Every major bull market trend offers some obvious paths to profit, but I've always been the sort of Fool who prefers to identify a range of alternate routes. Although I currently hold dozens of gold-related equities within my personal stock portfolio, for example, I have never owned shares of the industry's most popular investment vehicle: the SPDR Gold Trust (GLD 0.21%).
As a fastidious observer of the mining industry at large, I have detected what I believe is a particularly promising investment opportunity in a segment of the industry that receives little fanfare. By facilitating the discoveries and mineral expansions that directly drive growth and development, the providers of contract drilling services have a key role to play in the long-term bull market for copper, gold, coal, and a host of mined commodities. Of those service providers, Major Drilling (MJDLF 1.22%) is a very major force with a worldwide fleet of more than 700 rigs.
Major Drilling has seen its share price crushed in recent months, with the stock now hovering hear its 52-week low. The critical role of junior explorers in discovering new mineral deposits has been materially hampered by a persistent shortfall in access to capital. At the same time, established producers have tightened their belts in response to rising costs, political uncertainty in select jurisdictions, and a softening in demand for select mined commodities like coal and iron ore. The way I see it, those meaningful challenges have now been adequately priced into Major Drilling's stock, and I have moved into position for a substantial recovery that I consider wholly inevitable.
The company delivered earnings this week for its fiscal second quarter ended Oct. 31, posting net earnings of $22.3 million that represent a 30% haircut from the prior-year mark. Year-to-date, meanwhile, earnings expanded by 9% on the strength of an attractive-looking acquisition of smaller competitor Bradley Group in late-2011. Since exploration activity in multiple regions comes to a screeching halt this time every year, investors can expect a modest loss in the fiscal third quarter before we get a better glimpse of the business landscape for calendar year 2013.
Longer term, we remain within a powerful secular bull market for metals like copper and gold, which together accounted for 61% of Major Drilling's revenue during the latest quarter. Offering some insulation from the sharp cutbacks in exploration expenditures by the junior explorers (most notably in Mexico), fully 78% of revenues came from major or mid-tier producers of their respective products. A Canadian subsidiary of major miner Vale (VALE +2.40%), for example, has utilized Major Drilling services for more than 50 years running! To me, that speaks volumes on the quality and reliability of the work this company conducts, and bodes well for a reliable baseline of demand during leaner times like these.
Finally, a key differentiator that sets Major Drilling apart from most competitors is the company's strategic emphasis upon providing specialized drilling solutions within remote and unforgiving regions. Of fiscal Q2 revenue, 76% was derived from specialized rig applications, including configurations that can be transported by helicopter or small aircraft to virtually any location. The company is correct to point out that much of the planet's low-hanging fruit with respect to ease of access and friendly climates has already been mined, rendering remote projects like those of Sabina Gold & Silver (SGSVF +0.00%) and Agnico-Eagle Mines (AEM +1.95%) in Canada's frigid Nunavut Province indicative of the new normal for mining in the 21st century. And for at least the next several years of this still-new century, I plan to remain a shareholder of Major Drilling.
