What it does

Capital provides a drilling service including blast hole, delineation, directional, exploration, grade control and underground drilling plus a full range of ancillary services.

Fleet numbers above 94 rigs as of January 2021.

Africa is the main area Capital operates, with rigs currently in Tanzania, Ivory Coast, Mauritania, Mali and others.

Customers include leading mining groups such as Acacia, Barrick, Glencore, Centamin and Kinross.

 

How it’s doing

In a trading update in January, Capital said its full-year revenue amounted to US$135mln for 2020, up 18% on the prior year. Revenue in the fourth quarter rose by 13% to US$34.6mln.

Rig utilisation in the period was marked at 59% which was in-line with the comparative figure for 2019. It had 94 rigs at the end of the year.

Coronavirus (COVID-19) has had no material impact on operations, Capital said, though it has experienced some restrictions on movement of personnel and its supply chain.

The period saw a number of notable new contract wins and extensions, meanwhile, the company began work under recently gained contracts.

Significantly from a strategic point of view, the company marked something of a transition in December as it expanded its scope beyond drilling, landing a mining and waste stripping contract for Centamin’s Sukari Gold Mine in Egypt.

Capital noted that the move marks a step-change in the scale of the business and its continuing evolution into a full-service mining contractor.

To support this growth the company raised £30mln and ordered a fleet of new equipment for the contract – including 17 dump trucks, seven blast hole drill rigs, three excavators, dozers, graders and water trucks.

Looking into the current trading period, the company noted that the strengthening gold price observed during 2020 has continued into the first quarter of 2021, which Capital noted is a positive indicator for its business which receives around 90% of group revenue from the sector.

The company is also making some changes to its board, saying that Giles Everist will take over as the firm’s new chief financial officer from March 1, 2021.

Capital noted that the majority of Everist’s career of over 30 years has been spent in CFO, executive and non-executive roles across the international mining sector.

He brings extensive experience in acquisition, debt and equity capital markets, Capital said, along with working capital management and financial restructuring.

 

What the boss says: Jamie Boyton, executive chairman

 “Capital has had an outstanding year, especially given the unprecedented challenges presented by the global COVID-19 pandemic. The recent contract wins at Sukari are an exciting transformational opportunity, delivering significant revenue diversification and consolidating Capital as one of the leading mining services operators in Africa.

“We have made excellent progress through the successful completion of the equity fundraise and finalising further debt financing facilities, with payments now significantly progressed on all major capital equipment purchases required to support the contract.”

“In addition to the award of the Sukari contracts, we have delivered exceptional results this year. We increased revenue by 18% and broadened our platform for growth through the extension of services at existing sites and a further two new long-term contracts with Firefinch and Barrick.”

 

Inflexion points

  • More contract wins
  • Exploration activity picking up
  • Results highly geared to fleet utilisation numbers

 

What the broker says

Capital is “on the cusp of a meaningful equity re-rating”, analysts at Berenberg wrote in September, with growth potential from its core drilling business and the fledgeling mining services operation.

The German bank issued a note exploring three scenarios: growth in utilisation rates for the drilling business, the winning of two US$40mln-per-year mining contracts; and a ‘dare to dream’ scenario combining both of these scenarios.

A mixture of a high gold price and improving capital markets are “pointing to a repeat of previous cycle highs” for Capital’s drilling business, in which case this could see utilisation rates increase from around 60% closer to 75% with limited capital investment. 

If so, this would results in Berenberg’s revenue forecasts for 2021-22 increasing 24%, underlying profit (EBITDA) by 36% and free cash flow by 61%. 

The broker has a ‘buy’ rating and 93p price target.