Drilling into the numbers that drive profitability

Australia’s mining industry has always been cyclical. What has changed is the speed, volatility and capital intensity those cycles now demand.

For drilling and mining services business owners financial modelling can play a critical role in managing those cycles and supporting a sustainable operation.

How does financial modelling help a drilling or mining company?

Financial modelling is often misunderstood as an exercise in prediction. In reality, its value lies in understanding how a business behaves under different conditions, managing risk and planning funding needs.

Currently, exploration budgets can be paused overnight, development programs deferred, and contracts awarded on tightening margins with ever higher performance expectations. In this environment, static forecasts often fall short. They may provide a snapshot at a point in time, but they rarely explain what happens when conditions shift. And in mining services, they often do.

To optimise your ongoing financial performance, your business needs to move beyond surface-level forecasting and drill into the real drivers of performance.   

For drilling contractors, this means connecting operational drivers to financial outcomes.

Example operational outcomes:

• utilisation
• day rates
• crew availability
• fuel costs
• maintenance
• mobilisation timing.

Example financial outcomes: 

• cash flow
• funding capacity
• return on capital.

When these relationships are understood, owners gain insight into why the numbers look the way they do. You can then see which levers will genuinely move the needle and where risks may lie. Uncertainty does not disappear, but it becomes something that can be tested and planned for.

Where should you start with scenario modelling? By asking the right questions

Many drilling business owners focus on the basic question: will we make money this year? However, it is often more useful to examine the operational factors that drive financial outcomes.

What utilisation levels allow the business to meet monthly obligations? How much downtime can be absorbed before cash balances tighten? Which contracts contribute most strongly to profitability?

Scenario modelling helps answer these questions by showing not just a base case, but a range of outcomes – downside, base and upside. By testing lower utilisation, delayed mobilisation, cost escalation or shortened contract durations, owners can see how quickly performance can shift and adjust their approach accordingly.

This type of analysis illustrates the conditions under which contracts, growth plans and capital investments genuinely create or destroy value.

What are the practical use-cases of scenario modelling for drilling companies?

The insights derived from modelling have practical implications. For example, RSM recently worked with a supplier to the drilling industry that was developing a new drill bit. Scenario modelling helped balance the specification and materials required, the pricing the market might accept and the likely sales volumes over time.

Fleet investment decisions are another area where modelling can add real value. Rigs are capital-intensive assets and demand visibility is rarely perfect. The consequences of over-extending during strong markets often linger long after the cycle turns.

Scenario modelling allows owners to test resilience before committing capital, helping avoid the familiar pattern of buying equipment at the top of the cycle and cutting capacity when conditions tighten.

“Modelling does not tell owners what decisions to make. Instead, it provides the insight needed to understand which decisions the business can afford to make.”

Modelling yields the most value as a management tool

Modelling will not tell you what decisions to make. What it will provide is the insight you need to understand which decisions the business can afford to make, how risks might be managed and where funding needs may arise.

The greatest value is realised when financial modelling becomes a living management tool rather than a once-a-year exercise. When models are updated regularly and shared across finance and operations, they create a common language for decision-making.

Discussions about growth, cost, risk and capital move away from opinion and instinct and toward evidence.

For drilling service providers operating in Australia’s complex mining landscape, modelling offers a distinct advantage.. By understanding where value is created or lost, you can make confident decisions regardless of where the cycle turns next.

FOR MORE INFORMATION

If you would like to learn how modelling can help your business, please contact Tim Linke. This article was featured in Australasian Drilling Magazine, p. 87, April-May Edition 2026