Perth company finds success by tapping into the water table

23 March 2021

If you were looking for proof that water really is the world’s most precious commodity, Perth-based ASX listed hydrogeological drilling company, Vysarn Limited has it in spades.

Vysarn, a holding company of Pentium Hydro Pty Ltd, specialises in the drilling and establishment of production bores that enable the pumping of ground water.

The Company drills holes in the ground that will enable mining companies to “de-water” areas where high water table issues prevent mining companies from accessing ore bodies and efficiently mining them.

Vysarn (ASX: VYS) is considered the market insiders “one-to-watch” and it seems to have struck gold (figuratively) in terms of a business model that is simple, salient and like water, essential.

Buy 10 rigs and start a business

Managing Director and CEO James Clement explains: “Early last year, the board of Vysarn was actively looking for quality acquisition opportunities and was subsequently presented with the chance to purchase 10 specialised water well drill rigs, supporting ancillary equipment and inventory from Ausdrill Northwest Pty Ltd a subsidiary of Perenti Ltd (previously Ausdrill).

“The acquisition of the assets enabled the Company to become a specialised service provider in the hydrogeological drilling space and has allowed a particular specialisation in dual rotary drilling for monitoring, production and re-injection bores for Tier 1 and Tier 2 miners.

“Since the relisting of the Company, demand for our assets and services has been strong and management is anticipating further growth in the new financial year.”

James explains that the dual rotary drilling rig is a specialised drill rig which is in high demand due to its ability to drill a hole and advance steel casing simultaneously. Dual rotary drill rigs are particularly effective in unconsolidated formations where hole stability can be compromised.

“We currently have seven rigs fully utilised. By the end of the current financial year, management aims to have the majority of the rig fleet deployed which will require the company to target and win a number of multi rig, multi-year contracts.

The “drowning” Pilbara

James cites the Pilbara, in particular, as an area with significant ground water issues. This is despite the land’s dry, desert surface and parched appearance.

“The reality is, when you look underneath the Pilbara, it has an enormous network of artesian aquifers, which is basically a lot of groundwater which will require extraction prior to being able to mine for varying commodities.”

The Pilbara region accounted for ~450 gigalitres (GL) of extracted water last year.

James says this is estimated to increase to ~578GL by 2024 through additional dewatering as iron ores are mined further below the water table.

Barriers to entry

James says despite the high demand for this highly specialised industry, there are some barriers to entry.“One of the main barriers to entry is the high initial capital costs needed to start from scratch in purchasing rigs and the required supporting suite of ancillary equipment.”

He says while new rig procurement is possible, the cost and lead times are prohibitive. Vysarn has continued to look for high quality second-hand assets and has recently purchased two dual rotary rigs in New Zealand which are expected to arrive in Australia within the September quarter.

The board comprises James as MD/CEO, Chairman, Peter Hutchinson, Executive Director, Sheldon Burt, and Non-Executive Director, Chris Brophy. All come from diversified backgrounds in industrial investment, mining, drilling and business management.

James says the board has moved quickly to establish Vysarn as a premier service provider to the mining industry with a team of 55 people and ambitious plans to rapidly expand.

As stated in a recent operational update released on the ASX, the Company has experienced strong material growth in its first year of operation with full-year EBITDA to 30 June 2020 expected to be approximately $5.9 million.

The company expects to be ISO accredited by the end of calendar year 2020, has unaudited net assets of circa A$22 million and cash reserves of A$9.7 million as at 30 June 2020. The share price remains steady at around $0.05 giving the company a market capitalisation of approximately A$20 million.

James is quick to make the point that Vysarn’s focus is currently less on the share price and more on sustainable earnings and growth.

“The board and management are focused on looking after the bottom line. The share price should then look after itself.”

The hydrogeological outlook

“The entire hydrogeological sector is looking promising for the foreseeable future and there’s strong demand for our current services. Outside of the drilling there is a case for developing the business vertically into a whole-of-life water service provider. The board is considering a number of opportunities both organically and via acquisition.”

“This may include services such as test pumping, pipelines and borefield management. There appears to be very few service providers, if any, providing an end-to-end service in water.”

The time is right to start telling the Vysarn story, he says.

“We have a specialised, in-demand business, quality assets, safe and maintainable earnings and a competent management team. It’s time to start talking about our early stage credentials now that we have 6 to 12 months of solid trading under our belt.”