Selling pickaxes to miners

The fund has held a position in Imdex in the past, but due to its cyclical nature we exited at a time where the business was no longer looking attractive to us. The most recent result was messy as management finally exited the unprofitable Oil and Gas segment and made the profitable parts of the business available for sale. The minerals division has been performing well, with demand for their Reflex tools increasing each month. Imdex has invested in R&D through the cycle and is now well positioned to offer its customers cost saving tools for which they are able to charge a premium. This has allowed Imdex to maintain margins in this business.

There are signs of increased activity in the mining sector with improvements in key metrics including the number of active rigs and metres drilled as well as a spike in junior miners equity raisings. As a result the number of instruments on hire is the highest the company has seen for a number of years. Imdex’s cost base is largely fixed and therefore any further increase in instrument utilisation rates will generate strong cashflows and earnings.

The Balance Sheet is in a significantly better position post the recent capital raise which has allowed Imdex to exit an expensive debt funding arrangement. Management are looking to sell the remaining Oil & Gas assets and internally developed technology at some point in the future with the proceeds to be used to retire any outstanding debt. Imdex is now well positioned to benefit from further increased activity in the mining sector.

Contributed by Perpetual
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