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Capital Drilling Ltd: DEEP DIVE
OVERVIEW

Capital Drilling primed for exploration upswing as gold price climbs

Fleet numbers around 91 rigs currently, which the company estimates is among the youngest in the industry.
drill rig
OVERVIEW: CAPD The Big Picture
Capital has a fleet of 91 rigs
  • Capital Drilling is a contactor focused on East and West Africa

  • Uptick in gold price is boosting exploration activity

  • At 49.4p, Capital is valued at £67.3mln

 

What it does

Capital provides a full 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, which the company estimates 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.

How it’s doing

First quarter revenue to March evenue was reported at US$27mln, up 1.5% compared to the comparative quarter of 2018.

The drill contractor said that the average monthly revenue per operating rig improved by 1.1%, while the number of utilised rigs increased by 14% to 47 rigs, and the fleet utilisation rate was up by 18.2% at 52%.

Revenue for the mining contractor of between US$110mln and US$120mln is expected for the whole of 2019.

What the boss says: Jamie Boyton, CEO

"Capital Drilling's trading performance in Q1 2019 was in line with expectations, with a continued strong performance from our key long-term contracts and a new exploration contract award in Burkina Faso.”

“The market for our services in Africa is reflected in the increase in the number of quality tenders."

Video

Inflection points

  • Gold price has hit five-year high of more than US$1,400 per ounce
  • Exploration activity picking up as a result
  • Results highly geared to fleet utilisation numbers

Blue Sky

Capital Drilling  is “well positioned” to benefit from a likely increase in exploration spending amid an uptick in metals prices, according to analysts at Peel Hunt.‘

In its initiation note, the broker said the stronger metal prices and cash flows “should lead to further increases in exploration budgets”,

As the firm has 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”.

If historic peak utilisation rates were reached for Capital’s rigs, Peel Hunt said as much as 50% could be added to their base case of US$28mln in underlying (EBITDA) earnings for 2019.

Analysts added that the US$11mln in cash the group had in the bank at the end of its last fiscal year, gave it “significant flexibility” to reinvest in the business.

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

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Capital Drilling Ltd Timeline

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