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Engage Communities, Reduce Environmental Impacts

Frederick Davidson - Energold Drilling
President and CEO

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Wed, 10/18/2017 - 20:24

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Though necessary, drilling is not traditionally seen as an environmentally friendly sector of the mining industry. Among the companies working to change this perception and ensure community engagement is Energold, which has partnered with the Canadian Development Corporation on a range of studies in Latin America to document social impact programs the drilling company implements in the region.

Although Energold drills in Africa with NGOs such as the World Bank and Oxfam, company President and CEO Frederick Davidson admits this kind of collaboration in Mexico has been somewhat limited. “It is difficult in Mexico because the government has financial issues, so its priorities are based on balancing budgets and building social infrastructure like hospitals,” he says. “Sadly, this means that drilling water wells in rural communities falls to the bottom of the agenda.” As a result, requests to work with the government on these kinds of heavily discounted drilling programs are often overlooked.

The philosophy of the company to minimize environmental impact also extends to its equipment. Davidson explains that the majority of Energold’s rigs are designed to be easily disassembled and reassembled onsite, with the heaviest component weighing only 185kg. “We can transport the pieces of equipment in a variety of innovative ways to the mine sites, including using manpower, mules, barges, helicopters, or small trucks,” he says. “Normally this eliminates the need to build roads so the disturbance to the environment is minimal.” While a traditional drill would require a 5-10km road for transportation, Energold rigs only require a 20m x 20m space for the drill pad.

The company also heavily incorporates local communities into its drilling programs, with the majority of employees being Mexican. “Ninety percent of exploration is unsuccessful so a company may only be in a community for one year before it leaves,” Davidson explains. “This is why we feel it is important to leave a lasting benefit. Even something as small as a hand pump to provide water to communities can make a significant impact and pave the road for future exploration companies in the country.”

However, one of the problems Davidson has encountered while working in communities is related to the Mining Trust Fund and metals prices that are recovering, but still relatively depressed compared to 2011 levels. Expectations, he says, are often very high and the low prices over the last few years are not always taken into consideration. “The revenues paid in tax go to the federal government and are not really repaid to local communities,” he says. “We try to contribute something but it is a tough situation because the industry has been losing money for years.”

The service industry was one of the worst hit when commodity prices dropped in 2012 because drilling is seen as an elective expenditure and is often the first to be cut from the budget. Davidson was happy when confidence in commodities, especially in minerals, was bolstered by the geopolitical instability of 2016.

This year, Davidson says, the company has experienced a partial recovery and in February 2017, five rigs were under contract. “The market seems to have bought into the idea that energy and commodities are starting to improve, which is only good news for us,” he says. Energold's 30 West Africa rigs are also drilling again and Davidson anticipates a market recovery, coming just in time to alleviate the stress service companies have been put under the last few years.

As a country that generates 40 percent of all Energold revenues – amounting to around US$25 million in 2016 – the company sees the promise in Mexico and wants to expand and diversify. “We are looking to take advantage of the opportunities brought about by the Energy Reform,” he says. “We know Mexico very well from the minerals side and we have the technical capabilities of a North American company so we are poised to enter the oil sector.”

This expansion will require an increased investment and Energold has completed a debt refinancing with New York-based investment advisory firm Extract Advisors. The US$20 million provided by the investor will be used to pay off a convertible debenture that is coming due and to clear out some debt, reducing borrowing costs by 3 percent.

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