Capital Drilling Limited (LON:CAPD) is making a phased strategic investment of up to US$3.8mln in a business that provides laboratory testing services to the mining and exploration industries.
It has advanced US$950,000 to private company A2 Global Ventures – the first of three tranches to be paid over the course of this year.
Trading as MS Analytical, A2 currently has around 50 blue-chip and mid-tier customers in more than 15 countries.
The investment by Capital Drilling will fund the business’ expansion plans, including the creation of new labs in AIM company’s core African markets.
“Capital Drilling and A2 see significant opportunities to realise synergies and support customers through the cross selling of services and the sharing of infrastructure,” a statement from Capital said.
It added the investment was part its strategy to glean greater exposure to the “improving outlook for mineral exploration markets”.
Capital’s chairman Boyton and non-executive director, Brian Rudd, will join the board of A2.
Tamesis Partners said Capital sits on an attractive valuation multiples as well as being a dividend payer.
"The company has used 2016 and early 2017 as an opportunity to refurbish and/or make strategic investments so cashflow has remained suppressed. Still, a dividend was awarded in 2016 and we expect another in 2017 of US$0.015/share, equivalent to a 2% yield.
"In 2018, free cashflows are expected to rise materially with a free cashflow pre-dividend of US$9.5 million and yield of 9.2%."
Tamesis' price target is 85p/share.
The company at a glance
The name gives it away a little: Capital Drilling is an expert in drilling, be that exploration drilling for minerals, grade control or for blast holes.
Its first drilling operation was 12 years ago in Tanzania and, in the same year, it worked on the expansion of the world-class Sukari Gold Mine in Egypt, owned by Centamin.
Today it boasts a fleet of 20 blast-hole rigs, 42 diamond rigs, 12 reverse circulation rigs, nine multi-purpose rigs, six deep-hole diamond rigs and nine underground rigs.
More than half its revenues come from mid-tier operators, although it does work with a significant number of majors too.
Its core areas are eastern and southern Africa, although Capital Drilling is currently working in Chile, Papua New Guinea, Armenia and Pakistan.