Master Drilling : Highlights for the period

MASTER DRILLING GROUP LIMITED

Incorporated in the Republic of South Africa

Registration number: 2011/008265/06

JSE share code: MDI

ISIN: ZAE000171948 || LEI: 37890095B2AFC611E529

HIGHLIGHTS FOR THE PERIOD

• USD Revenue increased by 40.0% to USD171.8 million
• USD Earnings per share increased by 500.0% to 13.2 cents
• ZAR Earnings per share increased by 438,0% to 195,3 cents
• USD Headline earnings per share increased by 396.2% to 12.9 cents
• ZAR Headline earnings per share increased by 347,9% to 190,8 cents
• Stable order book of USD237.6 million
• Healthy pipeline of USD507.1 million
• Continued focus on working capital management
• Cash generated from operating activities amounted to USD32.5 million

COMMENTARY

About Master Drilling

Master Drilling was established in 1986 and listed on the Johannesburg Stock Exchange in 2012. The company delivers innovative drilling technologies and solutions and has built trusted partner relationships with blue-chip major and mid-tier clients in the mining, hydro-electric energy, civil engineering and construction sectors across various commodities worldwide for over 35 years. The Master Drilling business model of providing drilling solutions to clients through tailor-made designs coupled with a flexible support and logistics chain, makes it the preferred drilling partner throughout the lifecycle of projects from exploration to capital and production stages.

Commenting on the results for the year ended 31 December 2021, Danie Pretorius, CEO of Master Drilling, said:

"Master Drilling continued to show resilience in pursuing its growth path, notwithstanding another challenging year due to the Covid19 pandemic's ongoing effect on the global economy. We posted record revenue in USD up 40% from USD123.1 million last year to USD171.8 million, while cash from operating activities amounted to USD32.5 million. Cash generated was invested sensibly with the long-term growth plan in mind. We are satisfied with the Group's current financial position, as this will help us face the uncertainty of future trading conditions with confidence.

Technological innovation is a key priority for Master Drilling as we continue to support our clients to move down the cost curve, optimise their operations and increase safety.

Looking forward, the Company will look to leverage its global footprint as part of its drive to create value for all stakeholders. We are closely monitoring the civil engineering and construction industries and the rapid growth of urbanisation worldwide, which present opportunities for us to benefit from our existing footprint exposure. The ramp-up in electric vehicle production will increase the demand for copper and other minerals. We are already exposed to a number of these minerals,

and we continue to amplify our exposure to copper and nickel."

Financial Overview

Revenue increased 40% to USD171.8 million and operating profit grew 126% to USD27.8 million.

These represent record results, achieved despite difficult global market and operating conditions. Cost savings initiatives implemented to limit the impact of the Covid-19 pandemic assisted in this.

USD earnings per share (EPS) increased 500.0% to 13.2 cents, and ZAR EPS increased 438,0% to 195,3 cents. USD headline earnings per share (HEPS) increased 396.2% to 12.9 cents, and ZAR HEPS increased 349,9% to 190,8 cents.

Net cash generated from operations amounted to USD32.5 million. Cash resources continue to be managed carefully to cater for emerging opportunities that require specific design, planning and investment.

Master Drilling's total capital spend of USD19.4 million was applied as to 43% on expansion and 57% on sustaining the existing fleet.

Debt decreased from USD42.1 million to USD32.1 million and the gearing ratio, including cash, improved from 10.3% to 5.8% in the 2021 fiscal year.

Operational Overview

Master Drilling's operations globally experienced a profitable year, evidencing the benefits of significant capex investment over the past 10 years.

Safety and response to Covid-19

From the onset of the pandemic, Master Drilling put in place extensive safety measures and support structures for its staff, their families and the communities in which we operate.

Through the Crisis Committee, the Group is continuously evaluating risks and adjusting responses, working closely with health authorities and clients to ensure that all sites are adhering to all protocols and guidance.

We continue to support and comply with all requirements set by governments and clients to contain the spread of the virus. Whilst doing that, the Group has also ensured that it continues to deliver services in a safe and responsible manner. Thankfully, the Group experienced relatively low infection rates.

Early proactive measures ensured the Group maintained adequate headroom in terms of liquidity and implemented stringent measures across the business to manage costs, optimise working capital

and capital expenditure, and drive a stronger focus on cash flow generation during these uncertain times.

South America

Each business is up in revenue by more than 20% to 30%, compared to the prior period.

Brazil had one of the best years in the history of the Company with new clients coming on board, efficient utilisation of equipment, more deployment of larger equipment and shafts drilled increasing in size. We also maintained and renewed our long-term contract with one of our standing flagship clients. Growth in Brazil was mainly driven by expansion in our drilling scope with key

clients.

Chile's profitability has improved to more acceptable levels. The Master Drilling Besalco Consortium is performing well, and the Consortium experienced a profitable year, with capex spend improving significantly by Codelco. Technology development for our blind hole and raise bore fleet remains a priority for the Chile business.

In Peru we saw a strong bounce back in 2021 with our utilisation rate increasing. We also regained two clients lost in prior years. Improved profitability and a recovery in our performance were attributable to the rebase and restructure of the operations during 2020. Furthermore, we successfully completed the Ecuador project.

Central and North America

The market for raise boring and exploration drilling activities in North America is buoyant in 2022. Our management team there is already working on tenders for the current year, as well as on some long-term drilling contracts. In addition, our North American entity will be employed in the execution of a project in Saudi Arabia.

The Canadian contract is advancing well. During 2021 we were awarded a new contract and started mobilising equipment towards the end of last year. The remote locations present logistical challenges, however, we are well positioned to meet these. We have established a solid base in Canada and are well positioned to capitalise on increasing opportunities.

We continue with our efforts to secure contractors licenses across each state in the USA. Doing this will assist in driving our new business pipelines, focusing primarily on mining-rich Nevada but also Arizona.

Mexico bounced back during 2021 and we have seen machines deployed to projects in satellite countries such as Nicaragua. We were recently awarded several projects in Mexico on the back of stronger commodity prices. We see a strong orderbook for the 2022 year in the region. Cost drivers remain a focus point. Significant improvements have already been made with a positive effect on gross profit.

The local Master Drilling Mexico business in partnership with A&R Group, an associate of the Group, has delivered its first project in this region.

Africa

Africa remains the key area for the Group, and we are aggressively pursuing further opportunities in this market.

In Ghana, we currently have two machines working on two projects. However, it is expected that operations will be finalised by the end of the first quarter of 2022 as the contracts are about to commence reaming of the final ventilation hole.

The DRC, continued its satisfactory performance with our long-term project. We have a strong

working relationship with the client, with additional opportunities for work on the copper and cobalt mines. Further opportunities are in the pipeline for growth in this region.

Operations in Mali will see an uptick in revenue. Work on the ventilation shafts commenced end of 2021. Stable revenue is expected in Mali and the current client is regarded as a strategic partner of Master Drilling.

We are in the process of mobilizing equipment to Tanzania on a long-term contract. There are prospects of additional work and we believe this country will be an important contributor in the future.

Zimbabwe started with two contracts and the possibility exists of extending it for further additional scope on the back of the improvement in the platinum and palladium prices.

Although Zambia's operations were put into care and maintenance, we are mobilizing equipment to the country to start up a new project during 2022.

The	South African	operations have maintained steady growth. The XXXL machine at the strategic
project is almost	complete	with this record hole. The	2nd XXXL has started collaring on the vent shaft
and	is planned to	complete	the hole at the same depth	of 1 377m.

We remain committed to expansion into African countries meeting our investment criteria.

Scandinavia

Of note is that we changed the name of the European operations from Bergteamet (the operation we acquired) to Master Drilling Europe. In addition, we made changes to management with the appointment of a Swedish general manager in July 2021. We are seeing an uptick in work, and we were awarded our first project in Spain to shotcrete a 560m ventilation shaft. We expect further raise boring opportunities once we execute this project successfully. In general, we see much more movement in the market than just six months ago. Several enquiries are coming from infrastructure as well as hydro-electric sectors.

India

The Indian operations are performing well. The original contract expired during the year but after successful negotiations it was extended with a bigger scope of work for a further three years. Further discussions regarding expansion are continuing.

Other regions

Master Drilling is growing its presence in Australia and Central Asia, with a focus on raise boring.

The ramp-up in Australia required more investment than expected and, with new projects starting up, could require additional cash. However, this is a strategic investment into one of the biggest mining countries in the world and we will continue to pursue new opportunities. The focus is to get long-term contracts to serve as base for the operations there.

Other smaller projects in other regions of the world are currently being explored with the mindset of expanding the Group's already wide-spread presence.

Technology

Technological innovation is a key priority for Master Drilling to support clients to move down the cost curve, optimise their operations and increase safety.

Given the challenges for our clients in mining, we have identified three technology areas of focus to develop a growth strategy and diversify the business: shaft sinking, tunnelling and non-explosive mining.

In order to spread our risk and lighten funding requirements, we entered into a joint venture (Master Sinkers) with the Industrial Development Corporation (IDC) with a view to pursuing a promising business case. Master Sinkers now have a signed letter of intent with a client to blind bore a ventilation shaft, and we are conducting investigative work on scoping and have started on the detailed design and procurement of resources for the shafts. The project is progressing well and by H2 2022 we hope to commission the service and start executing on the project. We are positioning ourselves as a specialised mining contractor, as opposed to a mainstream one.

We secured a contract for an underground exploration decline project in South Africa. We are

looking to start tunnelling in the first quarter of 2022. We have also initiated a study on additional applications and projects. The study is associated with technologies and various value propositions which are substantially diversified including underground mining access and non-explosive mining methods to address the needs of clients.

Non-explosives mining is still an uncharted area, and we are looking to provide solutions for clients that are not bound by the requirement of explosives approvals, while at the same time shielding personnel against hazards by offering the flexibility to operate remotely. We have engaged with four different clients where we are able to develop these technologies and provide bespoke solutions

that cater to their specific needs. By doing so, we hope to build relationships with these clients in a phased approach thereby ensuring gradual progress and minimising large exposure or risk. All these projects are progressing well. These technologies all relate to providing a safer, higher productivity, cost-competitive and efficient solution.

Plant and equipment

The fleet consists of 150 raise bore and 58 slim drilling rigs. The total raise boring fleet's utilisation rate was around 70%. The rate of new rigs coming on board will settle with a focus on larger units, which typically generate higher income.

Skills development

Safety across the Group is of paramount importance and one of our focus areas, with a goal of zero harm. Due to the ramp up in operations and the increase in manhours worked, we have seen a slight increase in our "all injury frequency rate". We are addressing this through several initiatives.

The foundation of our strategy is the people who make it happen; our success depends on the skills and expertise that support our goals. Our people have specialized knowledge aligned with global best practice, which is then applied to ensure that sound, sustainable use is made of our assets, enhancing growth, productivity, and profitability.

In 2021, the Group continued with the Human Capital project that focused on reviewing the current skills requirements and ensuring that these align with its future growth and expansion vision. Several