Boart Longyear Annual Report 2012

Dear Shareholders

I am proud to have been the Chairman of Boart Longyear during its 125th anniversary. The celebrations that went along with this event were a strong reminder of the drilling excellence and innovative technology that have made us the industry leader that we are today.

Regarding our results, 2015 was a year of two halves. During the first half we completed the recapitalization with Centerbridge Partners. This was a comprehensive restructure that included $225 million in new loan financing and approximately $127 million of new equity capital. As important as the new funds were, the restructure also included a substantial easing of our debt covenants as well as deferring principal and interest payments on the new debt until 2018. As a result, we emerged with a strong cash balance and good liquidity but retained high debt levels.

The most important outcome of the restructuring was it allowed us to move from worrying about financing to focusing on running the world’s leading drilling services and drilling products company. This increased focus on operations during the second half of the year has been highly successful, and we expect to realize further improvements throughout the coming year.

1. In August we began an initiative to improve our drilling performance. We are already seeing measurably improved meters (and revenue) per drill shift, less downtime and more satisfied customers.
2. Our current S, G & A charges are down $25 million per year from the run rate of one year ago.
3. We have increased our focus on the commercial side of our drilling services business, including the creation of a vice president position that reports directly to the CEO. We are having early wins through sharper bidding and more balanced contract structures.
4. We continued to liberate cash through tight controls on capital spending as well as reductions in inventory.

These changes improved cash from operations in the second half of the year to $30 million, $27 million better than the same period the prior year. The startling part of this change was that it occurred when our revenue declined by $97 million versus the equivalent period in the prior year. Effectively, we are doing very well at managing what we can control but the market for our business is very tough.

Since peaking at $21.5 billion in 2012, total non-ferrous mineral exploration expenditures have fallen steadily to approximately $10 billion in 2015. This drop in exploration spend has largely tracked the decline in mineral prices. Particularly in copper and iron ore, price declines accelerated in 2015.

Mineral prices and exploration spending have always been cyclical. At Boart Longyear, we cannot change our pricing environment. What we can do, however, is lead the industry in drilling productivity, safety, and our ability to complete the tough holes.

The other area where we can lead the industry is in innovation. The last major change in drilling technology was the introduction (by Boart Longyear) of wireline drilling in 1953. The value of core drilling has never been the hole; it is the information that the hole and drill core can provide. In this area we are seeing dramatic changes in surveying, geophysics, logging and assaying. Your company is committed to quickly leading the industry in developing site-based and down-the-hole tools that can produce results instantaneously and by our drill crews without the need for specialised technicians, additional people or off-site work. We started this process with the launch of the TruCore™ core orientation tool, and will be introducing TruShot^™, our down-the-hole survey tool, in 2016 with further new product introductions to follow.

I am also very pleased with the changes that have occurred in our senior management team. Jeff Olsen was promoted from CFO to CEO with effect from March 1, 2016. Jeff earned this promotion through the excellent work he did on the recapitalisation as well as the strong role he has had in improving drilling productivity and upgrading our commercial processes. I am delighted to have him by my side. Jeff’s team has been assisted by the addition of Mark Irwin as vice president of commercial for Drilling Services.

Bringing in new people does mean we have to say goodbye to old friends. Barbara Jeremiah retired as Chair in February and Richard O’Brian retired as CEO in September. I thank them both for their services and commitment to Boart Longyear.

At the Board level, we have also had rejuvenation. Bret Clayton, Jeff Long, Gretchen McClain and Deborah O’Toole all joined the Board during the year. They bring a mix of operating, financial, commercial and engineering talent and experience that benefits the Board and management and they will be excellent representatives for our shareholders.

Finally, I thank our employees. Our gains in productivity and our cost cutting exercises have meant that every one of them has had to work harder and more effectively. They stepped up and I am proud of every one of them.

Looking forward, I am optimistic that things are going to get better. My expectation is that we are going to continue to improve our speed and capability in drilling services and that our new products, especially in data services, are going to move us into new and more profitable areas.

We will eventually see a recovery in minerals exploration. My commitment to our shareholders is that when that happens we will be ready to capitalise on it with highly productive, innovative and technically capable drilling services and products.

Yours sincerely,

Marcus Randolph
Chairman