About: Imdex (IMD) is a global leader in the provision of downhole instrumentation, geo-analytics and drilling fluids to the minerals exploration sector.

Why it’s in the portfolio: Imdex is a market leader in mining, equipment, technology and services. Their proprietary technology is best in class and provides a significant moat around the operations of the business. Imdex holds a high market share in the industry and with a high number of fleet still available for deployment there is a substantial amount of operational leverage going forward. Imdex also has a number of new technologies looking to enter commercialisation over the coming years and early signs have been promising.

Imdex is well placed to benefit from improved minerals drilling activity as the majors begin to spend more on drilling exploration (particularly brownfields to extend depleted mine lives) following a lengthy industry curtailment of drilling for 5 years (2012 - 2016) as a consequence of lower mineral/metal prices, particularly gold and copper. IMD’s downhole instrumentation tool utilisation provides this leverage and has plenty of improvement to come with it still at a level well below the peak achieved in 2011.

Fundamentals: IMD has a market capitalisation $624m, a balance sheet that is sound with unused financing facilities to fund future developments, and trades on a PE of 17x FY21 earnings.

What could go wrong? Imdex would be adversely affected in environments where the gold price is collapsing which in turn leads to lower levels of exploration spend, and their failure to develop any new technologies to commercialise or gain sales traction.