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viewCapital Drilling Ltd

Capital Drilling's strong balance sheet allows for solid 2020 plans

Snapshot

  • A contractor focused on East and West Africa
  • Uptick in gold price is boosting exploration activity
  • Agreed its first full-service mine operation contract
drill rig

Quick facts: Capital Drilling Ltd

Price: 56.5 GBX

LSE:CAPD
Market: LSE
Market Cap: £76.98 m
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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 around 91 rigs currently that the company believes it is among the youngest in the industry.

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 and Kinross.

in October, Capital signed first contract to run a mine - Allied Gold's Bonikro in The Ivory Coast.

 

How it's doing

In the three months to 31 December, revenue grew 4.8% to US$30.7mln compared to the previous quarter.

That meant full-year revenue was US$114.8mln or in the middle of guidance of US$110mln to US$120mln.

Cash in the bank was US$4.4mln.

The company told investors that its strong balance sheet has provided capacity to fund US$20mln of capex during the year allowing the addition of eight new rigs and other equipment in 2019. 

Bonikro

In October, Capital Drilling PLC (LON:CAPD) won a five-year contract with Allied Gold to provide a full range of mining services at the Bonikro Gold Mine in The Ivory Coast. 

It is the first time Capital has taken full control of operations at a mine and the deal sees it also taking a 3% stake in Allied through a US$3mln convertible loan.

Contract revenues over the five-year contract term are subject to confirmation of a mine plan, but for 2020 are expected to be between US$25-30mln.

 

What the boss says: Jamie Boyton, executive chairman

“The company continued its transition into mining services at the Bonikro mine site with the first of the new mining equipment delivered during the fourth quarter."

"We will remain focussed on continuing to improve the key metrics of our business, growing our portfolio of long-term mine-site based contracts, further expanding our West African footprint and maintaining strong cash flow generation to maximise returns to our stakeholders.”

 

What the broker says

Analysts at Peel Hunt said 2019 has been a “very healthy year”.

The broker has a ‘buy’ recommendation and a 76p price target.

“We think these wins, and the resurgence of activity levels following the gold price move will more than offset the small revenue miss following the temporary reduction in activities at North Mara.”

 

Inflexion points

  • The gold price has hit a five-year high of more than US$1,500 per ounce
  • Exploration activity picking up as a result
  • Results highly geared to fleet utilisation numbers
  • Company has taken on first mine operation contract
  • Allied Gold has teed up US$75mln for an acquisition programme potentially with Capital as a contractor
  • New rigs commissioned in the first quarter in 2020

 

Blue Sky

Capital Drilling gas around one-third of its drilling rigs in West Africa, a region that accounts for 45% of the continent’s gold exploration spend, analysts said the predicted rise in spending could “lift utilisation rates and revenues”.

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