Rig utilization, market conditions, and tender pipeline

In response to questions about utilization, Elf discussed differences between eastern and western Australian conditions, emphasizing the effect of coal sector softness in Queensland. He said subdued demand in coal had led rigs to be redeployed into minerals work, which meant increased minerals demand was being absorbed without a corresponding rise in overall utilization in the east. In Western Australia, he described iron ore as “steady” and said that as hard rock minerals picks up, utilization increases.

Elf said commodity prices were “certainly strong across multiple commodities,” and added that coal had “bounced back a bit.” He also said the company was seeing increased demand for rigs as capital raised by clients began to flow into field activity, noting there is typically a lag between fundraising and drilling activity.

On contracting and pricing, Elf repeatedly stressed discipline. He said the company would be “happy to lose” work if bidding at “fair and reasonable prices” and maintaining returns, rather than cutting price to chase utilization. He added that, from his perspective, the rig count was more likely to rise than fall, but reiterated that pricing discipline would govern decisions.

Management said inquiries were coming from both new and existing customers, particularly in metalliferous/minerals work, while coal remained “pretty flat.” Elf said there were several tenders submitted with decisions expected in the next month or two, and that work could start before June 30 or shortly after. He characterized the tender pipeline as increasingly gold-related, and later noted that the mix included a higher proportion of junior miners than previously.

Asked about dry leasing spare rigs into Western Australia, Elf said the company had done so before and would consider it again if an opportunity arose, though he added the company would not specifically move into WA solely for that purpose given it already operates there.

Margins, weather risk, and contract structure

Elf said EBITDA margins near 20% were consistent with the company’s “ordinary course of business earnings” under stable conditions. He reiterated a target model of roughly 30% gross margin and 10% overheads, translating to about 20% EBITDA, provided the business is not “smacked with things that we can’t control.”

However, he cautioned that the second half is typically weaker due to wet season impacts in January through March, and said Queensland had already experienced “horrible” wet weather in January. He also noted Victoria had lost some time due to fires and fire bans on high-risk days, particularly in national parks and highland areas. Elf said the company has standby rates in place that generally prevent losses during weather disruptions, but also limit profit, which can dilute margins.

In discussing how Mitchell approaches signing contracts late in the cycle, Elf highlighted that drilling contracts typically allow clients to vary scope up or down and, in many cases, terminate with around 30 days’ notice. As a result, he said the company’s approach to contracting does not fundamentally change based on the cycle; instead it bids based on costs and required returns, adjusting gross margin assumptions depending on risk, technical complexity, contract duration, client type (junior versus major), and other terms.

Capex outlook and capital management decisions pending

Vitara said reported capital expenditure of $7.8 million year to date was affected by timing and should not be annualized by simply doubling. He said full-year CapEx was expected to be above $15.5 million, but lower than FY2025, which he recalled was “a tick under $20 million.” Based on what the company knew at the time of the call, he estimated roughly $17.5 million to $18 million, noting the figure could change depending on tender outcomes. He also said the spending discussed was “generally all maintenance CapEx.”

On capital management, Elf said investors would need to wait for the half-year results release in February, when the board would communicate its decisions. He referenced a policy to pay “up to 75%” of net profit, while noting the board would weigh dividends, buybacks, and growth opportunities. Vitara added that the company’s accumulated cash would be an important input into the board’s capital allocation discussion.

Loop decarbonization business gains momentum

Elf said the Loop decarbonization business was “gaining momentum,” following previous announcements about Sumitomo’s investment. He also said Loop had won a contract “only yesterday” that was expected to keep two rigs deployed “for quite a long time,” and that another rig was expected to start with a client in the “not-too-distant future.”

Later on the call, Elf provided more detail on timing, saying the plan was for one rig to start work in April for a trial expected to last three to four months, and for two rigs to start around April that could run for “a couple of years.” He said the company had been notified of the award but had not yet signed the contract, and therefore could not identify the counterparty.

Vitara said additional Loop work would require additional capital, noting Loop currently owns one drill rig. He reminded listeners that Sumitomo’s late-August investment included commitments—subject to certain hurdles—to two additional tranches of approximately $1.5 million each, which could be drawn to fund additional rigs. He added that once Loop reaches sufficient scale, it could potentially secure its own debt facilities to fund further rigs, and that Mitchell Services and the other partner, Talisman, did not anticipate needing to provide direct financing in the short term.

Elf also said Loop’s model allows for significant planning and engineering work ahead of field drilling, providing lead time before committing to new rigs. He suggested that if Loop were to buy rigs, it would likely be after June 30 unless circumstances change. He also said there could be opportunities to monetize gas as a resource via commercial models or offtake arrangements, while emphasizing it would not involve Loop becoming an infrastructure developer.

About Mitchell Services (ASX:MSV)

Mitchell Services Limited, together with its subsidiaries, provides exploration and mine site drilling services to the exploration, mining, and energy industries in Australia. The company's drilling services include greenfield exploration, project feasibility, mine site exploration and resource definition, development, and production. It also provides coal exploration, mineral exploration, mine services, underground coal drilling, and drill and blast services. The company was formerly known as Drill Torque Limited and changed its name to Mitchell Services Limited in December 2013.