Major Drilling Reports Record Earnings, Announces Dividend



    MONCTON, NB, Sept. 9 /CNW/ - Major Drilling Group International Inc.
(TSX: MDI) today reported results for its first quarter of fiscal year 2009
ended July 31, 2008.

    
    Highlights

    -------------------------------------------------------------------------
    C$ millions                    Q1-09       Q1-08   12 months   12 months
    (except earnings               -----       -----   ---------   ---------
     per share)                                          to July     to July
                                                         -------     -------
                                                        31, 2008    31, 2007
                                                        --------    --------
    -------------------------------------------------------------------------
    Revenue                       $178.2      $143.4      $625.1      $464.4
    -------------------------------------------------------------------------
    Gross profit
      As percentage of sales        63.3        47.6       211.1       150.2
                                    35.5%       33.2%       33.8%       32.3%
    -------------------------------------------------------------------------
    Net earnings from continuing
     operations                     26.3        18.8        82.1        55.3
    -------------------------------------------------------------------------
    Earnings per share from
     continuing operations          1.11        0.80        3.47        2.38
    -------------------------------------------------------------------------
    Cash flow from continuing
     operations ((*))               36.5        26.2       119.4        86.0
    -------------------------------------------------------------------------
    ((*)) before changes in working capital


    - Major Drilling posted the highest quarterly revenue in its history with
      revenue of $178.2 million, up 24.3 percent from the $143.4 million
      recorded for the same quarter last year.

    - Gross margin percentage for the quarter was 35.5 percent, up from
      33.2 percent for the corresponding period last year.

    - Earnings from continuing operations were up 40 percent to $26.3 million
      or $1.11 per share for the quarter, from the $18.8 million or $0.80 per
      share for the prior year quarter.  This represents the highest
      quarterly earnings from continuing operations in the Company's history.

    - Net earnings for the quarter were $26.3 million or $1.11 per share
      compared to $18.9 million or $0.81 per share for the prior year
      quarter.

    - Cash flow from continuing operations before changes in working capital
      was $36.5 million for the quarter, up 39.3 percent from the
      $26.2 million for the same period last year.

    - The Company institutes a semi-annual dividend of $0.20 per share.

    - Subsequent to quarter end, the Company announced the acquisition of
      Forage Benoit in Québec for $21 million.
    


    "The Company continues to show good progress in delivering strong top and
bottom line performance", said Francis McGuire, President and CEO of Major
Drilling. "In this quarter, the Company once again achieved record revenue of
$178.2 million and record profits from continuing operations of $26.3 million,
with all regions contributing to this growth."
    "Overall margins showed very good improvement year-over-year despite
continuing pressure on labour costs and African margins lagging behind other
regions. Investment in training, crucial to our continuing growth, continued
to weigh on margin growth. Availability of crews, especially in Canada, the
U.S. and Australia remains our number one challenge," said Mr. McGuire.
    "The fundamental long-term drivers of our business remain unchanged.
Worldwide supply for most metals is expected to tighten in the medium to
long-term due to the lack of significant discoveries. Continued growth
throughout Asia, Eastern Europe and Africa and the reconstruction efforts
after the earthquakes in China, which is expected to cost $147 billion, should
continue to drive demand. It takes many years to bring new capacity into
production and a great deal of drilling is required to do so."
    "In the short-term, we expect to see some changes in the pattern of
drilling demand. Senior mining houses, which represent some 70 percent of our
business, are in the process of expanding their drilling programs. We would
also expect them to increase their investments in joint ventures with junior
mining companies as we go forward. Over the last month, we have seen a small
number of junior mining companies reduce their drilling programs due to lack
of funding but these have been limited to date. Gold, copper and uranium
customers are expected to continue to expand their drilling programs. These
commodities combined with our energy drilling currently account for some
80 percent of our revenue. Zinc, and to a lesser extent nickel projects are
expected to be less active, at least in the short-term, due to the current
economic conditions relating to these metals. These changes in demand patterns
may require some adjustments in our operations over the coming months but the
fundamental demand outlook remains strong."
    "Despite some potential short-term volatility, the Company continues to
invest in its capital expenditure program. This quarter, we spent $19 million
to ensure continued growth. Through these investments, we added 26 rigs during
the quarter. We are maintaining our capital expenditure plans, which should
increase our fleet by a net 60 drills", said Mr. McGuire. "During the quarter,
we retired 13 older, inefficient rigs that had very low utilization factors."
    "As announced on August 1st, 2008, we are very pleased to welcome Forage
Benoit and its employees into the Major Drilling group. This acquisition
provides us with additional assets, experienced drillers and existing
contracts in Québec. Through this purchase, we acquired 19 drill rigs, the
majority of which have deep hole capacity and are fitted with rod handlers,
which fits with the Company's strategic focus on specialized drilling. We
anticipate that the Benoit operations will produce additional annual revenue
of approximately $26 million," stated Mr. McGuire. "The Company continues to
seek acquisitions of this nature, which either complement our specialized
drilling strategy or expand our geographic footprint."
    "We are confident in the long-term outlook for specialized drilling, and
confident in the Company's ability to generate strong future cash flows. Cash
flow from continuing operations before changes in working capital in the
quarter continued to strengthen, increasing 39 percent to $36.5 million
compared to the $26.2 million recorded in the prior year quarter," noted
Mr. McGuire. "We expect future cash flows to be sufficient to sustain our
growth plans and therefore we believe that it is appropriate to institute a
semi-annual dividend. The first dividend of $0.20 per common share will be
paid on October 31, 2008 to shareholders of record as of October 10, 2008 and
is designated as an "eligible dividend" for Canadian tax purposes."

    First quarter ended July 31, 2008

    Total revenue from continuing operations for the quarter was
$178.2 million, up $34.8 million or 24.3 percent from the $143.4 million
recorded in the same quarter last year.
    Revenue for the quarter from Canada-U.S. drilling operations increased by
12.8 percent to $55.6 million compared to $49.3 million for the same period
last year. Additional equipment and improved pricing contributed to this
growth.
    South and Central American revenue was at $55.3 million for the quarter,
up 30.1 percent from the $42.5 million posted for the prior year quarter. This
strong quarterly growth was driven primarily by strong demand in Mexico and
Chile (including the Harris acquisition) partially offset by revenue reduction
in Venezuela and Ecuador, which were impacted by political decisions.
    Australian, Asian and African operations reported revenue of
$67.3 million, up some 30.4 percent from the $51.6 million reported in the
same period last year. Australia, Mongolia and Africa accounted for most of
the growth for this region.
    The overall gross margin percentage for the quarter was 35.5 percent, up
from 33.2 percent for the same period last year. Gross margin percentages
improved year-over-year in all regions due to generally improved pricing,
better equipment and improved overall productivity. In Africa, margins were
still impacted by operational issues but improved from the fourth quarter of
2008. The Company has made several management and operational changes in the
region and expects results to improve in the coming quarters.
    General and administrative costs were $13.4 million for the quarter,
compared to $10.0 million in the same period last year. The increase is
primarily due to increased staffing levels and infrastructure costs to
accommodate growth. The Company also added significant resources in safety and
training, particularly in the second half of last year. In addition, the
Company has started a new research and development program with the goal of
finding new ways to enhance productivity and safety.
    Other expenses for the quarter increased to $3.8 million, up from
$3.5 million in the prior year quarter, due primarily to higher incentive
compensation expenses given the Company's improved profitability in the
current year, and write-off of disposed assets.
    Foreign exchange loss in the quarter was $0.2 million compared to
$1.0 million in the prior year quarter.
    Short-term interest revenue was $0.1 million for the quarter compared to
$0.3 million for the same quarter last year, while interest expense on
long-term debt was $0.6 million compared to $0.7 million for the same quarter
last year.
    Amortization expense was $7.6 million for the quarter compared to
$6.1 million for the same quarter last year, as a result of the increased
direct investment in equipment.
    The provision for income tax was $11.5 million in the quarter compared to
$7.9 million for the prior year quarter, reflecting the increased
profitability of the operations.
    Net earnings from continuing operations for the quarter were
$26.3 million or $1.11 per share ($1.10 per share on a diluted basis) compared
to $18.8 million or $0.80 per share ($0.79 per share on a diluted basis) in
the prior year period.
    Resulting net earnings were $26.3 million or $1.11 per share ($1.10 per
share on a diluted basis) compared to $18.9 million or $0.81 per share
($0.80 per share on a diluted basis) for the same period last year.
    On a rolling 12-month basis to July 31, 2008, revenue from continuing
operations increased by 34.6 percent to $625.1 million compared to
$464.4 million for the prior year period. Earnings from continuing operations,
on the same rolling 12-month basis, increased by 48.5 percent to $82.1 million
from $55.3 million for the corresponding period last year.
    The Annual General Meeting of the shareholders of Major Drilling Group
International Inc. will be held at The TSX Broadcast Centre, TSX Gallery, The
Exchange Tower, 130 King St. W., Toronto, Ontario, today, September 9, 2008 at
10:00 am EDT.
    Some of the statements contained in this press release may be
forward-looking statements, such as estimates and statements that describe or
are with respect to the future price of minerals and metals, the Company's
future plans, objectives or goals, including words to the effect that the
Company or management expects a stated condition to exist or occur. Since
forward-looking statements address future events and conditions, by their very
nature, they involve inherent risks and uncertainties. Actual results in each
case could differ materially from those currently anticipated in such
statements by reason of factors such as, but not limited to, the factors set
out in the discussion starting on pages 21 to 24 of the 2008 Annual Report
entitled "General Risks and Uncertainties", as filed with the Canadian
Securities Commission (available on SEDAR at www.sedar.com). All such factors
should be considered carefully when making decisions with respect to the
Company. The Company does not undertake to update any forward-looking
statements, including those statements that are incorporated by reference
herein, whether written or oral, that may be made from time to time by or on
its behalf, except in accordance with applicable securities laws.
    Based in Moncton, New Brunswick, Major Drilling Group International Inc.
is one of the world's largest metals and minerals contract drilling service
companies. To support its customers' mining operations and mineral exploration
activities, Major Drilling maintains operations in Canada, the United States,
South and Central America, Australia, Indonesia, Mongolia, Armenia, and
Africa.

    Financial statements are attached.

    Major Drilling will provide a simultaneous webcast of its quarterly
conference call on Tuesday, September 9, 2008 at 8:30 AM (EDT). To access the
webcast please go to the Major Drilling website at www.majordrilling.com and
click the attached link, or go directly to the CNW Group website at
www.newswire.ca for directions. Participants will require Windows MediaPlayer,
which can be downloaded prior to accessing the call. Please note that this is
listen only mode.

    
                   Major Drilling Group International Inc.
                    Consolidated Statements of Operations
    (in thousands of Canadian dollars, except per share information)
                                 (unaudited)

                                                        Three months ended
                                                              July 31

                                                          2008          2007
                                                     ----------    ----------

    TOTAL REVENUE                                    $ 178,215     $ 143,420

    DIRECT COSTS                                       114,911        95,776

                                                     ----------    ----------
    GROSS PROFIT                                        63,304        47,644
                                                     ----------    ----------
    OPERATING EXPENSES
     General and administrative                         13,378        10,026
     Other expenses                                      3,825         3,527
     Foreign exchange loss                                 167           979
     Interest revenue                                      (75)         (348)
     Interest expense on long-term debt                    601           724
    AMORTIZATION                                         7,596         6,059
                                                     ----------    ----------
                                                        25,492        20,967
                                                     ----------    ----------
    EARNINGS BEFORE INCOME TAX AND
     DISCONTINUED OPERATIONS                            37,812        26,677
                                                     ----------    ----------
    INCOME TAX - PROVISION
      Current                                           10,108         7,570
      Future                                             1,374           283
                                                     ----------    ----------
                                                        11,482         7,853
                                                     ----------    ----------

    EARNINGS FROM CONTINUING OPERATIONS                 26,330        18,824

    GAIN FROM DISCONTINUED OPERATIONS                        -           111
                                                     ----------    ----------

    NET EARNINGS                                     $  26,330     $  18,935
                                                     ----------    ----------
                                                     ----------    ----------


    EARNINGS PER SHARE FROM CONTINUING OPERATIONS
    ---------------------------------------------
    Basic(*)                                         $    1.11     $    0.80
                                                     ----------    ----------
                                                     ----------    ----------
    Diluted(*)(*)                                    $    1.10     $    0.79
                                                     ----------    ----------
                                                     ----------    ----------

    EARNINGS PER SHARE
    ------------------
    Basic(*)                                         $    1.11     $    0.81
                                                     ----------    ----------
                                                     ----------    ----------
    Diluted(*)(*)                                    $    1.10     $    0.80
                                                     ----------    ----------
                                                     ----------    ----------

    (*)Based on 23,707,043 and 23,433,503 daily weighted average shares
    outstanding for the fiscal year to date 2009 and 2008, respectively.
    The total number of shares outstanding on July 31, 2008 was
    23,707,173.

    (*)(*)Based on 24,026,276 and 23,806,479 daily weighted average shares
    outstanding for the fiscal year to date 2009 and 2008, respectively.


                   Major Drilling Group International Inc.
              Consolidated Statements of Comprehensive Earnings
                     (in thousands of Canadian dollars)
                                 (unaudited)

                                                        Three months ended
                                                              July 31

                                                          2008          2007
                                                     ----------    ----------

    NET EARNINGS                                     $  26,330     $  18,935

    OTHER COMPREHENSIVE EARNINGS (LOSS)
      Unrealized gains (losses) on
       translating financial statements
       of self-sustaining foreign operations             2,900        (7,131)
                                                     ----------    ----------
    COMPREHENSIVE EARNINGS                           $  29,230     $  11,804
                                                     ----------    ----------
                                                     ----------    ----------



                 Consolidated Statements of Retained Earnings
                     (in thousands of Canadian dollars)
                                 (unaudited)

                                                        Three months ended
                                                              July 31

                                                          2008          2007
                                                     ----------    ----------

    RETAINED EARNINGS, BEGINNING OF THE PERIOD       $ 182,533     $ 108,438

    Net earnings                                        26,330        18,935
                                                     ----------    ----------

    RETAINED EARNINGS, END OF THE PERIOD             $ 208,863     $ 127,373
                                                     ----------    ----------
                                                     ----------    ----------


                 Consolidated Statements of Accumulated Other
                             Comprehensive Loss
                     (in thousands of Canadian dollars)
                                 (unaudited)

                                                        Three months ended
                                                              July 31

                                                          2008          2007
                                                     ----------    ----------

    ACCUMULATED OTHER COMPREHENSIVE LOSS,
     BEGINNING OF THE PERIOD                         $ (44,552)    $ (30,383)

    Unrealized gains (losses)
     on translating financial statements
     of self-sustaining foreign operations               2,900        (7,131)
                                                     ----------    ----------

    ACCUMULATED OTHER COMPREHENSIVE LOSS,
     END OF THE PERIOD                               $ (41,652)    $ (37,514)
                                                     ----------    ----------
                                                     ----------    ----------


                   Major Drilling Group International Inc.
                    Consolidated Statements of Cash Flows
                     (in thousands of Canadian dollars)
                                 (unaudited)

                                                        Three months ended
                                                              July 31

                                                          2008          2007
                                                     ----------    ----------

    OPERATING ACTIVITIES
    Earnings from continuing operations              $  26,330     $  18,824
    Operating items not involving cash
      Amortization                                       7,596         6,059
      Loss on disposal of capital assets                   812           104
      Future income tax                                  1,374           283
      Stock-based compensation                             398           921
                                                     ----------    ----------
                                                        36,510        26,191
    Changes in non-cash operating working
     capital items                                     (18,401)      (10,337)
                                                     ----------    ----------

    Cash flow from operating activities                 18,109        15,854
                                                     ----------    ----------
    FINANCING ACTIVITIES
    Repayment of long-term debt                         (3,042)       (5,159)
    Repayment of demand loans                             (583)            -
    Issuance of common shares                                7         1,863
    Discontinued operations                                  -        (3,096)
                                                     ----------    ----------
    Cash flow used in financing activities              (3,618)       (6,392)
                                                     ----------    ----------

    INVESTING ACTIVITIES
    Acquisition of capital assets, net of
     direct financing                                  (18,891)      (14,531)
    Proceeds from disposal of capital assets               472           720
                                                     ----------    ----------
    Cash flow used in investing activities             (18,419)      (13,811)
                                                     ----------    ----------

    OTHER ACTIVITIES
    Foreign exchange translation adjustment                  4           (92)
                                                     ----------    ----------

    DECREASE IN CASH                                    (3,924)       (4,441)

    CASH POSITION, BEGINNING OF THE PERIOD              20,695        25,022
                                                     ----------    ----------

    CASH POSITION, END OF THE PERIOD                 $  16,771     $  20,581
                                                     ----------    ----------
                                                     ----------    ----------


                   Major Drilling Group International Inc.
                         Consolidated Balance Sheets
                   As at July 31, 2008 and April 30, 2008
                     (in thousands of Canadian dollars)
                                 (unaudited)


    ASSETS                                                July         April
                                                          2008          2008
                                                     ----------    ----------

    CURRENT ASSETS
      Cash                                           $  16,771     $  20,695
      Accounts receivable                              104,018       103,555
      Income tax receivable                              4,206         3,218
      Inventories (note 6)                              77,987        75,094
      Prepaid expenses                                  10,859         6,280
      Future income tax assets                           2,349         3,948
                                                     ----------    ----------
                                                       216,190       212,790

    CAPITAL ASSETS                                     210,918       199,007

    FUTURE INCOME TAX ASSETS                             1,414           334

    GOODWILL                                            15,316        14,837
                                                     ----------    ----------

                                                     $ 443,838     $ 426,968
                                                     ----------    ----------
                                                     ----------    ----------
    LIABILITIES

    CURRENT LIABILITIES
      Demand loan                                    $   1,596     $   2,179
      Accounts payable and accrued charges              63,258        73,870
      Income tax payable                                 9,985        10,541
      Current portion of long-term debt                 11,998        11,798
      Future income tax liabilities                      1,106         1,177
      Liabilities of discontinued operations (note 7)    1,953         2,028
                                                     ----------    ----------
                                                        89,896       101,593

    LONG-TERM DEBT                                      25,379        28,317

    FUTURE INCOME TAX LIABILITIES                       11,022         9,152

                                                     ----------    ----------
                                                       126,297       139,062
                                                     ----------    ----------

     SHAREHOLDERS' EQUITY
      Share capital                                    142,147       142,140
      Contributed surplus                                8,183         7,785
      Retained earnings                                208,863       182,533
      Accumulated other comprehensive loss             (41,652)      (44,552)
                                                     ----------    ----------
                                                       317,541       287,906
                                                     ----------    ----------
                                                     $ 443,838     $ 426,968
                                                     ----------    ----------
                                                     ----------    ----------
    


    MAJOR DRILLING GROUP INTERNATIONAL INC.
    NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
    FOR THE PERIODS ENDED JULY 31, 2008 AND 2007
    (in thousands of Canadian dollars)


    1. BASIS OF PRESENTATION
    ---------------------

    These interim consolidated financial statements were prepared using
accounting policies and methods consistent with those used in the preparation
of the Company's audited consolidated financial statements for the year ended
April 30, 2008, except for the adoption of new accounting policies as
disclosed in Note 2 below. These interim consolidated financial statements
conform in all respects to the requirements of Canadian generally accepted
accounting principles for annual financial statements, with the exception of
certain note disclosures. As a result, these interim consolidated financial
statements should be read in conjunction with the Company's audited
consolidated financial statements and notes for the year ended April 30, 2008
contained in the Company's 2008 annual report.

    2. CHANGES IN ACCOUNTING POLICIES
    ------------------------------

    The Company adopted the Canadian Institute of Chartered Accountants
("CICA") Handbook Section 3031, Inventories, replacing Section 3030,
Inventories, Section 3862, Financial Instruments - Disclosures, Section 3863,
Financial Instruments - Presentation, and Section 1535, Capital Disclosures,
on May 1, 2008.
    Section 3031, Inventories, provides more guidance on the determination of
the cost of inventory and the subsequent recognition of inventory as an
expense, as well as requiring additional associated disclosures. The new
standard also allows for the reversal of any write-down's previously
recognized.  The adoption of this policy had no material effect on the
Company's consolidated financial statements. (see Note 6 - Inventory)
    Section 3862 on financial instruments disclosures, requires the
disclosure of information about: a) the significance of financial instruments
for the entity's financial position and performance and b) the nature and
extent of risks arising from financial instruments to which the entity is
exposed during the period and at the balance sheet date, and how the entity
manages those risks. Section 3863 on the presentation of financial instruments
is unchanged from the presentation requirements included in Section 3861.
Section 1535 on capital disclosures requires the disclosure of information
about an entity's objectives, policies and processes for managing capital. As
the standards relate only to disclosure requirements, they have had no effect
on financial results. (see Note 8 - Capital Management and Note 9 - Financial
Instruments)

    3. FUTURE ACCOUNTING CHANGES
    -------------------------

    Goodwill and intangible assets

    In February 2008, the CICA issued Section 3064, Goodwill and Intangible
Assets, replacing Section 3062, Goodwill and Other Intangible Assets and
Section 3450, Research and Development Costs. Various changes have been made
to other sections of the CICA Handbook for consistency purposes. The new
Section will be applicable to financial statements relating to fiscal years
beginning on or after October 1, 2008. Accordingly, the Company will adopt the
new standards for its fiscal year beginning May 1, 2009. Section 3064
establishes standards for the recognition, measurement, presentation and
disclosure of goodwill subsequent to its initial recognition and of intangible
assets by profit-oriented enterprises. Standards concerning goodwill are
unchanged from the standards included in the previous Section 3062. The
Company is currently evaluating the impact of the adoption of this new Section
on its consolidated financial statements.

    IFRS

    In February 2008, the Accounting Standards Board ("AcSB") confirmed that
the use of IFRS will be required in 2011 for publically accountable
enterprises in Canada. In April 2008, the AcSB issued an IFRS Omnibus Exposure
draft proposing that publically accountable enterprises be required to apply
IFRS, in full and without modification, on January 1, 2011 for companies with
a calendar year end, therefore the transition date for the Company is May 1,
2011. This will require the restatement, for comparative purposes, of amounts
reported by the Company for its year ended April 30, 2011, and of the opening
balance sheet as at May 1, 2010. The Company is currently assessing the effect
that this transition will have on its operations and financial reporting.

    4. SEASONALITY OF OPERATIONS
    -------------------------

    The Company's operations tended to exhibit a seasonal pattern whereby its
fourth quarter (February to April) was it's strongest. With the exception of
the third quarter, the Company now exhibits comparatively less seasonality in
quarterly revenue than in the past. The third quarter (November to January) is
normally the Company's weakest quarter due to the shutdown of mining and
exploration activities, often for extended periods, over the holiday season,
particularly in South and Central America.

    5. BUSINESS ACQUISITIONS
    ---------------------

    Effective September 1, 2007 the Company acquired the exploration drilling
company Harris y Cia Ltda. ("Harris") in Chile. Through this purchase, Major
Drilling acquired 11 drill rigs, support equipment, inventory, an office and
repair facilities. As part of this acquisition, the Company also acquired
Harris' existing contracts and retained key management personnel, as well as
the other employees, including a number of experienced drillers. The purchase
price for the transaction was US$23,934 (C$25,203), including customary
working capital adjustments, financed with cash.

    
    Net assets acquired at fair market value at acquisition are as follows:

    Assets & liabilities acquired
    Cash                                                           $   1,149
    Accounts receivable                                                  631
    Inventories                                                        1,060
    Capital assets                                                     9,621
    Future income tax assets                                           2,328
    Goodwill                                                          11,570
    Accounts payable                                                  (1,156)
                                                                   ----------
    Net assets                                                     $  25,203
                                                                   ----------
                                                                   ----------
    Consideration
    Cash                                                           $  25,203
                                                                   ----------
                                                                   ----------

    Effective October 25, 2007 the Company acquired the assets of the
exploration drilling company Paragon del Ecuador S.A. ("Paragon") in Ecuador.
Through this purchase, Major Drilling acquired 7 drill rigs, support equipment
and inventory, existing contracts and personnel. The purchase price for the
transaction was US$5,999 (C$5,805), subject to various holdbacks, financed by
cash and debt.
    Net assets acquired at fair market value at acquisition are as follows:

    Assets acquired
    Inventories                                                    $     586
    Capital assets                                                     2,023
    Goodwill                                                           3,196
                                                                   ----------
    Net assets                                                     $   5,805
                                                                   ----------
                                                                   ----------
    Consideration
    Cash                                                           $   3,871
    Long-term debt                                                     1,934
                                                                   ----------
                                                                   $   5,805
                                                                   ----------
                                                                   ----------
    

    6. INVENTORY
    ---------

    The cost of inventory recognized as an expense and included in cost of
goods sold for the three months ended July 31, 2008 was $37,450. During the
period, there were no significant write-downs of inventory as a result of net
realizable value being lower than cost and no inventory write-downs recognized
in previous years were reversed.
    The Company's credit facility related to operations is in part secured by
a general assignment of the Company's inventory.

    7. DISCONTINUED OPERATIONS
    -----------------------

    On June 7, 2006, the Company sold its manufacturing subsidiary ("UDR")
for A$46.8 million (C$39.2 million). The consideration for the sale was
A$43.3 million (C$36.2 million) cash and a holdback paid in December 2007 in
the amount of A$3.5 million (C$3.2 million). The net gain before income taxes
was C$22.2 million. UDR previously constituted the Company's entire
manufacturing segment. The Company made the strategic decision to focus its
corporate resources on the mineral drilling business, where it competes as one
of the world's largest contract drillers.
    The gain from discontinued operations was nil for the quarter (2008 -
$111). Current liabilities from discontinued operations consists of income tax
payable for $1,953 as at July 31, 2008 ($2,028 as at April 30, 2008).

    8. CAPITAL MANAGEMENT
    ---------------------

    The Company includes shareholders' equity (excluding accumulated other
comprehensive loss), long-term borrowings and demand loan net of cash in the
definition of capital.
    Total managed capital was as follows:

    
                                                          July         April
                                                          2008          2008
                                                     ----------    ----------
    Demand loan                                      $   1,596     $   2,179
    Long-term debt                                      37,377        40,115
    Share capital                                      142,147       142,140
    Contributed surplus                                  8,183         7,785
    Retained earnings                                  208,863       182,533
    Cash                                               (16,771)      (20,695)
                                                     ----------    ----------
                                                     $ 381,395     $ 354,057
                                                     ----------    ----------
                                                     ----------    ----------
    

    The Company's objective when managing its capital structure is to
maintain financial flexibility in order to: i) preserve access to capital
markets; ii) meet financial obligations and iii) finance internally generated
growth and potential new acquisitions. To manage its capital structure, the
Company may adjust spending, issue new shares, issue new debt or repay
existing debt.
    Under the terms of certain of the Company's debt agreements, the Company
must satisfy certain financial covenants. Such agreements also limit, among
other things, the Company's ability to incur additional indebtedness, create
liens, engage in mergers or acquisitions and make dividend and other payments.
During the period, the Company was, and continues to be, in compliance with
all covenants and other conditions imposed by its debt agreements.
    In order to facilitate the management of its capital requirements, the
Company prepares annual budgets that are updated as necessary, dependent on
various factors.
    The Company's objectives with regards to capital management remain
unchanged from 2008.

    9. FINANCIAL INSTRUMENTS
    ---------------------

    Fair value

    The carrying values of cash, accounts receivable, demand loans and
accounts payable approximate their fair value due to the relatively short
period to maturity of the instruments. Long-term debt has a carrying value of
$37,377 as at July 31, 2008 (April 30, 2008 - $40,115) and also approximates
its fair market value.

    Risk management

    The Company is exposed to various risks related to its financial assets
and liabilities. There have been no substantive changes in the Company's
exposure to financial instrument risks, its objectives, policies and processes
for managing those risks, or the methods used to measure them, from previous
periods, unless otherwise stated in this note.

    Credit risk

    The Company is exposed to credit risk from its accounts receivable. The
Company has adopted a policy of only dealing with creditworthy counterparties
and obtaining sufficient collateral where appropriate, as a means of
mitigating the risk of financial loss from defaults. It carries out, on a
continuing basis, credit checks on its customers and maintains provisions for
contingent credit losses. The Company also diversifies its credit risk by
dealing with a large number of customers in various countries. Demand for the
Company's drilling services depends upon the level of mineral exploration and
development activities conducted by mining companies, particularly with
respect to gold, nickel and copper. The Company's five largest customers
account for 22% (18% in 2008) of total revenue, with no one customer
representing more than 10% of its revenue for 2009 or 2008.
    The carrying amounts for accounts receivable are net of allowances for
doubtful accounts, which are estimated based on aging analysis of receivables,
past experience, specific risks associated with the customer and other
relevant information. The maximum exposure to credit risk is the carrying
value of the financial assets.
    As at July 31, 2008, 95.4% of the Company's trade receivables are aged as
current and 1% of the receivables are impaired.
    Credit risk also arises from cash and cash equivalents and deposits with
banks and financial institutions. This risk is limited because the
counterparties are banks with high credit ratings assigned by international
credit-rating agencies.
    The Company does not enter into derivatives to manage credit risk.

    Interest rate risk

    The demand loan and long-term debt of the Company bears a floating rate
of interest, which exposes the Company to interest rate fluctuations.
    As at July 31, 2008 the Company has estimated that a one percentage point
increase or decrease in interest rates would have caused a corresponding
quarterly increase or decrease in net income of approximately $59.

    Foreign currency risk

    Foreign exchange risk arises as the Company has operations located
internationally where local operational currency is not the same as the
functional currency of the Company.
    A significant portion of the Company's operations are located outside of
Canada. The accounting impact of foreign currency exposure is minimized since
the operations are classified as self-sustaining operations. In certain
developing countries, the Company mitigates its risk of large exchange rate
fluctuations by conducting business primarily in U.S. dollars. U.S. dollar
revenue exposure is partially mitigated by offsetting U.S. dollar labour and
material expenses. Monetary assets denominated in foreign currencies are
exposed to foreign currency fluctuations.
    Based on the Company's foreign currency net exposures as at July 31,
2008, and assuming that all other variables remain constant, a 10% rise or
fall in the Canadian dollar against the other foreign currencies would have
resulted in increases (decreases) in the net income and comprehensive earnings
as follows:

    
                                                        Increase (decrease)
                                                           in net income
                                                   --------------------------
                                                       Canadian     Canadian
                                                         dollar       dollar
                                                    appreciates  depreciates
                                                            10%          10%
                                                   ------------  ------------

    Argentine Peso                                   $     163     $    (163)
    Australian Dollar                                     (190)          190
    Chilean Peso                                          (744)          744
    Mexican Peso                                           451          (451)
    US Dollar                                             (526)          526


                                                      Increase (decrease)
                                                  in  comprehensive earnings
                                                  ---------------------------
                                                      Canadian      Canadian
                                                        dollar        dollar
                                                   appreciates   depreciates
                                                           10%           10%
                                                  ---------------------------
    Australian Dollar                                $  (4,376)    $   4,376
    US Dollar                                          (19,548)       19,548
    

    Liquidity risk

    Liquidity risk arises from the Company's management of working capital,
the finance charges and principal repayments on its debt instruments. It is
the risk that the Company will not be able to meet its financial obligations
as they fall due.
    The Company manages liquidity risk by maintaining adequate reserves,
banking facilities and reserve borrowing facilities, by continuously
monitoring forecast and actual cash flows and matching the maturity profiles
of financial assets and liabilities. Included in Note 8 - Demand Credit
Facilities, of the Company's 2008 annual report, are details of undrawn
facilities that the Company has at its disposal to further reduce liquidity
risk.

    
    Total financial liabilities, by due date, as at July 31, 2008 are as
    follows:

                           Total   0-1 year  2-3 years  4-5 years  5 + years
                           -----   --------  ---------  ---------  ---------

    Demand loan        $   1,596  $   1,596  $       -  $       -  $       -
    Accounts payable
     & accrued charges    63,258     63,258          -          -          -
    Long-term debt        37,377     11,998     16,083      8,130      1,166
                       ---------  ---------  ---------  ---------  ---------
                       $ 102,231  $  76,852  $  16,083  $   8,130  $   1,166
                       ---------  ---------  ---------  ---------  ---------
                       ---------  ---------  ---------  ---------  ---------


     10. SEGMENTED INFORMATION
         ---------------------

                                                      2009 YTD      2008 YTD
                                                     ----------    ----------

    Revenue
      Canada - U.S.                                  $  55,568     $  49,337
      South and Central America                         55,288        42,461
      Australia, Asia and Africa                        67,359        51,622
                                                     ----------    ----------
                                                     $ 178,215     $ 143,420
                                                     ----------    ----------
                                                     ----------    ----------

    Earnings from operations
      Canada - U.S.                                  $  14,998     $  11,190
      South and Central America                         15,845        11,875
      Australia, Asia and Africa                        12,266         9,789
                                                     ----------    ----------
                                                        43,109        32,854
    Eliminations                                          (302)         (292)
                                                     ----------    ----------
                                                        42,807        32,562
    Interest expense, net                                  526           376
    General corporate expenses                           4,469         5,509
    Income tax                                          11,482         7,853
                                                     ----------    ----------
    Earnings from continuing operations                 26,330        18,824
    Gain from discontinued operations                        -           111
                                                     ----------    ----------
    Net earnings                                     $  26,330     $  18,935
                                                     ----------    ----------
                                                     ----------    ----------
    

    11. SUBSEQUENT EVENT
    ----------------

    On August 1, 2008, the Company completed the purchase of the exploration
drilling company Forage à Diamant Benoit Ltée ("Benoit") based in Val-d'Or,
Québec.
    Through this purchase Major Drilling acquired 19 drill rigs, the majority
of which have deep hole capacity and are fitted with rod handlers, which fits
with the Company's strategic focus on specialized drilling. In addition to the
rigs, this acquisition involved support equipment and inventory, existing
contracts, and personnel, including a number of experienced drillers.
Subsequent to the acquisition, Major Drilling has a total fleet of 42 mineral
exploration drill rigs in Québec.
    Management anticipates that the operations of Benoit will produce
additional annual revenue of approximately $26 million for the twelve months
subsequent to the acquisition.
    The purchase price for the transaction was $21.0 million, financed with
cash.
    The transaction closed on August 1, 2008.




For further information:

For further information: Denis Larocque, Chief Financial Officer, (506)
857-8636, Fax: (506) 857-9211, ir@majordrilling.com

Organization Profile

Major Drilling Group International Inc.

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