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Aeroquest has a huge opportunity to
take what has historically been a mining-only technology, benefit from the mining boom and
expand the base of potential customers to industries outside of mining as well
Exploration
Geophysical Surveys
(AQL-TSXV)
Aeroquest International Limited
845 Main St. East, Unit 4
Milton, Ontario Canada L9T 3Z3
Phone: 905-693-9129
Roy Graydon
Chief Executive Officer
Interview conducted by:
Lynn Fosse, Senior Editor
CEOCFOinterviews.com
September 28, 2006
BIO:
Roy Graydon -CEO Mr. Graydon, a geophysicist by training, brings extensive business
and financial experience to Aeroquest. Most recently, Mr. Graydon was Executive Vice
President and Chief Financial Officer of Call-Net Enterprises Inc., a TSX-listed company,
and prior to that had been involved in the investment industry for 15 years.
Company Profile:
AEROQUEST INTERNATIONAL LIMITED (AQL: TSX.V), a commercial airborne geophysical
survey company, is a world leader in the development and operation of innovative and
proprietary airborne geophysical surveying platforms servicing the mineral exploration,
oil and gas, and environmental industries.
Aeroquest currently
offers the proprietary AeroTEM time-domain electromagnetic (EM) system in diameters
ranging from 5 metres to 12 metres, the innovative Impulse frequency-domain EM system, as
well as several Tri-directional magnetic gradiometers. Each of these systems can be flown
with a radiometrics unit supplied by Aeroquest.
CEOCFO: Mr. Graydon, what is your vision for the company?
Mr. Graydon: “Aeroquest has a unique opportunity because
it is providing a unique product and service to the mining industry at a time when there
is tremendous demand. Our strategy and our vision is to put ourselves in a position where
we can provide this service to every company that wants it around the world.”
CEOCFO: What exactly are
you doing for the mining companies?
Mr. Graydon: “We do airborne geophysical surveys. Most
of what we do are electromagnetic (EM) surveys and specifically time-domain
electromagnetic surveys. We also do frequency domain surveys and we do magnetic surveys as
well.”
CEOCFO: Will you tell us
about the industry and competition; what is the geophysical survey market like?
Mr. Graydon: “It is not a huge business worldwide. We
think the industry worldwide today is in the order of $300 million US, but the market
comes from mining companies that have staked ground and are looking for principally
mineral deposits. The first thing they would normally do is fly some form of airborne
survey to get an indication of what the geology in the area is and to get a first look at
what potential anomalies may exist. They would either use a helicopter to fly that survey
or a fixed wing aircraft. The advantage of an aircraft is you can cover more ground for a
lower cost. The advantage of a helicopter survey is you can get higher resolution data,
and you can pinpoint things with greater precision.”
CEOCFO: Do you do both
types?
Mr. Graydon: “At this point, we do helicopter surveys
only.”
CEOCFO: Why should a
mining company choose Aeroquest?
Mr. Graydon: “There are several reasons why mining
company should choose Aeroquest, but the first reason is the argument about resolution; a
helicopter survey allows you to more precisely locate anomalies on the surface of the
earth. Our AeroTEM system is sufficiently precise that you can actually establish drilling
targets right off of airborne data. Historically you would do an airborne survey and it
would show you what is in the area, but you would have to do a follow-up ground based
survey. With AeroTEM you can very often drill directly from airborne data and that allows
you to skip the time and expense of doing a ground based survey.”
CEOCFO: Is your survey
more expensive because of that?
Mr. Graydon: “It is not more expensive than other
helicopter based airborne surveys.”
CEOCFO: If you have a system that others do not have, why
isn’t everyone coming to Aeroquest?
Mr. Graydon: “We have about 6 AeroTEM systems and 9
systems in total and every one of them is busy right now. So, we are getting a lot of
interest from mining companies for our products right now. We do have some competitors
that offer similar systems, so there is some degree of competition based on price and
based on the location of your system. However, we are getting a lot of traction in the
mining community.”
CEOCFO: Do you provide
the raw data to the mining company or do you interpret it as well?
Mr. Graydon: “We will do as much as the mining company
would like us to do, everything from raw data to processed and fully interpreted data
where we will actually establish drilling targets for them.”
CEOCFO: Do you work
internationally?
Mr. Graydon: “We are just implementing an international
expansion. In the last couple of months, we have flown surveys in Israel and Russia. By
the end of the year we expect to be in Mexico and we hope to be in Africa and Brazil as
well.”
CEOCFO: Why the push now
into the new markets?
Mr. Graydon: “One reason for our push right now, is
because we have perfected the AeroTEM system. It is a stable, reliable and very useful
evaluation tool. The second is that the commodity market is very strong and that means the
exploration industry is incredibly strong right now. It is a great opportunity for us to
take advantage of a very strong market.”
CEOCFO: Do you already
have a lot of bookings for 2007?
Mr. Graydon: “Yes.”
CEOCFO: Where do you see the company two or three
years down the line?
Mr. Graydon: “In the short-term we want to sell our time-domain EM system to anyone
and everyone that would have a use for it; that includes people in the mining industry,
the oil and gas industry, and it also includes other areas like unexploded ordinance
detection and ground water detection. We would like to build the base of business for our
AeroTEM Systems within the mining industry and outside the mining industry. In addition,
we need to address the question of are we providing enough services to the mining
industry; is having a time-domain EM system enough or should we be adding gravity, flying
six wing surveys in addition to helicopter surveys? Many of our clients when they make a
survey decision, the first part of the decision is: Do I fly fixed wing, or
helicopter?”
CEOCFO: What is the
financial picture right now, and do you have the funds for growth?
Mr. Graydon: “The answer to the second question is yes.
The financial picture right now is good. We have come off a very difficult year; our
year-ended April 30th and the year ended April 30th was not a good
year financially. It was a combination of two things; one is that we did not get organized
to sell our systems quickly enough so our revenue did not meet our own expectation. In
addition, we had put a lot of costs into the business in anticipation of revenue growth,
that we were not able to scale back. However, going forward, what we have done is
completely turned that around. From the first quarter of our 2007, which is at the end of
July 2006, this company will be profitable; we will be back to where we are growing
somewhere between 50 and 100% per year.”
CEOCFO: What are the
biggest challenges you face going forward and how are you ready?
Mr. Graydon: “The biggest challenge we face is getting
systems established in foreign countries. There is a very high set-up cost to get
established internationally. You go through that cost every time you put a system in a
different country. There are few economies that scale in that. We spent months getting
export permit approvals and getting government approvals to allow us to fly surveys in Russia.
It has been a long investment in time and energy to get to where we could do surveys in Russia.
We have a similar investment required to get into Mexico and into Brazil and Africa. What
limits us with international expansion is the speed with which we can get all of those
permits and approvals in the companies where we would like to operate.”
CEOCFO: Are there other
organizations you are able to work with to do that or do you need to deal directly with
the governments?
Mr. Graydon: “What have found is that the best way is a
combination of our technology and some local expertise. For example, in Russia, we
established a joint venture with a local business and the local people have helped us get
through the red tape of getting the helicopter certifications. We will use the same
strategy to get into Mexico and Brazil and Africa, so the businesses we set up will all
have a local component to them.”
CEOCFO: Do you need
pilots with specialized training or is it the equipment that actually does the work?
Mr. Graydon: “The productivity of our surveys is very
highly dependent on the skill of the pilot. What we do is we tend to go back to the same
helicopter companies again and again and we look to use the same pilots again and again.
When we go into a new area, we have to make an investment in training pilots; we flew a
few surveys in Israel for example and we spent a week or two prior to the survey, training
the pilots to fly with our system hanging 140 feet below the helicopter. We went through
the same process getting established in Russia as well.”
CEOCFO: Are there many
other geophysical companies doing that type of expansion?
Mr. Graydon: “There are a couple of companies that are
experiencing very significant growth; one of them is a company that offers a similar
product to ours; it has slightly different characteristics and is a more powerful system
with lower resolution. It is a very successful system as well, growing at a rate
comparable to ours. In addition, the small fixed wing survey operators are growing at a
tremendous rate. Over the last two years, a lot of money has been raised by mining
companies for exploration and they are starting to spend it.”
CEOCFO: Why should
potential investors be interested and what should they realize about Aeroquest that may
not jump off the page?
Mr. Graydon: “I think people are sometimes worried about
firms that provide services to cyclical industries, because they worry that when the
industry sneezes, the service company catches a cold. They worry about what happens when
the cycle ends. I would suggest people think of it differently. The opportunity for a
service company like ours in the mining services business is that we make money off of
every survey; our success is not necessarily dependent on the exploration success of the
companies that use our products. We think that using our product improves their odds of
success and for that reason that they will continue to use it again and again. However,
with any given company on any given survey, we make money regardless of whether or not the
company finds anything. Therefore, it is a very attractive way to participate in the
growth of the exploration industry without subjecting yourself to the risk of an
individual company not finding an economic deposit. We make money on every
prospect.”
CEOCFO: In closing, what
would you like people to remember most about Aeroquest?
Mr. Graydon: “I think what I would like people to take
away from any discussion about Aeroquest is that we have a unique opportunity to take a
technology that is very well established, that works very well in the mining industry
worldwide and also to apply it around the world in many other industries as well. Our only
limit is the speed with which we can educate potential customers. There are enormous
opportunities for AeroTEM in the oil and gas industry, because oil and gas historically is
almost exclusively seismic, but there are applications that seismic is not ideally suited
for and one of those applications is Oil Sands and Oil Sands is probably the single
largest growth area in oil and gas today. There is a huge opportunity for us to take what
has historically been a mining-only technology, benefit from a mining boom and expand the
base of potential customers to industries outside of mining as well.”
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