Foraco International: A Rocky Start to 2025, But Is This a Buying Opportunity?

The mining services sector is in the throes of a reckoning, and Foraco International (TSX: FAR) just handed investors a stark reminder of why. The company’s Q1 2025 results were a mixed bag of strategic pivots and financial hurdles—but beneath the noise lies a stock that might be screaming “buy” for the bold.

Let’s break down the numbers and what they mean for investors.

The Numbers: A “Tale of Two Halves”

Foraco’s Q1 2025 revenue plunged 29% year-over-year to $55 million, driven by client delays, project ramp-up costs, and strategic exits from unstable regions like Russia and parts of Africa. The pain was most acute in South America, where revenue cratered 60%, while Asia Pacific bucked the trend with a 39% surge, thanks to strong performance in water infrastructure and proprietary drill deployments.

The silver lining? Profit margins are fighting back. Net profit margins expanded to 9.5% from 7.8% a year ago, even as net profit fell to $1.02 million (vs. $8.46 million in 2024). The Water division, which now accounts for 20% of revenue, delivered a 40% revenue jump—a critical bright spot in an otherwise gloomy quarter.

What’s Working—and What’s Not

1. Strategic Exits vs. Geographic Risk:
   Foraco’s decision to exit unstable jurisdictions like the CIS region (Central Asia and Russia) has reduced short-term volatility but cost $4.8 million in revenue. The trade-off? A leaner focus on stable markets like Australia, Chile, and parts of Africa, where long-term contracts with Tier 1 clients (now 91% of business) are gold mines in disguise.

2. The Water Division’s Hidden Gem:
   Water infrastructure projects are booming, and Foraco’s proprietary NGBF rotary drill—winner of an innovation award in Australia—is a game-changer. This segment’s 281% jump in operating profit proves that diversification isn’t just a buzzword.

3. Margin Pressures Are Manageable:
   While gross profit dropped 54% to $7.7 million, CEO Tim Bremner emphasized that new contracts’ “ramp-up phases” (which typically carry lower margins) are temporary. Once these projects mature, margins should rebound.

The Risks: Don’t Blink—This Sector Is Volatile

• Geopolitical Whiplash: Tensions in Africa and Latin America could delay projects or spike costs.
• Commodity Demand Blues: If lithium or copper prices stay soft, junior miners—Foraco’s smaller clients—will tighten their belts.
• Debt and Cash Flow: Net debt rose to $69.5 million, and free cash flow dropped 66% to $5.9 million. Investors need confidence that management can navigate this without cutting dividends.

Why This Could Be a Buying Opportunity

Here’s why the bears might be wrong:
- Undervalued? Definitely. With a P/E ratio of 12.5x and a market cap of $179.6 million, Foraco trades at a discount to peers like Sandvik and Epiroc.
- Dividend Discipline: The $0.06-per-share payout—still intact—suggests management isn’t panicking.
- Long-Term Leverage: The company’s 17-country footprint and 30% rig utilization rate (up from 2024 lows) hint at untapped potential.

The Bottom Line: A “Wait-and-See” Call With Upside

Foraco’s Q1 results are a cautionary tale of execution risks in a tough sector. But the stock’s 24% YTD decline has priced in much of the bad news. If management can stabilize revenue in Asia Pacific and Africa while improving rig utilization (a 30% rate is too low), this could be a value play for those with a 2-3 year horizon.

The key catalyst? The ramp-up of projects in Chile, Australia, and Argentina. If those deliver, Foraco’s 9.5% net margin could climb back toward its historical 11-12% range, making this a hidden gem in a beaten-down sector.

Investors: This isn’t a slam dunk, but the risk-reward here is skewed to the upside—provided you’re willing to stomach the volatility.

Final Take: Buy the dip, but keep a close eye on Foraco’s Q2 results. If Asia Pacific growth and Water division momentum hold, this could be the mining play of 2025.