drillers ain't just drillers

I try to understand a business (as much as can be expected) before i buy into it. If i can't fathom what and how they do things, then how can i be sure that it is a good investment? Unfortunately in the past i've relied too much on broker's reports, but after losing money have preferred to research stuff myself. I've developed a set of general rules and i hope to put these in a separate thread sometime. But rule # 1 is: The business MUST be able to grow organically. 2. Have a CEO that is able to resist acquiring other firms to produce growth.

Let's look at Swick. These are some of the questions i had:
A) What does Swick do?
B) Who are its customers?
C) Who is the opposition?
D) Is the macro for SWK good, average, poor?
E) Does the company have leverage?
F) Is CAPEX and fixed overheads draining profits?

A) These are numerous analyst reports on SWK website from which a large amount of info can be obtained. SWK has 75 rigs of which 62 (83%) are working. This is 19% more than in use at 30/3/12. But rigs ain't just rigs. Esentially over past 2 years SWK has moved away from being having a spread of rigs across all forms of drilling business to focus on Underground Diamond Drilling (UGD). This is because competition for surface drilling work remains intense and cots have risen whilst miners are reluctant to pay more... hence margins have reduced considerably. UGD drilling is more specialised, less competitive and has higher margins. The number of UGD in work is 46 compared with 39 4 months ago... a 18% increase. Some have just entered work so main revenue stream will be in FY13. But 19% more drills earning revenue 360 days of the year is not to be sneezed at.

B) Swick's customers are UG mines (primarily Gold) that have narrow vein ore bodies. It is essential that the amount of uneconomical ore brought to surface is minimised. The UGD rigs take multiple core samples at each mine-face. The samples are tested and the drilland blast teams follow the gold. Photos on SWK website show how advanced these machines have become. So how many UG gold, Cu, Ni, sn, mines are there? Not a lot compared with numerous open-pit mines but certainly enough to keep SWK in business. A good example of SWK in action is at SLR where SWK's rigs have done all the UGD work since inception. However, more mines in WA are going UG. Think IGR and SAR along with Tropicana etc.

I'll continue later. But all the work i have done indicates that SWK are in a robust situation and both this month's final report, and esp the outlook for FY13 will illustrate this. I'm continuing to buy.

PS. Look how BOL (a stk i hold) shocked mkt yesterday jumping 26% in a single session. Plus SWK nows pays dividends.