My DDH1 2022 AGM notes (in person)

Note most of my notes came from the half an hour chat I had with Murray Pollock.

·       Seemed to be very well run for a very capital-intensive business

·       Very accommodating board

·       They acknowledged they got the labour market wrong and didn’t pay up to retain talent at the start

·       Sy seemed to be a professional CEO and an excellent talker

·       Murray had lots of knowledge about the industry and had an evident passion for it

·       Murray was not a fan of the share Buyback and said he doesn’t agree with everything the board does and that they should pay that amount out in dividends, and the shareholders can then decide if the stock is cheap.

·       There was lots of talk about if today’s current environment is like 2012 and the late-stage mining boom. Still, management seemed confident it wasn’t and kept saying that these are the best balance sheets in mining they have seen (I don’t get the rationale behind this personally because if the iron ore price falls to $1, those balance sheets won’t be strong for much longer.)

·       Murray told me he thinks there isn’t enough high-quality nickel. He thinks humans will have to find lower-quality nickel with higher volumes. (I think he could have just told me this because DDH1 does a lot of drilling for nickel.) I later found out that he owns 1.52% of (CTM:ASX), Which is a speculative nickel mine.

·       When asked about valuation, Murray said that he thinks Drilling companies are valued on price to book and that most drilling companies drills are older and less productive and barely work. The company still obtains value for these items. He said that all of the DDH1 equipment is new

·       Murray said DDH1 pretty much runs Ranger and strike drilling because there are lots of Symphonies between the three business

·       Murray said Swick is a different kettle of fish because they do underground drilling, which is more challenging, takes longer and is more dangerous

·       Murray said the key to this business is making sure they incentivise the staff correctly and don’t step on their toes. He also alluded to the fact that incentivise the staff led to well run businesses, and where this evolves, the staff should have scope to run the business efficiently.

·       This reminded me strongly of when Buffet talks about buying a business, you have to let people keep painting their painting or in other words allow successful business people to keep doing what they do.  

·       Rigs and rods are not cheap, and if one breaks, it could take days to fix it, and usually you’re in a remote location where no one will be able to fix it straight away

·       Murray said safety is important from an ESG perspective but, more importantly, from a business perspective. If someone gets hurt, they must stop the operation and attend to the person’s needs. This can often cause equipment operations to cease for hours which means you are behind and paying people’s wages to be nurses instead of drillers.

·       I asked all directors if they’re tied to their 30-50% dividend policy, and they all said they would consider lowering their payout ratio if they were looking to fund an acquisition

In conclusion, DDH1 is extremely well run. If it continues to be run as well, as it is currently, then it is an undervalued business that pays a good dividend. The key, however, will be in the long term, about how the business is managed and ensuring incoming staff understand the business, as making the wrong decisions in this capital intensive business, could have dire consequences.