Great announcement today for a new contract (to be proceeded) consisting of a one year contract valued at $13m. Current market cap is 44m. 

At 6x EBITDA multiple (industry average), full deployment of rigs (12/12) would equate to a market cap of 60m, which roughly translates to a SP of 15.5c. This is without factoring in new verticals via acquisitions (potentially higher multiples). 

Sharing my independent research notes on Vysarn Limited from September 2020 $VYS

As Vysarn continues its growth, it worth mentioning the moat here. Firstly, in a recent call with management, it is noted a brand new drill-rig along with necessary equipment for operational purposes can cost upwards of $5 million USD. A large amount of this is involved in the packaging, shipping and delivery process from overseas which could take a considerable time of time to arrive domestically. Secondly, Tier 1 and 2 mining operators require at least 2 or more drilling rigs to be available at any given time. This is because if one is broken, then the other one can be supplemented and operations can continue. The high cost of entry here should provide a strong insulant against competitors or any start-ups for Vysarn to operate sustainably. Any entrants will need to have a significant amount of capital, contractors and industry expertise to be able to compete.

Another interesting point noted during the management call was the WA Government’s Managed Aquifer Recharge Policy, which essentially states that water derived from the ground will need to ‘recharged’, which means be put back into the ground in the region. The recharge of aquifers provides 3  certain environmental benefits including the reduce for salt-water intrusion, maintaining wetlands in groundwater constraint areas and the storage of recharged water as supplies of drinking water. Mining companies must oblige to these regulatory guidelines. The effects of this cyclical activity of dewatering and recharging should mean that the business’s services are sustainable over the long run, as long as mining activities continues.

The Business Model Vysam currently operates in WA in the Pilbara region. The company owns 12 drill rigs and has over 55 employees mainly comprised of hydrogeologists, drilling assistants and contractors to service their tier 1 and 2 mining customers (Fortescue, Iluka Resources, AngloGold Ashanti and more). Customers generally enter into fixed term contracts with their subsidiary Pentium Hydro to access dewatering services and drill rigs machineries, signing agreements to solve their existing problems where a high level of ground water is a major impediment to their production, particularly iron ore.

The incentive here for mining operators to extract and dewater going deeper into the ground is of great value, as most of the Pilbara iron ore mines have a large amount of ore below the ground water level. In some reserves, 35% of iron ore is found above these water levels, while a further 65% can be found below. 

Vysarn Limited (VYS) is the holding company of Pentium Hydro Pty Ltd, a hydrogeological, dewatering service and equipment provider mainly targeting tier 1 and 2 mining operators based in the Pilbara region, Perth, WA.

On 29 August 2019, Vysarn completed the acquisition of the drilling assets from Ausdrill. These assets were originally part of Ausdrill’s hydrogeological drilling business known as ‘Connector Drilling’, comprising of 10 drill rigs and supporting ancillary equipment and inventory. The consideration paid was $16 million. After independent valuation, it was determined the net assets at acquisition date fair value was 23.6 million. It is interesting to note that back in 2011, Ausdrill acquired these assets for around 30 million, the reason for the sale was with it no longer fit within the new strategic direction of Ausdrill.