Major Drilling Reports First Quarter Results

Major Drilling Reports First Quarter Results

MONCTON, New Brunswick (September 6, 2006) - Major Drilling Group International Inc. (TSX: MDI) today reported results for its first quarter of fiscal year 2007 ended July 31, 2006.

It should be noted that historical financial data in the press release and in the attached financial statements have been restated to reflect the disposition of the Company's manufacturing division, UDR Group, on June 7, 2006 and the discontinuation of its operations in China.

Highlights

$ millions
(except earnings per share)
Q1-07
Q1-06
12 months to
July 31, 2006
12 months to
July 31, 2005
Revenue
94.5
83.3
327.6
268.9
Gross profit
As percentage of sales
30.5
32.3%
25.3
30.4%
95.6
29.2%
75.5
28.1%
Net earnings from continuing operations

10.1

8.1

27.2

19.4
Earnings per share from continuing operations

0.44

0.36

1.18

0.88
Cash flow from continuing operations (*)

15.8

13.8

48.9

36.3
(*) before changes in working capital

* Major Drilling posted the highest quarterly drilling revenues in its history with revenues of $94.5 million, up 6.2 percent from the previous record high of $89.0 million, recorded in the fourth quarter of fiscal 2006, and 13.4 percent above the $83.3 million recorded for the same quarter last year.

* Gross margin percentage for the quarter was 32.3 percent, compared to 30.4 percent for the corresponding period last year, with good performance from all regions.

* Earnings from continuing operations were $10.1 million or $0.44 per share for the quarter, up from $8.1 million or $0.36 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, after gain from discontinued operations, were $22.9 million or $0.99 per share, up from $8.4 million or $0.37 per share for the prior year quarter.

* Cash flow from continuing operations before changes in working capital was $15.8 million for the quarter compared to $13.8 million for the same period last year.

* On June 7, 2006, the Company announced the sale of its manufacturing division (UDR) for A$46 million.

* During the quarter, the Company made the decision to cease operations in China.

"This quarter has been very satisfying on several fronts. Earnings from continuing operations were the highest quarterly earnings in the Company's history at $10.1 million. Drilling revenues grew by $5.5 million from our fourth quarter," said Francis McGuire, President and CEO of Major Drilling. "All operating regions performed well and with continued improvements in the price environment, margins have improved significantly to 32.3 percent, a level not seen in the last several years. These results have been achieved despite continuing pressure on labour costs. Labour availability continues to be the industry's greatest challenge. Year-over-year revenue comparisons continue to be effected by the strengthening of the Canadian dollar against both U.S. and Australian currencies. The estimated unfavourable FX impact on revenue compared to the prior year quarter is $8.4 million although the estimated impact on net earnings is less than $1.1 million."

"Latin American operations have shown the greatest improvement overall with strong demand in Mexico, Chile and Argentina, offset somewhat by lower levels of operations in Venezuela. In Australasia, all branches performed well with the exception of China. North American operations showed continued progress in the quarter, although we were less active in the coal bed methane/shallow gas area in the period. Canadian operations delivered a good performance during the period while the U.S. operation was impacted by three low margin contracts, two of which have been renegotiated with effect August 1, 2006," said Mr. McGuire. "During the quarter, the Company had up to seven rigs working in the energy sector. The flexibility of our fleet, which is able to shift between energy drilling and mineral drilling, allowed us to take advantage of growing opportunities for fixed day-rate work in the mineral sector."

"During the quarter, the Company also announced the sale of its manufacturing division, UDR, to Sandvik AB. We made the strategic decision to focus our corporate resources on the mineral drilling business, where we compete as one of the world's largest contract drillers," noted Mr. McGuire.

"Cash flow from continuing operations before changes in working capital in the quarter continued to strengthen, increasing to $15.8 million compared to the $13.8 million recorded in the prior year quarter," noted Mr. McGuire. "With the cash generated from the disposition of UDR, our total debt, net of cash, was reduced to $9.2 million during the quarter. With its strengthened balance sheet, the Company is well positioned to finance its expanded capital expenditure program projected to reach $40 million in fiscal 2007. This quarter, $10.1 million was invested as we continue to invest in future growth."

"In China, our objective had been to rapidly tap into a new pool of experienced drillers. Having had good success in developing new labour pools in Mongolia, Chile and Mexico, but shown little progress to date in building a local driller pool in China, we have decided to close the Chinese operation and concentrate our training efforts elsewhere," said Mr. McGuire.

"The outlook for Major is very positive as the fundamental drivers of our business continue to be strong. Nickel, copper, gold, silver and zinc prices are at historically high levels. Demand for drilling services continues to increase and customers are more often prepared to pay a premium to secure rigs and crews. With our ongoing training efforts, we anticipate putting 19 additional rigs into service during the second quarter, subject to delivery schedules. Eight of these rigs will go to Latin America, five to North America and six to Australasia," noted Mr. McGuire.

"As Major continues to grow, we have added to our senior management team with the appointment of Mike Jagoe as Executive Vice President. Mike will initially be focusing his efforts on improving efficiencies and various other operational responsibilities. He brings to Major some 30 years of senior management experience in our industry."

"Finally, I would also like to take this opportunity to thank Michael Pavey, our former CFO and Executive Vice President, for his years of service to the company. Michael was instrumental in the restructuring of Major which resulted in the company that we have today. All of us at Major wish him well in his well deserved retirement," said Mr. McGuire.

First quarter ended July 31, 2006

Total revenue from continuing operations for the quarter was $94.5 million, up $11.2 million or 13.4 percent from the $83.3 million recorded in the same quarter last year.

Revenue for the quarter from Canada-U.S. drilling operations increased by 5.2 percent to $34.5 million compared to $32.8 million for the same period last year.

South and Central America had the largest increase in revenue year-over-year with revenues at $27.3 million for the quarter, up 34.5 percent from the $20.3 million posted for the prior year quarter. Revenue growth was driven primarily by Mexico, Argentina and Chile with a combined growth of 51.9 percent over the prior year quarter. Venezuelan revenues were down 50.6 percent from the prior year quarter due to regulatory uncertainty. This situation is slowly improving and the Company is gradually increasing activity.

In Australasian/African drilling operations, encompassing Australia, Mongolia, Indonesia and Tanzania, revenues were $32.6 million, an increase of 7.9 percent over the $30.2 million in the same quarter last year. Mongolian and Tanzanian revenues grew during the quarter by a combined 38.1 percent. In Australia, revenues in Australian dollars improved slightly year-over-year but were down 6.8 percent in Canadian dollars compared to the prior year quarter due to the change in the Australian/Canadian exchange rate. Indonesian revenues were stable year-over-year.

The overall gross margin percentage for the quarter improved to 32.3 percent compared to 30.4 percent for the same period last year, led by South and Central America. Combined with the increase in sales volume, gross profit for the quarter increased $5.2 million or 20.6 percent to $30.5 million from $25.3 million for last year's first quarter.

General and administrative costs were $7.2 million for the quarter, compared to $6.8 million in the same period last year. The increase is primarily due to salary increases across the operation.

Other expenses for the quarter increased to $2.8 million, up from $2.0 million in the prior year quarter, due in part to an increase in bonus provisions as a result of improved profitability in this quarter and restructuring charges in Australia.

Foreign exchange loss in the quarter was $0.3 million compared to $0.2 million in the prior year quarter.

Interest expense on short-term debt was $0.3 million in the quarter compared to $0.4 million in the prior year quarter. Interest expense on long-term debt was flat at $0.6 million.

Amortization expense was $4.4 million for the quarter compared to $4.1 million for the same quarter last year, as a result of the increased direct investment in equipment.

The provision for income tax was $4.8 million in the quarter compared to $3.1 million for the prior year quarter, reflecting the increased profitability of the operations and the fact that the Company has fully utilized previously non-tax effected losses from Canadian operations. In addition, with the good performance of the Argentinean operation in the quarter, previously non-tax effected losses in that operation have now been utilized.

Net earnings from continuing operations for the quarter were $10.1 million or $0.44 per share compared to $8.1 million or $0.36 per share in the prior year period.

Gain from discontinued operations was $12.8 million or $0.55 per share compared to a gain of $0.3 million for the same period last year. Discontinued operations include the sale of the manufacturing division and the termination of operations in China. Gain from discontinued operations in the first quarter of 2007 largely reflect the gain of $15.4 million (after income taxes) from the sale of the manufacturing division, partially offset by a loss in the Chinese operations after close down provisions.

Resulting net earnings were $22.9 million or $0.99 per share ($0.97 per share on a diluted basis) compared to $8.4 million or $0.37 per share ($0.36 diluted) for the same period last year.

On a rolling 12-month basis to July 31, 2006, revenues from continuing operations increased over 21.8 percent to $327.6 million compared to $268.9 million for the prior year period. Net earnings from continuing operations, on the same rolling 12-month basis increased by 40.2 percent to $27.2 million from $19.4 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 Ontario Club, Engineers' Room, Commerce Court South, 30 Wellington Street West - 5th Floor, Toronto, Ontario on September 6, 2006 at 11:00 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 20 to 23 of the 2006 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, Mexico, South and Central America, and in Australia, Indonesia, Tanzania and Mongolia.

Financial statements are attached.

Major Drilling will provide a simultaneous webcast of its quarterly conference call on Wednesday, September 6, 2006 at 9:00 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.

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

Renmark Financial Communications Inc.
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Media - Lynda Martineau : lmartineau@renmarkfinancial.com
Tel. : (514) 939-3989
Fax : (514) 939-3717
www.renmarkfinancial.com